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 May 3, 2000
PROSPECTUS Dated May 5, 1999 Pricing Supplement No. 72 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-75289
Dated May 6, 1999 Dated , 2000
Rule 424(b)(3)
$25,000,000
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
---------------------------
6% Reset PERQS due May 30, 2002
Mandatorily Exchangeable For
Shares of Common Stock of THE HOME DEPOT, INC.
Reset Performance Equity-linked Redemption Quarterly-pay SecuritiesSM
("Reset PERQSSM")
The Reset PERQS will pay 6% interest per year but do not guarantee any return of
principal at maturity. Instead the Reset PERQS will pay at maturity a number of
shares of Home Depot common stock based on the closing prices of Home Depot
common stock in May of 2001 and at maturity, in each case subject to a cap
price.
o The principal amount and issue price of each Reset PERQS is $____, which is
one-quarter of the closing price of Home Depot common stock on the day we
offer the Reset PERQS for initial sale to the public.
o We will pay 6% interest (equivalent to $____ per year) on the $____
principal amount of each Reset PERQS. Interest will be paid quarterly,
beginning August 30, 2000.
o At maturity you will receive shares of Home Depot common stock in exchange
for each Reset PERQS at an exchange ratio. The initial exchange ratio is
one-quarter of a share of Home Depot common stock per Reset PERQS. However,
if the price of Home Depot common stock appreciates above the first year
cap price for May 30, 2001 or the second year cap price for May 28, 2002,
the exchange ratio will be adjusted downward, and you will receive an
amount of Home Depot common stock per Reset PERQS that is less than
one-quarter of a share.
o The first year cap price is $ ____, or ____% of the closing price of Home
Depot common stock on the day we offer the Reset PERQS for initial sale to
the public. If on May 30, 2001, the price of Home Depot common stock is
higher than the closing price of Home Depot common stock on 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 Home Depot common stock on May 30,
2001. Otherwise the cap price will remain unchanged in the second year. The
maximum you can receive at maturity is Home Depot common stock worth $____
per Reset PERQS.
o Investing in Reset PERQS is not equivalent to investing in Home Depot
common stock.
o The Home Depot, Inc. is not involved in this offering of Reset PERQS in any
way and will have no financial obligation with respect to the Reset PERQS.
o We will apply to list the Reset PERQS to trade under the proposed symbol
"RPH" 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." "Performance
Equity-linked Redemption Quarterly-pay Securities" and "PERQS" are our service
marks.
The Reset PERQS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
---------------------------
PRICE $____ PER RESET PERQS
---------------------------
Agent's Proceeds to
Price to Public(1) Commissions the Company(1)
Per Reset PERQS........ $ $ $
Total.................. $ $ $
- ---------------------
(1) Plus accrued interest, if any, from the 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 (98.625% of the Issue Price). In
that case, the underwriting discounts and commissions will be $ __________ per
Reset PERQS.
MORGAN STANLEY DEAN WITTER
<PAGE>
(This page intentionally left blank)
PS-2
<PAGE>
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Reset PERQS we are offering to you in
general terms only. You should read the summary together with the more detailed
information that is contained in the rest of this pricing supplement and in the
accompanying prospectus and prospectus supplement. You should carefully
consider, among other things, the matters set forth in "Risk Factors."
The Reset PERQS offered are medium-term debt securities of Morgan Stanley
Dean Witter & Co. The return on the Reset PERQS is linked to the performance of
The Home Depot, Inc. common stock, which we refer to as Home Depot Stock. The
Reset PERQS also provide fixed quarterly payments at an annual rate of 6% based
on the principal amount of each Reset PERQS. Unlike ordinary debt securities,
Reset PERQS do not guarantee the return of principal at maturity. Instead the
Reset PERQS pay a number of shares of Home Depot Stock at maturity based on the
performance of this stock, either up or down, subject to a maximum value in each
year. We may not redeem the Reset PERQS prior to maturity.
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are
costs $ offering 6% Reset Performance Equity-linked
Redemption Quarterly-pay Securities(sm) due
May 30, 2002, which we refer to as the Reset
PERQS(sm). The principal amount and issue
price of each Reset PERQS is $___________,
which is one-quarter of the closing price of
Home Depot Stock on the day we offer the
Reset PERQS for initial sale to the public.
No guaranteed Unlike ordinary debt securities, the Reset
return of principal PERQS do not guarantee any return of
principal at maturity. Instead the Reset
PERQS will pay an amount of Home Depot Stock
based on the market price of Home Depot
Stock, either up or down, on May 30, 2001 and
at maturity, in each case subject to a cap
price. Investing in Reset PERQS is not
equivalent to investing in Home Depot Stock.
6% interest on the We will pay interest on the Reset PERQS, at
the principal amount the rate of 6% of the principal amount per
year, quarterly on each February 28, May 30,
August 30 and November 30, beginning August
30, 2000. The interest rate we pay on the
Reset PERQS is more than the current dividend
rate on the Home Depot Stock. The Reset PERQS
will mature on May 30, 2002.
Your appreciation The appreciation potential of each Reset
potential is capped PERQS is limited in each year by the cap
price. The cap price through May 30, 2001 is
$_________, or _____% of the closing price of
Home Depot Stock on the day we offer the
Reset PERQS for initial sale to the public
("First Year Cap Price"). The cap price
thereafter until maturity ("Second Year Cap
Price") will be the higher of % of the
closing price of Home Depot Stock on May 30,
2001 and the First Year Cap Price. The
maximum you can receive at maturity is Home
Depot Stock worth $______ per Reset PERQS.
Payment at Maturity At maturity, for each $______ principal
amount of Reset PERQS you hold, we will give
to you a number of shares of Home Depot Stock
equal to the exchange ratio. The initial
exchange ratio is one-quarter of a share of
Home Depot Stock per Reset PERQS and may be
adjusted as follows:
First Year Adjustment
The exchange ratio will be adjusted down-
ward if the market price of Home Depot
Stock exceeds the First Year Cap Price on
May 30, 2001.
The adjusted exchange ratio will be
calculated as follows:
New Exchange = Initial Exchange First Year Cap Price
Ratio Ratio x --------------------
Home Depot Stock closing
price on May 30, 2001
If the market price of Home Depot Stock on
May 30, 2001 is the same as or less than
the First Year Cap Price, we will not
adjust the exchange ratio at that time.
<PAGE>
Second Year Adjustment
The exchange ratio may be adjusted downward
again at maturity, but only if the market
price of Home Depot Stock at maturity
exceeds the Second Year Cap Price. The
final exchange ratio will then be
calculated as follows:
Final Exchange = Existing Exchange x Second Year Cap Price
Ratio Ratio -------------------------
Home Depot Stock closing
price at maturity
If the market price of Home Depot Stock at
maturity is the same as or less than the
Second Year Cap Price, we will not adjust
the Exchange Ratio at maturity.
On the next page, we have provided a table
titled "Hypothetical Payouts on the Reset
PERQS." The table demonstrates the effect of
these adjustments to the exchange ratio under
a variety of hypothetical price scenarios.
You should examine the table for examples of
how the payout on the Reset PERQS could be
affected under these or other potential price
scenarios. This table does not show every
situation that may occur.
You can review the prices of Home Depot Stock
for the last three years in the "Historical
Information" section of this pricing
supplement.
During the life of the Reset PERQS, Morgan
Stanley & Co. Incorporated or its successors,
which we refer to as MS & Co., acting as
calculation agent, will also make adjustments
to the effective exchange ratio to reflect
the occurrence of certain corporate events
that could affect the market price of Home
Depot Stock. You should read about these
adjustments in the sections called
"Description of Reset PERQS--Exchange at
Maturity," "--Exchange Factor" and
"--Antidilution Adjustments."
The Calculation Agent We have appointed MS & Co. to act as
calculation agent for The Chase Manhattan
Bank, the trustee for our senior notes. As
calculation agent, MS & Co. will determine
the exchange ratio and the cap prices and
calculate the amount of Home Depot Stock that
you will receive at maturity.
No affiliation with The Home Depot, Inc. is not an affiliate of
The Home Depot, Inc. ours and is not involved with this offering
in any way. The obligations represented by
the Reset PERQS are obligations of Morgan
Stanley Dean Witter & Co. and not of The Home
Depot, Inc.
More information on The Reset PERQS are senior notes issued as
the Reset PERQS part of our Series C medium-term note
program. You can find a general description
of our Series C medium-term note program in
the accompanying prospectus supplement dated
May 6, 1999. We describe the basic features
of this type of note in the sections called
"Description of Notes--Fixed Rate Notes" and
"--Exchangeable Notes."
For a detailed description of terms of the
Reset PERQS, including the specific mechanics
and timing of the exchange ratio adjustments,
you should read the "Description of Reset
PERQS" section in this pricing supplement.
You should also read about some of the risks
involved in investing in Reset PERQS in the
section called "Risk Factors." The tax and
accounting treatment of investments in
equity-linked notes such as the Reset PERQS
may differ from that of investments in
ordinary debt securities or common stock. We
urge you to consult with your investment,
legal, tax, accounting and other advisors
with regard to any proposed or actual
investment in the Reset PERQS.
How to reach us You may contact your local Morgan Stanley
Dean Witter branch office or our principal
executive offices at 1585 Broadway, New York,
New York, 10036 (telephone number (212)
761-4000).
PS-4
<PAGE>
HYPOTHETICAL PAYOUTS ON THE RESET PERQS
For each Reset PERQS, the following table illustrates, for a range of
First Year Closing Prices and Maturity Prices, any adjustments we would make to
the Exchange Ratio and the Second Year Cap Price and the resulting payout at
maturity and total return on each Reset PERQS. The following assumptions were
made:
o Initial Price of Reset PERQS: $13.75
o Initial Home Depot Stock Price: $55.00
o First Year Cap Price: 129% of the Initial Home Depot Stock
Price
o Second Year Cap Price: Greater of (x) 129% of the First Year
Closing Price and (y) First Year Cap
Price
o Interest Rate: 6% per year
o Maturity: 24 months
<TABLE>
Reset PERQs Reset
Payout at PERQs
Initial Maturity Payout at
Illus- Price Initial Home Initial First Year 5/30/01 Second Exchange Based on Home Maturity
tration of Reset Depot Stock Exchange First Year Closing Exchange Year Cap Maturity Ratio at Depot Stock plus
Number PERQS Price Ratio Cap Price Price 1 Ratio Price Price 1 Maturity Stock Price 6% Coupon
------ ----- ----- ----- --------- ------- ----- ----- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $13.75 $55.00 0.25000 $70.95 $45.00 0.25000 $70.9500 $35.0000 0.25000 $8.75 $10.45
2 $13.75 $55.00 0.25000 $70.95 $45.00 0.25000 $70.9500 $65.0000 0.25000 $16.25 $17.95
3 $13.75 $55.00 0.25000 $70.95 $45.00 0.25000 $70.9500 $100.0000 0.17738 $17.74 $19.44
4 $13.75 $55.00 0.25000 $70.95 $65.00 0.25000 $83.8500 $50.0000 0.25000 $12.50 $14.20
5 $13.75 $55.00 0.25000 $70.95 $65.00 0.25000 $83.8500 $85.0000 0.24662 $20.96 $22.66
6 $13.75 $55.00 0.25000 $70.95 $65.00 0.25000 $83.8500 $125.0000 0.16770 $20.96 $22.66
7 $13.75 $55.00 0.25000 $70.95 $85.00 0.20868 $109.6500 $50.0000 0.20868 $10.43 $12.13
8 $13.75 $55.00 0.25000 $70.95 $85.00 0.20868 $109.6500 $100.0000 0.20868 $20.87 $22.57
9 $13.75 $55.00 0.25000 $70.95 $85.00 0.20868 $109.6500 $125.0000 0.18305 $22.88 $24.58
10 $13.75 $55.00 0.25000 $70.95 $70.95 0.25000 $91.5255 $91.5255 0.25000 $22.88 $24.58
^ ^ ^
| | |
| | |
| | |
129% Greater of (x) Maturity Price
of Initial 129% of First times Adjusted
Home Depot Year Closing Exchange Ratio
Stock Price Price and (y)
First Year Cap Price
</TABLE>
The above table illustrates an important feature of the Reset PERQS - the
payout at maturity is not determined merely by the price of Home Depot Stock at
maturity, but will depend on the timing and magnitude of changes in the Home
Depot Stock price. For example, in both the fourth and seventh illustrations
shown above, the Maturity Price is $50.00, but in the seventh illustration the
Payout at Maturity is $12.13 compared to $14.20 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 $24.58, but in the ninth illustration,
the Maturity Price had to equal or exceed $125.00 to produce that payout, but in
the tenth illustration, a Maturity Price of only $91.5255 was required.
- -----------------------
1. The First Year Closing Price and the Maturity Price do not include any
dividend payments that may have been paid to holders of Home Depot Stock.
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 Home
Depot Stock, there is no guaranteed return of principal. Investing in Reset
PERQS is not equivalent to investing directly in Home Depot Stock. This section
describes the most significant risks relating to the Reset PERQS. You should
carefully consider whether the Reset PERQS are suited to your particular
circumstances before you decide to purchase them.
Reset PERQS Are Not The Reset PERQS combine features of equity
Ordinary Senior Notes -- and debt. The terms of the Reset PERQS differ
No guaranteed return of from those of ordinary debt securities in
principal that we will not pay you a fixed amount at
maturity. Our payout to you at maturity will
be a number of shares of Home Depot Stock
based on the market price of Home Depot Stock
on May 30, 2001 and at maturity. If the final
market price of Home Depot Stock at maturity
is either less than today's market price or
not sufficiently above today's market price
to compensate for a downward adjustment of
the exchange ratio, if any, at May 30, 2001,
we will pay you an amount of Home Depot Stock
with a value less than the principal amount
of the Reset PERQS. See "Hypothetical Payouts
on the Reset PERQS" above.
Your Appreciation The appreciation potential of the Reset PERQS
Potential Is Limited is limited because of the cap prices. Even
though the $______ issue price of one Reset
PERQS is equal to today's market price of one
share of Home Depot Stock multiplied by the
initial exchange ratio, you may receive a
lesser fractional amount of Home Depot Stock
per Reset PERQS at maturity if the initial
exchange ratio of one-quarter of a share has
been adjusted downwards. If the price of Home
Depot Stock appreciates above both the cap
price for May 30, 2001 and the cap price for
May 28, 2002, the initial exchange ratio of
one-quarter of a share of Home Depot Stock
per Reset PERQS will be reduced twice.
The exchange ratio and the final market price
of Home Depot Stock at maturity will be
determined on May 28, 2002, which is two
trading days prior to maturity of the Reset
PERQS. If the price of Home Depot Stock is
lower on the actual maturity date than it was
on May 28, 2002, the value of any Home Depot
Stock you receive will be less. Under no
circumstances will you receive an amount of
Home Depot Stock for each Reset PERQS worth
more than $______ as of such second scheduled
trading day prior to maturity.
Secondary Trading There may be little or no secondary
May Be Limited market for 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
Unpredictable Factors Reset PERQS. We expect that generally the
market price of the Home Depot Stock on any
day will affect the value of the Reset PERQS
more than any other single factor. Because
adjustments to the exchange ratio for the
Reset PERQS are tied to the closing stock
prices on two specific days, however, the
Reset PERQS may trade differently from the
underlying stock. Other factors that may
influence the value of the Reset PERQS
include:
o the volatility (frequency and magnitude
of changes in price) of the Home Depot
Stock
o the dividend rate on Home Depot Stock
PS-7
<PAGE>
o economic, financial, political and
regulatory or judicial events that affect
stock markets generally and which may
affect the market price of Home Depot
Stock
o interest and yield rates in the market
o the time remaining to the maturity of the
Reset PERQS
o our creditworthiness
Some or all of these factors will influence
the price you will receive if you sell your
Reset PERQS prior to maturity. For example,
you may have to sell your Reset PERQS at a
substantial discount from the principal
amount if the market price of the Home Depot
Stock is at, below, or not sufficiently above
the initial market price.
You cannot predict the future performance of
Home Depot Stock based on its historical
performance. The price of Home Depot Stock
may decrease so that you will receive at
maturity shares of Home Depot Stock worth
less than the principal amount of the Reset
PERQS. We cannot guarantee that the price of
Home Depot Stock will increase so that you
will receive at maturity an amount in excess
of the principal amount of the Reset PERQS.
No Affiliation with We are not affiliated with The Home Depot,
The Home Depot, Inc. Inc. ("Home Depot"). Although we do not have
any non-public information about Home Depot
as of the date of this pricing supplement, we
or our subsidiaries may presently or from
time to time engage in business with Home
Depot, including extending loans to, or
making equity investments in, Home Depot or
providing advisory services to Home Depot,
including merger and acquisition advisory
services. Moreover, we have no ability to
control or predict the actions of Home Depot,
including any corporate actions of the type
that would require the calculation agent to
adjust the payout to you at maturity. Home
Depot is not involved in the offering of the
Reset PERQS in any way and has no obligation
to consider your interest as an owner of
Reset PERQS in taking any corporate actions
that might affect the value of your Reset
PERQS. None of the money you pay for the
Reset PERQS will go to Home Depot.
You Have No As an owner of Reset PERQS, you will not have
Shareholder Rights voting rights or rights to receive dividends
or other distributions or any other rights
with respect to the Home Depot Stock.
Limited Antidilution MS & Co., as calculation agent, will adjust
Adjustments the amount payable at maturity for certain
events affecting the Home Depot Stock, such
as stock splits and stock dividends, and
certain other corporate actions involving
Home Depot, such as mergers. However, the
calculation agent is not required to make an
adjustment for every corporate event that can
affect the Home Depot Stock. For example, the
calculation agent is not required to make any
adjustments if Home Depot or anyone else
makes a partial tender or partial exchange
offer for the Home Depot Stock. If an event
occurs that does not require the calculation
agent to adjust the amount of Home Depot
Stock payable at maturity, the market price
of the Reset PERQS may be materially and
adversely affected.
PS-7
<PAGE>
Potential Conflicts of Interest As calculation agent, MS & Co. will calculate
between You and the the payout to you at maturity of the Reset
Calculation Agent PERQS. MS & Co. and other affiliates may also
carry out hedging activities related to Reset
PERQS or to other instruments, including
trading in Home Depot Stock as well as in
other instruments related to Home Depot
Stock. MS & Co. and some of our other
subsidiaries also trade Home Depot Stock and
other financial instruments related to Home
Depot Stock on a regular basis as part of
their general broker dealer and other
businesses. Any of these activities could
influence MS & Co.'s determination of
adjustments made to Reset PERQS and any such
trading activity could potentially affect the
price of Home Depot Stock and, accordingly,
could affect your payout on the Reset PERQS.
Tax Treatment You should also consider the tax consequences
of investing in the Reset PERQS. There is no
direct legal authority as to the proper tax
treatment of the Reset PERQS, and therefore
significant aspects of the tax treatment of
the Reset PERQS are uncertain. We do not plan
to request a ruling from the Internal Revenue
Service ("IRS") regarding the tax treatment
of the Reset PERQS, and the IRS or a court
may not agree with the tax treatment
described in this pricing supplement. Please
read carefully the section "Description of
Reset PERQS--United States Federal Income
Taxation" in this pricing supplement.
PS-8
<PAGE>
DESCRIPTION OF RESET PERQS
Terms not defined herein have the meanings given to such terms in the
accompanying prospectus supplement. The term "Reset PERQS" refers to each
$______ principal amount of our 6% Reset PERQS due May 30, 2002, Mandatorily
Exchangeable For Shares of Common Stock of The Home Depot, Inc. In this pricing
supplement, the terms "MSDW," "we," "us," and "our" refer to Morgan Stanley Dean
Witter & Co.
Principal Amount.............. $25,000,000
Maturity Date................. May 30, 2002
Interest Rate................. 6% per annum (equivalent to $______ per annum
per Reset PERQS)
Interest Payment Dates........ Each February 28, May 30, August 30 and
November 30, beginning August 30, 2000.
Specified Currency............ U.S. Dollars
Issue Price................... $______ per Reset PERQS
Initial Home Depot
Stock Price................. $______
Original Issue Date
(Settlement Date)........... , 2000
CUSIP......................... 61744Y777
Denominations................. $______ and integral multiples thereof
First Year Cap Price.......... $______ ( % of the Initial Home Depot
Stock Price)
First Year Determination
Date.......................... May 30, 2001 (or if such date is not a
Trading Day on which no Market Disruption
Event occurs, the immediately succeeding
Trading Day on which no Market Disruption
Event occurs).
First Year Closing Price...... First Year Closing Price means the product of
(i) the Market Price of one share of Home
Depot Stock and (ii) the Exchange Factor,
each determined as of the First Year
Determination Date.
Second Year Cap Price......... Second Year Cap Price means the greater of
(x) _____% of the First Year Closing Price
and (y) the First Year Cap Price. See
"Exchange at Maturity" below.
Maturity Price................ Maturity Price means the product of (i) the
Market Price of one share of Home Depot Stock
and (ii) the Exchange Factor, each determined
as of the second scheduled Trading Day
immediately prior to maturity.
Exchange at Maturity.......... At maturity, upon delivery of each Reset
PERQS to the Trustee, we will apply each
$______ principal amount of such Reset PERQS
as payment for a number of shares of Home
Depot Stock at the Exchange Ratio. The
initial Exchange Ratio, initially set at
0.25, is subject to adjustment on the First
Year Determination Date and at maturity in
order to cap the value of the Home Depot
Stock to be received upon delivery of the
Reset PERQS at $______ per Reset PERQS (___%
of the Issue Price). Solely for purposes of
adjustment upon the occurrence of certain
corporate events, the number of shares
<PAGE>
of Home Depot Stock to be delivered at
maturity will also be adjusted by an Exchange
Factor, initially set at 1.0. See "Exchange
Factor" and "Antidilution Adjustments" below.
If the First Year Closing Price is less than
or equal to the First Year Cap Price, no
adjustment to the Exchange Ratio will be made
at such time. If the First Year Closing Price
exceeds the First Year Cap Price, the
Exchange Ratio will be adjusted so that the
new Exchange Ratio will equal the product of
(i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the
First Year Cap Price and the denominator of
which will be the First Year Closing Price.
In addition, on the First Year Determination
Date, the Calculation Agent will establish
the "Second Year Cap Price" that will be
equal to the greater of (x) % of the First
Year Closing Price and (y) the First Year Cap
Price. Notice of the Second Year Cap Price
and of any such adjustment to the Exchange
Ratio shall promptly be sent by first- class
mail to The Depository Trust Company, New
York, New York (the "Depositary"). If the
Maturity Price is less than or equal to the
Second Year Cap Price, no further adjustment
to the Exchange Ratio will be made. If the
Maturity Price exceeds the Second Year Cap
Price, the then existing Exchange Ratio will
be adjusted so that the final Exchange Ratio
will equal the product of (i) the existing
Exchange Ratio and (ii) a fraction the
numerator of which will be the Second Year
Cap Price and the denominator of which will
be the Maturity Price. Please review each
example in the table called "Hypothetical
Payouts on the Reset PERQS" on PS-5.
All calculations with respect to the Exchange
Ratios for the Reset PERQS will be rounded to
the nearest one hundred-thousandth, with five
one-millionths rounded upwards (e.g., .876545
would be rounded to .87655); all calculations
with respect to the Second Year Cap Price
will be rounded to the nearest
ten-thousandth, with five one-hundred-
thousandths rounded upwards (e.g., $12.34567
would be rounded to $12.3457); and all dollar
amounts related to payouts at maturity
resulting from such calculations will be
rounded to the nearest cent with one-half
cent being rounded upwards.
We shall, or shall cause the Calculation
Agent to, (i) provide written notice to the
Trustee and to the Depositary, on or prior to
10:30 a.m. on the Trading Day immediately
prior to maturity of the Reset PERQS, of the
amount of Home Depot Stock to be delivered
with respect to each $______ principal amount
of each Reset PERQS and (ii) deliver such
shares of Home Depot Stock (and cash in
respect of interest and any fractional shares
of Home Depot Stock) to the Trustee for
delivery to the holders. The Calculation
Agent shall determine the Exchange Ratio
applicable at the maturity of the Reset PERQS
and calculate the Exchange Factor.
No Fractional Shares.......... Upon delivery of the Reset PERQS to the
Trustee at maturity (including as a result of
acceleration under the terms of the senior
indenture), we will deliver the aggregate
number of shares of Home Depot Stock due with
respect to all of such Reset PERQS, as
described above, but we will pay cash in lieu
of delivering any fractional share of Home
Depot Stock in an amount equal to the
corresponding fractional Market Price of such
fraction of a share of
PS-10
<PAGE>
Home Depot Stock as determined by the
Calculation Agent as of the second scheduled
Trading Day prior to maturity of the Reset
PERQS.
Exchange Factor............... The Exchange Factor will be set initially at
1.0, but will be subject to adjustment upon
the occurrence of certain corporate events
affecting the Home Depot Stock through and
including the second scheduled Trading Day
immediately prior to maturity. See
"Antidilution Adjustments" below.
Market Price.................. If Home Depot Stock (or any other security
for which a Market Price must be determined)
is listed on a national securities exchange,
is a security of The Nasdaq National Market
or is included in the OTC Bulletin Board
Service ("OTC Bulletin Board") operated by
the National Association of Securities
Dealers, Inc. (the "NASD"), the Market Price
for one share of Home Depot Stock (or one
unit of any such other security) on any
Trading Day means (i) the last reported sale
price, regular way, of the principal trading
session on such day on the principal United
States securities exchange registered under
the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), on which Home
Depot Stock (or any such other security) is
listed or admitted to trading or (ii) if not
listed or admitted to trading on any such
securities exchange or if such last reported
sale price is not obtainable (even if Home
Depot Stock (or any such other security) is
listed or admitted to trading on such
securities exchange), the last reported sale
price of the principal trading session on the
over-the- counter market as reported on the
Nasdaq National Market or OTC Bulletin Board
on such day. If the last reported sale price
of the principal trading session is not
available pursuant to clause (i) or (ii) of
the preceding sentence because of a Market
Disruption Event or otherwise, the Market
Price for any Trading Day shall be the mean,
as determined by the Calculation Agent, of
the bid prices for Home Depot Stock (or any
such other security) obtained from as many
dealers in such stock (which may include MS &
Co. or any of our other subsidiaries or
affiliates), but not exceeding three, as will
make such bid prices available to the
Calculation Agent. A "security of the Nasdaq
National Market" shall include a security
included in any successor to such system and
the term "OTC Bulletin Board Service" shall
include any successor service thereto.
Trading Day................... A day, as determined by the Calculation
Agent, on which trading is generally
conducted on the New York Stock Exchange
("NYSE"), the AMEX, the Nasdaq National
Market, the Chicago Mercantile Exchange, and
the Chicago Board of Options Exchange and in
the over-the-counter market for equity
securities in the United States.
Acceleration Event............ If on any date the product of the Market
Price per share of Home Depot Stock and the
Exchange Factor is less than $4.00, the
maturity date of the Reset PERQS will be
deemed to be accelerated to such date, and we
will apply each $______ principal amount of
each Reset PERQS as payment for a number of
shares of Home Depot Stock at the then
current Exchange Ratio, as adjusted by the
then current Exchange Factor. See also
"Antidilution Adjustments" below.
Optional Redemption........... We will not redeem the Reset PERQS prior to
the Maturity Date.
Book Entry Note or
Certificated Note............ Book Entry
PS-11
<PAGE>
Senior Note or
Subordinated Note........... Senior
Trustee....................... The Chase Manhattan Bank
Agent for the underwritten
offering of Reset PERQS..... MS & Co.
Calculation Agent............. MS & Co.
All determinations made by the Calculation
Agent will be at the sole discretion of the
Calculation Agent and will, in the absence of
manifest error, be conclusive for all
purposes and binding on you and on us.
Because the Calculation Agent is our
affiliate, potential conflicts of interest
may exist between the Calculation Agent and
you as an owner of the Reset PERQS, including
with respect to certain determinations and
judgments that the Calculation Agent must
make in making adjustments to the Exchange
Factor or other antidilution adjustments or
determining any Market Price or whether a
Market Disruption Event has occurred. See
"Antidilution Adjustments" and "Market
Disruption Event" below. MS & Co. is
obligated to carry out its duties and
functions as Calculation Agent in good faith
and using its reasonable judgment.
Antidilution Adjustments...... The Exchange Factor will be adjusted as
follows:
1. If Home Depot Stock is subject to a
stock split or reverse stock split, then once
such split has become effective, the Exchange
Factor will be adjusted to equal the product
of the prior Exchange Factor and the number
of shares issued in such stock split or
reverse stock split with respect to one share
of Home Depot Stock.
2. If Home Depot Stock is subject (i) to
a stock dividend (issuance of additional
shares of Home Depot Stock) that is given
ratably to all holders of shares of Home
Depot Stock or (ii) to a distribution of Home
Depot Stock as a result of the triggering of
any provision of the corporate charter of
Home Depot, then once the dividend has become
effective and Home Depot Stock is trading ex-
dividend, the Exchange Factor will be
adjusted so that the new Exchange Factor
shall equal the prior Exchange Factor plus
the product of (i) the number of shares
issued with respect to one share of Home
Depot Stock and (ii) the prior Exchange
Factor.
3. There will be no adjustments to the
Exchange Factor to reflect cash dividends or
other distributions paid with respect to Home
Depot Stock other than distributions
described in clauses (i) and (v) of paragraph
5 below and Extraordinary Dividends as
described below. A cash dividend or other
distribution with respect to Home Depot Stock
will be deemed to be an "Extraordinary
Dividend" if such dividend or other
distribution exceeds the immediately
preceding non-Extraordinary Dividend for Home
Depot Stock by an amount equal to at least
10% of the Market Price of Home Depot Stock
(as adjusted for any subsequent corporate
event requiring an adjustment hereunder, such
as a stock split or reverse stock split) on
the Trading Day preceding the ex-dividend
date for the
PS-12
<PAGE>
payment of such Extraordinary Dividend (the
"ex-dividend date"). If an Extraordinary
Dividend occurs with respect to Home Depot
Stock, the Exchange Factor with respect to
Home Depot Stock will be adjusted on the
ex-dividend date with respect to such
Extraordinary Dividend so that the new
Exchange Factor will equal the product of (i)
the then current Exchange Factor and (ii) a
fraction, the numerator of which is the
Market Price on the Trading Day preceding the
ex- dividend date, and the denominator of
which is the amount by which the Market Price
on the Trading Day preceding the ex-dividend
date exceeds the Extraordinary Dividend
Amount. The "Extraordinary Dividend Amount"
with respect to an Extraordinary Dividend for
Home Depot Stock will equal (i) in the case
of cash dividends or other distributions that
constitute regular dividends, the amount per
share of such Extraordinary Dividend minus
the amount per share of the immediately
preceding non-Extraordinary Dividend for Home
Depot Stock or (ii) in the case of cash
dividends or other distributions that do not
constitute regular dividends, the amount per
share of such Extraordinary Dividend. To the
extent an Extraordinary Dividend is not paid
in cash, the value of the non-cash component
will be determined by the Calculation Agent,
whose determination shall be conclusive. A
distribution on the Home Depot Stock
described in clause (i) or clause (v) of
paragraph 5 below that also constitutes an
Extraordinary Dividend shall cause an
adjustment to the Exchange Factor pursuant
only to clause (i) or clause (v) of paragraph
5, as applicable.
4. If Home Depot issues rights or
warrants to all holders of Home Depot Stock
to subscribe for or purchase Home Depot Stock
at an exercise price per share less than the
Market Price of the Home Depot Stock on both
(i) the date the exercise price of such
rights or warrants is determined and (ii) the
expiration date of such rights or warrants,
and if the expiration date of such rights or
warrants precedes the maturity of the Reset
PERQS, then the Exchange Factor will be
adjusted to equal the product of the prior
Exchange Factor and a fraction, the numerator
of which shall be the number of shares of
Home Depot Stock outstanding immediately
prior to the issuance of such rights or
warrants plus the number of additional shares
of Home Depot Stock offered for subscription
or purchase pursuant to such rights or
warrants and the denominator of which shall
be the number of shares of Home Depot Stock
outstanding immediately prior to the issuance
of such rights or warrants plus the number of
additional shares of Home Depot Stock which
the aggregate offering price of the total
number of shares of Home Depot Stock so
offered for subscription or purchase pursuant
to such rights or warrants would purchase at
the Market Price on the expiration date of
such rights or warrants, which shall be
determined by multiplying such total number
of shares offered by the exercise price of
such rights or warrants and dividing the
product so obtained by such Market Price.
5. If (i) there occurs any
reclassification or change of Home Depot
Stock, including, without limitation, as a
result of the issuance of any tracking stock
by Home Depot, (ii) Home Depot or any
surviving entity or subsequent surviving
entity of Home Depot (an "Home Depot
Successor") has been subject to a merger,
combination or consolidation and is not the
surviving entity, (iii) any statutory
exchange of securities of Home Depot or any
Home Depot Successor
PS-13
<PAGE>
with another corporation occurs (other than
pursuant to clause (ii) above), (iv) Home
Depot is liquidated, (v) Home Depot issues to
all of its shareholders equity securities of
an issuer other than Home Depot (other than
in a transaction described in clauses (ii),
(iii) or (iv) above) (a "Spin-off Event") or
(vi) a tender or exchange offer or
going-private transaction is consummated for
all the outstanding shares of Home Depot
Stock (any such event in clauses (i) through
(vi) a "Reorganization Event"), the method of
determining the amount payable upon exchange
at maturity for each Reset PERQS will be
adjusted to provide that each holder of Reset
PERQS will receive at maturity, in respect of
each $______ principal amount of each Reset
PERQS, securities, cash or any other assets
distributed to holders of Home Depot Stock in
any such Reorganization Event, including, in
the case of the issuance of tracking stock,
the reclassified share of Home Depot Stock
and, in the case of a Spin-off Event, the
share of Home Depot Stock with respect to
which the spun-off security was issued
(collectively, the "Exchange Property") in an
amount with a value equal to the product of
the final Exchange Ratio and the Transaction
Value. In addition, following a
Reorganization Event, the method of
determining the Maturity Price will be
adjusted so that the Maturity Price will mean
the Transaction Value as of the second
scheduled Trading Day immediately prior to
maturity, and if the Reorganization Event
occurs prior to the First Year Determination
Date, the First Year Closing Price will mean
the Transaction Value determined as of the
First Year Determination Date.
Notwithstanding the above, if the Exchange
Property received in any such Reorganization
Event consists only of cash, the maturity
date of the Reset PERQS will be deemed to be
accelerated to the date on which such cash is
distributed to holders of Home Depot Stock
and holders will receive in lieu of any Home
Depot Stock and as liquidated damages in full
satisfaction of MSDW's obligations under the
Reset PERQS the product of (i) the
Transaction Value as of such date and (ii)
the then current Exchange Ratio adjusted as
if such date were the next to occur of either
the First Year Determination Date or the
second scheduled Trading Day prior to
maturity. If Exchange Property consists of
more than one type of property, holders of
Reset PERQS will receive at maturity a pro
rata share of each such type of Exchange
Property. If Exchange Property includes a
cash component, holders will not receive any
interest accrued on such cash component.
"Transaction Value" at any date means (i) for
any cash received in any such Reorganization
Event, the amount of cash received per share
of Home Depot Stock, as adjusted by the
Exchange Factor at the time of such
Reorganization Event, (ii) for any property
other than cash or securities received in any
such Reorganization Event, the market value,
as determined by the Calculation Agent, as of
the date of receipt, of such Exchange
Property received for each share of Home
Depot Stock, as adjusted by the Exchange
Factor at the time of such Reorganization
Event and (iii) for any security received in
any such Reorganization Event, an amount
equal to the Market Price, as of the date on
which the Transaction Value is determined,
per share of such security multiplied by the
quantity of such security received for each
share of Home Depot Stock, as adjusted by the
Exchange Factor at the time of such
Reorganization Event. In the event Exchange
Property consists of securities, those
securities will, in turn, be subject to the
antidilution adjustments set forth in
paragraphs 1 through 5.
PS-14
<PAGE>
For purposes of paragraph 5 above, in the
case of a consummated tender or exchange
offer or going-private transaction involving
Exchange Property of a particular type,
Exchange Property shall be deemed to include
the amount of cash or other property paid by
the offeror in the tender or exchange offer
with respect to such Exchange Property (in an
amount determined on the basis of the rate of
exchange in such tender or exchange offer or
going-private transaction). In the event of a
tender or exchange offer or a going-private
transaction with respect to Exchange Property
in which an offeree may elect to receive cash
or other property, Exchange Property shall be
deemed to include the kind and amount of cash
and other property received by offerees who
elect to receive cash.
No adjustments to the Exchange Factor will be
required unless such adjustment would require
a change of at least 0.1% in the Exchange
Factor then in effect. The Exchange Factor
resulting from any of the adjustments
specified above will be rounded to the
nearest one hundred-thousandth with five
one-millionths being rounded upward.
No adjustments to the Exchange Factor or
method of calculating the Exchange Ratio will
be made other than those specified above. The
adjustments specified above do not cover all
events that could affect the Market Price of
the Home Depot Stock, including, without
limitation, a partial tender or exchange
offer for the Home Depot Stock.
Notwithstanding the foregoing, the amount
payable by us at maturity with respect to
each Reset PERQS, determined as of the second
scheduled Trading Day prior to maturity, will
not under any circumstances exceed an amount
of Home Depot Stock having a market value of
$______ as of such second scheduled Trading
Day.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the
Exchange Factor or method of calculating the
Exchange Ratio and of any related
determinations and calculations with respect
to any distributions of stock, other
securities or other property or assets
(including cash) in connection with any
corporate event described in paragraph 5
above, and its determinations and
calculations with respect thereto shall be
conclusive in the absence of manifest error.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Factor or method of calculating the
Exchange Ratio upon written request by any
holder of the Reset PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect
to Home Depot Stock:
(i) a suspension, absence or material
limitation of trading of Home Depot
Stock on the primary market for Home
Depot Stock for more than two hours of
trading or during the one-half hour
period preceding the close of the
principal trading session in such
market; or a breakdown or failure in the
price and trade reporting systems of the
primary market for Home Depot Stock as a
result of which the reported trading
prices for Home Depot Stock
PS-15
<PAGE>
during the last one-half hour preceding
the closing of the principal trading
session in such market are materially
inaccurate; or the suspension, absence
or material limitation on the primary
market for trading in options contracts
related to Home Depot Stock, if
available, during the one-half hour
period preceding the close of the
principal trading session in the
applicable market, in each case as
determined by the Calculation Agent in
its sole discretion; and
(ii) a determination by the Calculation
Agent in its sole discretion that any
event described in clause (i) above
materially interfered with the ability
of MSDW or any of its affiliates to
unwind or adjust all or a material
portion of the hedge with respect to the
Reset PERQS.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to NYSE Rule 80A (or any
applicable rule or regulation enacted or
promulgated by the NYSE, any other
self-regulatory organization or the
Securities and Exchange Commission of similar
scope as determined by the Calculation Agent)
on trading during significant market
fluctuations shall constitute a suspension,
absence or material limitation of trading,
(4) a suspension of trading in an options
contract on Home Depot Stock by the primary
securities market trading in such options, if
available, by reason of (x) a price change
exceeding limits set by such securities
exchange or market, (y) an imbalance of
orders relating to such contracts or (z) a
disparity in bid and ask quotes relating to
such contracts will constitute a suspension
or material limitation of trading in options
contracts related to Home Depot Stock and (5)
a suspension, absence or material limitation
of trading on the primary securities market
on which options contracts related to Home
Depot Stock are traded will not include any
time when such securities market is itself
closed for trading under ordinary
circumstances.
Alternate Exchange
Calculation
in case of an
Event of Default.............. In case an event of default with respect to
the Reset PERQS shall have occurred and be
continuing, the amount declared due and
payable upon any acceleration of the Reset
PERQS shall be determined by the Calculation
Agent and shall be equal to the product of
(i) the Market Price of Home Depot Stock as
of the date of such acceleration and (ii) the
then current Exchange Ratio adjusted as if
such date were the second scheduled Trading
Day prior to maturity and, if such date
occurs prior to the First Year Determination
Date, the First Year Determination Date.
Home Depot Stock;
Public Information.......... The Home Depot, Inc. is a retailer in the
home improvement industry that sells building
materials and home improvement and lawn and
garden products. Home Depot Stock is
registered under the Exchange Act. Companies
with securities registered under the Exchange
Act are required to file periodically certain
financial and other information specified by
the Securities and Exchange
PS-16
<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
Home Depot pursuant to the Exchange Act can
be located by reference to Commission file
number 1-8207. In addition, information
regarding Home Depot may be obtained from
other sources including, but not limited to,
press releases, newspaper articles and other
publicly disseminated documents. We make no
representation or warranty as to the accuracy
or completeness of such information.
This pricing supplement relates only to the
Reset PERQS offered hereby and does not
relate to Home Depot Stock or other
securities of Home Depot. We have derived all
disclosures contained in this pricing
supplement regarding Home Depot from the
publicly available documents described in the
preceding paragraph. Neither we nor the Agent
has participated in the preparation of such
documents or made any due diligence inquiry
with respect to Home Depot in connection with
the offering of the Reset PERQS. Neither we
nor the Agent makes any representation that
such publicly available documents or any
other publicly available information
regarding Home Depot is accurate or complete.
Furthermore, we cannot give any assurance
that all events occurring prior to the date
hereof (including events that would affect
the accuracy or completeness of the publicly
available documents described in the
preceding paragraph) that would affect the
trading price of Home Depot Stock (and
therefore the Initial Home Depot Stock Price,
the First Year Cap Price, the Second Year Cap
Price and the maximum appreciation amount)
have been publicly disclosed. Subsequent
disclosure of any such events or the
disclosure of or failure to disclose material
future events concerning Home Depot could
affect the value received at maturity with
respect to the Reset PERQS and therefore the
trading prices of the Reset PERQS.
Neither we nor any of our affiliates makes
any representation to you as to the
performance of Home Depot Stock.
We and/or our subsidiaries may presently or
from time to time engage in business with
Home Depot, including extending loans to, or
making equity investments in, Home Depot or
providing advisory services to Home Depot,
including merger and acquisition advisory
services. In the course of such business, we
and/or our subsidiaries may acquire
non-public information with respect to Home
Depot and, in addition, one or more of our
affiliates may publish research reports with
respect to Home Depot. The statement in the
preceding sentence
PS-18
<PAGE>
is not intended to affect the right of
holders of the Reset PERQS under the
securities laws. As a prospective purchaser
of a Reset PERQS, you should undertake an
independent investigation of Home Depot as in
your judgment is appropriate to make an
informed decision with respect to an
investment in Home Depot Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1997, 1998, 1999 and
2000 through May 3, 2000. The Market Price on
May 3, 2000 was $53 7/8. We obtained the
Market Prices listed below from Bloomberg
Financial Markets and we believe such
information to be accurate. You should not
take the historical prices of Home Depot
Stock as an indication of future performance.
The price of Home Depot Stock may decrease so
that you will receive at maturity shares of
Home Depot Stock worth less than the
principal amount of the Reset PERQS. We
cannot give you any assurance that the price
of Home Depot Stock will increase so that at
maturity you will receive an amount in excess
of the principal amount of the Reset PERQS.
Because your return is linked to the Market
Price of Home Depot Stock on May 30, 2001 and
May 28, 2002, there is no guaranteed return
of principal. To the extent that the Maturity
Price of Home Depot Stock is less than the
Initial Home Depot Stock Price or not
sufficiently above the Initial Home Depot
Stock Price to compensate for a downward
adjustment of the Exchange Ratio, if any, at
May 30, 2001 and the shortfall is not offset
by the coupon paid on the Reset PERQS, you
will lose money on your investment.
High Low Dividends
---- --- ---------
(CUSIP 437076102)
1997
First Quarter............... 12 71/73 10 2/3 0.0133
Second Quarter ............. 15 29/55 11 7/9 0.0167
Third Quarter .............. 17 56/61 14 5/6 0.0167
Fourth Quarter ............. 19 50/51 17 0.0167
1998
First Quarter .............. 23 1/6 18 71/83 0.0167
Second Quarter ............. 28 5/16 22 3/16 0.0200
Third Quarter .............. 32 28/67 25 19/35 0.0200
Fourth Quarter ............. 41 4/93 22 2/3 0.0200
1999
First Quarter .............. 43 3/4 36 0.0200
Second Quarter ............. 44 7/8 37 0.0267
Third Quarter .............. 46 5/8 37 29/99 0.0267
Fourth Quarter ............. 68 9/16 45 5/8 0.0400
2000
First Quarter .............. 68 51 13/16 0.0400
Second Quarter
(through May 3, 2000).... 67 3/4 53 7/8
Historical prices have been adjusted for two
3 for 2 stock splits of Home Depot Stock,
which became effective in the third quarter
of 1997 and the fourth quarter of 1999,
respectively, and one 2 for 1 stock split,
which became effective in the third quarter
of 1998.
We make no representation as to the amount of
dividends, if any, that Home Depot will pay
in the future. In any event, as a holder of
the Reset PERQS, you will not be entitled to
receive dividends, if any, that may be
payable on Home Depot Stock.
PS-18
<PAGE>
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the Reset PERQS will be used for general
corporate purposes and, in part, by us or by
one or more of our subsidiaries in connection
with hedging our obligations under the Reset
PERQS. See also "Use of Proceeds" in the
accompanying prospectus.
On 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 Home Depot Stock, in options
contracts on Home Depot Stock listed on major
securities markets or positions in any other
instruments that we may wish to use in
connection with such hedging. In the event
that we pursue such a hedging strategy, the
price at which we are able to purchase such
positions may be a factor in determining the
pricing of the Reset PERQS. Purchase activity
could potentially increase the price of Home
Depot Stock, and therefore effectively
increase the level to which Home Depot Stock
must rise before you would receive at
maturity an amount of Home Depot Stock worth
as much as or more than the principal amount
of the Reset PERQS. Although we have no
reason to believe that our hedging activity
will have a material impact on the price of
Home Depot Stock, we cannot give any
assurance that we will not affect such price
as a result of our hedging activities.
Through our subsidiaries, we are likely to
modify our hedge position throughout the life
of the Reset PERQS, including on the First
Year Determination Date, by purchasing and
selling the securities and instruments listed
above and any other available securities and
instruments that we may wish to use in
connection with such hedging.
Supplemental Information
Concerning
Plan of Distribution.......... In order to facilitate the offering of the
Reset PERQS, the Agent may engage in
transactions that stabilize, maintain or
otherwise affect the price of the Reset PERQS
or the Home Depot Stock. Specifically, the
Agent may overallot in connection with the
offering, creating a short position in the
Reset PERQS for its own account. In addition,
to cover allotments or to stabilize the price
of the Reset PERQS, the Agent may bid for,
and purchase, the Reset PERQS or the Home
Depot Stock in the open market. See "Use of
Proceeds and Hedging" above.
The Agent proposes initially to offer the
Reset PERQS directly to the public at the
public offering price set forth on the cover
page hereof plus accrued interest, if any,
from the Original Issue Date; provided that
the price will be $______ per Reset PERQS and
the underwriting discounts and commissions
will be $______ per Reset PERQS for
purchasers of greater than or equal to
100,000 Reset PERQS in any single
transaction, subject to the holding period
requirements described below.
Delivery of approximately 98.625% of the
Reset PERQS to a purchaser of 100,000 or more
Reset PERQS at the reduced price (the
"Delivered Reset PERQS") will be made on the
date of delivery of the Reset PERQS referred
to on the cover of this pricing supplement.
The balance of approximately 1.375% of the
Reset PERQS (the "Escrowed Reset PERQS")
purchased by each such investor will be
PS-19
<PAGE>
held in escrow at MS & Co. for the benefit of
the investor and delivered to such investor
if the investor and any accounts in which the
investor may have deposited any of its
Delivered Reset PERQS have held all of the
Delivered Reset PERQS for 45 calendar days
following the date of the pricing supplement
or any shorter period deemed appropriate by
the Agent. If an investor or any account in
which the investor has deposited any of its
Delivered Reset PERQS fails to satisfy the
holding period requirement, as determined by
the Agent, all of the investor's Escrowed
Reset PERQS will be forfeited by the investor
and not delivered to it. The Escrowed Reset
PERQS will instead be delivered to the Agent
for sale to investors. This forfeiture will
have the effect of increasing the purchase
price per Reset PERQS for such investors to
100% of the principal amount of the Reset
PERQS. Should investors who are subject to
the holding period requirement sell their
Reset PERQS once the holding period is no
longer applicable, the market price of the
Reset PERQS may be adversely affected. See
also "Plan of Distribution" in the
accompanying prospectus supplement.
ERISA Matters for
Pension Plans
and Insurance Companies....... We and certain of our subsidiaries and
affiliates, including MS & Co. and Dean
Witter Reynolds Inc. ("DWR"), may each be
considered a "party in interest" within the
meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or a "disqualified person" within the meaning
of the Internal Revenue Code of 1986, as
amended (the "Code") with respect to many
employee benefit plans. Prohibited
transactions within the meaning of ERISA or
the Code may arise, for example, if the Reset
PERQS are acquired by or with the assets of a
pension or other employee benefit plan with
respect to which MS & Co., DWR or any of
their affiliates is a service provider,
unless the Reset PERQS are acquired pursuant
to an exemption from the prohibited
transaction rules.
The acquisition of the Reset PERQS may be
eligible for one of the exemptions noted
below if such acquisition:
(a) (i) is made solely with the assets of a
bank collective investment fund and (ii)
satisfies the requirements and conditions of
Prohibited Transaction Class Exemption
("PTCE") 91-38 issued by the Department of
Labor ("DOL");
(b) (i) is made solely with assets of an
insurance company pooled separate account and
(ii) satisfies the requirements and
conditions of PTCE 90-1 issued by the DOL;
(c) (i) is made solely with assets managed by
a qualified professional asset manager and
(ii) satisfies the requirements and
conditions of PTCE 84-14 issued by the DOL;
(d) is made solely with assets of a
governmental plan (as defined in Section
3(32) of ERISA) which is not subject to the
provisions of Section 401 of the Code;
PS-20
<PAGE>
(e) (i) is made solely with assets of an
insurance company general account and (ii)
satisfies the requirements and conditions of
PTCE 95-60 issued by the DOL; or
(f) (i) is made solely with assets managed by
an in-house asset manager and (ii) satisfies
the requirements and conditions of PTCE 96-23
issued by the DOL.
Under ERISA the assets of a pension or other
employee benefit plan may include assets held
in the general account of an insurance
company which has issued an insurance policy
to such plan or assets of an entity in which
the plan has invested. In addition to
considering the consequences of owning the
Reset PERQS, employee benefit plans subject
to ERISA (or insurance companies deemed to be
investing ERISA plan assets) purchasing Reset
PERQS should consider the possible
implications of owning the Home Depot Stock.
Thus, any insurance company, pension or
employee benefit plan or entity holding
assets of such a plan proposing to invest in
the Reset PERQS should consult with its legal
counsel prior to such investment.
United States Federal
Income Taxation............. The following summary is based on the advice
of Davis Polk & Wardwell, our special tax
counsel ("Tax Counsel"), and is a general
discussion of the principal potential U.S.
federal income tax consequences to initial
holders of the Reset PERQS purchasing the
Reset PERQS at the Issue Price, who will hold
the Reset PERQS as capital assets within the
meaning of Section 1221 of the Code. This
summary is based on the Code, administrative
pronouncements, judicial decisions and
currently effective and proposed Treasury
Regulations, changes to any of which
subsequent to the date of this pricing
supplement may affect the tax consequences
described herein. This summary does not
address all aspects of the U.S. federal
income taxation that may be relevant to a
particular holder in light of its individual
circumstances or to certain types of holders
subject to special treatment under the U.S.
federal income tax laws (e.g., certain
financial institutions, tax-exempt
organizations, dealers in options or
securities, or persons who hold a Reset PERQS
as a part of a hedging transaction, straddle,
conversion or other integrated transaction).
As the law applicable to the U.S. federal
income taxation of instruments such as the
Reset PERQS is technical and complex, the
discussion below necessarily represents only
a general summary. Moreover, the effect of
any applicable state, local or foreign tax
laws is not discussed.
General
Pursuant to the terms of the Reset PERQS, we
and every holder of a Reset PERQS agree (in
the absence of an administrative
determination or judicial ruling to the
contrary) to characterize a Reset PERQS for
all tax purposes as an investment unit
consisting of the following components (the
"Components"): (i) a contract (the "Forward
Contract") that requires the holder of the
Reset PERQS to purchase, and us to sell, for
an amount equal to $______ (the "Forward
Price"), the Home Depot Stock at maturity
(or, alternatively, upon an earlier
redemption of the Reset PERQS), and (ii) a
deposit with us of a fixed amount of cash,
equal to the Issue Price, to secure the
holder's
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obligation to purchase the Home Depot Stock
(the "Deposit"), which Deposit bears an
annual yield of % per annum, which yield is
based on our cost of borrowing. Under this
characterization, it is possible that less
than the full quarterly payments on the Reset
PERQS will be attributable to the yield on
the Deposit. If this is the case, the excess
of the quarterly payments on the Reset PERQS
over the portion of those payments
attributable to the yield on the Deposit
would represent payments attributable to the
holders' entry into the Forward Contract (the
"Contract Fees"). Furthermore, based on our
determination of the relative fair market
values of the Components at the time of
issuance of the Reset PERQS, we will allocate
100% of the Issue Price of the Reset PERQS to
the Deposit and none to the Forward Contract.
Our allocation of the Issue Price among the
Components will be binding on a holder of the
Reset PERQS, unless such holder timely and
explicitly discloses to the IRS that its
allocation is different from ours. The
treatment of the Reset PERQS described above
and our allocation are not, however, binding
on the IRS or the courts. No statutory,
judicial or administrative authority directly
addresses the characterization of the Reset
PERQS or instruments similar to the Reset
PERQS for U.S. federal income tax purposes,
and no ruling is being requested from the IRS
with respect to the Reset PERQS. Due to the
absence of authorities that directly address
instruments that are similar to the Reset
PERQS, Tax Counsel is unable to render an
opinion as to the proper U.S. federal income
tax characterization of the Reset PERQS. As a
result, significant aspects of the U.S.
federal income tax consequences of an
investment in the Reset PERQS are not
certain, and no assurance can be given that
the IRS or the courts will agree with the
characterization described herein.
Accordingly, you are urged to consult your
tax advisor regarding the U.S. federal income
tax consequences of an investment in the
Reset PERQS (including alternative
characterizations of the Reset PERQS) and
with respect to any tax consequences arising
under the laws of any state, local or foreign
taxing jurisdiction. Unless otherwise stated,
the following discussion is based on the
treatment and the allocation described above.
U.S. HOLDERS
As used herein, the term "U.S. Holder" means
an owner of a Reset PERQS that is, for U.S.
federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a
corporation created or organized under the
laws of the United States or any political
subdivision thereof or (iii) an estate or
trust the income of which is subject to
United States federal income taxation
regardless of its source.
Tax Treatment of the Reset PERQS
Assuming the characterization of the Reset
PERQS and the allocation of the Issue Price
as set forth above, Tax Counsel believes that
the following U.S. federal income tax
consequences should result.
Quarterly Payments and Original Issue
Discount on the Reset PERQS. If the Forward
Price exceeds the Issue Price by at least
0.25% of the Forward Price multiplied by the
number of complete
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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 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 Home
Depot Stock, and a U.S. Holder would not
recognize any gain or loss with respect to
any Home Depot Stock received thereon.
However, as stated above, any de minimis OID
on the Deposit that the holder has not
previously included in income will be taxable
to the holder at the maturity of the Deposit
and the concurrent settlement of the Forward
Contract. With respect to any cash received
upon maturity, a U.S. Holder would recognize
gain or loss. The amount of such gain or loss
would be the extent to which
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<PAGE>
the amount of such cash received differs from
the pro rata portion of the Forward Price
allocable to the cash. Any such gain or loss
would generally be capital gain or loss, as
the case may be. With respect to any Home
Depot Stock received upon maturity, the U.S.
Holder would have an adjusted tax basis in
such Home Depot Stock equal to the pro rata
portion of the Forward Price allocable
thereto. The allocation of the Forward Price
between cash and Home Depot Stock should be
based on the amount of the cash received and
the relative fair market value, as of the
maturity, of the Home Depot Stock. The U.S.
Holder's holding period of any Home Depot
Stock received would start on the day after
the maturity of the Reset PERQS.
U.S. Holders should note that while any
accrued but unpaid interest on the Deposit
and any Contract Fees would be taxable as
ordinary income, any gain or loss recognized
upon the final settlement of the Forward
Contract generally would be capital gain or
loss. The distinction between capital gain or
loss and ordinary gain or loss is potentially
significant in several respects. For example,
limitations apply to a U.S. Holder's ability
to offset capital losses against ordinary
income, and certain U.S. Holders may be
subject to lower U.S. federal income tax
rates with respect to long-term capital gain
than with respect to ordinary gain. U.S.
Holders should consult their tax advisors
with respect to the treatment of capital gain
or loss on a Reset PERQS.
Sale or Exchange of the Reset PERQS. Upon a
sale or exchange of a Reset PERQS prior to
the maturity of the Reset PERQS, a U.S.
Holder would recognize taxable gain or loss
equal to the difference between the amount
realized on such sale or exchange and such
U.S. Holder's tax basis in the Reset PERQS so
sold or exchanged. Any such gain or loss
would generally be capital gain or loss, as
the case may be. Such U.S. Holder's tax basis
in the Reset PERQS would generally equal the
U.S. Holder's tax basis in the Deposit. For
these purposes, the amount realized does not
include any amount attributable to accrued
interest on the Deposit, which would be taxed
as described under "--Quarterly Payments and
Original Issue Discount on the Reset PERQS"
above. It is uncertain whether the amount
realized includes any amount attributable to
accrued but unpaid Contract Fees. U.S.
Holders should consult their tax advisors
regarding the treatment of accrued but unpaid
Contract Fees upon the sale or exchange of a
Reset PERQS.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that
directly address the proper characterization
of the Reset PERQS, no assurance can be given
that the IRS will accept, or that a court
will uphold, the characterization and tax
treatment described above. In particular, the
IRS could seek to analyze the U.S. federal
income tax consequences of owning a Reset
PERQS under Treasury regulations governing
contingent payment debt instruments (the
"Contingent Payment Regulations").
If the IRS were successful in asserting that
the Contingent Payment Regulations applied to
the Reset PERQS, the timing and character of
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<PAGE>
income thereon would be significantly
affected. Among other things, a U.S. Holder
would be required to accrue as original issue
discount income, subject to adjustments, at a
"comparable yield" on the Issue Price. In
addition, a U.S. Holder would recognize
income upon maturity of the Reset PERQS to
the extent that the value of Home Depot Stock
and cash (if any) received exceeds the
adjusted issue price. Furthermore, any gain
realized with respect to the Reset PERQS
would generally be treated as ordinary
income.
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 will not apply
to the Reset PERQS, Section 1260 authorizes
the Treasury Department to promulgate
regulations (possibly with retroactive
effect) to expand the application of the
"constructive ownership" rule. There is no
assurance that the Treasury Department will
not promulgate regulations to apply the rule
to the Reset PERQS. If Section 1260 were to
apply to the Reset PERQS, the effect on a
U.S. Holder would be to treat all or a
portion of the long term capital gain (if
any) recognized by such U.S. Holder on sale
or maturity of a Reset PERQS as ordinary
income, but only to the extent such long term
capital gain exceeds the long term capital
gain that would have been recognized by such
U.S. Holder if the U.S. Holder had acquired
the underlying stock itself on the issue date
of the Reset PERQS and disposed of the
underlying stock upon disposition (including
retirement) of the Reset PERQS. Section 1260
would also apply to a U.S. Holder that
receives shares of Home Depot Stock at
maturity by (i) treating such U.S. Holder as
if the U.S. Holder sold the Reset PERQS at
maturity for fair market value and (ii)
recharacterizing a portion of any long term
capital gain from the deemed sale as ordinary
income according to the rule described in the
preceding sentence. 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.
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<PAGE>
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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<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
CLF # 80814
