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
they 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 January 11, 2001
PROSPECTUS Dated May 18, 2000 Pricing Supplement No. 53 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-34392
Dated May 18, 2000 Dated , 2000
Rule 424(b)(3)
$25,000,000
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
---------
PERKS due March 30, 2004
Mandatorily Exchangeable for an Amount Payable in U.S. Dollars
based on the value of
the NASDAQ-100 INDEX(R)
Performance Equity Return linKed Securities(SM)
("PERKS(SM)")
The PERKS do not guarantee any return of principal at maturity. Instead, the
PERKS will pay at maturity an amount of cash based on the closing value of the
Nasdaq-100 Index at maturity, subject to a maximum payment of $ per PERKS
and a multiplier that protects your investment from a decline of up to 25% in
the value of the Nasdaq-100 Index.
o The issue price of each PERKS is $ , which is one one-hundredth of the
closing value of the Nasdaq-100 Index on January , 2001, the day we offer
the PERKS for initial sale to the public.
o At maturity you will receive an amount of cash for each PERKS equal to one
one-hundredth of the final closing value of the Nasdaq-100 Index at
maturity times the multiplier, subject to a maximum payment of $ per
PERKS. If the closing value of the Nasdaq-100 Index at maturity is equal
to or greater than the initial index value, the multiplier will be 100%.
But if the closing value of the Nasdaq-100 Index at maturity is less than
the initial index value, the multiplier will equal the initial index value
divided by the final index value, provided that the multiplier will not
exceed 133.34%.
o We will pay 0.04% interest (equivalent to $ per year) on the $
issue price of each PERKS. Interest will be paid semi-annually, beginning
on September 30, 2001.
o We will apply to list the PERKS to trade under the proposed symbol "PPN"
on the American Stock Exchange, Inc., subject to meeting its listing
requirements.
Investing in PERKS is not equivalent to investing in the Nasdaq-100 Index or
its component stocks. You should read the more detailed description of the
PERKS in this pricing supplement. In particular, you should review and
understand the descriptions in "Summary of Pricing Supplement" and "Description
of PERKS."
The PERKS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-6.
----------------------------
PRICE $ PER PERKS
----------------------------
Agent's Proceeds to
Price to Public(1) Commissions the Company(1)
------------------ ----------- --------------
Per PERKS......... $ $ $
Total............. $ $ $
---------
(1) Plus accrued interest, if any, from the Original Issue Date.
If you purchase at least 100,000 PERKS 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 PERKS (98% of the issue price). In that case, the
underwriting discounts and commissions will be $ per PERKS.
MORGAN STANLEY DEAN WITTER
ADVEST, INC. ROBERT W. BAIRD & CO.
A.G. EDWARDS & SONS, INC. JANNEY MONTGOMERY SCOTT LLC
LEGG MASON WOOD WALKER MCDONALD INVESTMENTS INC.
INCORPORATED
<PAGE>
(This page intentionally left blank)
PS-2
<PAGE>
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the PERKS 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 PERKS offered are medium-term debt securities of Morgan Stanley Dean
Witter & Co. The return on the PERKS is linked to the performance of the
Nasdaq-100 Index. Unlike ordinary debt securities, the PERKS do not guarantee
any return of their principal amount at maturity. Instead, at maturity, the
PERKS pay an amount in cash based on the closing value of the Nasdaq-100 Index,
subject to a maximum payment of $ per PERKS and a multiplier that protects
your investment from a decline of up to 25% in the value of the Nasdaq-100
Index. We may not redeem the PERKS prior to maturity.
"Performance Equity Return linKed Securities" and "PERKS" are our service
marks.
<TABLE>
<S> <C>
Each PERKS We, Morgan Stanley Dean Witter & Co., are offering Performance Equity Return linKed
costs $ Securities(SM) due March 30, 2004, which we refer to as the PERKS(SM). The issue price of
each PERKS is $ , which is one one-hundredth, or .01, of the value of the Nasdaq-100
Index on the day we offer the PERKS for initial sale to the public.
No guaranteed return Unlike ordinary debt securities, the PERKS do not guarantee any return of principal at
of principal maturity. Instead, the PERKS will pay an amount in cash equal to one one-hundredth the
final index value of the Nasdaq-100 Index times the multiplier, subject to a maximum
payment of $ per PERKS. If the final index value of the Nasdaq-100 Index is equal to
or greater than the initial index value of the Nasdaq-100 Index, the multiplier will be 100%.
But if the final index value is less than the initial index value, the multiplier will equal the
initial index value divided by the final index value, provided that the multiplier will not
exceed 133.34%. Investing in PERKS is not equivalent to investing in the Nasdaq-100
Index.
0.04% interest on the We will pay interest on the PERKS, at the rate of 0.04% of the issue price per year,
issue price semi-annually on each March 30 and September 30, beginning September 30, 2001. The
interest rate we will pay on the PERKS is equal to the current dividend yield on the
Nasdaq-100 Index, but will not be adjusted for any future changes in the dividend yield.
The maximum payment The appreciation potential of each PERKS is limited to $ per PERKS.
per PERKS is $
Payment at Maturity Investing in PERKS is not equivalent to investing in the stocks included in the Nasdaq-100
Index. At maturity, for each PERKS you hold, we will pay to you an amount of cash equal
to the final index value times .01 times the multiplier, subject to a maximum payment of $
per PERKS.
If the final index value is greater than or equal to the initial index value, the multiplier
will be 100% and the payment amount per PERKS will be calculated as follows:
Payment at Maturity = Final Index Value * .01
subject to a maximum payment of $ per PERKS.
PS-3
<PAGE>
If the final index value is less than the initial index value, the payment amount per
PERKS will be calculated as follows:
Payment at Maturity = Final Index Value * .01 * Multiplier
where the Multiplier is equal to:
Initial Index Value
-------------------
Final Index Value
provided that in no event will the Multiplier exceed 133.34%.
On the next page, we have provided a table and graph titled "Hypothetical Payments on the
PERKS." The table and graph illustrate the performance of the PERKS at maturity under
a variety of hypothetical index level scenarios. You should examine the table and graph for
examples of how the payout on the PERKS could be affected under these or other potential
index level scenarios. The table and graph do not show every situation that may occur.
Nasdaq-100 Index is The closing value of the Nasdaq-100 Index on January 11, 2001, as published by The
currently at 2524.29 Nasdaq Stock Market, Inc., which we refer to as Nasdaq, was 2524.29. You can review the
publicly reported closing values of the Nasdaq-100 Index since 1996 in the "Historical
Information" section of this pricing supplement. The payment of dividends on the stocks
which compose, or underlie, the Nasdaq-100 Index, which we refer to as the Nasdaq-100
Index Component Securities, is not reflected in the level of the Nasdaq-100 Index and,
therefore, has no effect on our calculation of the multiplier or the payment at maturity. The
historical performance of the Nasdaq-100 Index should not be taken as an indication of what
the value of the Nasdaq-100 Index will be at maturity.
MS & Co. will be the We have appointed our affiliate Morgan Stanley & Co. Incorporated, which we refer to as
Calculation Agent 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 final index value and the
multiplier for the PERKS at maturity and calculate the payment at maturity.
Where you can find The PERKS are senior notes issued as part of our Series C medium-term note program.
more information You can find a general description of our Series C medium-term note program in the
on the PERKS 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 PERKS including the specific mechanics and
timing of the payment determinations, you should read the "Description of PERKS"
section in this pricing supplement. You should also read about some of the risks
involved in investing in PERKS in the section called "Risk Factors." The tax and
accounting treatment of investments in equity-linked notes such as the PERKS 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 PERKS.
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).
</TABLE>
PS-4
<PAGE>
HYPOTHETICAL PAYMENTS ON THE PERKS
For each PERKS, the following table and graph illustrate, for a range of
hypothetical Final Index Values, the amount of cash you will receive at
maturity on each PERKS. The table and graph assume an Issue Price of $25.00,
an Initial Index Value of 2500, a maximum Multiplier of 133.34 and a maximum
Payment at Maturity of $50 per PERKS.
[GRAPHIC OMITTED]
Final Initial Index Initial Cash
Index Index Percent Exchange PERKS Settlement
Value Value Change Ratio Multiplier Price Value
----- ------- ------- -------- ---------- ------- ----------
6000 2500 140% .01 100.00% $25.00 $50.00
5750 2500 130% .01 100.00% $25.00 $50.00
5500 2500 120% .01 100.00% $25.00 $50.00
5250 2500 110% .01 100.00% $25.00 $50.00
5000 2500 100% .01 100.00% $25.00 $50.00
4750 2500 90% .01 100.00% $25.00 $47.50
4500 2500 80% .01 100.00% $25.00 $45.00
4250 2500 70% .01 100.00% $25.00 $42.50
4000 2500 60% .01 100.00% $25.00 $40.00
3750 2500 50% .01 100.00% $25.00 $37.50
3500 2500 40% .01 100.00% $25.00 $35.00
3250 2500 30% .01 100.00% $25.00 $32.50
3000 2500 20% .01 100.00% $25.00 $30.00
2750 2500 10% .01 100.00% $25.00 $27.50
2500 2500 0 .01 100.00% $25.00 $25.00
2250 2500 -10% .01 111.11% $25.00 $25.00
2000 2500 -20% .01 125.00% $25.00 $25.00
1875 2500 -25% .01 133.34% $25.00 $25.00
1750 2500 -30% .01 133.34% $25.00 $23.33
1500 2500 -40% .01 133.34% $25.00 $20.00
1250 2500 -50% .01 133.34% $25.00 $16.67
1000 2500 -60% .01 133.34% $25.00 $13.33
750 2500 -70% .01 133.34% $25.00 $10.00
PS-5
<PAGE>
RISK FACTORS
The PERKS are not secured debt and are riskier than ordinary debt
securities. The payment you receive at maturity is linked to the performance of
the Nasdaq-100 Index, and the PERKS do not guarantee any return of principal.
To the extent that the final index value of the Nasdaq-100 Index at maturity is
less than 75% of the initial index value of the Nasdaq-100 Index, you will
receive less than your initial investment. This section describes the most
significant risks relating to the PERKS. You should carefully consider whether
the PERKS are suited to your particular circumstances before you decide to
purchase them.
<TABLE>
<S> <C>
PERKS Are Not The PERKS combine features of equity and debt. The terms of the PERKS differ from
Ordinary Senior those of ordinary debt securities in that we will not pay you a fixed amount at maturity.
Notes -- No Guaranteed Our payment to you at maturity will be an amount in cash based on the final index
Return of Principal value of the Nasdaq-100 Index at maturity, subject to a maximum payment of $ per
PERKS and a multiplier that protects your investment from a decline of up to 25% in
the value of the Nasdaq-100 Index. If the final index value of the Nasdaq-100 Index
at maturity is less than (75% of the initial index value), we will pay to
you an amount in cash based on the value of the Nasdaq-100 Index that is less
than the issue price of the PERKS. Further, in the event the Nasdaq-100 Index
were to decline substantially more than 25%, you could see a substantial or
complete loss of your investment. See "Hypothetical Payments on the PERKS"
above.
Your Appreciation The $ issue price of one PERKS is equal to one one-hundredth of the closing value
Potential Is Limited of the Nasdaq-100 Index on the day we priced this offer of PERKS. The maximum you
can receive at maturity is $ per PERKS or % of the issue price. As a result, you
will not share in any appreciation of the Nasdaq-100 Index above % of the value of
the Nasdaq-100 Index on the day we offer the PERKS for initial sale to the public. See
"Hypothetical Payments on the PERKS" above.
Secondary Trading May There may be little or no secondary market for the PERKS. Although we will apply to
Be Limited list the PERKS on the American Stock Exchange, Inc., 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 PERKS but is not required to do so.
Market Price of the Several factors, many of which are beyond our control, will influence the value of the
PERKS Influenced by PERKS. We expect that generally the value of the Nasdaq-100 Index on any day
Many Unpredictable will affect the value of the PERKS more than any other single factor. Other factors
Factors that may influence the value of the PERKS include:
o the volatility (frequency and magnitude of changes in value) of the
Nasdaq-100 Index
o economic, financial, political, regulatory or judicial events that affect
securities underlying the Nasdaq-100 Index or stock markets generally and
which may affect the index value
o interest and yield rates in the market
o the time remaining to the maturity of the PERKS
o the dividend rate on the Nasdaq-100 Index component securities
o our creditworthiness
PS-6
<PAGE>
Some or all of these factors will influence the price you will receive if you sell your
PERKS prior to maturity. For example, you may have to sell your PERKS at a
discount from the issue price if the value of the Nasdaq-100 Index is less than the initial
index value at the time you sell your PERKS. This discount may be substantial if the
value of the Nasdaq-100 Index is substantially below the initial index value at the time
you sell your PERKS.
You cannot predict the future performance of the Nasdaq-100 Index based on its
historical performance. The value of the Nasdaq-100 Index may decrease so that the
payment you will receive at maturity will be worth less than the issue price of the
PERKS. We cannot guarantee that the value of the Nasdaq-100 Index will increase so
that you will receive at maturity an amount in excess of the issue price of the PERKS or
that the value of the Nasdaq-100 Index will not increase beyond % of the initial
index value. You will no longer share in the performance of the Nasdaq-100 Index at
index values above % of the initial index value.
Adjustments to the Nasdaq is responsible for calculating and maintaining the Nasdaq-100 Index. Nasdaq
Nasdaq-100 Index Could can add, delete or substitute the stocks underlying the Nasdaq-100 Index or make other
Adversely Affect the methodological changes that could change the value of the Nasdaq-100 Index. Nasdaq
Value of the PERKS may discontinue or suspend calculation or dissemination of the Nasdaq-100 Index.
Any of these actions could adversely affect the value of the PERKS.
Our Hedging Activity MS & Co. and its affiliates may carry out hedging activities related to PERKS or to
Could Adversely Affect other instruments, including trading in the stocks included in the Nasdaq-100 Index as
the Value of the PERKS well as in other instruments related to, based on or linked to the Nasdaq-100 Index.
Any of these activities could adversely affect the value of the Nasdaq-100 Index and,
accordingly, the value of the PERKS.
Because the You should also consider the tax consequences of investing in the PERKS. There is no
Characterization of the statutory, judicial or administrative authority which directly addresses the
PERKS for Federal characterization of the PERKS or instruments similar to the PERKS for U.S. federal
Income Tax Purposes is income tax purposes, and therefore significant aspects of the tax treatment of the
Uncertain, the Material PERKS are uncertain. Pursuant to the terms of the PERKS, MSDW and you agree to
Federal Income Tax treat the PERKS as prepaid cash settlement forward contracts with respect to the
Consequences of an Nasdaq-100 Index, as described in "Description of PERKS--United States Federal
Investment in the PERKS Income Taxation--General." You will be required to characterize the PERKS for all
Are Uncertain tax purposes in this manner (absent an administrative determination or judicial ruling to
the contrary) even if your tax advisor would otherwise adopt an alternative
characterization. If the Internal Revenue Service ("IRS") were successful in asserting
an alternative characterization for the PERKS, the timing and character of income on
the PERKS may differ. We do not plan to request a ruling from the Internal Revenue
Service ("IRS") regarding the tax treatment of the PERKS, 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 PERKS--United States Federal Income
Taxation" in this pricing supplement.
</TABLE>
PS-7
<PAGE>
DESCRIPTION OF PERKS
Terms not defined herein have the meanings given to such terms in the
accompanying prospectus supplement. The term "PERKS" refers to each $
principal amount of our PERKS due March 30, 2004, Mandatorily Exchangeable For
an Amount Payable in U.S. Dollars based on the Value of the Nasdaq-100 Index.
In this pricing supplement, the terms "MSDW," "we," "us," and "our" refer to
Morgan Stanley Dean Witter & Co.
Principal Amount.............. $
Original Issue Date
(Settlement Date)............. January , 2001
Maturity Date................. March 30, 2004
Specified Currency............ U.S. Dollars
Issue Price................... $ per PERKS
Interest Rate................. 0.04% per annum
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.
Interest Payment Dates........ Each March 30 and September 30, beginning
September 30, 2001
CUSIP......................... 61744Y660
Denominations................. $ and integral multiples thereof
Initial Index Value...........
Final Index Value............. The Final Index Value will be the Index
Closing Value on the fourth scheduled Trading
Day prior to the Maturity Date.
If a Market Disruption Event occurs on the
fourth scheduled Trading Day prior to the
Maturity Date, the Final Index Value will be
determined on the immediately succeeding
Trading Day during which no Market Disruption
Event occurs; provided that the Final Index
Value will not be determined on a date later
than the second scheduled Trading Day
preceding the Maturity Date, and if such date
is not a Trading Day, or if there is a Market
Disruption Event on such date, the
Calculation Agent will determine the value of
the Nasdaq- 100 Index on such date in
accordance with the formula for and method of
calculating the Nasdaq-100 Index last in
effect prior to the commencement of the
Market Disruption Event (or prior to the
non-Trading Day), using the closing price
(or, if trading in the relevant securities
has been materially suspended or materially
limited, its good faith estimate of the
closing price that would have prevailed but
for such suspension or limitation or
non-Trading Day) on such date of each
security most recently constituting the
Nasdaq-100 Index.
Multiplier.................... The Multiplier will be based on the Final
Index Value, and will be determined as
follows:
PS-8
<PAGE>
If the Final Index Value is greater than or
equal to the Initial Index Value:
Multiplier = 100%
If Final Index Value is less than the Initial
Index Value:
Multiplier = Initial Index Value
-------------------
Final Index Value
provided that in no event will the Multiplier
exceed 133.34%
Cash Settlement Value......... The Cash Settlement Value equals a dollar
amount of cash per PERKS calculated as
follows:
Cash Settlement Value = Final Index Value
* .01 * Multiplier
provided that in no event will the Cash
Settlement Value exceed $ .
Payment at Maturity........... At maturity, upon delivery of each PERKS to
the Trustee, we will pay for each PERKS an
amount in cash equal to the Cash Settlement
Value, plus any accrued but unpaid interest.
All calculations with respect to the Final
Index Value, the Multiplier and the Cash
Settlement Value of the PERKS will be rounded
to the nearest one ten-millionth, with five
hundred-millionths rounded upwards (e.g.,
.98765435 would be rounded to .9876544) and
all dollar amounts related to payments 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 PERKS, of the
payment to be delivered with respect to each
PERKS and (ii) deliver such payment in cash
to the Trustee for delivery to the holders.
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.
Index Closing Value........... The Index Closing Value on any Trading Day
will equal the closing value of the
Nasdaq-100 Index or any Successor Index at
the regular official weekday close of the
principal trading session of the Nasdaq
National Market on that Trading Day. See
"--Discontinuance of the Nasdaq-100 Index;
Alteration of Method of Calculation."
Optional Redemption........... We will not redeem the PERKS prior to the
Maturity Date.
Book Entry Note
or Certificated Note.......... Book Entry
PS-9
<PAGE>
Senior Note or Subordinated
Note.......................... Senior
Trustee....................... The Chase Manhattan Bank
Agent for the underwritten
offering of the PERKS......... MS & Co.
Market Disruption Event....... "Market Disruption Event" means with respect
to the Nasdaq-100 Index, the occurrence or
existence of either of the following events
as determined by the Calculation Agent:
(i) a suspension, material limitation or
absence of trading of stocks then
constituting 20 percent or more of the
level of the Nasdaq-100 Index (or the
relevant Successor Index) on the Relevant
Exchanges for such securities for more
than two hours of trading or during the
one-half hour period preceding the close
of the principal trading session on such
Relevant Exchange or a breakdown or
failure in the price and trading systems
of any Relevant Exchange as a result of
which the reported trading prices for
stocks then constituting 20 percent or
more of the level of the Nasdaq-100 Index
(or the relevant Successor Index) during
the last one-half hour preceding the
closing of the principal trading session
on such Relevant Exchange are materially
inaccurate; or the suspension, material
limitation or absence of trading on any
major U.S. securities market of trading in
futures or options contracts related to the
Nasdaq-100 Index (or the relevant
Successor Index) for more than two hours
of trading or during the one-half hour
period preceding the close of the
principal trading session on such market;
and
(ii) a determination by the Calculation
Agent in its sole discretion that the
event described in clause (i) above
materially interfered with the ability of
MSDW or any of its affiliates to adjust or
unwind all or a material portion of the
hedge with respect to the PERKS.
For the purpose of determining whether a
Market Disruption Event exists at any time,
if trading in a security included in the
Nasdaq-100 Index is materially suspended or
materially limited at that time, then the
relevant percentage contribution of that
security to the level of the Nasdaq-100 Index
shall be based on a comparison of (x) the
portion of the level of the Nasdaq-100 Index
attributable to that security relative to (y)
the overall level of the Nasdaq-100 Index, in
each case immediately before that suspension
or limitation.
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 or market, (2)
a decision to permanently discontinue trading
in the relevant futures or options contract
will not constitute a Market Disruption
Event, (3) limitations pursuant to the rules
of any Relevant Exchange similar to NYSE Rule
80A (or any applicable rule or regulation
enacted or promulgated by any other
self-regulatory organization or any
government agency of
PS-11
<PAGE>
similar scope as determined by the Calculation
Agent) on trading during significant market
fluctuations will constitute a suspension,
absence or material limitation of trading, (4)
a suspension of trading in a futures or
options contract on the Nasdaq-100 Index by
the primary securities market related to such
contract by reason of (a) a price change
exceeding limits set by such exchange or
market, (b) an imbalance of orders relating to
such contracts or (c) a disparity in bid and
ask quotes relating to such contracts will
constitute a suspension or material limitation
of trading in futures or options contracts
related to the Nasdaq-100 Index and (5) a
"suspension, absence or material limitation of
trading" on any Relevant Exchange or on the
primary market on which futures or options
contracts related to the Nasdaq-100 Index are
traded will not include any time when such
market is itself closed for trading under
ordinary circumstances.
Relevant Exchange............. "Relevant Exchange" means the primary U.S.
organized exchange or market of trading for
any security (or any combination thereof)
then included in the Nasdaq-100 Index or any
Successor Index.
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, the economic interests of the
Calculation Agent and its affiliates may be
adverse to your interests, as the holder of
the PERKS, including with respect to certain
determinations and judgments that the
Calculation Agent must make in determining
whether a Market Disruption Event has
occurred, which could in turn adversely affect
the Cash Settlement Value you receive at
maturity. See "Discontinuance of the
Nasdaq-100 Index; Alteration of Method of
Calculation" below and "Market Disruption
Event" above. MS & Co., as a registered
broker-dealer, is required to maintain
policies and procedures regarding the
handling and use of confidential proprietary
information, and such policies and procedures
will be in effect throughout the term of the
PERKS to restrict the use of information
relating to the calculation of the Final
Index Value, the Multiplier and the Cash
Settlement Value prior to the dissemination
of such information. MS & Co. is obligated
to carry out its duties and functions as
Calculation Agent in good faith and using its
reasonable judgment.
Nasdaq-100 Index.............. We have derived all information contained in
this pricing supplement regarding the
Nasdaq-100 Index, including, without
limitation, its make-up, method of
calculation and changes in its components,
from publicly available information. Such
information reflects the policies of, and is
subject to change by, Nasdaq. The Nasdaq-100
Index was developed by Nasdaq, is calculated
and maintained by Nasdaq and was first
published in January 1985.
The Nasdaq-100 Index is a modified
capitalization-weighted index of 100 of the
largest non-financial companies listed on the
Nasdaq
ps-12
<PAGE>
National Market tier of the Nasdaq Stock
Market. The Nasdaq-100 Index constitutes a
broadly diversified segment of the largest and
most actively traded securities listed on the
Nasdaq Stock Market, and includes companies
across a variety of major industry groups. At
any moment in time, the value of the
Nasdaq-100 Index equals the aggregate value of
the then-current Nasdaq-100 Index share
weights of each of the Nasdaq-100 Index
Component Securities, which are based on the
total shares outstanding of each such
Nasdaq-100 Index Component Security,
multiplied by each such security's respective
last sale price on the Nasdaq Stock Market,
and divided by a scaling factor (the
"divisor"), which becomes the basis for the
reported Nasdaq-100 Index value. The divisor
serves the purpose of scaling such aggregate
value (otherwise in the trillions) to a lower
order of magnitude which is more desirable for
Nasdaq-100 Index reporting purposes.
To be eligible for inclusion in the Nasdaq-100
Index, a security must be traded on the Nasdaq
National Market tier of the Nasdaq Stock
Market and meet the other eligibility
criteria, including the following: the
security must be of a non-financial company;
only one class of security per issuer is
allowed; the security may not be issued by an
issuer currently in bankruptcy proceedings;
the security must have average daily trading
volume of at least 100,000 shares per day; the
security must have been listed on a market for
at least two years (in the case of a spin-off,
the operating history of the spin-off will be
considered), or a one year period if a
security would otherwise qualify to be in the
top 25% of the issuers included in the
Nasdaq-100 Index by market capitalization; if
the security is of a foreign issuer, the
company must have a worldwide market value of
at least $10 billion, a U.S. market value of
at least $4 billion, and average trading
volume on the Nasdaq Stock Market of at least
200,000 shares per day; in addition, foreign
securities must be eligible for listed options
trading; and the issuer of the security may
not have entered into a definitive agreement
or other arrangement which would result in the
security no longer being listed on the Nasdaq
Stock Market within the next six months.
The securities in the Nasdaq-100 Index are
monitored every day by Nasdaq with respect to
changes in total shares outstanding arising
from secondary offerings, stock repurchases,
conversions, or other corporate actions. The
following quarterly scheduled weight
adjustment procedures have been adopted to
adjust for such changes. If the change in
total shares outstanding arising from such
corporate action is greater than or equal to
5.0%, such change is ordinarily made to the
Nasdaq-100 Index on the evening prior to the
effective date of such corporate action.
Otherwise, if the change in total shares
outstanding is less than 5.0%, then all such
changes are accumulated and made effective at
one time on a quarterly basis after the close
of trading on the third Friday in each of
March, June, September, and December. In
either case, the Nasdaq-100 Index share
weights for such Nasdaq-100 Index Component
Securities are adjusted by the same percentage
amount by which the total shares outstanding
have changed in such Nasdaq-100 Index
Component Securities. Ordinarily, whenever
there is a change in Nasdaq-100 Index share
weights or a change in a component security
included in the Nasdaq-100 Index, Nasdaq
PS-13
<PAGE>
adjusts the divisor to assure that there is no
discontinuity in the value of the Nasdaq-100
Index which might otherwise be caused by any
such change.
Additionally, Nasdaq may periodically
(ordinarily, several times per quarter)
replace one or more component securities in
the Nasdaq-100 Index due to mergers,
acquisitions, bankruptcies, or other market
conditions, or due to delisting if an issuer
chooses to list its securities on another
marketplace, or if the issuers of such
component securities fail to meet the criteria
for continued inclusion in the Nasdaq-100
Index.
The Nasdaq-100 Index share weights are also
subject, in certain cases, to a rebalancing in
order to ensure that the relative weightings
of the index securities continue to meet
minimum pre-established requirements for a
diversified portfolio (see "Rebalancing of the
Nasdaq-100 Index for Modified
Capitalization-weighted Methodology" below).
The table under "Historical Information" below
shows the actual performance of the Nasdaq-100
Index for the period between January 1, 1996
and January 11, 2001. Stock prices fluctuated
widely during this period and were higher at
the end than at the beginning. The results
shown should not be considered as a
representation of the income yield or capital
gain or loss that may be generated by the
Nasdaq-100 Index in the future. In addition,
after the close of trading on December 18,
1998, the Nasdaq-100 Index share weights of
the Nasdaq-100 Index Component Securities were
rebalanced in accordance with the "modified
capitalization weighted" methodology
implemented on such date (see "Rebalancing of
the Nasdaq-100 Index for Modified
Capitalization-weighted Methodology" below).
As a result, the performance of the Nasdaq-100
Index after December 18, 1998 reflects the
performance of the Nasdaq-100 Index Component
Securities as calculated in accordance with
the revised Nasdaq-100 Index methodology.
Annual Ranking Review
The Nasdaq-100 Index Component Securities are
evaluated annually, the "Annual Ranking
Review," as described below. Securities listed
on the Nasdaq Stock Market which meet the
eligibility criteria described above are
ranked by market value. Nasdaq-100
Index-eligible securities which are already in
the Nasdaq-100 Index and which are in the top
150 eligible securities (based on market
value) are retained in the Nasdaq-100 Index
provided that such security was ranked in the
top 100 eligible securities as of the previous
year's annual review. Securities not meeting
such criteria are replaced. The replacement
securities chosen are the largest market
capitalization Nasdaq-100 Index-eligible
securities not currently in the Nasdaq-100
Index. The list of annual additions and
deletions is publicly announced via a press
release in the early part of December.
Replacements are made effective after the
close of trading on the third Friday in
December. Moreover, if at any time during the
year a Nasdaq-100 Index Component Security is
no longer traded on the Nasdaq Stock Market,
or is otherwise determined by Nasdaq to become
ineligible
PS-13
<PAGE>
for continued inclusion in the Nasdaq-100
Index, the security will be replaced with the
largest market capitalization security not
currently in the Nasdaq-100 Index and meeting
the Nasdaq-100 Index eligibility criteria
listed above.
Rebalancing of the Nasdaq-100 Index for
Modified Capitalization-weighted Methodology
Effective after the close of trading on
December 18, 1998, the Nasdaq-100 Index has
been calculated under a "modified
capitalization-weighted" methodology, which is
a hybrid between equal weighting and
conventional capitalization weighting. This
methodology is expected to: (1) retain in
general the economic attributes of
capitalization weighting; (2) promote
portfolio weight diversification (thereby
limiting domination of the Nasdaq-100 Index by
a few large stocks); (3) reduce Nasdaq-100
Index performance distortion by preserving the
capitalization ranking of companies; and (4)
reduce market impact on the smallest
Nasdaq-100 Index Component Securities from
necessary weight rebalancings.
Under the methodology employed, on a quarterly
basis coinciding with Nasdaq's quarterly
scheduled weight adjustment procedures
described above, the Nasdaq-100 Index
Component Securities are categorized as either
"Large Stocks" or "Small Stocks" depending on
whether their current percentage weights
(after taking into account such scheduled
weight adjustments due to stock repurchases,
secondary offerings, or other corporate
actions) are greater than, less than or equal
to, the average percentage weight in the
Nasdaq-100 Index (i.e., as a 100-stock index,
the average percentage weight in the
Nasdaq-100 Index is 1.0%).
Such quarterly examination will result in an
Nasdaq-100 Index rebalancing if either one or
both of the following two weight distribution
requirements are not met: (1) the current
weight of the single largest market
capitalization Nasdaq-100 Index Component
Security must be less than or equal to 24.0%
and (2) the "collective weight" of those
Nasdaq-100 Index Component Securities whose
individual current weights are in excess of
4.5%, when added together, must be less than
or equal to 48.0%.
If either one or both of these weight
distribution requirements are not met upon
quarterly review, a weight rebalancing will be
performed in accordance with the following
plan. First, relating to weight distribution
requirement (1) above, if the current weight
of the single largest Nasdaq-100 Index
Component Security exceeds 24.0%, then the
weights of all Large Stocks will be scaled
down proportionately towards 1.0% by enough
for the adjusted weight of the single largest
Nasdaq-100 Index Security to be set to 20.0%.
Second, relating to weight distribution
requirement (2) above, for those Nasdaq-100
Index Component Securities whose individual
current weights or adjusted weights in
accordance with the preceding step are in
excess of 4.5%, if their "collective weight"
exceeds 48.0%, then the weights of all Large
Stocks will be scaled down proportionately
towards 1.0% by just enough for the
"collective weight," so adjusted, to be set to
40.0%.
PS-14
<PAGE>
The aggregate weight reduction among the Large
Stocks resulting from either or both of the
above rescalings will then be redistributed to
the Small Stocks in the following iterative
manner. In the first iteration, the weight of
the largest Small Stock will be scaled upwards
by a factor which sets it equal to the average
Nasdaq-100 Index weight of 1.0%. The weights
of each of the smaller remaining Small Stocks
will be scaled up by the same factor reduced
in relation to each stock's relative ranking
among the Small Stocks so that the smaller the
Nasdaq-100 Index Component Security in the
ranking, the less the scale-up of its weight.
This is intended to reduce the market impact
of the weight rebalancing on the smallest
component securities in the Nasdaq-100 Index.
In the second iteration, the weight of the
second largest Small Stock, already adjusted
in the first iteration, will be scaled upwards
by a factor which sets it equal to the average
index weight of 1.0%. The weights of each of
the smaller remaining Small Stocks will be
scaled up by this same factor reduced in
relation to each stock's relative ranking
among the Small Stocks such that, once again,
the smaller the stock in the ranking, the less
the scale-up of its weight.
Additional iterations will be performed until
the accumulated increase in weight among the
Small Stocks exactly equals the aggregate
weight reduction among the Large Stocks from
rebalancing in accordance with weight
distribution requirement (1) and/or weight
distribution requirement (2).
Then, to complete the rebalancing procedure,
once the final percent weights of each
Nasdaq-100 Index Security are set, the
Nasdaq-100 Index share weights will be
determined anew based upon the last sale
prices and aggregate capitalization of the
index at the close of trading on the Thursday
in the week immediately preceding the week of
the third Friday in March, June, September,
and December. Changes to the Nasdaq-100 Index
share weights will be made effective after the
close of trading on the third Friday in March,
June, September, and December and an
adjustment to the Nasdaq-100 Index divisor
will be made to ensure continuity of the
Nasdaq-100 Index.
In this pricing supplement, unless the context
requires otherwise, references to the
Nasdaq-100 Index will include any Successor
Index and references to Nasdaq will include
any successor to the Nasdaq Stock Market.
Discontinuance of the
Nasdaq-100 Index; Alteration
of Method of Calculation...... If Nasdaq discontinues publication of the
Nasdaq-100 Index and Nasdaq or another entity
publishes a successor or substitute index
that MS & Co. as the Calculation Agent
determines, in its sole discretion, to be
comparable to the discontinued Nasdaq-100
Index (such index being referred to herein as
a "Successor Index"), then any subsequent
Index Closing Value will be determined by
reference to the value of such Successor
Index at the close of trading on the NYSE,
the AMEX, Nasdaq National Market or the
relevant exchange or market for the Successor
Index on the date that any Index Closing
Value is to be determined.
PS-15
<PAGE>
Upon any selection by the Calculation Agent
of a Successor Index, the Calculation Agent
will cause written notice thereof to be
furnished to the Trustee, to MSDW and to the
holders of the PERKS within three Trading
Days of such selection.
If Nasdaq discontinues publication of the
Nasdaq-100 Index prior to, and such
discontinuance is continuing on, the date that
any Index Closing Value is to be determined
and MS & Co., as the Calculation Agent,
determines that no Successor Index is
available at such time, then, on such date,
the Calculation Agent will determine the Final
Index Value to be used in computing the
Multiplier and the Cash Settlement Value of
the PERKS. The Final Index Value will be
computed by the Calculation Agent in
accordance with the formula for and method of
calculating the Nasdaq-100 Index last in
effect prior to such discontinuance, using the
closing price (or, if trading in the relevant
securities has been materially suspended or
materially limited, its good faith estimate of
the closing price that would have prevailed
but for such suspension or limitation) at the
close of the principal trading session on such
date of each security most recently comprising
the Nasdaq-100 Index on the Relevant Exchange.
Notwithstanding these alternative
arrangements, discontinuance of the
publication of the Nasdaq-100 Index may
adversely affect the value of the PERKS.
If at any time the method of calculating the
Nasdaq-100 Index or a Successor Index, or the
value thereof, is changed in a material
respect, or if the Nasdaq-100 Index or a
Successor Index is in any other way modified
so that such index does not, in the opinion of
MS & Co., as the Calculation Agent, fairly
represent the value of the Nasdaq-100 Index or
such Successor Index had such changes or
modifications not been made, then, from and
after such time, the Calculation Agent will,
at the close of business in New York City on
the date that the Final Index Value is to be
determined, make such calculations and
adjustments as, in the good faith judgment of
the Calculation Agent, may be necessary in
order to arrive at a value of a stock index
comparable to the Nasdaq-100 Index or such
Successor Index, as the case may be, as if
such changes or modifications had not been
made, and calculate the Final Index Value and
the Multiplier with reference to the
Nasdaq-100 Index or such Successor Index, as
adjusted. Accordingly, if the method of
calculating the Nasdaq-100 Index or a
Successor Index is modified so that the value
of such index is a fraction of what it would
have been if it had not been modified (e.g.,
due to a split in the index), then the
Calculation Agent will adjust such index in
order to arrive at a value of the Nasdaq-100
Index or such Successor Index as if it had not
been modified (e.g., as if such split had not
occurred).
Alternate Cash Settlement
Calculation in case of an
Event of Default.............. In case an Event of Default with respect to
the PERKS shall have occurred and be
continuing, the amount declared due and
payable upon any acceleration of any PERKS
shall be determined by MS & Co., as
Calculation Agent, and shall be equal to (i)
the Cash Settlement Value, calculated using
as the Final Index Value the Index Closing
Value for the first Trading Day immediately
preceding the date of acceleration on which
no Market Disruption Event shall have
occurred and (ii) any accrued but unpaid
interest.
PS-16
<PAGE>
Historical Information........ The following table sets forth the high and
low Index Closing Values, as well as
end-of-quarter closing values, of the
Nasdaq-100 Index for each quarter in the
period from January 1, 1996 through January
11, 2001. We obtained the Index Closing
Values listed below from Bloomberg Financial
Markets, and we believe such information to
be accurate. The results shown should not be
considered as a representation of the income,
yield or capital gain or loss that may be
generated by the Nasdaq-100 Index in the
future. In addition, after the close of
trading on December 18, 1998, the Nasdaq-100
Index share weights of the Nasdaq-100 Index
Component Securities were rebalanced in
accordance with the "modified capitalization
weighted" methodology implemented on such
date (see "-Rebalancing of the Nasdaq-100
Index for Modified Capitalization-weighted
Methodology" above). As a result, the
performance of the Nasdaq-100 Index after
December 18, 1998 reflects the performance of
the Nasdaq-100 Index Component Securities as
calculated in accordance with the revised
Nasdaq-100 Index methodology.
The value of the Nasdaq-100 Index may decrease
so that you will receive a payment at maturity
worth less than the issue price of the PERKS.
We cannot give you any assurance that the
value of the Nasdaq-100 Index will increase so
that at maturity you will receive an amount in
excess of the issue price of the PERKS.
Because your return is linked to the value of
the Nasdaq-100 Index at maturity, there is no
guaranteed return of principal. To the extent
that the Final Index Value is less than 75% of
the Initial Index Value and the shortfall is
not offset by the interest paid on the PERKS,
you will lose money on your investment.
Period-
High Low end
---- --- -------
1996
First Quarter......... 643.41 534.42 609.69
Second Quarter........ 699.35 604.07 677.30
Third Quarter......... 745.73 598.34 737.58
Fourth Quarter........ 856.64 731.21 821.36
1997
First Quarter......... 925.52 797.06 797.06
Second Quarter........ 989.37 783.92 957.30
Third Quarter.........1145.07 953.44 1097.17
Fourth Quarter........1148.21 938.99 990.80
1998
First Quarter.........1220.66 956.19 1220.66
Second Quarter........1339.71 1163.98 1337.34
Third Quarter.........1465.89 1140.34 1345.48
Fourth Quarter........1836.01 1128.88 1836.01
1999
First Quarter.........2144.66 1854.39 2106.39
Second Quarter........2296.77 1967.84 2296.77
Third Quarter.........2545.41 2163.77 2407.90
Fourth Quarter........3707.83 2362.11 3707.83
2000
First Quarter.........4704.73 3340.81 4397.84
Second Quarter........4291.53 3023.42 3763.79
Third Quarter.........4099.30 3477.31 3570.61
Fourth Quarter........3457.97 2210.32 2341.70
2001
First Quarter
(through
January 11, 2001)...2528.38 2128.78 2524.29
PS-17
<PAGE>
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the PERKS will be used for general corporate
purposes and, in part, by us or one or more
of our subsidiaries in connection with
hedging our obligations under the PERKS. 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 PERKS by taking positions
in individual stocks included in the
Nasdaq-100 Index, by the purchase and sale of
exchange traded and over-the-counter options
on the Nasdaq-100 Index, futures contracts on
the Nasdaq-100 Index and options on such
futures contracts or by taking positions in
any other available securities or instruments
that we may wish to use in connection with
such hedging. In the event that we pursue such
a hedging strategy, the price at which we are
able to purchase such positions may be a
factor in determining the pricing of the
PERKS. Purchase activity could potentially
increase the price of the Nasdaq-100 Index and
therefore effectively increase the level to
which the Nasdaq-100 Index must rise before
you would receive at maturity cash in an
amount worth more than the issue price of the
PERKS. Although we have no reason to believe
that our hedging activity will have a material
impact on the price of the Nasdaq-100 Index,
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 PERKS by taking positions in
individual stocks included in the Nasdaq-100
Index, by the purchase and sale of exchange
traded and over-the-counter options on the
Nasdaq-100 Index, futures contracts on the
Nasdaq-100 Index and options on such futures
contracts or by taking positions in any other
available securities or instruments that we
may wish to use in connection with such
hedging.
Supplemental Information
Concerning Plan of
Distribution.................. Under the terms and subject to conditions
contained in the U.S. distribution agreement
referred to in the prospectus supplement
under "Plan of Distribution," the Agent,
acting as principal for its own account, has
agreed to purchase, and we have agreed to
sell, the principal amount of PERKS set forth
on the cover of this pricing supplement. The
Agent initially proposes to offer part of the
PERKS directly to the public at the public
offering price set forth on the cover page of
this pricing supplement and part to Advest,
Inc., Robert W. Baird & Co., A.G. Edwards &
Sons, Inc., Janney Montgomery Scott LLC, Legg
Mason Wood Walker Incorporated and McDonald
Investments Inc., the selling group, at a
price the represents a concession not in
excess of % of the principal amount of
the PERKS. The Agent may allow, and those
dealers may reallow, a concession not in
excess of % of the principal amount of
the PERKS to certain other dealers. We
expect to deliver the PERKS against payment
therefor in New York, New York on ,
2001. After the initial offering of the
PERKS, the Agent may vary the offering price
and other selling terms from time to time.
Delivery of approximately % of the PERKS
to a purchaser of 100,000 or more PERKS at
the reduced price referred to in the
PS-18
<PAGE>
cover page of this pricing supplement (the
"Delivered PERKS") will be made on the date of
delivery of the PERKS referred to on the
preceding paragraph. The balance of
approximately % of the PERKS (the "Escrowed
PERKS") 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 PERKS have held all of the Delivered
PERKS 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 PERKS fails
to satisfy the holding period requirement, as
determined by the Agent, all of the investor's
Escrowed PERKS will be forfeited by the
investor and not delivered to it. The Escrowed
PERKS will instead be delivered to the Agent
for sale to investors. This forfeiture will
have the effect of increasing the purchase
price per PERKS for such investors to 100% of
the principal amount of the PERKS. Should
investors who are subject to the holding
period requirement sell their PERKS once the
holding period is no longer applicable, the
market price of the PERKS may be adversely
affected. See also "Plan of Distribution" in
the accompanying prospectus supplement.
In order to facilitate the offering of the
PERKS, the Agent may engage in transactions
that stabilize, maintain or otherwise affect
the price of the PERKS or the Nasdaq-100
Index. Specifically, the Agent may sell more
PERKS than it is obligated to purchase in
connection with the offering or may sell
individual stocks included in the Nasdaq-100
Index it does not own, creating a naked short
position in the PERKS or individual stocks
included in the Nasdaq-100 Index,
respectively, for its own account. The Agent
must close out any naked short position by
purchasing the PERKS or individual stocks
included in the Nasdaq-100 Index 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 PERKS or the value of the Nasdaq-100 Index
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, PERKS or individual stocks
included in the Nasdaq-100 Index in the open
market to stabilize the price of the PERKS.
Any of these activities may raise or maintain
the market price of the PERKS above
independent market levels or prevent or retard
a decline in the market price of the PERKS.
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.
License Agreement between
Nasdaq and MSDW............... Nasdaq and MSDW have entered into a
non-exclusive license agreement providing for
the license to MSDW, and certain of its
affiliated or subsidiary companies, in
exchange for a fee, of the right to use the
Nasdaq-100 Index(R), which is owned and
published by Nasdaq, in connection with
certain securities, including the PERKS.
The license agreement between Nasdaq and MSDW
provides that the following language must be
set forth in this pricing supplement.
PS-19
<PAGE>
The PERKS are not sponsored, endorsed, sold or
promoted by The Nasdaq Stock Market, Inc.
(including its affiliates) (Nasdaq, with its
affiliates, are referred to as the
"Corporations"). The Corporations have not
passed on the legality or suitability of, or
the accuracy or adequacy of descriptions and
disclosures relating to, the PERKS. The
Corporations make no representations or
warranty, express or implied, to the owners of
the PERKS or any member of the public
regarding the advisability of investing in
securities generally or in the PERKS
particularly, or the ability of the Nasdaq-100
Index(R) to track general stock market
performance. The Corporations' only
relationship to us (the "Licensee") is in the
licensing of the Nasdaq-100(R), Nasdaq-100
Index(R), and Nasdaq(R) trademarks or service
marks and certain trade names of the
Corporations and the use of the Nasdaq-100
Index(R) which is determined, composed and
calculated by Nasdaq without regard to the
Licensee or the PERKS. Nasdaq has no
obligation to take the needs of the Licensee
or the owners of the PERKS into consideration
in determining, composing or calculating the
Nasdaq-100 Index (R). The Corporations are not
responsible for and have not participated in
the determination of the timing, prices or
quantities of the PERKS to be issued or in the
determination or calculation of the equation
by which the PERKS are to be converted into
cash. The Corporations have no liability in
connection with the administration, marketing
or trading of the PERKS.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY
AND/OR UNINTERRUPTED CALCULATION OF THE
NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED
THEREIN. THE CORPORATIONS MAKE NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY THE LICENSEE, OWNERS OF THE PERKS,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED
THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR
IMPLIED WARRANTIES AND EXPRESSLY DISCLAIM ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FORGOING,
IN NO EVENT SHALL THE CORPORATIONS HAVE ANY
LIABILITY FOR ANY LOST PROFITS OR SPECIAL,
INCIDENTAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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 PERKS. 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.
PS-20
<PAGE>
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 PERKS 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 PERKS 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
PERKS. 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 PERKS 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 PERKS will be deemed to have
represented, in its corporate and fiduciary
capacity, by its purchase and holding thereof
that it either (a) is not a Plan or a Plan
Asset Entity and is not purchasing such
securities on behalf of or with "plan assets"
of any Plan or (b) is eligible for exemptive
relief or such purchase or holding is not
prohibited by ERISA or Section 4975 of the
Code.
Under ERISA, assets of a Plan may include
assets held in the general account of an
insurance company which has issued an
insurance policy to such Plan or assets of an
entity in which the Plan has invested. In
addition to considering the consequences of
holding the PERKS, employee benefit plans
subject to ERISA (or insurance companies
deemed to be investing ERISA plan assets)
purchasing the PERKS should also consider the
possible implications of owning the Nasdaq-100
Index. 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
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persons considering purchasing the PERKS 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 PERKS have exclusive
responsibility for ensuring that their
purchase and holding of the PERKS and the
Nasdaq-100 Index do not violate the
prohibited transaction rules of ERISA or the
Code.
United States Federal 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 PERKS purchasing the PERKS at
the Issue Price, who will hold the PERKS 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 U.S. federal
income taxation that may be relevant to a
particular holder in light of its individual
circumstances or as 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 PERKS 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
PERKS 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 PERKS, we and
every holder of the PERKS agree (in the
absence of an administrative determination or
judicial ruling to the contrary) to
characterize the PERKS for all tax purposes
as prepaid cash settlement forward contracts
with respect to the Nasdaq-100 Index which
entitle the holders to receive (i) a
semi-annual payment during the term of the
PERKS and (ii) a cash amount at maturity
which is based on the final index value of
the Nasdaq-100 Index, subject to a maximum
payment of $ per PERKS. The treatment
of the PERKS described above is not, however,
binding on the IRS or the courts. No
statutory, judicial or administrative
authority directly addresses the
characterization of the PERKS or instruments
similar to the PERKS for U.S. federal income
tax purposes, and no ruling is being
requested from the IRS with respect to the
PERKS. Due to the absence of authorities
that directly address instruments that are
similar to the PERKS, Tax Counsel is unable
to render an opinion as to the proper U.S.
federal income tax characterization of the
PERKS. As a result, significant aspects of
the U.S. federal income tax consequences of
an investment in the PERKS 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
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<PAGE>
tax advisor regarding the U.S. federal income
tax consequences of an investment in the
PERKS (including alternative
characterizations of the PERKS) 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 as described above.
U.S. Holders
As used herein, the term "U.S. Holder" means
an owner of a PERKS that for U.S. federal
income tax purposes is:
o (i) a citizen or resident of the United
States,
o (ii) a corporation created or organized
under the laws of the United States or
any political subdivision thereof, or
o (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 PERKS
Assuming the characterization of the PERKS as
set forth above, Tax Counsel believes that
the following U.S. federal income tax
consequences should result.
Semi-Annual Payments. Although it is not
entirely free from doubt, we intend to take
the position that the semi-annual payments on
the PERKS are payments of ordinary income to
U.S. Holders.
Tax Basis. A U.S. Holder's tax basis in the
PERKS will equal the amount paid by the U.S.
Holder to acquire the PERKS.
Settlement of the Prepaid Forward Contract.
Upon the receipt of cash at maturity of the
PERKS, a U.S. Holder will recognize gain or
loss. The amount of such gain or loss will be
the extent to which the amount of the cash
received differs from the U.S. Holder's basis
in the PERKS. Any such gain or loss will
generally be long-term capital gain or loss,
as the case may be.
Sale or Exchange of the PERKS. Upon a sale or
exchange of a PERKS prior to the maturity of
the PERKS, a U.S. Holder will generally
recognize capital 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 PERKS so sold or exchanged.
Capital gain or loss will generally be
long-term capital gain or loss if the U.S.
Holder held the PERKS for more than one year
at the time of disposition.
Possible Alternative Tax Treatments of an
Investment in the PERKS
Due to the absence of authorities that
directly address the proper characterization
of the PERKS, 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
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<PAGE>
seek to analyze the U.S. federal income tax
consequences of owning PERKS 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 PERKS, the timing and character of income
thereon would be significantly affected. Among
other things, a U.S. Holder would be required
to accrue original issue discount on the PERKS
every year at a "comparable yield" for us,
determined at the time of issuance of the
PERKS, in an amount that would greatly exceed
the semi-annual payments which a U.S. Holder
will receive. Furthermore, any gain realized
at maturity or upon sale or other disposition
of the PERKS would generally be treated as
ordinary income, and any loss realized at
maturity would be treated ordinary loss to the
extent of U.S. Holder's prior accruals of
original issue discount and capital loss
thereafter.
Even if the Contingent Payment Regulations do
not apply to the PERKS, other alternative
federal income tax characterizations or
treatments of the PERKS are also possible, and
if applied could also affect the timing and
the character of the income or loss with
respect to the PERKS. It is possible, for
example, that a PERKS could be treated as a
unit consisting of a loan and a forward
contract, in which case a U.S. Holder would be
required to accrue interest income or original
issue discount on a current basis during the
period in which the U.S. Holder held the PERKS
at a rate that would greatly exceed the
semi-annual payments which a U.S. Holder will
receive. Accordingly, prospective purchasers
are urged to consult their tax advisors
regarding the U.S. federal income tax
consequences of an investment in the PERKS.
Backup Withholding and Information Reporting
A U.S. Holder of a PERKS 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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