0000950103-01-501429.txt : 20011019
0000950103-01-501429.hdr.sgml : 20011019
ACCESSION NUMBER: 0000950103-01-501429
CONFORMED SUBMISSION TYPE: 424B3
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011015
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER & CO
CENTRAL INDEX KEY: 0000895421
STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199]
IRS NUMBER: 363145972
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 424B3
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-47576
FILM NUMBER: 1759359
BUSINESS ADDRESS:
STREET 1: 1585 BROADWAY
CITY: NEW YORK
STATE: NY
ZIP: 10036
BUSINESS PHONE: 2127614000
MAIL ADDRESS:
STREET 1: 1221 SIXTH AVENUE
STREET 2: 27TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10020
FORMER COMPANY:
FORMER CONFORMED NAME: DEAN WITTER DISCOVER & CO
DATE OF NAME CHANGE: 19960315
424B3
1
oct1201_ps53.txt
PROSPECTUS Dated January 24, 2001 Pricing Supplement No. 53 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-47576
Dated January 24, 2001 Dated October 9, 2001
Rule 424(b)(3)
$47,360,284
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
-----------------------
PLUS due December 30, 2004
Mandatorily Exchangeable for
an Amount Payable in U.S. Dollars
Based on the Value of the Nasdaq-100 Index(R)
Performance Leveraged Upside SecuritiesSM
("PLUS(SM)")
The PLUS do not guarantee any return of principal at maturity. Instead, unless
we have called the PLUS, the PLUS will pay at maturity an amount of cash based
upon the value of the Nasdaq-100 Index(R), plus a supplemental amount if the
value of the Nasdaq-100 Index at maturity exceeds 1244.56, the closing value of
the Nasdaq-100 Index on October 9, 2001, the day we offered the PLUS for
initial sale to the public.
o The principal amount and issue price of each PLUS is $15.557, which is
equal to one-eightieth of the closing value of the Nasdaq-100 Index on
October 9, 2001.
o We will pay .09% interest (equivalent to $.014 per year) on the $15.557
principal amount of each PLUS, which approximates the current dividend
yield on the Nasdaq-100 Index. Interest will be paid quarterly, beginning
December 30, 2001.
o At maturity, unless we have called the PLUS, you will receive in exchange
for the principal amount of each PLUS an amount in cash equal to
one-eightieth of the final average index value, plus a supplemental amount
in cash equal to one-eightieth of the amount, if any, by which the final
average index value exceeds 1244.56, the closing value of the Nasdaq-100
Index on October 9, 2001. The final average index value will be the
average closing value of the Nasdaq- 100 Index over a period of five
trading days commencing on December 15, 2004. In no event will the
supplemental amount be less than zero.
o Beginning October 9, 2003, we have the right to call all of the PLUS at
any time and pay to you the call price of $27.70 per PLUS (178.05% of the
issue price) in cash.
o If we decide to call the PLUS, we will give you notice at least 15 but not
more than 30 days before the call date specified in the notice. You will
not have the right to exchange your PLUS for the component stocks of the
Nasdaq-100 Index. You will not receive accrued but unpaid interest if we
call the PLUS.
o Investing in the PLUS is not equivalent to investing in the Nasdaq-100
Index or its component stocks.
o The PLUS have been approved for listing on the Nasdaq National Market,
subject to official notice of issuance. The Nasdaq listing symbol is
"PLNQ."
You should read the more detailed description of the PLUS in this pricing
supplement. In particular, you should review and understand the descriptions
in"Summary of Pricing Supplement" and "Description of PLUS."
The PLUS are riskier than ordinary debt securities. See "Risk Factors"
beginning on PS-7.
-----------------------
PRICE $15.557 PER PLUS
-----------------------
Price Agent's Proceeds to
to Public(1) Commissions the Company(1)
------------ ----------- --------------
Per PLUS .......... $15.557 $.30 $15.257
Total.............. $47,360,284 $913,292.10 $46,446,991.90
---------
(1) Plus accrued interest, if any, from the original issue date.
If you purchase at least 100,000 PLUS 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
$15.2653 per PLUS (98.125% of the issue price). In that case, the Agent's
commissions will be $.0083 per PLUS.
MORGAN STANLEY
(This page intentionally left blank)
PS-2
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the PLUS 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 PLUS offered are medium-term debt securities of Morgan Stanley Dean
Witter & Co. The return on the PLUS at maturity is linked to the performance of
the Nasdaq-100 Index.
"Performance Leveraged Upside Securities" and "PLUS" are our service
marks.
Each PLUS We, Morgan Stanley Dean Witter & Co., are
costs $15.557 offering Performance Leveraged Upside
Securities(SM) due December 30, 2004,
Mandatorily Exchangeable for an Amount Payable
in U.S. Dollars Based on the Value of the
Nasdaq-100 Index, which we refer to as the
PLUS(SM). The principal amount and issue price
of each PLUS is $15.557, which is equal to
one-eightieth of the closing value of the
Nasdaq-100 Index on October 9, 2001, the day we
offered the PLUS for initial sale to the
public.
No guaranteed Unlike ordinary debt securities, the PLUS do not
return of principal guarantee any return of principal at maturity.
If the average closing value of the Nasdaq-100
Index at maturity is less than the closing
value of the Nasdaq-100 Index on October 9,
2001, and we have not called the PLUS, we will
pay to you an amount in cash that is less than
the issue price of the PLUS, as described under
"Payout at maturity" below.
Investing in the PLUS is not equivalent to
investing in the Nasdaq-100 Index or its
component stocks.
.09% interest on the We will pay interest on the PLUS, at the rate
principal amount of .09% of the principal amount per year,
quarterly on each March 30, June 30, September
30 and December 30, beginning December 30,
2001. The interest rate we pay on the PLUS
approximates the current dividend yield on the
Nasdaq-100 Index and will not be adjusted up or
down over the life of the PLUS. If we call the
PLUS, we will not pay any accrued but unpaid
interest on the PLUS on the call date.
Payout at maturity At maturity, if we have not previously called
the PLUS, we will deliver to you an amount in
cash equal to one-eightieth of the final
average index value, plus accrued but unpaid
interest, for each $15.557 principal amount of
PLUS you hold. In addition, if we have not
previously called the PLUS, we will also
deliver to you a supplemental amount in cash
for each PLUS equal to one-eightieth of the
amount, if any, by which the final average
index value exceeds 1244.56, the closing value
of the Nasdaq-100 Index on October 9, 2001. The
final average index value will be the average
closing value of the Nasdaq-100 Index over a
period of five trading days commencing on
December 15, 2004.
Accordingly, if one-eightieth of the final
average index value is greater than one-
eightieth of the closing value of the
Nasdaq-100 Index on October 9, 2001, you will
receive for each PLUS at maturity twice the
amount of that excess, together with accrued
but unpaid interest. However, because we have
the right to call the PLUS as described below,
you should not expect to receive more than the
cash call price of $27.70 per PLUS.
PS-3
On PS-6, we have provided a graph titled
"Hypothetical Payouts on the PLUS at Maturity,"
which illustrates the performance of the PLUS
at maturity assuming a variety of hypothetical
final average index values. The graph does not
show every situation that may occur.
You can review the historical values of the
Nasdaq-100 Index in the section of this pricing
supplement called "Description of
PLUS--Historical Information." The payment of
dividends on the stocks that underlie the
Nasdaq-100 Index is not reflected in the level
of the Nasdaq-100 Index and, therefore, has no
effect on the calculation of the payout at
maturity.
If a market disruption event occurs on December
14, 2004 or during the period of five trading
days when the average closing value of the
Nasdaq-100 Index at maturity is to be
determined, the maturity date of the PLUS may
be postponed. See the section of this pricing
supplement called "Description of
PLUS--Maturity Date."
Your return on the PLUS is The return investors realize on the PLUS is
limited by our call right limited by our call right. We have the right to
call all of the PLUS at any time beginning
October 9, 2003, including at maturity, for an
amount in cash equal to the call price of
$27.70 per PLUS, which is equivalent to 178.05%
of the issue price of the PLUS. If we have not
previously called the PLUS, we expect to call
the PLUS at maturity if the closing value of
the Nasdaq-100 Index equals or exceeds 1730.28
on December 14, 2004.
If we call the PLUS, we will do the following:
o send a notice announcing that we have decided
to call the PLUS; and
o specify in the notice a call date when you
will receive the cash call price in exchange
for delivering your PLUS to the trustee; that
call date will not be less than 15 nor more
than 30 days after the date of the notice.
If we call the PLUS, you will not be entitled
to receive accrued but unpaid interest on the
PLUS on the call date.
MS & Co. will be the We have appointed our affiliate, Morgan
Calculation Agent Stanley & Co. Incorporated, which we refer to
as 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 average index value
and the supplemental amount, if any, that you
will receive at maturity.
Where you can find more The PLUS are senior notes issued as part of our
information on the PLUS Series C medium-term note program. You can find
a general description of our Series C
medium-term note program in the accompanying
prospectus supplement dated January 24, 2001.
We describe the basic features of this type of
note in the sections of the prospectus
supplement called "Description of Notes--Fixed
Rate Notes" and "--Exchangeable Notes."
For a detailed description of the terms of the
PLUS, including the specific mechanics for
exercise of our call right, you should read the
section of this pricing supplement called
"Description of PLUS." You should also read
about some of the risks involved in investing
in PLUS in the section of this pricing
supplement called "Risk Factors." The tax and
accounting treatment of investments in
equity-linked notes such as the PLUS 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 PLUS.
PS-4
How to reach us You may contact your local Morgan Stanley
branch office or our principal executive
offices at 1585 Broadway, New York, New York
10036 (telephone number (212) 761-4000).
PS-5
HYPOTHETICAL PAYOUTS ON THE PLUS AT MATURITY
For each PLUS, the following graph illustrates the payout on the PLUS at
maturity for a range of hypothetical Final Average Index Values. The PLUS Zone
illustrates the leveraging effect of the payment of the Supplemental Amount
taking into account our right to call the PLUS at the Call Price. The chart
assumes that the PLUS have not been called prior to maturity and is based on
the following terms:
o Issue Price per PLUS: $15.557
o Initial Index Value: 1244.56
o Call Price: $27.70 (178.05% of the Issue Price)
The payouts on the PLUS at maturity reflected in the graph below are the
lesser of (a) the sum of (i) one- eightieth of the Final Average Index Value
plus (ii) the Supplemental Amount calculated using the Final Average Index
Value and (b) the Call Price. If we do not call the PLUS, you will also receive
accrued but unpaid interest on the PLUS on the Maturity Date.
[GRAPHIC OMITTED]
PS-6
RISK FACTORS
The PLUS are not secured debt and are riskier than ordinary debt
securities. Because the return to investors is linked to the performance of the
Nasdaq-100 Index, there is no guaranteed return of principal. To the extent
that the value of the Nasdaq-100 Index decreases from October 9, 2001, the day
we offered the PLUS for initial sale to the public, the amount of cash that
investors receive at maturity will be less than the issue price of the PLUS and
investors will not receive any supplemental cash amount. If we call the PLUS,
investors will receive the call price of $27.70 per PLUS, and will not receive
any supplemental amount or accrued but unpaid interest. Investing in the PLUS
is not equivalent to investing directly in the Nasdaq-100 Index or its
component stocks. The return investors realize on the PLUS is limited by our
call right. This section describes the most significant risks relating to the
PLUS. You should carefully consider whether the PLUS are suited to your
particular circumstances before you decide to purchase them.
PLUS are not ordinary The PLUS combine features of equity and debt.
senior notes--no guaranteed The terms of the PLUS differ from those of
return of principal ordinary debt securities in that we will not
pay you a fixed amount at maturity. If we do
not call the PLUS, our payout to you at
maturity will be an amount in cash equal to
one-eightieth of the final average index value,
together with accrued but unpaid interest, plus
a supplemental amount in cash equal to
one-eightieth of the amount, if any, by which
the final average index value exceeds 1244.56,
the closing value of the Nasdaq-100 Index on
October 9, 2001. If the average closing value
of the Nasdaq-100 Index at maturity is less
than the closing value of the Nasdaq-100 Index
on October 9, 2001, and we have not called the
PLUS, we will pay to you an amount in cash that
is less than the issue price of the PLUS and we
will not pay any supplemental cash amount. See
the chart titled "Hypothetical Payouts on the
PLUS at Maturity" on PS-6.
Your appreciation The appreciation potential of the PLUS is
potential is limited limited by our call right. The $15.557 issue
by our call right price of one PLUS is equal to one-eightieth of
the closing value of the Nasdaq-100 Index on
October 9, 2001. The payout you will receive
per PLUS in the event that we exercise our call
right will be an amount in cash equal to the
call price of $27.70 per PLUS (equivalent to
178.05% of the issue price). We may call the
PLUS at any time on or after October 9, 2003,
including on the maturity date. Because we have
the right to call the PLUS, you should not
expect to receive more than the cash call price
of $27.70 per PLUS.
Secondary trading There may be little or no secondary market for
may be limited the PLUS. Although the PLUS have been approved
for listing on the Nasdaq National Market, it
is not possible to predict whether the PLUS
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 the PLUS
but is not required to do so.
Market price of the Several factors, many of which are beyond our
PLUS influenced by control, will influence the value of the PLUS.
many unpredictable We expect that generally the value of the
factors Nasdaq-100 Index on any day will affect the
value of the PLUS more than any other single
factor. However, because the PLUS may pay a
supplemental cash amount and because we have
the right to call the PLUS at any time
beginning October 9, 2003, the PLUS may trade
differently from the Nasdaq-100 Index. Other
factors that may influence the value of the
PLUS include:
o the volatility (frequency and magnitude of
changes in value) of the Nasdaq-100 Index
o the dividend rate on the stocks underlying
the Nasdaq-100 Index
PS-7
o economic, financial, political, regulatory or
judicial events that affect the stocks
underlying the Nasdaq-100 Index or stock
markets generally and which may affect the
value of the Nasdaq-100 Index
o interest and yield rates in the market
o the time remaining until we can call the PLUS
and until the PLUS mature
o our creditworthiness
Some or all of these factors will influence the
price you will receive if you sell your PLUS
prior to maturity. For example, you may have to
sell your PLUS at a substantial discount from
the principal amount if the value of the
Nasdaq-100 Index is at or below the closing
value of the Nasdaq-100 Index on October 9,
2001.
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 you will receive at
maturity a payment that is less than the
principal amount of the PLUS and no
supplemental cash amount. We cannot guarantee
that the value of the Nasdaq-100 Index will
increase so that you will receive at maturity
more than the principal amount of the PLUS. If
we call the PLUS, you will receive the cash
call price of $27.70 per PLUS, which may be
more or less than the return you would have
received on a direct investment in the
component stocks of the Nasdaq-100 Index.
Adjustments to the Nasdaq- The Nasdaq Stock Market, Inc., which we refer
100 Index could adversely to as Nasdaq(R), is responsible for calculating
affect the value of the PLUS and maintaining the Nasdaq-100 Index. Nasdaq can
add, delete or substitute the stocks underlying
the Nasdaq-100 Index or make other
methodological changes that could change the
value of the Nasdaq-100 Index. Nasdaq may
discontinue or suspend calculation or
dissemination of the Nasdaq- 100 Index. Any of
these actions could adversely affect the value
of the PLUS.
You have no As an owner of PLUS, you will not have voting
shareholder rights rights or rights to receive dividends or other
distributions or any other rights with respect
to the stocks that underlie the Nasdaq-100
Index.
Adverse economic interests As calculation agent, our affiliate MS & Co.
of the calculation agent and will calculate the final average index value
its affiliates may influence and the supplemental cash amount, if any, we
determinations will pay to you at maturity. We expect that MS
& Co. and other affiliates will carry out
hedging activities related to the PLUS (and
possibly to other instruments linked to the
Nasdaq-100 Index or its component stocks),
including trading in the stocks underlying the
Nasdaq-100 Index as well as in other
instruments related to the Nasdaq-100 Index.
Any of these hedging activities and MS & Co.'s
affiliation with us could influence MS & Co.'s
determinations as calculation agent. MS & Co.
and some of our other subsidiaries also trade
the stocks underlying the Nasdaq-100 Index and
other financial instruments related to the
Nasdaq-100 Index and its component stocks on a
regular basis as part of their general
broker-dealer and other businesses. Any of
these trading activities could potentially
affect the value of the Nasdaq-100 Index and,
accordingly, could affect the payout to you on
the PLUS.
PS-8
The characterization of the You should also consider the tax consequences
PLUS for federal income tax of investing in the PLUS. There is no direct
purposes is uncertain legal authority as to the proper tax treatment
of the PLUS, and therefore significant aspects
of their tax treatment are uncertain. Pursuant
to the terms of the PLUS, you have agreed with
us to treat a PLUS as a single financial
contract, as described in the section of this
pricing supplement called "Description of
PLUS--United States Federal Income
Taxation--General." If the Internal Revenue
Service (the "IRS") were successful in
asserting an alternative characterization for
the PLUS, the timing and character of income or
loss with respect to the PLUS may differ. We do
not plan to request a ruling from the IRS
regarding the tax treatment of the PLUS, and
the IRS or a court may not agree with the tax
treatment described in this pricing supplement.
Please read carefully the section of this
pricing supplement called "Description of
PLUS--United States Federal Income Taxation."
You are urged to consult your own tax advisor
regarding all aspects of the U.S. federal
income tax consequences of investing in the
PLUS.
PS-9
DESCRIPTION OF PLUS
Terms not defined herein have the meanings given to such terms in the
accompanying prospectus supplement. The term "PLUS" refers to each $15.557
principal amount of our PLUS due December 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 "Morgan Stanley," "we," "us" and
"our" refer to Morgan Stanley Dean Witter & Co.
Principal Amount.............. $47,360,284
Maturity Date................. December 30, 2004, subject to extension in the
event of a Market Disruption Event on the Final
Call Valuation Date or on any Determination
Date.
If the Final Call Valuation Date is postponed
due to a Market Disruption Event or otherwise
and we elect to call the PLUS, the Maturity
Date will be postponed by a corresponding
number of calendar days so that the Maturity
Date will be the sixteenth calendar day
following the Final Call Valuation Date. See
"--Final Call Valuation Date" below.
If we do not call the PLUS and, due to a Market
Disruption Event or otherwise, the fifth
Determination Date for calculating the Final
Average Index Value (the "Final Determination
Date") is postponed so that it falls on or
after December 27, 2004, the Maturity Date will
be the third Trading Day following the Final
Determination Date. See "--Final Average Index
Value" below.
Interest Rate................. .09% per annum (equivalent to $.014 per annum
per PLUS)
Interest Payment Dates........ Each March 30, June 30, September 30 and
December 30, beginning December 30, 2001, and
the Maturity Date.
Record Date................... The Record Date for each Interest Payment Date,
including the Interest Payment Date scheduled
to occur on the Maturity Date, will be the date
10 calendar days prior to such Interest Payment
Date, whether or not that date is a Business
Day; provided, however, that in the event that
we call the PLUS, no Interest Payment Date will
occur after the Morgan Stanley Notice Date,
except for any Interest Payment Date for which
the Morgan Stanley Notice Date falls on or
after the "ex-interest" date for the related
interest payment, in which case the related
interest payment will be made on such Interest
Payment Date. The "ex-interest" date for any
interest payment is the date on which purchase
transactions in the PLUS no longer carry the
right to receive such interest payment.
Specified Currency............ U.S. Dollars
Issue Price................... $15.557 per PLUS
Original Issue Date
(Settlement Date)............. October 12, 2001
CUSIP......................... 61744Y538
Denominations................. $15.557 and integral multiples thereof
PS-10
Morgan Stanley Call Right..... On any scheduled Trading Day on or after
October 9, 2003, we may call the PLUS, in whole
but not in part, and pay to you the Call Price
in cash.
If we call the PLUS, the Call Price will be
delivered to you on the Call Date fixed by us
and set forth in our notice of mandatory
exchange, upon delivery of your PLUS to the
Trustee. We will, or will cause the Calculation
Agent to, deliver such cash to the Trustee for
delivery to you. You will not receive any
accrued but unpaid interest on the PLUS on the
Call Date.
Morgan Stanley Notice Date.... The scheduled Trading Day on which we issue our
notice of mandatory exchange, which must be at
least 15 but not more than 30 days prior to the
Call Date, and which may not be later than the
Trading Day immediately succeeding the Final
Call Valuation Date.
Call Date..................... The scheduled Trading Day on or after October
9, 2003 and on or prior to the Maturity Date
specified by us in our notice of mandatory
exchange, on which we will pay the cash Call
Price to holders of PLUS.
Call Price.................... $27.70 per PLUS (178.05% of the Issue Price).
Final Call Valuation Date..... December 14, 2004; provided that if such day is
not a Trading Day or if a Market Disruption
Event occurs on such day, the Final Call
Valuation Date will be the immediately
succeeding Trading Day on which no Market
Disruption Event occurs.
Exchange at Maturity.......... Unless we have previously called the PLUS, at
maturity, upon delivery of the PLUS to the
Trustee, we will pay with respect to the
$15.557 principal amount of each PLUS an amount
in cash equal to one-eightieth of the Final
Average Index Value plus an amount in cash
equal to the Supplemental Amount, if any, and
we will pay accrued but unpaid interest.
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 PLUS, of the amount of cash,
including accrued but unpaid interest, to be
delivered with respect to the $15.557 principal
amount of each PLUS and (ii) deliver such cash
to the Trustee for delivery to the holders.
Supplemental Amount .......... One-eightieth of the amount, if any, by which
the Final Average Index Value exceeds the
Initial Index Value. In no event will the
Supplemental Amount be less than zero.
Final Average Index Value..... The arithmetic average of the Index Closing
Values on each of the first five Trading Days
from and including December 15, 2004 on which
no Market Disruption Event occurs (each, a
"Determination Date").
Initial Index Value........... 1244.56, which is the Index Closing Value on
October 9, 2001.
PS-11
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 (as defined under
"--Discontinuance of the Nasdaq-100 Index;
Alteration of Method of Calculation" below) 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."
Trading Day................... A day, as determined by the Calculation Agent,
on which trading is generally conducted on the
New York Stock Exchange, Inc. (the "NYSE"), the
American Stock Exchange LLC (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.
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 the PLUS.......... 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.
All calculations with respect to the Final
Average Index Value and the Supplemental
Amount, if any, will be rounded to the nearest
one hundred-thousandth, with five
one-millionths rounded upward (e.g. .876545
would be rounded to .87655); all dollar amounts
related to determination of the amount of cash
payable per PLUS will be rounded to the nearest
ten-thousandth, with five one
hundred-thousandths rounded upward (e.g.,
.76545 would be rounded up to .7655); and all
dollar amounts paid on the aggregate number of
PLUS will be rounded to the nearest cent, with
one-half cent rounded upward.
Because the Calculation Agent is our affiliate,
the economic interests of the Calculation Agent
and its affiliates may be adverse to your
interests as an owner of the PLUS, including
with respect to certain determinations and
judgments that the Calculation Agent must make
in determining any Index Closing Value or
whether a Market Disruption Event has occurred.
See "--Discontinuance of the Nasdaq-100 Index;
Alteration of Method of Calculation" 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.
Market Disruption Event....... "Market Disruption Event" means, with respect
to the Nasdaq-100 Index:
PS-12
(i) a suspension, absence or material
limitation 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
trade reporting 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 close of the principal trading
session on such Relevant Exchange are
materially inaccurate; or the suspension,
absence or material limitation of trading on
any major U.S. securities market for 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, 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 the event
described in clause (i) above materially
interfered with the ability of Morgan
Stanley or any of its affiliates to adjust
or unwind all or a material portion of the
hedge with respect to the PLUS.
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 scope similar to NYSE Rule 80A 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 futures or options contracts on the
Nasdaq-100 Index by the primary securities
market trading in such contracts by reason of
(x) a price change exceeding limits set by such
exchange or market, (y) an imbalance of orders
relating to such contracts or (z) a disparity
in bid and ask quotes relating to
PS-13
such contracts will constitute a suspension,
absence 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.
Alternate Exchange
Calculation in Case of an
Event of Default.............. In case an event of default with respect to the
PLUS shall have occurred and be continuing, the
amount declared due and payable per PLUS upon
any acceleration of the PLUS shall be
determined by the Calculation Agent and shall
be an amount in cash equal to the lesser of (a)
the sum of (i) the Index Closing Value as of
the date of acceleration plus (ii) the
Supplemental Amount, if any, calculated using
as the Final Average Index Value the Index
Closing Value as of the date of acceleration
plus (iii) any accrued but unpaid interest on
the PLUS and (b) the Call Price.
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 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
PS-14
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 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).
PS-15
The table under "Historical Information" below
shows the actual performance of the Nasdaq-100
Index for the period between January 1, 1996
and September 24, 2001. Stock prices fluctuated
widely during this period. 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 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
PS-16
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%.
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
PS-17
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, the 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.
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 Morgan Stanley and to the
holders of the PLUS 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 Index Closing Value 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
PS-18
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 PLUS.
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 each
date on which the Index Closing 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 Average Index Value 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).
Historical Information........ The following table sets forth the published
high and low Index Closing Values, as well as
end-of-quarter Index Closing Values, of the
Nasdaq-100 Index for each quarter in the period
from January 1, 1996 through October 9, 2001.
The Index Closing Value on October 9, 2001 was
1244.56. We obtained the Index Closing Values
and other information 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.
PS-19
The value of the Nasdaq-100 Index may decrease
so that you will receive a payment at maturity
that is less than the principal amount of the
PLUS. We cannot give you any assurance that the
value of the Nasdaq-100 Index will increase so
that at maturity you will receive a payment in
excess of the principal amount of the PLUS.
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 one-eightieth of the Final
Average Index Value is less than the Issue
Price of the PLUS and the shortfall is not
offset by the coupon paid on the PLUS, you will
lose money on your investment.
High Low Period-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.....2730.05 1563.14 2726.45
Second Quarter....2052.57 1370.75 1830.19
Third Quarter 1827.07 1126.95 1168.37
Fourth Quarter
(through
October 9,
2001)...........1279.63 1151.24 1244.56
Use of Proceeds and Hedging... The net proceeds we receive from the sale of
the PLUS 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 PLUS. 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
PLUS by taking positions in the stocks
underlying the Nasdaq-100 Index and other
instruments. Purchase activity could have
potentially increased the value of the Nasdaq-
PS-20
100 Index, and therefore effectively have
increased the level to which the Nasdaq-100
Index must rise before you would receive at
maturity a payment that exceeds the principal
amount of the PLUS. Through our subsidiaries,
we are likely to modify our hedge position
throughout the life of the PLUS by purchasing
and selling the stocks underlying the
Nasdaq-100 Index, futures or options contracts
on the Nasdaq-100 Index or its component stocks
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 activities,
including by selling any such securities on the
Determination Dates. Although we have no reason
to believe that our hedging activity had, or
will in the future have, a material impact on
the value of the Nasdaq-100 Index, we cannot
give any assurance that we did not, or in the
future will not, affect such value as a result
of our hedging activities.
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 PLUS set forth on the cover
of this pricing supplement. The Agent proposes
initially to offer the PLUS directly to the
public at the public offering price set forth
on the cover page of this pricing supplement
plus accrued interest, if any, from the
Original Issue Date; provided that the price
will be $15.2653 per PLUS and the underwriting
discounts and commissions will be $.0083 per
PLUS for purchasers of 100,000 or more PLUS in
any single transaction, subject to the holding
period requirements described below. We expect
to deliver the PLUS against payment therefor in
New York, New York on October 12, 2001. After
the initial offering of the PLUS, the Agent may
vary the offering price and other selling terms
from time to time.
Where an investor purchases 100,000 or more
PLUS in a single transaction at the reduced
price, approximately 98.125% of the PLUS
purchased by the investor (the "Delivered
PLUS") will be delivered on the Settlement
Date. The balance of approximately 1.875% of
the PLUS (the "Escrowed PLUS") purchased by the
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 PLUS have held all of the
Delivered PLUS for 30 calendar days following
the Original Issue Date 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 PLUS fails to
satisfy the holding period requirement, as
determined by the Agent, all of the investor's
Escrowed PLUS will be forfeited by the investor
and not delivered to it. The Escrowed PLUS will
instead be delivered to the Agent for sale to
investors. This forfeiture will have the effect
of increasing the purchase price per PLUS for
such investors to 100% of the principal amount
of the PLUS. Should investors who are subject
to the holding period requirement sell their
PLUS once the holding period is no longer
PS-21
applicable, the market price of the PLUS may be
adversely affected. See also "Plan of
Distribution" in the accompanying prospectus
supplement.
In order to facilitate the offering of the
PLUS, the Agent may engage in transactions that
stabilize, maintain or otherwise affect the
price of the PLUS or the level of the
Nasdaq-100 Index. Specifically, the Agent may
sell more PLUS than it is obligated to purchase
in connection with the offering or may sell
individual stocks underlying the Nasdaq-100
Index it does not own, creating a naked short
position in the PLUS or the individual stocks
underlying the Nasdaq-100 Index, respectively,
for its own account. The Agent must close out
any naked short position by purchasing the PLUS
or the individual stocks underlying 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 PLUS or
the individual stocks underlying 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, PLUS or the individual
stocks underlying the Nasdaq-100 Index in the
open market to stabilize the price of the PLUS.
Any of these activities may raise or maintain
the market price of the PLUS above independent
market levels or prevent or retard a decline in
the market price of the PLUS. 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 Morgan Stanley..... Nasdaq and Morgan Stanley have entered into a
non-exclusive license agreement providing for
the license to Morgan Stanley, 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 PLUS.
The license agreement between Nasdaq and Morgan
Stanley provides that the following language
must be set forth in this pricing supplement:
The PLUS 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 PLUS. The
Corporations make no representations or
warranty, express or implied, to the owners of
the PLUS or any member of the public regarding
the advisability of investing in securities
generally or in the PLUS 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
PS-22
determined, composed and calculated by Nasdaq
without regard to the Licensee or the PLUS.
Nasdaq has no obligation to take the needs of
the Licensee or the owners of the PLUS 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 PLUS to be
issued or in the determination or calculation
of the equation by which the PLUS are to be
converted into cash. The Corporations have no
liability in connection with the
administration, marketing or trading of the
PLUS.
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 PLUS,
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 PLUS. 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 Morgan
Stanley DW Inc. (formerly Dean Witter Reynolds
Inc.) ("MSDWI"), may each 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, as well as many individual retirement
accounts and Keogh plans (also "Plans").
Prohibited transactions within the meaning of
ERISA or the Code would likely arise, for
example, if the PLUS are acquired by or with
the assets of a Plan with respect to which MS &
Co., MSDWI or any of their affiliates is a
service provider, unless the PLUS are acquired
pursuant to an exemption from the "prohibited
transaction" rules.
PS-23
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
PLUS. 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 may be considered a party in
interest with respect to many Plans, the PLUS
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 PLUS will be deemed to have
represented, in its corporate and fiduciary
capacity, by its purchase and holding thereof
that it either (a) is not a Plan or a Plan
Asset Entity and is not purchasing such
securities on behalf of or with "plan assets"
of any Plan or (b) is eligible for exemptive
relief or such purchase or holding is not
prohibited by ERISA or Section 4975 of the
Code.
Under ERISA, assets of a Plan may include
assets held in the general account of an
insurance company which has issued an insurance
policy to such plan or assets of an entity in
which the Plan has invested. Accordingly,
insurance company general accounts that include
assets of a Plan must ensure that one of the
foregoing exemptions is available. Due to the
complexity of these rules and the penalties
that may be imposed upon persons involved in
non-exempt prohibited transactions, it is
particularly important that fiduciaries or
other persons considering purchasing the PLUS
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 PLUS have exclusive
responsibility for ensuring that their purchase
and holding of the PLUS 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 PLUS
that (i) purchase the PLUS at their Issue Price
and (ii) will hold the PLUS as capital
PS-24
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 the holder's individual circumstances
or to 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 the PLUS as
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 PLUS 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 PLUS, we and every
holder of the PLUS agree (in the absence of an
administrative determination or judicial ruling
to the contrary) to characterize a PLUS for all
tax purposes as a single financial contract
with respect to the Nasdaq- 100 Index that (1)
requires the holder to pay us at inception an
amount equal to the purchase price of the PLUS,
(2) entitles the holder (subject to our call
right) to receive (a) quarterly payments during
the term of the PLUS and (b) at maturity an
amount in cash based upon the performance of
the Nasdaq-100 Index, and (3) allows us, upon
exercise of our call right, to terminate the
contract by paying to the holder the call price
in cash. The characterization of the PLUS
described above is not, however, binding on the
IRS or the courts. No statutory, judicial or
administrative authority directly addresses the
characterization of the PLUS (or of similar
instruments) for U.S. federal income tax
purposes, and no ruling is being requested from
the IRS with respect to their proper
characterization and treatment. Due to the
absence of authorities that directly address
the PLUS (or similar instruments), Tax Counsel
is unable to render an opinion as to their
proper characterization for U.S. federal income
tax purposes. As a result, significant aspects
of the U.S. federal income tax consequences of
an investment in the PLUS are not certain, and
no assurance can be given that the IRS or the
courts will agree with the characterization and
tax treatment described herein. Accordingly,
you are urged to consult your tax advisor
regarding the U.S. federal income tax
consequences of an investment in the PLUS
(including possible alternative
characterizations of the PLUS) and regarding
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
characterization described above.
PS-25
U.S. HOLDERS
As used herein, the term "U.S. Holder" means an
owner of PLUS that for U.S. federal income tax
purposes is:
(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 PLUS
Quarterly payments. Although it is not entirely
free from doubt, we intend to take the position
that the quarterly payments on the PLUS are
payments of ordinary income to U.S. Holders.
Tax basis. A U.S. Holder's tax basis in the
PLUS will equal the amount paid by the U.S.
Holder to acquire the PLUS.
Settlement of the PLUS at maturity. Upon
receipt of cash at maturity, a U.S. Holder
generally will recognize long-term capital gain
or loss equal to the difference between the
amount of cash received and the Holder's basis
in the PLUS.
Early retirement of the PLUS pursuant to the
call right. The early retirement of the PLUS
pursuant to our call right will be treated as a
taxable exchange of the PLUS that would require
a U.S. Holder generally to recognize long-term
capital gain equal to the difference between
the amount realized on the exchange (i.e., the
call price) and the Holder's basis in the PLUS
retired.
Sale or exchange of the PLUS. Upon a sale or
exchange of the PLUS prior to their maturity, a
U.S. Holder will generally recognize capital
gain or loss equal to the difference between
the amount realized on the sale or exchange and
the Holder's basis in the PLUS sold or
exchanged. This gain or loss will generally be
long-term capital gain or loss if the U.S.
Holder held the PLUS for more than one year at
the time of disposition.
Possible Alternative Tax Treatments of an
Investment in the PLUS
Due to the absence of authorities that directly
address the proper tax treatment of the PLUS,
no assurance can be given that the IRS will
accept, or that a court will uphold, the
characterization and treatment described above.
In particular, the IRS could seek to analyze
the U.S. federal income tax consequences of
owning PLUS 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 PLUS, the timing and character of
PS-26
income thereon would be significantly affected.
Among other things, a U.S. Holder would be
required to accrue original issue discount on
the PLUS every year at a "comparable yield"
determined at the time of their issuance in an
amount that would greatly exceed the quarterly
stated payments on the PLUS. Furthermore, any
gain realized by a U.S. Holder at maturity,
upon early retirement of the PLUS pursuant to
our call right, or upon a sale or other
disposition of the PLUS would generally be
treated as ordinary income, and any loss
realized at maturity would be treated ordinary
loss to the extent of the U.S. Holder's prior
accruals of original issue discount, and as
capital loss thereafter.
Even if the Contingent Payment Regulations do
not apply to the PLUS, other alternative
federal income tax characterizations of the
PLUS are possible which, if applied, could also
affect the timing and the character of the
income or loss with respect to the PLUS. It is
possible, for example, that a PLUS 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 at a
rate that would greatly exceed the quarterly
payments which the U.S. Holder will receive.
Accordingly, prospective investors are urged to
consult their tax advisors regarding all
aspects of the U.S. federal income tax
consequences of an investment in the PLUS.
Backup Withholding and Information Reporting
A U.S. Holder of the PLUS may be subject to
information reporting and to backup withholding
in respect of amounts paid to the U.S. Holder,
unless the 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-27