PROSPECTUS Dated May 18, 2000 Pricing Supplement No. 48 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-34392
Dated May 18, 2000 Dated December 21, 2000
Rule 424(b)(3)
$26,865,006
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 on February 28, 2002 and at maturity, in each case subject to a cap
price.
o The principal amount and issue price of each Reset PERQS is $7.9875, which
is one-fifth of the closing price of Nokia ADRs on December 21, 2000, the
day we offered the Reset PERQS for initial sale to the public.
o We will pay 8% interest (equivalent to $.639 per year) on the $7.9875
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 $54.12, or 135.51% of the closing price of
Nokia ADRs on December 21, 2000, the day we offered 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 December 21,
2000, we will raise the cap price to 135.50% 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 $14.67 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 The Reset PERQS have been approved for listing on the American Stock
Exchange LLC, subject to official notice of issuance. The AMEX listing
symbol for the Reset PERQS is "RPN."
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 $7.9875 PER RESET PERQS
---------------------------
Price to Agent's Proceeds to
Public(1) Commissions Company(1)
-------- ----------- ----------
Per Reset PERQS... $7.9875 $0.12 $7.8675
Total............. $26,865,005.74 $403,605.72 $26,461,400.02
---------
(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 $7.8676875 per Reset PERQS (98.50% of the Issue Price). In that
case, the underwriting discounts and commissions will be $.0001875 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.
<TABLE>
<S> <C>
Each Reset PERQS We, Morgan Stanley Dean Witter & Co., are offering 8% Reset Performance Equity-
costs $7.9875 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 0.24, of Nokia Corporation. The
principal amount and issue price of each Reset PERQS is $7.9875, which is one-fifth
of the closing price of a Nokia ADR on December 21, 2000, the day we offered the
Reset PERQS for initial sale to the public.
No guaranteed Unlike ordinary debt securities, the Reset PERQS do not guarantee any return of
return of principal 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 of 8% of the principal amount per
principal amount 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 limited in each year by the cap price.
potential is capped The cap price through February 28, 2002 is $54.12, or 135.51% of the closing price of
Nokia ADRs on December 21, 2000, the day we offered the Reset PERQS for initial
sale to the public ("First Year Cap Price"). The cap price thereafter until maturity
("Second Year Cap Price") will be the higher of 135.50% 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 $14.67 per Reset PERQS.
Payout at maturity At maturity, for each $7.9875 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 x First Year Cap Price
Ratio Ratio ---------------------------------------------
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 x Second Year Cap Price
Ratio Ratio ------------------------------------
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 for The Chase
Calculation Agent 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 not involved with this offering in any
Nokia Corporation 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 our Series C medium-term note
information on the Reset program. You can find a general description of our Series C medium-term note program
PERQS 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).
</TABLE>
PS-4
<PAGE>
HYPOTHETICAL PAYOUTS ON THE RESET PERQS
For each Reset PERQS, the following table illustrates, for a range of
First Year Closing Prices and Maturity Prices, any adjustments we would make to
the Exchange Ratio and the Second Year Cap Price and the resulting payout at
maturity and total return on each Reset PERQS.
<TABLE>
Initial Price Initial 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 $7.9875 $39.9375 0.20000 $54.12 $20.00 0.20000
2 $7.9875 $39.9375 0.20000 $54.12 $20.00 0.20000
3 $7.9875 $39.9375 0.20000 $54.12 $20.00 0.20000
4 $7.9875 $39.9375 0.20000 $54.12 $45.00 0.20000
5 $7.9875 $39.9375 0.20000 $54.12 $45.00 0.20000
6 $7.9875 $39.9375 0.20000 $54.12 $45.00 0.20000
7 $7.9875 $39.9375 0.20000 $54.12 $65.00 0.16652
8 $7.9875 $39.9375 0.20000 $54.12 $65.00 0.16652
9 $7.9875 $39.9375 0.20000 $54.12 $65.00 0.16652
10 $7.9875 $39.9375 0.20000 $54.12 $54.12 0.20000
^
|
135.51%
of Initial
Nokia ADR
Price
(table continued)
Reset PERQS Reset PERQS
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 $54.1200 $10.0000 0.20000 $2.00 $3.39
2 $54.1200 $45.0000 0.20000 $9.00 $10.39
3 $54.1200 $70.0000 0.15463 $10.82 $12.21
4 $60.9750 $35.0000 0.20000 $7.00 $8.39
5 $60.9750 $55.0000 0.20000 $11.00 $12.39
6 $60.9750 $85.0000 0.14347 $12.19 $13.58
7 $88.0750 $35.0000 0.16652 $5.83 $7.22
8 $88.0750 $75.0000 0.16652 $12.49 $13.88
9 $88.0750 $100.0000 0.14666 $14.67 $16.06
10 $73.3326 $73.3326 0.20000 $14.67 $16.06
^ ^
| |
Greater of (x) Maturity Price times
135.50% 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 $35.00, but in the seventh illustration the Payout
at Maturity is $7.22 compared to $8.39 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 $16.06, but in the ninth illustration,
the Maturity Price had to equal or exceed $100.00 to produce that payout, while
in the tenth illustration, a Maturity Price of only $73.3326 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.
<TABLE>
<S> <C>
Reset PERQS Are Not The Reset PERQS combine features of equity and debt. The terms of the Reset
Ordinary Senior Notes -- PERQS differ from those of ordinary debt securities in that we will not pay you a
No Guaranteed Return of fixed amount at maturity. Our payout to you at maturity will be a number of
Principal 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 limited because of the cap
Potential Is Limited prices. Even though the $7.9875 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 $14.67 as of February 26, 2003.
Secondary Trading There may be little or no secondary market for the Reset PERQS. Although the
May Be Limited Reset PERQS have been approved for listing on the American Stock Exchange
LLC, which we refer to as the AMEX, it is not possible to predict whether the
Reset PERQS will trade in the secondary market. Even if there is a secondary
market, it may not provide significant liquidity. MS & Co. currently intends to
act as a market maker for Reset PERQS but is not required to do so.
Market Price of the Reset Several factors, many of which are beyond our control, will influence the value
PERQS Influenced by Many of the Reset PERQS. We expect that generally the market price of Nokia
Unpredictable Factors 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 from 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
o the dividend rate on Nokia ADRs and Nokia ordinary shares
PS-6
<PAGE>
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 Nokia ADRs, which are quoted and traded in U.S. dollars, may trade differently
subject to currency exchange from Nokia ordinary shares, which are quoted and traded in euros. Fluctuations
rate risk in the exchange rate between the euro and the U.S. dollar may affect the U.S.
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 the depositary for the Nokia
Nokia Corporation 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 voting rights or rights to receive
Shareholder Rights dividends or other distributions or any other rights with respect to Nokia ADRs
prior to the time you receive Nokia ADRs at the maturity of the Reset PERQS.
Holders of the Nokia ADRs participate in the dividends, distributions and other
rights with respect to the Nokia ordinary shares only to the extent provided in the
depositary arrangements between Nokia and the depositary for the Nokia ADRs.
The Antidilution MS & Co., as calculation agent, will adjust the amount payable at maturity for
Adjustments We Are certain events affecting Nokia ADRs or Nokia ordinary shares, such as stock
Required to Make Do Not splits and stock dividends, and certain other corporate actions involving Nokia
Cover Every Corporate Corporation, such as mergers. However, the calculation agent is not required to
Event that Can Affect Nokia make an adjustment for every corporate event that can affect Nokia ADRs or
ADRs 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 Interest As calculation agent, our affiliate MS & Co. will calculate the payout to you at
Between You and the maturity of the Reset PERQS. MS & Co. and other affiliates may also carry out
Calculation Agent 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.
PS-8
<PAGE>
Because the Characterization You should also consider the tax consequences of investing in the Reset PERQS.
of the Reset PERQS for There is no direct legal authority as to the proper tax treatment of the Reset
Federal Income Tax Purposes PERQS, and therefore significant aspects of the tax treatment of the Reset
Is Uncertain, the Material PERQS are uncertain. Pursuant to the terms of the Reset PERQS, MSDW and
Federal Income Tax you agree to treat a Reset PERQS as an investment unit consisting of (i) a
Consequences of an forward contract pursuant to which you agree to purchase Nokia ADRs from us
Investment in the Reset at maturity and (ii) a deposit with us of a fixed amount of cash to secure your
PERQS Are Uncertain 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.
</TABLE>
PS-9
<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 $7.9875 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.............. $26,865,005.74
Maturity Date................. February 28, 2003
Interest Rate................. 8% per annum (equivalent to $0.639 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................... $7.9875 per Reset PERQS
Initial Nokia ADR Price....... $39.9375
Original Issue Date
(Settlement Date)............. December 27, 2000
CUSIP......................... 61744Y678
Denominations................. $7.9875 and integral multiples thereof
First Year Cap Price.......... $54.12 (135.51% 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) 135.50% of the First Year Closing Price
and (y) the First Year Cap Price. See
"Exchange at Maturity" below.
Maturity Price................ Maturity Price means the product of (i) the
Market Price of one 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
$7.9875 principal amount of such Reset PERQS
as payment for a number of Nokia ADRs at the
Exchange Ratio. The Exchange Ratio,
initially set at 0.20, is subject to
adjustment on the First Year Determination
Date and at maturity in order to cap the
PS-10
<PAGE>
value of Nokia ADRs to be received upon
delivery of the Reset PERQS at $14.67 per
Reset PERQS (183.66% 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) 135.50% of the
First Year Closing Price and (y) the First
Year Cap Price. Notice of the Second Year
Cap Price and of any such adjustment to the
Exchange Ratio shall promptly be sent by
first-class mail to The Depository Trust
Company, New York, New York (the "Depositary").
If the Maturity Price is less than or equal to
the Second Year Cap Price, no further
adjustment to the Exchange Ratio will be made.
If the Maturity Price exceeds the Second Year
Cap Price, the then existing Exchange Ratio
will be adjusted so that the final Exchange
Ratio will equal the product of (i) the
existing Exchange Ratio and (ii) a fraction
the numerator of which will be the Second Year
Cap Price and the denominator of which will be
the Maturity Price. Please review each example
in the table called "Hypothetical Payouts on
the Reset PERQS" on PS-5.
All calculations with respect to the Exchange
Ratios for the Reset PERQS will be rounded to
the nearest one hundred-thousandth, with five
one-millionths rounded upwards (e.g., .876545
would be rounded to .87655); all calculations
with respect to the Second Year Cap Price will
be rounded to the nearest ten-thousandth, with
five one-hundred-thousandths rounded upwards
(e.g., $12.34565 would be rounded to
$12.3457); and all dollar amounts related to
payouts at maturity resulting from such
calculations will be rounded to the nearest
cent with one-half cent being rounded upwards.
We shall, or shall cause the Calculation
Agent to, (i) provide written notice to the
Trustee and to the Depositary, on or prior to
10:30 a.m. on the Exchange Trading Day
immediately prior to maturity of the Reset
PERQS, of the amount of Nokia ADRs to be
delivered with respect to each $7.9875
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
PS-11
<PAGE>
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.
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
PS-12
<PAGE>
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 $7.9875 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 has 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 split or reverse stock
split, no adjustment of the Exchange Factor
shall be made.
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;
PS-13
<PAGE>
provided, however that if (and to the extent
that) Nokia or the depositary for the Nokia
ADRs has 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 and as passed through to
holders of Nokia ADRs, constitute
Extraordinary ADR Dividends as described
below. A cash dividend or other distribution
paid 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 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
PS-14
<PAGE>
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 or the depositary for the Nokia ADRs has
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 $7.9875 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 (i) in the case of the issuance of
tracking stock or a Spin-off Event, the Nokia
ADRs with respect to which the tracking stock
or spun-off security was issued and (ii) in
the case of any other Reorganization Event
where the Nokia ADRs continue to be held by
the holders receiving such distribution, the
Nokia ADRs (collectively, the "Exchange
Property") in an amount with a value equal to
the product of the final Exchange Ratio and
the Transaction Value; provided, however, that
if Nokia or the depository for the Nokia ADRs
has adjusted the Nokia ADRs so that they
represent all of the Exchange Property, no
adjustment to the method of calculating the
Exchange Ratio or of determining the Maturity
Price will be made. 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
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
PS-15
<PAGE>
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 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 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
PS-16
<PAGE>
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 $14.67 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 to the method of
calculating the amount payable upon exchange
at maturity of the Reset PERQS in accordance
with paragraph 5 above upon written request
by any holder of the Reset PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect
to 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
(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
PS-17
<PAGE>
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 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.
PS-18
<PAGE>
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 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 21, 2000. The
Market Price of Nokia ADRs on December 21,
2000 was $39.9375. 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
PS-19
<PAGE>
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>
High Low Dividend
---- --- --------
(CUSIP 654902204)
1997
<S> <C> <C> <C>
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
21, 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
second 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,
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.
PS-20
<PAGE>
High Low Period End
---- --- ----------
1999
First Quarter..... euro euro euro
1.1837 1.0732 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
21, 2000)........ .9166 .8272 .9166
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.
On the date of this pricing supplement, we,
through our subsidiaries or others, hedged
our anticipated exposure in connection with
the Reset PERQS by taking positions in Nokia
ADRs and other instruments. Purchase
activity could have potentially increased the
price of Nokia ADRs, and therefore
effectively have increased 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. 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 activity. Although we have no
reason to believe that our hedging activity
had or will have a material impact on the
price
PS-21
<PAGE>
of Nokia ADRs, we cannot give any assurance
that we did not, or in the future will not,
affect such price as a result of our hedging
activities.
Supplemental Information
Concerning Plan of
Distribution.................. 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 $7.8676875 per Reset PERQS
and the underwriting discounts and commissions
will be $.0001875 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 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
PS-22
<PAGE>
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 and 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 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.
PS-23
<PAGE>
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 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 $7.9875 (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
PS-24
<PAGE>
obligation to purchase Nokia ADRs (the
"Deposit"), which Deposit bears an annual
yield of 5.869% 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. Accordingly, the excess of the
quarterly payments on the Reset PERQS over the
portion of those payments attributable to the
yield on the Deposit will represent payments
attributable to the holders' entry into the
Forward Contract (the "Contract Fees").
Furthermore, based on our determination of the
relative fair market values of the Components
at the time of issuance of the Reset PERQS, we
will allocate 100% of the Issue Price of the
Reset PERQS to the Deposit and none to the
Forward Contract. Our allocation of the Issue
Price among the Components will be binding on
a holder of the Reset PERQS, unless such
holder timely and explicitly discloses to the
IRS that its allocation is different from
ours. The treatment of the Reset PERQS
described above and our allocation are not,
however, binding on the IRS or the courts. No
statutory, judicial or administrative
authority directly addresses the
characterization of the Reset PERQS or
instruments similar to the Reset PERQS for
U.S. federal income tax purposes, and no
ruling is being requested from the IRS with
respect to the Reset PERQS. Due to the absence
of authorities that directly address
instruments that are similar to the Reset
PERQS, Tax Counsel is unable to render an
opinion as to the proper U.S. federal income
tax characterization of the Reset PERQS. As a
result, significant aspects of the U.S.
federal income tax consequences of an
investment in the Reset PERQS are not certain,
and no assurance can be given that the IRS or
the courts will agree with the
characterization described herein.
Accordingly, you are urged to consult your tax
advisor regarding the U.S. federal income tax
consequences of an investment in the Reset
PERQS (including alternative characterizations
of the Reset PERQS) and with respect to any
tax consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
Unless otherwise stated, the following
discussion is based on the treatment and the
allocation described above.
U.S. Holders
As used herein, the term "U.S. Holder" means
an owner of a Reset PERQS that is, for U.S.
federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a
corporation created or organized under the
laws of the United States or any political
subdivision thereof or (iii) an estate or
trust the income of which is subject to United
States federal income taxation regardless of
its source.
Tax Treatment of the Reset PERQS
Assuming the characterization of the Reset
PERQS and the allocation of the Issue Price as
set forth above, Tax Counsel believes that the
following U.S. federal income tax consequences
should result.
Quarterly Payments on the Reset PERQS. To the
extent attributable to the yield on the
Deposit, quarterly payments on the Reset PERQS
will generally be taxable to a U.S. Holder as
ordinary income at the time accrued or
received in accordance with the U.S. Holder's
method of accounting for U.S. federal income
tax purposes. As discussed above, any excess
of the quarterly payments over the
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<PAGE>
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 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
PS-26
<PAGE>
may be. Such U.S. Holder's tax basis in the
Reset PERQS would generally equal the U.S.
Holder's tax basis in the Deposit. For these
purposes, the amount realized does not include
any amount attributable to accrued but unpaid
interest payments on the Deposit, which would
be taxed as described under "--Quarterly
Payments on the Reset PERQS" above. It is
uncertain whether the amount realized includes
any amount attributable to accrued but unpaid
Contract Fees. U.S. Holders should consult
their tax advisors regarding the treatment of
accrued but unpaid Contract Fees upon the sale
or exchange of a Reset PERQS.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that
directly address the proper characterization
of the Reset PERQS, no assurance can be given
that the IRS will accept, or that a court will
uphold, the characterization and tax treatment
described above. In particular, the IRS could
seek to analyze the U.S. federal income tax
consequences of owning a Reset PERQS under
Treasury regulations governing contingent
payment debt instruments (the "Contingent
Payment Regulations").
If the IRS were successful in asserting that
the Contingent Payment Regulations applied to
the Reset PERQS, the timing and character of
income thereon would be significantly
affected. Among other things, a U.S. Holder
would be required to accrue as original issue
discount income, subject to adjustments, at a
"comparable yield" on the Issue Price. In
addition, a U.S. Holder would recognize income
upon maturity of the Reset PERQS to the extent
that the value of 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
regime to the Reset PERQS. If Section 1260
were to apply to the
PS-27
<PAGE>
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.
PS-28
<PAGE>
MORGAN STANLEY DEAN WITTER & CO.
