-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8Cn/0IOW3CugVhmQ10O/q/QR5T5/o+ZtX6NF08vn7d4uWizEP5sMOTXXSk9N6Dx Ww8mX7ibvJRuPmmgpqkkxw== 0000950103-02-001017.txt : 20021016 0000950103-02-001017.hdr.sgml : 20021016 20021016161118 ACCESSION NUMBER: 0000950103-02-001017 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20021016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY 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: 333-83616 FILM NUMBER: 02790540 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 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER & CO DATE OF NAME CHANGE: 19980326 424B3 1 oct1502_424b3.txt PROSPECTUS Dated June 11, 2002 Pricing Supplement No. 15 to PROSPECTUS SUPPLEMENT Registration Statement No. 333-83616 Dated June 11, 2002 Dated October 10, 2002 Rule 424(b)(3) $12,600,000 Morgan Stanley MEDIUM-TERM NOTES, SERIES C Senior Fixed Rate Notes ----------------- BRIDGES(SM) due October 30, 2009 Based on the Value of Common Stock of Fifteen Aerospace and Defense Companies The BRIDGES will pay at maturity the greater of (i) the principal amount of $10 and (ii) the average value of a basket of shares of common stock of fifteen aerospace and defense industry companies, which we refer to as the basket stocks, as determined on six specified determination dates during the life of the BRIDGES. The basket stocks are the common stock of Alliant Techsystems Inc., The Boeing Company, Engineered Support Systems, Inc., Embraer-Empresa Brasileira de Aeronautica S.A., FLIR Systems, Inc., General Dynamics Corporation, Goodrich Corporation, Honeywell International Inc., ITT Industries, Inc., L-3 Communications Holdings, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Company, United Defense Industries, Inc. and United Technologies Corporation. o The principal amount and issue price of each BRIDGES is $10. o We will not pay interest on the BRIDGES. o At the initial offering of the BRIDGES, the initial basket value is $10. The basket consists of a fractional share of each basket stock equal to the exchange ratio with respect to each basket stock, based on the closing prices of the basket stocks on October 10, 2002, the day we offered the BRIDGES for initial sale to the public. The exchange ratio for any basket stock establishes the initial weighting of the basket stock in the basket and will remain constant for the term of the BRIDGES unless adjusted for certain corporate events. o At maturity, you will receive per BRIDGES the greater of (i) the principal amount of $10 and (ii) the final average basket value. o The final average basket value will equal the arithmetic average of the basket values on October 30, 2004, October 30, 2005, October 30, 2006, October 30, 2007, October 30, 2008 and October 28, 2009. o The basket value on any date equals the sum of the products of the closing price and the exchange ratio of each basket stock on that date. o Investing in the BRIDGES is not equivalent to investing in the basket of stocks or any of its component stocks. o The issuers of the basket stocks are not involved in this offering of the BRIDGES in any way and will have no obligation of any kind with respect to the BRIDGES. o The BRIDGES have been approved for listing on the American Stock Exchange LLC, subject to official notice of issuance. The AMEX listing symbol for the BRIDGES is "DFB." You should read the more detailed description of the BRIDGES in this pricing supplement. In particular, you should review and understand the descriptions in "Summary of Pricing Supplement" and "Description of BRIDGES." The BRIDGES involve risks not associated with an investment in ordinary debt securities. See "Risk Factors" beginning on PS-6. ----------------- PRICE $10 PER BRIDGES ----------------- Price to Agent's Proceeds to Public Commissions Company ----------- ----------- ----------- Per BRIDGES................... $10 $.30 $9.70 Total......................... $12,600,000 $378,000 $12,222,000 If you purchase at least 100,000 BRIDGES 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 $9.80 per BRIDGES (98% of the issue price). In that case, the Agent's commissions will be $.10 per BRIDGES. MORGAN STANLEY (This page intentionally left blank) PS-2 SUMMARY OF PRICING SUPPLEMENT The following summary describes the BRIDGES 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 BRIDGES offered are medium-term debt securities of Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.). The return on the BRIDGES is linked to the performance of a basket of shares of common stock of Alliant Techsystems Inc., The Boeing Company, Engineered Support Systems, Inc., Embraer-Empresa Brasileira de Aeronautica S.A., FLIR Systems, Inc., General Dynamics Corporation, Goodrich Corporation, Honeywell International Inc., ITT Industries, Inc., L-3 Communications Holdings, Inc., Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Company, United Defense Industries, Inc. and United Technologies Corporation, which we refer to as the basket stocks. These BRIDGES combine features of debt and equity by offering at maturity 100% protection of the issue price with the opportunity to participate in the upside potential of the underlying basket stocks. "BRIDGES" is our service mark. Each BRIDGES costs $10 We, Morgan Stanley, are offering you BRIDGES due October 30, 2009 Based on the Value of Common Stock of Fifteen Aerospace and Defense Companies. The principal amount and issue price of each BRIDGES is $10. The initial basket value At the initial offering of the BRIDGES, the equals $10 initial basket value is $10. The basket consists of a fractional share of each basket stock equal to the exchange ratio with respect to the basket stock, based on the closing prices of the basket stocks on October 10, 2002, the day we offered the BRIDGES for initial sale to the public. The exchange ratio establishes the initial weighting of each basket stock and will remain constant for the term of the BRIDGES unless adjusted for certain corporate events. The exchange ratios and initial weightings are set forth under "--Basket stocks" below. Payment at maturity Unlike ordinary debt securities, the BRIDGES do not pay interest. Instead, at maturity, you will receive the greater of (i) the principal amount of $10 per BRIDGES and (ii) the final average basket value. The final average basket value will be the arithmetic average of the basket values on each of the six determination dates during the life of the BRIDGES. 100% Principal Protection At maturity, we will pay you the greater of (i) the principal amount of $10 and (ii) the final average basket value. Final Average Basket Value = the arithmetic average of the Basket Values on each of the Determination Dates as calculated by the calculation agent on the last Determination Date Basket Value = the sum of the products of the closing price and the exchange ratio for each basket stock, as determined on any date by the calculation agent PS-3 Determination Dates = October 30, 2004, October 30, 2005, October 30, 2006, October 30, 2007, October 30, 2008 and October 28, 2009, in each case subject to adjustment in the event of certain market disruption events If the final average basket value is less than or equal to $10, you will receive the principal amount at maturity. The payment to you of the principal amount or the final average basket value upon maturity of the BRIDGES will be determined in U.S. Dollars. You can review the historical prices of each of the basket stocks and a chart of historical basket values in the section of this pricing supplement called "Description of BRIDGES--Historical Information." Basket stocks The basket is a portfolio of fifteen aerospace and defense industry common stocks. The issuers of the basket stocks are a selection of companies engaged in the aerospace and defense industry. The issuers of the basket stocks represent a range of market capitalizations within the aerospace and defense industry and a variety of businesses within that industry. The basket stocks have been weighted within the basket to give the greatest weight to the largest market capitalization companies. The following table sets forth the issuer of each basket stock, the ticker symbol for each basket stock, the exchange on which each basket stock is listed, the proportion of the initial basket value represented by the shares of each basket stock contained in the basket, the exchange ratio for each basket stock, the initial price of each basket stock used to calculate its exchange ratio and the value of the fractional share of each basket stock contained in the basket based upon those initial prices: Initial Initial Proportion Price of Value per Issuer of Ticker of Initial Basket Basket Basket Stock Symbol Exchange Basket Value Exchange Ratio Stock Stock ------------ ------ -------- ------------ -------------- --------- --------- Alliant Techsystems Inc. ATK NYSE 3.75% 0.006026032 $ 62.23 $ 0.375 The Boeing Company BA NYSE 10.00% 0.031897927 $ 31.35 $ 1.000 Engineered Support Systems, Inc. EASI NASDAQ 3.75% 0.007878151 $ 47.60 $ 0.375 Embraer-Empresa Brasiliera de Aeronautica S.A. ERJ* NYSE 3.75% 0.028089888 $ 13.35 $ 0.375 FLIR Systems, Inc. FLIR NASDAQ 3.75% 0.012389322 $ 30.27 $ 0.375 General Dynamics Corporation GD NYSE 10.00% 0.012817226 $ 78.02 $ 1.000 Goodrich Corporation GR NYSE 3.75% 0.021379704 $ 17.54 $ 0.375 Honeywell International Inc. HON NYSE 10.00% 0.051020408 $ 19.60 $ 1.000 ITT Industries, Inc. ITT NYSE 3.75% 0.006273001 $ 59.78 $ 0.375 L-3 Communications Holdings, Inc. LLL NYSE 3.75% 0.008074935 $ 46.44 $ 0.375 Lockheed Martin Corporation LMT NYSE 10.00% 0.016425756 $ 60.88 $ 1.000 Northrop Grumman Corporation NOC NYSE 10.00% 0.008717636 $ 114.71 $ 1.000 Raytheon Company RTN NYSE 10.00% 0.036873156 $ 27.12 $ 1.000 United Defense Industries, Inc. UDI NYSE 3.75% 0.017353077 $ 21.61 $ 0.375 United Technologies Corporation UTX NYSE 10.00% 0.019175455 $ 52.15 $ 1.000
---------- *Trades as American Depositary Shares. The exchange ratio for each basket stock will remain constant for the term of the BRIDGES unless adjusted for certain corporate events relating to the issuer of that basket PS-4 stock. See "Description of BRIDGES--Adjustments to the Exchange Ratios" in this pricing supplement. MS & Co. will be the We have appointed our affiliate, Morgan Stanley & calculation agent Co. Incorporated, which we refer to as MS & Co., to act as calculation agent for JPMorgan Chase Bank, the trustee for our senior notes. As calculation agent, our affiliate MS & Co. will calculate the final average basket value, determine what, if any, adjustments should be made to the exchange ratios to reflect certain corporate and other events and determine whether a market disruption event has occurred. We expect that MS & Co. and other affiliates will carry out hedging activities related to the BRIDGES (and possibly to other instruments linked to the basket stocks), including trading in the basket stocks as well as in other instruments related to the basket stocks. MS & Co. and some of our other subsidiaries also trade the basket stocks and other financial instruments related to the basket stocks on a regular basis as part of their general broker-dealer businesses. Any of these trading activities could potentially affect the value of the basket stocks and, accordingly, could affect the payout to you on the BRIDGES. U.S. federal income tax The BRIDGES will be treated as "contingent payment treatment debt instruments" for U.S. federal income tax purposes, as described in the section of this pricing supplement called "Description of BRIDGES--United States Federal Income Taxation." Under this treatment, if you are a U.S. taxable investor, you will be subject to annual income tax based on the comparable yield of the BRIDGES even though you will not receive any stated interest payments on the BRIDGES. In addition, any gain recognized by U.S. taxable investors on the sale or exchange of the BRIDGES generally will be treated as ordinary income. Please read carefully the section of this pricing supplement called "Description of BRIDGES--United States Federal Income Taxation" and the section called "United States Federal Taxation--Notes--Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices" in the accompanying prospectus supplement. You are urged to consult your own tax advisor regarding all aspects of the U.S. federal income tax consequences of investing in the BRIDGES. Where you can find The BRIDGES are senior notes issued as part of our more information on Series C medium-term note program. You can find a the BRIDGES general description of our Series C medium-term note program in the accompanying prospectus supplement dated June 11, 2002. 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 " --Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices." Because this is a summary, it does not contain all the information that may be important to you. For a detailed description of the terms of the BRIDGES, you should read the "Description of BRIDGES" section in this pricing supplement. You should also read about some of the risks involved in investing in BRIDGES in the section called "Risk Factors." The tax treatment of investments in basket- linked notes such as BRIDGES differs from that of investments in ordinary debt securities. We urge you to consult with your investment, legal, tax, accounting and other advisors with regard to any proposed or actual investment in the BRIDGES. 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 RISK FACTORS The BRIDGES are not secured debt and, unlike ordinary debt securities, the BRIDGES do not pay interest. Investing in the BRIDGES is not equivalent to investing directly in the basket of stocks or any of the component stocks. This section describes the most significant risks relating to the BRIDGES. You should carefully consider whether the BRIDGES are suited to your particular circumstances before you decide to purchase them. BRIDGES do not pay The terms of the BRIDGES differ from those of interest like ordinary ordinary debt securities in that we will not pay debt securities interest on the BRIDGES. Because the final average index value may not exceed $10, the return on your investment in the BRIDGES (the effective yield to maturity) may be less than the amount that would be paid on an ordinary debt security. The return of only the principal amount of each BRIDGES at maturity will not compensate you for the effects of inflation and other factors relating to the value of money over time. BRIDGES may not pay If the final average basket value is less than or more than the principal equal to $10, you will receive the principal amount at maturity amount of $10 for each BRIDGES you hold at maturity. BRIDGES may not There may be little or no secondary market for the be actively traded BRIDGES. Although the BRIDGES have been approved for listing on the American Stock Exchange LLC, which we refer to as the AMEX, it is not possible to predict whether the BRIDGES 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 BRIDGES, but it is not required to do so. Market price of the Several factors, many of which are beyond our BRIDGES influenced by control, will influence the value of the BRIDGES, many unpredictable factors including: o the market price of each of the basket stocks at any time and on the specific determination dates o interest and yield rates in the market o the volatility (frequency and magnitude of changes in value) of each of the basket stocks o economic, financial, political and regulatory or judicial events that affect the basket stocks or stock markets generally and which may affect the final average basket value o currency exchange rate fluctuations o the time remaining to the maturity of the BRIDGES o the dividend rate on each of the basket stocks o our creditworthiness Some or all of these factors will influence the price that you will receive if you sell your BRIDGES prior to maturity. For example, you may have to sell your BRIDGES at a substantial discount from the principal amount if at the time of sale or on earlier determination dates the basket value is at, below or not sufficiently above $10 or if market interest rates rise. PS-6 You cannot predict the future performance of any of the basket stocks or of the basket stocks as a whole based on their historical performance. Neither can you predict whether increases in the prices of any of the basket stocks will be offset by decreases in the prices of other basket stocks. We cannot guarantee that the final average basket value will be higher than $10 so that you will receive at maturity an amount in excess of the principal amount of the BRIDGES. Investing in the BRIDGES is Because the final average basket value is based on not equivalent to investing the closing value of the basket stocks on the six in the basket stocks determination dates during the term of the BRIDGES, it is possible for the final average basket value to be lower than $10 even if the basket closing value at maturity is higher than $10. There are risks associated The BRIDGES are an investment that is dependent with a sector investment upon the performance of selected issuers in a particular sector of the economy-namely, the aerospace and defense industries. Consequently, the value of the BRIDGES may be subject to greater volatility and be more adversely affected by a single economic, political or regulatory occurrence than an investment in a more broadly diversified group of issuers. In particular, the value of the basket stocks and the BRIDGES may be affected by the outbreak, continuation, escalation or cessation of international conflicts or terrorist acts. Aerospace and defense The trading prices of aerospace and defense industry company stock industry companies' common stocks have been and prices are volatile are likely to continue to be volatile. Fluctuations in the trading prices of the basket stocks may result in a significant disparity between the value of the basket stocks on any or all of the annual determination dates and the overall performance of the basket stocks over the term of the BRIDGES. The basket stocks are not Although the basket stocks have been selected to necessarily representative represent a broad range of businesses and market of the aerospace and capitalizations within the aerospace and defense defense industry industry, the performance of the basket may not perfectly correlate with the performance of the entire industry. The basket may decline in value even if the industry as a whole rises in value. Furthermore, one or more of the issuers of the basket stocks may engage in new lines of business or cease to be involved in the aerospace and defense industry. Aerospace and defense Companies involved in the aerospace and defense industry companies face industries face a number of unique risks, extensive regulation and including the following: intense competition o changes in the defense budgets of the United States and other countries o regulatory or legal developments, including significant litigation matters, affecting the issuers of the basket stocks or the industries in which they operate o unfavorable termination provisions in contracts with the U.S. government or other governments subject to audit and modification o announcements by competitors of the issuers of the basket stocks of new government contracts or projects, significant acquisitions, strategic partnerships, joint ventures or capital commitments o the difficulty of enforcing intellectual property rights and agreements, including under foreign legal systems PS-7 The issuers of the basket Historically, a significant portion of the sales stocks depend on the U.S. of the issuers of the basket stocks have been to government or other the U.S. government and its agencies and other governments for a governments. Some of the issuers of the basket significant portion of stocks have government products and programs that their sales must compete with programs of other defense contractors. The funding of government programs is dependent on congressional appropriations and administrative allotment of funds and may be affected by changes in government policies resulting from various military and political developments. In addition, funding for defense programs competes with non-defense spending of the government. A shift in government defense spending to other programs in which an issuer of a basket stock is not involved or a reduction in government defense spending generally could have severe consequences on that issuer's revenue and earnings. Government defense contracts typically involve long lead times for design and development and are subject to changes in contract scheduling. Since the majority of revenues for some of the issuers of the basket stocks are dependent on the procurement, performance and payment under its government contracts, including contracts with governments outside the United States, the termination of one or more critical government contracts could have a negative impact on their results of operation and financial condition. Industry consolidation may The aerospace and defense industry in recent years alter the composition of the has undergone considerable consolidation, which basket may continue during the life of BRIDGES. If the issuer of a basket stock is acquired in a stock-for-stock transaction, the acquiring company will assume that basket stock's exchange ratio in the basket, including if the acquiror is already in the basket. Consequently, consolidation among issuers of the basket stocks will result in an increased weighting for the surviving company. The effect of consolidation transactions and other reorganization events on the basket stocks is described in paragraph 5 under "Description of BRIDGES--Antidilution Adjustments." No affiliation with the We are not affiliated with any of the issuers of issuers of the basket the basket stocks. We or our subsidiaries may stocks presently or from time to time engage in business with one or more of the issuers of the basket stocks, including extending loans to, or making equity investments in, one or more of the issuers of the basket stocks or their affiliates or subsidiaries or providing advisory services to one or more of the issuers of the basket stocks, including merger and acquisition advisory services. In the course of our business, we or our affiliates may acquire non-public information about one or more of the issuers of the basket stocks. Neither we nor any of our affiliates undertakes to disclose any such information to you. Moreover, we have no ability to control the actions of the issuers of the basket stocks, including any corporate actions of the type that would require the calculation agent to adjust the exchange ratios of the basket stocks. We or our affiliates from time to time have published and in the future may publish research reports with respect to the basket stocks. The basket was compiled independently of any research recommendations and may not be consistent with such recommendations. The basket currently includes stocks that we or our affiliates recommend as overweight, equal-weight or underweight in our research reports, as well as stocks that we or our affiliates do not cover in our research reports. Furthermore, the composition of the basket will not be affected by any change that we or our affiliates may make in our recommendations or decisions to begin or discontinue coverage of any of the issuers of the basket stocks in our research reports. The issuers of the basket stocks are not involved in the offering of the BRIDGES in any way and have no obligation to consider your interest as an owner of these BRIDGES in taking any PS-8 corporate actions that might affect the value of your BRIDGES. None of the money you pay for the BRIDGES will go to the issuers of the basket stocks. You have no As an owner of BRIDGES, you will not have voting shareholder rights rights or rights to receive dividends or other distributions or any other rights with respect to the basket stocks. The antidilution adjustments MS & Co., as calculation agent, will adjust the we are required to make do exchange ratio for a basket stock for certain not cover every corporate events affecting the basket stock, such as stock event that can affect the splits and stock dividends, and certain other basket stocks corporate actions involving the issuer of the basket stock, such as mergers. However, the calculation agent is not required to make an adjustment for every corporate event that can affect the basket stocks. For example, the calculation agent is not required to make any adjustments if the issuer of a basket stock or anyone else makes a partial tender offer or a partial exchange offer for that basket stock. If an event occurs that does not require the calculation agent to adjust the exchange ratio, the market price of the notes may be materially and adversely affected. Adverse economic interests As calculation agent, our affiliate MS & Co. will of the calculation agent calculate the final average basket value, what and its affiliates may adjustments should be made to the exchange ratio influence determinations for each basket stock to reflect certain corporate and other events and whether a market disruption event has occurred. We expect that MS & Co. and other affiliates will carry out hedging activities related to the BRIDGES (and possibly to other instruments linked to the basket stocks or its component stocks), including trading in the basket stocks as well as in other instruments related to the basket stocks. MS & Co. and some of our other subsidiaries also trade the basket stocks and other financial instruments related to the basket stocks on a regular basis as part of their general broker-dealer businesses. Any of these trading activities could potentially affect the value of the basket stocks and, accordingly, could affect the payout to you on the BRIDGES. Tax treatment You should also consider the tax consequences of investing in the BRIDGES. The BRIDGES will be treated as "contingent payment debt instruments" for U.S. federal income tax purposes, as described in the section of this pricing supplement called "Description of BRIDGES--United States Federal Income Taxation." Under this treatment, if you are a U.S. taxable investor, you will be subject to annual income tax based on the comparable yield of the BRIDGES even though you will not receive any stated interest payments on the BRIDGES. In addition, any gain recognized by U.S. taxable investors on the sale or exchange of the BRIDGES generally will be treated as ordinary income. Please read carefully the section of this pricing supplement called "Description of BRIDGES--United States Federal Income Taxation" and the section called "United States Federal Taxation--Notes-- Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices" in the accompanying prospectus supplement. You are urged to consult your own tax advisor regarding all aspects of the U.S. federal income tax consequences of investing in the BRIDGES. PS-9 DESCRIPTION OF BRIDGES Terms not defined herein have the meanings given to such terms in the accompanying prospectus supplement. The term "BRIDGES" refers to each $10 principal amount of any of our BRIDGES due October 30, 2009 Based on the Value of the Common Stock of Fifteen Aerospace and Defense Companies. In this pricing supplement, the terms "we," "us" and "our" refer to Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.). Principal Amount...................... $12,600,000 Original Issue Date (Settlement Date). October 16, 2002 Maturity Date......................... October 30, 2009, subject to extension in the event of a Market Disruption Event on the sixth Determination Date for calculating the Final Average Basket Value. If, due to a Market Disruption Event or otherwise, the sixth Determination Date is postponed so that it falls less than two scheduled Trading Days prior to the scheduled Maturity Date, the Maturity Date will be the second scheduled Trading Day following that sixth Determination Date as postponed. See "--Determination Dates" below. Specified Currency.................... U.S. Dollars CUSIP................................. 61744Y249 Minimum Denominations................. $10 Issue Price........................... 100% Interest Rate......................... None Maturity Redemption Amount............ At maturity, you will receive for each BRIDGES the greater of (i) $10 (the principal amount of the BRIDGES) or (ii) the Final Average Basket Value. The Calculation Agent will calculate the Maturity Redemption Amount on the sixth Determination Date. We shall, or shall cause the Calculation Agent to, (i) provide written notice to the Trustee at its New York office, on which notice the Trustee may conclusively rely, and to the Depositary of the Maturity Redemption Amount, on or prior to 11:00 a.m. on the Trading Day preceding the Maturity Date and (ii) deliver the aggregate cash amount due with respect to the BRIDGES to the Trustee for delivery to the holders on the Maturity Date. If the maturity of the BRIDGES is accelerated because of an event described under "--Alternate Exchange Calculation in Case of an Event of Default" below, we shall provide such notice as promptly as possible and in no event later than two Business Days after the date of acceleration. Basket Stocks......................... The Basket Stocks are the stocks of the fifteen issuers set forth in the table below. The table also indicates the ticker symbol for each Basket Stock, the exchange on which each Basket Stock is listed, the PS-10 proportion of the Initial Basket Value represented by the shares of each Basket Stock contained in the Basket, the Exchange Ratio with respect to each Basket Stock, the initial price of each Basket Stock used to calculate its Exchange Ratio and the value of the fractional share of each Basket Stock contained in the Basket based upon those initial prices. Initial Initial Proportion Price of Value per Issuer of Ticker of Initial Basket Basket Basket Stock Symbol Exchange Basket Value Exchange Ratio Stock Stock ------------------------ ------ -------- ------------ -------------- --------- --------- Alliant Techsystems Inc. ATK NYSE 3.75% 0.006026032 $ 62.23 $ 0.375 The Boeing Company BA NYSE 10.00% 0.031897927 $ 31.35 $ 1.000 Engineered Support Systems, Inc. EASI NASDAQ 3.75% 0.007878151 $ 47.60 $ 0.375 Embraer-Empresa Brasiliera de Aeronautica S.A. ERJ* NYSE 3.75% 0.028089888 $ 13.35 $ 0.375 FLIR Systems, Inc. FLIR NASDAQ 3.75% 0.012389322 $ 30.27 $ 0.375 General Dynamics Corporation GD NYSE 10.00% 0.012817226 $ 78.02 $ 1.000 Goodrich Corporation GR NYSE 3.75% 0.021379704 $ 17.54 $ 0.375 Honeywell International Inc. HON NYSE 10.00% 0.051020408 $ 19.60 $ 1.000 ITT Industries, Inc. ITT NYSE 3.75% 0.006273001 $ 59.78 $ 0.375 L-3 Communications Holdings, Inc. LLL NYSE 3.75% 0.008074935 $ 46.44 $ 0.375 Lockheed Martin Corporation LMT NYSE 10.00% 0.016425756 $ 60.88 $ 1.000 Northrop Grumman Corporation NOC NYSE 10.00% 0.008717636 $ 114.71 $ 1.000 Raytheon Company RTN NYSE 10.00% 0.036873156 $ 27.12 $ 1.000 United Defense Industries, Inc. UDI NYSE 3.75% 0.017353077 $ 21.61 $ 0.375 United Technologies Corporation UTX NYSE 10.00% 0.019175455 $ 52.15 $ 1.000
---------- *Trades as American Depositary Shares. Basket ............................... The Basket is initially a portfolio of fifteen aerospace and defense industry Basket Stocks and consists of a number of shares of each Basket Stock equal to the Exchange Ratio with respect to such Basket Stock. The issuers of the Basket Stocks are a selection of companies engaged in the aerospace and defense industry. The issuers of the Basket Stocks represent a range of market capitalizations within the aerospace and defense industry and a variety of businesses within that industry. The Basket Stocks have been weighted within the Basket to give the greatest weight to the largest market capitalization companies. The Exchange Ratio for each Basket Stock is a fraction of a share calculated so that each Basket Stock represents the initial value per Basket Stock as set forth in the table under "--Basket Stocks" above based on the initial prices of the Basket Stocks. Exchange Ratio........................ The Exchange Ratio for each Basket Stock is set forth in the table under "--Basket Stocks" above, subject to adjustment for certain corporate and other events relating to the issuer of that Basket Stock. See "--Adjustments to the Exchange Ratios" below. Initial Basket Value.................. $10 PS-11 Final Average Basket Value............ The arithmetic average of the Basket Values on each of the Determination Dates, as determined by the Calculation Agent. Basket Value.......................... The Basket Value on any date equals the sum of the products of the Market Price and the Exchange Ratio for each Basket Stock, each determined as of such date by the Calculation Agent. Determination Dates................... The Determination Dates will be October 30, 2004, October 30, 2005, October 30, 2006, October 30, 2007, October 30, 2008 and October 28, 2009, in each such case subject to adjustment for Market Disruption Events as described in the two following paragraphs. If any of the first five scheduled Determination Dates is not a Trading Day or if a Market Disruption Event occurs on any such date, such Determination Date will be the immediately succeeding Trading Day during which no Market Disruption Event shall have occurred; provided that if a Market Disruption Event has occurred on each of the five Trading Days immediately succeeding any of the first five scheduled Determination Dates, then such fifth succeeding Trading Day will be deemed to be the relevant Determination Date, notwithstanding the occurrence of a Market Disruption Event on such day. If October 28, 2009 (the sixth scheduled Determination Date) is not a Trading Day or if there is a Market Disruption Event on such day, the sixth Determination Date will be the immediately succeeding Trading Day during which no Market Disruption Event shall have occurred. Market Price.......................... If a Basket Stock (or any other security for which a Market Price must be determined) is listed on a national securities exchange, is a security of the Nasdaq National Market or is included in the OTC Bulletin Board Service ("OTC Bulletin Board") operated by the National Association of Securities Dealers, Inc. (the "NASD"), the Market Price for one share of such Basket Stock (or one unit of any such other security) on any Trading Day means (i) the last reported sale price, regular way, of the principal trading session on such day on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which such Basket Stock (or any such other security) is listed or admitted to trading (which may be the Nasdaq National Market if it is then a national securities exchange) or (ii) if not listed or admitted to trading on any such securities exchange or if such last reported sale price is not obtainable (even if such Basket Stock (or such other security) is listed or admitted to trading on such securities exchange), the last reported sale price of the principal trading session on the over-the-counter market as reported on the Nasdaq National Market (if it is not then a national securities exchange) or OTC Bulletin Board on such day. If the last reported sale price of the principal trading session is not available pursuant to clause (i) or (ii) of the preceding sentence because of a Market Disruption Event or otherwise, the Market Price for any Trading Day shall be the mean, as determined by the Calculation Agent, of the bid prices for such Basket Stock (or any such other security) obtained from as many PS-12 dealers in such security, but not exceeding three, as will make such bid prices available to the Calculation Agent. Bids of MS & Co. or any of its affiliates may be included in the calculation of such mean, but only to the extent that any such bid is the highest of the bids obtained. A "security of the Nasdaq National Market" shall include a security included in any successor to such system and the term "OTC Bulletin Board Service" shall include any successor service thereto. Trading Day........................... A day, as determined by the Calculation Agent, on which trading is generally conducted on the New York Stock Exchange, Inc. ("NYSE"), the American Stock Exchange LLC, 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............................... JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank) Agent................................. Morgan Stanley & Co. Incorporated and its successors ("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 Exchange Ratio for each Basket Stock and the Final Average Basket Value will be rounded to the nearest one billionth, with five ten-billionths rounded upward (e.g., .8765432105 would be rounded to .876543211); all dollar amounts related to determination of the amount of cash payable per BRIDGES 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 BRIDGES 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 BRIDGES, including with respect to certain determinations and judgments that the Calculation Agent must make in determining the Final Average Basket Value, what adjustments should be made to the Exchange Ratio with respect to a Basket Stock or whether a Market Disruption Event has occurred. See "--Adjustments to the Exchange Ratios" 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. PS-13 Adjustments to the Exchange Ratios.... The Exchange Ratio with respect to a Basket Stock will be adjusted as follows: 1. If a Basket Stock is subject to a stock split or reverse stock split, then once such split has become effective, the Exchange Ratio for such Basket Stock will be adjusted to equal the product of the prior Exchange Ratio and the number of shares issued in such stock split or reverse stock split with respect to one share of such Basket Stock. 2. If a Basket Stock is subject (i) to a stock dividend (issuance of additional shares of such Basket Stock) that is given ratably to all holders of shares of such Basket Stock or (ii) to a distribution of such Basket Stock as a result of the triggering of any provision of the corporate charter of the issuer of such Basket Stock, then once the dividend has been declared and the Basket Stock is trading ex- dividend, the Exchange Ratio for such Basket Stock will be adjusted so that the new Exchange Ratio shall equal the prior Exchange Ratio plus the product of (i) the number of shares issued with respect to one share of such Basket Stock and (ii) the prior Exchange Ratio for such Basket Stock. 3. There will be no adjustments to any Exchange Ratio to reflect cash dividends or other distributions paid with respect to a Basket Stock other than distributions described in clauses (i), (iv) and (v) of paragraph 5 below and Extraordinary Dividends as described below. A cash dividend or other distribution with respect to a Basket Stock will be deemed to be an "Extraordinary Dividend" if such dividend or other distribution exceeds the immediately preceding non- Extraordinary Dividend for such Basket Stock by an amount equal to at least 10% of the Market Price of such Basket Stock (as adjusted for any subsequent corporate event requiring an adjustment hereunder, such as a stock split or reverse stock split) on the Trading Day preceding the ex-dividend date for the payment of such Extraordinary Dividend (the "ex-dividend date"). If an Extraordinary Dividend occurs with respect to a Basket Stock, the Exchange Ratio with respect to such Basket Stock will be adjusted on the ex-dividend date with respect to such Extraordinary Dividend so that the new Exchange Ratio will equal the product of (i) the then current Exchange Ratio and (ii) a fraction, the numerator of which is the Market Price of the Basket Stock on the Trading Day preceding the ex-dividend date, and the denominator of which is the amount by which the Market Price of the Basket Stock on the Trading Day preceding the ex-dividend date exceeds the Extraordinary Dividend Amount. The "Extraordinary Dividend Amount" with respect to an Extraordinary Dividend for a Basket Stock will equal (i) in the case of cash dividends or other distributions that constitute regular dividends, the amount per share of such Extraordinary Dividend minus the amount per share of the immediately preceding non- Extraordinary Dividend for such Basket Stock or (ii) in the case of cash dividends or other distributions that do not constitute regular dividends, the amount per share of such Extraordinary Dividend. To the extent an Extraordinary Dividend is not paid in cash, the value of the non-cash component will be determined by the Calculation Agent, whose determination shall be conclusive. A distribution on a Basket PS-14 Stock described in clause (i), (iv) or (v) of paragraph 5 below that also constitutes an Extraordinary Dividend shall cause an adjustment to the Exchange Ratio pursuant only to clause (i), (iv) or (v) of paragraph 5, as applicable. 4. If an issuer of a Basket Stock issues rights or warrants to all holders of a Basket Stock to subscribe for or purchase such Basket Stock at an exercise price per share less than the Market Price of such Basket Stock on both (i) the date the exercise price of such rights or warrants is determined and (ii) the expiration date of such rights or warrants, and if the expiration date of such rights or warrants precedes the maturity of the BRIDGES, then the Exchange Ratio for such Basket Stock will be adjusted to equal the product of the prior Exchange Ratio for such Basket Stock and a fraction, the numerator of which shall be the number of shares of such Basket Stock outstanding immediately prior to the issuance of such rights or warrants plus the number of additional shares of such Basket Stock offered for subscription or purchase pursuant to such rights or warrants and the denominator of which shall be the number of shares of such Basket Stock outstanding immediately prior to the issuance of such rights or warrants plus the number of additional shares of such Basket Stock which the aggregate offering price of the total number of shares of such Basket Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at the Market Price on the expiration date of such rights or warrants, which shall be determined by multiplying such total number of shares offered by the exercise price of such rights or warrants and dividing the product so obtained by such Market Price. 5. Any of the following shall constitute a Reorganization Event: (i) there occurs any reclassification or change of a Basket Stock, including, without limitation, as a result of the issuance of any tracking stock by the issuer of such Basket Stock, (ii) the issuer of a Basket Stock or any surviving entity or subsequent surviving entity of the issuer of such Basket Stock (an "Issuer Successor") has been subject to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory exchange of securities of the issuer of a Basket Stock or any Issuer Successor with another corporation occurs (other than pursuant to clause (ii) above), (iv) the issuer of a Basket Stock is liquidated, (v) the issuer of a Basket Stock issues to all of its shareholders equity securities of an issuer other than the issuer of such Basket Stock (other than in a transaction described in clause (ii), (iii) or (iv) above) (a "Spinoff Event") or (vi) a tender or exchange offer or going-private transaction is consummated for all the outstanding shares of such Basket Stock. If any Reorganization Event occurs, in each case as a result of which the holders of a Basket Stock are entitled to receive stock, other securities or other property or assets (including, without limitation, cash or other classes of securities of the issuer of such Basket Stock and including (x) in the case of the issuance of tracking stock, the reclassified share of the Basket Stock, (y) in the case of a Spin-off Event, the share of the Basket Stock with respect to which the spun-off security was issued and (z) in the case of any other Reorganization Event where the Basket Stock continues to be held by the holders receiving such PS-15 distribution, the Basket Stock) (collectively, "Exchange Property") with respect to or in exchange for such Basket Stock, then in lieu of using the product of the Market Price and the Exchange Ratio for such Basket Stock to calculate the Basket Value on any date, the Calculation Agent will use the Exchange Property Value on such date. The Exchange Property Value at any date means (i) for any cash received per share of Basket Stock, the amount of cash received per share of Basket Stock as adjusted by the applicable Exchange Ratio for such Basket Stock on the date of such Reorganization Event, (ii) for any property other than cash or securities received in such distribution, the market value, as determined by the Calculation Agent, as of the date of receipt, of such Exchange Property received for each share of Basket Stock, as adjusted by the Exchange Ratio for such Basket Stock on the date of such Reorganization Event, (iii) for any security received in any such distribution, an amount equal to the Market Price, as of the date on which the Exchange Property Value is determined, per share of such security multiplied by the quantity of such security received for each share of Basket Stock, as adjusted by the Exchange Ratio for such Basket Stock on the date of the initial distribution of such Exchange Property (such as-adjusted quantity, a "New Exchange Ratio") and (iv) if the Exchange Property was distributed with respect to, rather than in exchange for, a Basket Stock, an amount equal to the Market Price, as of the date on which the Exchange Property Value is determined, for such Basket Stock multiplied by the Exchange Ratio as of the date on which the Exchange Property Value is determined. Holders of BRIDGES will not receive any interest accrued on the cash component of any Exchange Property. Any New Exchange Ratio will also be subject to the adjustments set forth in paragraphs 1 through 5 hereof. For purposes of paragraph 5 above, in the case of a consummated tender or exchange offer or going-private transaction involving Exchange Property of a particular type, Exchange Property shall be deemed to include the amount of cash or other property paid by the offeror in the tender or exchange offer with respect to such Exchange Property (in an amount determined on the basis of the rate of exchange in such tender or exchange offer or going-private transaction). In the event of a tender or exchange offer or a going- private transaction with respect to Exchange Property in which an offeree may elect to receive cash or other property, Exchange Property shall be deemed to include the kind and amount of cash and other property received by offerees who elect to receive cash. If a Market Price for a Basket Stock is no longer available for a Basket Stock for whatever reason, including the liquidation of the issuer of such Basket Stock or the subjection of such issuer to a proceeding under any applicable bankruptcy, insolvency or other similar law, then the value of such Basket Stock will equal zero for so long as no Market Price is available. There will be no substitution for any such Basket Stock. No adjustment to the Exchange Ratio of a Basket Stock will be required unless such adjustment would require a change of at least 0.1% in the Exchange Ratio of such Basket Stock then in effect. The PS-16 Exchange Ratio resulting from any of the adjustments specified above will be rounded to the nearest one billionth, with five ten-billionths rounded upward. Adjustments to the Exchange Ratio of a Basket Stock will be made up to and including the sixth scheduled Determination Date. The Calculation Agent shall be solely responsible for the determination and calculation of any adjustments to the Exchange Ratio for a Basket Stock or method of calculating the Exchange Property Value and of any related determinations and calculations with respect to any distributions of stock, other securities or other property or assets (including cash) in connection with any corporate event described in paragraph 5 above, and its determinations and calculations with respect thereto shall be conclusive in the absence of manifest error. The Calculation Agent will provide information as to any adjustments to any Exchange Ratio upon written request by any holder of the BRIDGES. Alternate Exchange Calculation in Case of an Event of Default ....... In case an event of default with respect to the BRIDGES shall have occurred and be continuing, the amount declared due and payable for each BRIDGES upon any acceleration of the BRIDGES will be equal the greater of (i) $10 (the principal amount of the BRIDGES) and (ii) the Final Average Basket Value determined as though the Basket Value for any Determination Date scheduled to occur on or after such date of acceleration were the Basket Value on the date of acceleration. If the maturity of the BRIDGES is so accelerated, we shall provide such notice as promptly as possible and in no event later than two Business Days after the date of acceleration. Market Disruption Event............... "Market Disruption Event" means the occurrence or existence of any of the following events with respect to any Basket Stock: (i) a suspension, absence or material limitation of trading of such Basket Stock on the primary market for such Basket Stock for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session in such market; or a breakdown or failure in the price and trade reporting systems of the primary market for such Basket Stock as a result of which the reported trading prices for such Basket Stock during the last one-half hour preceding the close of the principal trading session in such market are materially inaccurate; or the suspension, absence or material limitation of trading on the primary market for trading in options contracts related to such Basket Stock, if available, during the one-half hour period preceding the close of the principal trading session in the applicable market, in each case as determined by the Calculation Agent in its sole discretion; and (ii) a determination by the Calculation Agent in its sole PS-17 discretion that any event described in clause (i) above materially interfered with the ability of Morgan Stanley or any of its affiliates to unwind or adjust all or a material portion of the hedge position in such Basket Stocks with respect to the BRIDGES. For purposes of determining whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange, (2) a decision to permanently discontinue trading in the relevant options contract will not constitute a Market Disruption Event, (3) limitations pursuant to NYSE Rule 80A (or any applicable rule or regulation enacted or promulgated by the NYSE, any other self-regulatory organization or the Securities and Exchange Commission of 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 options contracts on any Basket Stock by the primary securities market trading in such options, if available, by reason of (x) a price change exceeding limits set by such securities exchange or market, (y) an imbalance of orders relating to such contracts or (z) a disparity in bid and ask quotes relating to such contracts will constitute a suspension, absence or material limitation of trading in options contracts related to such Basket Stock and (5) a suspension, absence or material limitation of trading on the primary securities market on which options contracts related to any Basket Stock are traded will not include any time when such securities market is itself closed for trading under ordinary circumstances. Basket Stocks; Public Information.................... All the issuers of Basket Stocks are registered under the Exchange Act. Companies with securities registered under the Exchange Act are required to file periodically certain financial and other information specified by the Securities and Exchange Commission (the "Commission"). Information provided to or filed with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, information provided to or filed with the Commission electronically can be accessed through a website maintained by the Commission. The address of the Commission's website is http://www.sec.gov. Information provided to or filed with the Commission by each of the issuers of the Basket Stocks pursuant to the Exchange Act can be located by reference to its respective Commission file number, set forth below. In addition, information regarding the issuers of the Basket Stocks may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. We make no representation or warranty as to the accuracy or completeness of such information. PS-18 Alliant Techsystems Inc. is an aerospace and defense company that provides propulsion, composite structures, munitions and precision capabilities. Its Commission file number is 1-10582. The Boeing Company is an aerospace company that provides missile defense, human space flight and launch services and manufactures satellites, commercial jetliners and military aircraft. Its Commission file number is 1-442. Engineered Support Systems, Inc. is a supplier of military electronics, support equipment and logistics services for the armed forces of the United States of America, certain foreign militaries and commercial customers. Its Commission file number is 0-13880. Embraer-Empresa Brasiliera de Aeronautica S.A. is engaged in the design, production and sale of aircraft and aerospace materials, the promotion or execution of technical activities related to the production and maintenance of aerospace materials and the execution of other technological, industrial and commercial activities and services related to the aerospace industry. Its Commission file number is 1-15102. In the case of Embraer-Empresa Brasiliera de Aeronautica S.A., the Basket Stock is the American Depositary Share representing the company's common shares and not the underlying common shares. FLIR Systems, Inc. is engaged in the design, manufacture and marketing of thermal imaging and broadcast camera systems for commercial and government applications. Its Commission file number is 0-21918. General Dynamics Corporation is a company with market positions in business aviation, information systems and technologies, shipbuilding and marine systems, and land and amphibious combat systems. Its Commission file number is 1-3671. Goodrich Corporation is a supplier of aerospace components, systems and services for aircraft and engine manufacturers, airlines and other operators. Its Commission file number is 1-892. Honeywell International Inc. is a provider of aerospace products and services, control technologies for buildings, home and industries, automotive products, power generation systems, specialty chemicals, fibers, plastics and electronic and advanced materials. Its Commission file number is 1-8974. ITT Industries, Inc. is engaged directly and through its subsidiaries in the design and manufacture of a wide range of engineered products and the provision of related services. Its Commission file number is 1-5627. PS-19 L-3 Communications Holdings, Inc. is a merchant supplier of intelligence, surveillance and reconnaissance products, communications systems and products, avionics and ocean products, training products, microwave components and telemetry, instrumentation, space and wireless products. Its Commission file number is 1-14141. Lockheed Martin Corporation is engaged in the research, design, development, manufacture and integration of advanced technology systems, products and services for government and commercial customers. Its Commission file number is 1-11437. Northrop Grumman Corporation is a provider of services and solutions in defense and commercial electronics, systems integration, information technology and nuclear and non-nuclear shipbuilding and systems. Its Commission file number is 1-16411. Raytheon Company is a defense, government and commercial electronics and business and special mission aircraft supplier. Its Commission file number is 1-13699. United Defense Industries, Inc. is engaged in the design, development and production of combat vehicles, artillery, naval guns, missile launchers and precision munitions used by the U.S. Department of Defense and foreign militaries. Its Commission file number is 1-16821. United Technologies Corporation is a provider of high technology products to the aerospace and building systems industries. Its Commission file number is 1-812. This pricing supplement relates only to the BRIDGES offered hereby and does not relate to the Basket Stocks or other securities of the issuers of the Basket Stocks. We have derived all disclosures contained in this pricing supplement regarding the issuers of the Basket Stocks from the publicly available documents described in the preceding paragraphs. Neither we nor the Agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the issuers of the Basket Stocks in connection with the offering of the BRIDGES. Neither we nor the Agent makes any representation that such publicly available documents are or any other publicly available information regarding the issuers of the Basket Stocks is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraphs) that would affect the trading prices of the Basket Stocks (and therefore the Initial Basket Value and the Exchange Ratios) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the issuers of the Basket Stocks could affect the payout you receive on the BRIDGES. PS-20 Neither we nor any of our affiliates makes any representation to you as to the performance of any of the Basket Stocks or the Basket as a whole. We and/or our subsidiaries may presently or from time to time engage in business with the issuers of the Basket Stocks, including extending loans to, or making equity investments in, the issuers of the Basket Stocks or providing advisory services to the issuers of the Basket Stocks, including merger and acquisition advisory services. In the course of such business, we and/or our subsidiaries may acquire non-public information with respect to the issuers of the Basket Stocks, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates may publish research reports with respect to the issuers of the Basket Stocks. The statements in the preceding two sentences are not intended to affect the rights of the holders of the BRIDGES under the securities laws. As a prospective purchaser of a BRIDGES, you should undertake an independent investigation of the issuers of the Basket Stocks as in your judgment is appropriate to make an informed decision with respect to an investment in the Basket Stocks. Historical Information................ The following table sets forth the published high and low Market Prices for each Basket Stock during 1999, 2000, 2001 and during 2002 through October 10, 2002. The Market Price of each Basket Stock on October 10, 2002 is set forth above under "--Basket Stocks." We obtained the information in the table below from Bloomberg Financial Markets, and we believe such information to be accurate. The historical prices of the Basket Stocks should not be taken as an indication of future performance, and no assurance can be given as to the level of the Basket Stocks on any Determination Date. The value of the Basket Stocks may be lower on the Determination Dates than on the date of this pricing supplement so that you will receive only the $10 principal amount of the BRIDGES at maturity. We cannot give you any assurance that the average value of the Basket Stocks on the Determination Dates will be higher than $10. Alliant Techsystems Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 018804104) 1999 First Quarter ................... $ 26.00 $ 21.54 $ - Second Quarter .................. 25.78 22.50 - Third Quarter ................... 25.09 20.11 - Fourth Quarter .................. 20.50 15.19 - 2000 First Quarter ................... 20.59 15.81 - Second Quarter .................. 21.67 17.54 - Third Quarter ................... 24.48 20.67 - Fourth Quarter .................. 29.86 23.02 - 2001 First Quarter ................... 39.36 27.14 - Second Quarter .................. 45.11 37.64 - Third Quarter ................... 59.56 38.22 - Fourth Quarter .................. 61.73 48.20 -
PS-21 Alliant Techsystems Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 018804104) 2002 First Quarter ................... 68.00 47.44 - Second Quarter .................. 75.55 62.00 - Third Quarter ................... 73.70 53.92 - Fourth Quarter (through October 10, 2002) ................... 71.50 60.20 -
Historical prices with respect to the common stock of Alliant Techsystems Inc. have been adjusted for a 3-for-2 stock split which became effective in the fourth quarter of 2000, a 3-for-2 stock split which became effective in the third quarter of 2001 and a 3-for-2 stock split which became effective in the second quarter of 2002. The Boeing Company High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 097023105) 1999 First Quarter ................... $ 37.38 $ 32.94 $ .14 Second Quarter .................. 45.75 33.94 .14 Third Quarter ................... 47.63 41.69 .14 Fourth Quarter .................. 46.06 37.25 .14 2000 First Quarter ................... 47.63 32.38 .14 Second Quarter .................. 41.81 34.75 .14 Third Quarter ................... 66.06 41.69 .14 Fourth Quarter .................. 69.94 56.13 .14 2001 First Quarter ................... 65.50 52.00 .17 Second Quarter .................. 68.79 54.61 .17 Third Quarter ................... 59.21 29.76 .17 Fourth Quarter .................. 39.10 32.40 .17 2002 First Quarter ................... 50.88 38.05 .17 Second Quarter .................. 49.58 41.51 .17 Third Quarter ................... 45.00 34.13 .17 Fourth Quarter (through October 10, 2002) ................... 36.00 30.44 -
Engineered Support Systems, Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 292866100) 1999 First Quarter ................... $ 13.95 $ 12.00 $ .0144 Second Quarter .................. 12.60 9.45 - Third Quarter ................... 11.40 9.40 .0144 Fourth Quarter .................. 10.40 8.75 - 2000 First Quarter ................... 11.70 9.20 .0144 Second Quarter .................. 11.10 8.65 - Third Quarter ................... 16.35 10.75 .0144 Fourth Quarter .................. 19.95 13.20 -
PS-22 Engineered Support Systems, Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 292866100) 2001 First Quarter ................... 30.90 17.30 .0144 Second Quarter .................. 42.50 18.63 - Third Quarter ................... 51.25 30.23 .018 Fourth Quarter .................. 54.21 30.40 - 2002 First Quarter ................... 46.25 30.19 .018 Second Quarter .................. 53.28 44.75 - Third Quarter ................... 61.25 42.90 .018 Fourth Quarter (through October 10, 2002) ........... 56.70 47.43 -
Historical prices with respect to the common stock of Engineered Support Systems, Inc. have been adjusted for a 5-for-4 stock split which became effective in the first quarter of 2001. Embraer-Empresa de Brasiliera Aeronautica S.A. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 29081m102) 2000 Third Quarter (beginning July 20, 2000) ....................... $ 27.53 $ 16.20 $ - Fourth Quarter .................. 34.81 22.54 .084323 2001 First Quarter ................... 36.56 30.21 .097983 Second Quarter .................. 39.84 31.52 .417936 Third Quarter ................... 34.54 10.46 .083009 Fourth Quarter .................. 19.44 10.03 .351389 2002 First Quarter ................... 22.81 18.05 .118472 Second Quarter .................. 23.77 19.09 .4165 Third Quarter ................... 21.20 13.30 .102972 Fourth Quarter (through October 10, 2002) ........... 14.66 12.85 .08786
Distributions on the common shares of Embraer-Empresa de Brasiliera Aeronautica S.A. include ordinary dividends and interest on shareholders' equity and have been expressed in amounts net of witholding tax. In addition, during the first quarter of 2002, a stock dividend payment of 14.211% was issued. FLIR Systems, Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 302445101) 1999 First Quarter ................... $ 23.63 $ 17.25 $ - Second Quarter .................. 18.81 12.06 - Third Quarter ................... 17.88 12.94 - Fourth Quarter .................. 17.00 11.25 - 2000 First Quarter ................... 18.63 8.81 - Second Quarter .................. 10.25 5.25 - Third Quarter ................... 9.13 5.50 - Fourth Quarter .................. 6.50 3.06 -
PS-23 FLIR Systems, Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 302445101) 2001 First Quarter ................... 8.97 4.41 - Second Quarter .................. 25.03 8.06 - Third Quarter ................... 41.03 21.45 - Fourth Quarter .................. 47.32 34.34 - 2002 First Quarter ................... 58.64 37.90 - Second Quarter .................. 51.58 38.00 - Third Quarter ................... 42.80 34.99 - Fourth Quarter (through October 10, 2002) ........... 34.55 28.22 -
General Dynamics Corporation High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 369550108) 1999 First Quarter ................... $ 64.75 $ 53.50 $ .22 Second Quarter .................. 74.81 63.50 .24 Third Quarter ................... 70.56 60.31 .24 Fourth Quarter .................. 62.38 46.94 .24 2000 First Quarter ................... 56.25 37.00 .24 Second Quarter .................. 60.38 50.25 .26 Third Quarter ................... 64.56 52.19 .26 Fourth Quarter .................. 78.00 59.75 .26 2001 First Quarter ................... 75.06 61.00 .26 Second Quarter .................. 83.65 63.65 .28 Third Quarter ................... 89.60 74.66 .28 Fourth Quarter .................. 94.99 76.84 .28 2002 First Quarter ................... 95.24 75.27 .28 Second Quarter .................. 110.58 92.55 .30 Third Quarter ................... 106.66 74.57 .30 Fourth Quarter (through October 10, 2002) ........... 83.98 75.82 .30
Goodrich Corporation High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 382388106) 1999 First Quarter ................... $ 34.80 $ 30.34 $ .275 Second Quarter .................. 43.34 31.66 .275 Third Quarter ................... 42.98 25.95 .275 Fourth Quarter .................. 26.91 20.23 .275 2000 First Quarter ................... 28.47 21.20 .275 Second Quarter .................. 36.12 27.21 .275 Third Quarter ................... 41.24 30.76 .275 Fourth Quarter .................. 39.85 31.48 .275 2001 First Quarter ................... 41.08 32.45 .275 Second Quarter .................. 42.62 35.14 .275 Third Quarter ................... 36.97 16.47 .275 Fourth Quarter .................. 25.64 18.07 .275
PS-24 Goodrich Corporation High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 382388106) 2002 First Quarter ................... 30.82 23.31 .275 Second Quarter .................. 32.85 26.44 .275 Third Quarter ................... 26.47 18.90 .20 Fourth Quarter (through October 10, 2002) ........... 20.18 16.41 .20
Historical prices with respect to the common stock of Goodrich Corporation have been adjusted for a 1-for-5 spinoff which became effective in the second quarter of 2002. Honeywell International Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 438516106) 1999 First Quarter ................... $ 50.75 $ 39.00 $ .17 Second Quarter .................. 68.06 50.25 .17 Third Quarter ................... 67.69 57.50 .17 Fourth Quarter .................. 63.75 52.38 .17 2000 First Quarter ................... 59.88 41.81 .1875 Second Quarter .................. 57.81 33.25 .1875 Third Quarter ................... 40.88 33.00 .1875 Fourth Quarter .................. 55.19 33.69 .1875 2001 First Quarter ................... 49.42 35.93 .1875 Second Quarter .................. 53.50 34.90 - Third Quarter ................... 38.95 23.59 .375 Fourth Quarter .................. 34.50 25.65 .1875 2002 First Quarter ................... 40.37 29.11 .1875 Second Quarter .................. 40.76 34.85 .1875 Third Quarter ................... 36.50 21.66 .1875 Fourth Quarter (through October 10, 2002) ........... 22.94 19.20 -
ITT Industries, Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 450911102) 1999 First Quarter ................... $ 40.44 $ 35.75 $ .15 Second Quarter .................. 41.50 35.31 .15 Third Quarter ................... 39.88 31.31 .15 Fourth Quarter .................. 36.00 31.75 .15 2000 First Quarter ................... 34.75 23.25 .15 Second Quarter .................. 35.06 29.06 .15 Third Quarter ................... 34.75 30.31 .15 Fourth Quarter .................. 39.13 30.63 .15 2001 First Quarter ................... 43.99 36.60 .15 Second Quarter .................. 48.80 38.21 .15 Third Quarter ................... 45.78 42.00 .15 Fourth Quarter .................. 51.30 43.41 .15
PS-25 ITT Industries, Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 450911102) 2002 First Quarter ................... 63.81 47.25 .15 Second Quarter .................. 70.60 63.22 .15 Third Quarter ................... 69.55 56.10 .15 Fourth Quarter (through October 10, 2002) ........... 64.25 58.25 .15
L-3 Communications Holdings, Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 502424104) 1999 First Quarter ................... $ 23.94 $ 19.69 $ - Second Quarter .................. 26.44 22.16 - Third Quarter ................... 24.22 18.19 - Fourth Quarter .................. 22.56 17.41 - 2000 First Quarter ................... 25.97 17.84 - Second Quarter .................. 29.31 22.63 - Third Quarter ................... 31.88 26.28 - Fourth Quarter .................. 38.78 28.59 - 2001 First Quarter ................... 45.00 32.50 - Second Quarter .................. 44.45 38.04 - Third Quarter ................... 43.73 31.24 - Fourth Quarter .................. 48.24 39.70 - 2002 First Quarter ................... 58.23 44.09 - Second Quarter .................. 65.99 51.35 - Third Quarter ................... 57.50 42.29 - Fourth Quarter (through October 10, 2002) ........... 53.75 45.40 -
Historical prices with respect to the common stock of L-3 Communications Holdings, Inc. have been adjusted for a 2-for-1 stock split which became effective in the second quarter of 2002. Lockheed Martin Corporation High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 539830109) 1999 First Quarter ................... $ 42.00 $ 35.25 $ .22 Second Quarter .................. 44.56 34.00 .22 Third Quarter ................... 39.31 30.63 .22 Fourth Quarter .................. 32.75 17.38 .22 2000 First Quarter ................... 21.44 16.63 .11 Second Quarter .................. 27.00 20.31 .11 Third Quarter ................... 32.93 24.31 .11 Fourth Quarter .................. 35.85 30.20 .11 2001 First Quarter ................... 39.05 31.73 .11 Second Quarter .................. 39.35 34.50 .11 Third Quarter ................... 44.60 35.80 .11 Fourth Quarter .................. 49.92 43.61 .11
PS-26 Lockheed Martin Corporation High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 539830109) 2002 First Quarter ................... 58.41 46.24 .11 Second Quarter .................. 71.43 58.53 .11 Third Quarter ................... 69.26 53.95 .11 Fourth Quarter (through October 10, 2002) ........... 64.80 58.01 -
Northrop Grumman Corporation High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 666807102) 1999 First Quarter ................... $ 73.25 $ 57.00 $ .40 Second Quarter .................. 73.31 57.75 .40 Third Quarter ................... 75.69 59.94 .40 Fourth Quarter .................. 62.31 49.00 .40 2000 First Quarter ................... 55.19 43.56 .40 Second Quarter .................. 80.25 52.44 .40 Third Quarter ................... 91.81 65.63 .40 Fourth Quarter .................. 92.50 74.13 .40 2001 First Quarter ................... 97.54 79.81 .40 Second Quarter .................. 95.37 77.60 .40 Third Quarter ................... 102.97 77.00 .40 Fourth Quarter .................. 108.97 89.02 .40 2002 First Quarter ................... 117.80 96.00 .40 Second Quarter .................. 132.50 112.24 .40 Third Quarter ................... 128.00 95.99 .40 Fourth Quarter (through October 10, 2002) ........... 122.80 112.11 -
Raytheon Company High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 755111507) 1999 First Quarter ................... $ 58.63 $ 52.13 $ .20 Second Quarter .................. 74.19 59.00 .20 Third Quarter ................... 74.94 44.50 .20 Fourth Quarter .................. 48.81 22.63 .20 2000 First Quarter ................... 27.94 17.75 .20 Second Quarter .................. 24.94 18.25 .20 Third Quarter ................... 29.56 19.81 .20 Fourth Quarter .................. 35.81 27.25 .20 2001 First Quarter ................... 36.59 26.00 .20 Second Quarter .................. 32.85 26.30 .20 Third Quarter ................... 34.80 24.85 .20 Fourth Quarter .................. 36.30 29.82 .20 2002 First Quarter ................... 41.50 31.30 .20 Second Quarter .................. 45.12 38.05 .20 Third Quarter ................... 39.15 29.00 .20 Fourth Quarter (through October 10, 2002) ........... 30.40 27.04 .20
PS-27 Historical prices with respect to the common stock of Raytheon Company have been adjusted for a 1-for-20 stock split which became effective in the second quarter of 2001 and a 20-for-1 stock split which became effective in the second quarter of 2001. United Defense Industries, Inc. High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 91018B104) 2001 Fourth Quarter (beginning December 13, 2001) .............. $ 21.70 $ 19.00 $ - 2002 First Quarter ................... 28.29 19.75 - Second Quarter .................. 28.94 20.97 - Third Quarter ................... 24.25 19.09 - Fourth Quarter (through October 10, 2002) ........... 23.00 20.62 -
United Technologies Corporation High Low Dividends --------------------------------- -------- -------- --------- (CUSIP 913017109) 1999 First Quarter ................... $ 67.81 $ 54.00 $ .18 Second Quarter .................. 74.69 61.75 .18 Third Quarter ................... 71.19 56.00 .20 Fourth Quarter .................. 65.00 52.31 .20 2000 First Quarter ................... 65.25 48.06 .20 Second Quarter .................. 66.19 54.50 .20 Third Quarter ................... 71.50 56.69 .20 Fourth Quarter .................. 79.75 63.50 .225 2001 First Quarter ................... 82.08 67.00 .225 Second Quarter .................. 87.21 70.83 .225 Third Quarter ................... 76.56 41.64 .225 Fourth Quarter .................. 65.56 47.25 .225 2002 First Quarter ................... 77.25 59.37 .245 Second Quarter .................. 75.00 64.85 .245 Third Quarter ................... 71.00 55.98 .245 Fourth Quarter (through October 10, 2002) ........... 75.00 49.19 .245
Historical prices with respect to the common stock of United Technologies Corporation have been adjusted for a 2-for-1 stock split which became effective in the second quarter of 1999. We make no representation as to the amount of dividends, if any, that the issuers of the Basket Stocks will pay in the future. In any event, as an owner of BRIDGES, you will not be entitled to receive dividends, if any, that may be payable on the Basket Stocks. PS-28 Historical Basket Values Graph The following graph shows the historical daily values for a basket composed of the Basket Stocks, assuming that the exchange ratios had been determined on October 10, 2002, so that each Basket Stock would represent its initial value per Basket Stock as set forth in the table under "--Basket Stocks" above. The graph covers the period from January 4, 1999 through October 10, 2002. The basket values shown in the graph first include the initial values under "--Basket Stocks" for Embraer-Empresa Brasileira de Aeronautica S.A. as of July 20, 2000 and for United Defense Industries, Inc. as of December 13, 2001. The historical performance of the Basket Stocks cannot be taken as an indication of their future performance. [GRAPHIC OMITTED] Use of Proceeds and Hedging........... The net proceeds we receive from the sale of the BRIDGES 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 BRIDGES. 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 BRIDGES by taking positions in the Basket Stocks, in futures or options contracts on the Basket Stocks listed on major securities markets, or other instruments. Purchase activity could potentially have increased the value of the Basket Stocks, and therefore effectively have increased the level of the Basket Stocks that must prevail on the Determination Dates in order for you to receive at maturity a payment that exceeds the principal amount of the BRIDGES. Through our subsidiaries, we are likely to modify our hedge position throughout the life of the BRIDGES, including on the Determination Dates, by purchasing and selling the Basket Stocks, futures or options contracts on the Basket Stocks listed on major securities markets or positions in any other available securities or PS-29 instruments that we may wish to use in connection with such hedging activities. Although we have no reason to believe that our hedging activity has had, or will in the future have, a material impact on the value of the Basket Stocks, we cannot give any assurance that we 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 BRIDGES set forth on the cover of this pricing supplement. The Agent proposes initially to offer the BRIDGES directly to the public at the public offering price set forth on the cover page of this pricing supplement; provided that the price will be $9.80 per BRIDGES for purchasers of 100,000 or more BRIDGES in any single transaction, subject to the holding period requirements described below. The Agent may allow a concession not in excess of 3% of the principal amount of the BRIDGES to other dealers. We expect to deliver the BRIDGES against payment therefor in New York, New York on October 16, 2002. After the initial offering, the Agent may vary the offering price and other selling terms from time to time. Where an investor purchases 100,000 or more BRIDGES in a single transaction at the reduced price, approximately 98% of the BRIDGES purchased by the investor (the "Delivered BRIDGES") will be delivered on the Settlement Date. The balance of approximately 2% of the BRIDGES (the "Escrowed BRIDGES") 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 BRIDGES have held all of the Delivered BRIDGES 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 BRIDGES fails to satisfy the holding period requirement, as determined by the Agent, all of the investor's Escrowed BRIDGES will be forfeited by the investor and not delivered to it. The Escrowed BRIDGES will instead be delivered to the Agent for sale to investors. This forfeiture will have the effect of increasing the purchase price per BRIDGES for such investors to 100% of the principal amount of the BRIDGES. Should investors who are subject to the holding period requirement sell their BRIDGES once the holding period is no longer applicable, the market price of the BRIDGES may be adversely affected. See also "Plan of Distribution" in the accompanying prospectus supplement. In order to facilitate the offering of the BRIDGES, the Agent may engage in transactions that stabilize, maintain or otherwise affect the price of the BRIDGES. Specifically, the Agent may sell more BRIDGES than it is obligated to purchase in connection with the offering, creating a naked short position in the BRIDGES for its own account. The Agent must close out any naked short position by purchasing the BRIDGES in the open market. A naked short position PS-30 is more likely to be created if the Agent is concerned that there may be downward pressure on the price of the BRIDGES 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, BRIDGES in the open market to stabilize the price of the BRIDGES. Any of these activities may raise or maintain the market price of the BRIDGES above independent market levels or prevent or retard a decline in the market price of the BRIDGES. The Agent is not required to engage in these activities, and may end any of these activities at any time. See "--Use of Proceeds and Hedging" above. ERISA Matters for Pension Plans and Insurance Companies............... Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (a "Plan") should consider the fiduciary standards of ERISA in the context of the Plan's particular circumstances before authorizing an investment in the BRIDGES. 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 BRIDGES 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 BRIDGES 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 BRIDGES. 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 BRIDGES may not be purchased or held by any PS-31 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 BRIDGES 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 BRIDGES 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 BRIDGES have exclusive responsibility for ensuring that their purchase and holding of the BRIDGES do not violate the prohibited transaction rules of ERISA or the Code. United States Federal Income Taxation.............................. The BRIDGES will be treated as "contingent payment debt instruments" for U.S. federal income tax purposes. Under this treatment, U.S. taxable investors will, regardless of their method of accounting for U.S. federal income tax purposes, be required to accrue original issue discount ("OID") as interest income on the BRIDGES on a constant yield basis at our "comparable yield" in each year that they hold the BRIDGES, despite the fact that no stated interest will actually be paid on the BRIDGES. As a result, U.S. taxable investors will be required to pay taxes annually on the comparable yield amounts (as outlined below) even though no cash is paid on the BRIDGES from which to pay such taxes. The comparable yield for the BRIDGES is the yield at which we would issue a fixed rate debt instrument with terms similar to those of the BRIDGES and is determined at the time of the issuance of the BRIDGES. In addition, any gain recognized by U.S. taxable investors on the sale or exchange, or at maturity, of the BRIDGES will generally be treated as ordinary income. Investors should refer to the discussion under "United States Federal Taxation--Notes--Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices" in the accompanying prospectus supplement for a description of the U.S. federal income tax consequences of ownership and disposition of the BRIDGES. In connection with the discussion thereunder, we have determined that the "comparable yield" is an annual rate of 4.84% compounded PS-32 annually. Based on our determination of the comparable yield, the "projected payment schedule" for a BRIDGES (assuming an issue price of $10) consists of a projected amount equal to $13.95 due at maturity. The following table states the amount of interest that will be deemed to have accrued with respect to a BRIDGES during each accrual period, based upon our determination of the comparable yield and the projected payment schedule: TOTAL INTEREST DEEMED TO INTEREST HAVE ACCRUED DEEMED TO FROM ORIGINAL ACCRUE ISSUE DATE (PER DURING BRIDGES) AS OF ACCRUAL END OF PERIOD (PER ACCRUAL ACCRUAL PERIOD BRIDGES) PERIOD -------------- ------------ --------------- Original Issue Date through December 31, 2002.................. $ 0.10 $ 0.10 January 1, 2003 through December 31, 2003.................. $ 0.49 $ 0.59 January 1, 2004 through December 31, 2004.................. $ 0.51 $ 1.10 January 1, 2005 through December 31, 2005.................. $ 0.54 $ 1.64 January 1, 2006 through December 31, 2006.................. $ 0.56 $ 2.20 January 1, 2007 through December 31, 2007.................. $ 0.59 $ 2.79 January 1, 2008 through December 31, 2008.................. $ 0.62 $ 3.41 January 1, 2009 through October 30, 2009................... $ 0.54 $ 3.95
The comparable yield and the projected payment schedule are not provided for any purpose other than the determination of U.S. Holders' interest accruals and adjustments in respect of the BRIDGES, and we make no representation regarding the actual amounts of payments on a BRIDGES. PS-33 -----END PRIVACY-ENHANCED MESSAGE-----