CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities Offered | Maximum Aggregate Offering Price |
Amount of Registration Fee |
||
| Bear Market PLUS due 2008 | $6,750,000.00 | $722.25 |
| PROSPECTUS Dated January 25, 2006 | Pricing Supplement No. 146 |
| AMENDMENT NO. 1 to PROSPECTUS SUPPLEMENT | Registration Statement No. 333-131266 |
| for PLUS | Dated December 21, 2006 |
| Dated December 21, 2006 | Rule 424(b)(2) |
|
| GLOBAL MEDIUM-TERM NOTES, SERIES F |
| Senior Fixed Rate Notes |
|
|
| Bear Market PLUS due January 20, 2008 |
| Mandatorily Exchangeable for an Amount Payable in U.S. Dollars |
| Based Inversely on the Value of the NASDAQ-100 Index® |
| The Bear Market PLUS offered are senior unsecured obligations of Morgan Stanley, will pay no interest, provide for only a minimum 50% return of principal at maturity and have the terms described in the prospectus supplement for PLUS and the prospectus, as supplemented or modified by this pricing supplement. At maturity you will receive for each $10 principal amount of Bear Market PLUS that you hold an amount in cash that may be more or less than the principal amount based inversely upon the closing value of the NASDAQ-100 Index® at maturity. |
| Final Terms: | ||
| Underlying index: | NASDAQ-100 Index® | |
| Underlying index publisher: | The Nasdaq Stock Market, Inc. | |
| Aggregate principal amount: | $6,750,000 | |
| Pricing date: | December 21, 2006 | |
| Original issue date: | December 29, 2006 which is the fifth trading day following the pricing date | |
| Maturity date: | January 20, 2008 | |
| Original issue price: | $10 per Bear Market PLUS | |
| Stated principal amount: | $10 per Bear Market PLUS | |
| Interest rate: | None | |
| Denominations: | $10 and integral multiples thereof | |
| Bull market or bear market PLUS: | Bear market PLUS | |
| Payment at maturity: | An amount of cash per Bear Market PLUS equal to: |
| • | if the final index value is less than or equal to the initial index value, $10 plus the enhanced downside payment, subject to the maximum payment at maturity; or |
||
| • | if the final index value is greater than the initial index value, $10 less the upside reduction amount, subject to the minimum payment at maturity |
| Enhanced downside payment: | The product of (i) $10 and (ii) the leverage factor and (iii) the index percent decrease | |
| Upside reduction amount: | The product of (i) $10 and (ii) the index percent increase | |
| Leverage factor: | 400% | |
| Index percent decrease: | A fraction, the numerator of which is the initial index value minus the final index value and the denominator of which is the initial index value | |
| Index percent increase: | A fraction, the numerator of which is the final index value minus the initial index value and the denominator of which is the initial index value | |
| Initial index value: | 1,766.28, the index closing value on the pricing date, as published on Bloomberg page “NDX” or any successor page | |
| Final index value: | The index closing value of the underlying index on the index valuation date, as published on Bloomberg page “NDX” or any successor page | |
| Index valuation date: | January 17, 2008, subject to adjustment for certain market disruption events | |
| Maximum payment at maturity: | $14.80 per Bear Market PLUS | |
| Minimum payment at maturity: | $5.00 per Bear Market PLUS (50% of the stated principal amount) | |
| Listing: | The Bear Market PLUS will not be listed on any securities exchange. | |
| CUSIP: | 61748A163 |
The Bear Market PLUS involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on PS-7.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this pricing supplement or the accompanying prospectus supplement and
prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Price to | Agent’s | Proceeds to | ||||
| Public | Commissions(1) | Company | ||||
|
|
|
|
||||
| Per Bear Market PLUS | $10.00 | $0.15 | $9.85 | |||
| Total | $6,750,000 | $101,250 | $6,648,750 |
| (1) | For additional information, see “Plan of Distribution” in the prospectus supplement for PLUS. |
MORGAN STANLEY
Where You Can Find More Information
Morgan Stanley has filed a registration statement (including a prospectus, as supplemented by an amendment No. 1 to prospectus supplement for PLUS) with the Securities and Exchange Commission, or SEC, for the offering to which this pricing supplement relates. Before you invest, you should read the prospectus in that registration statement, the prospectus supplement for PLUS and any other documents relating to this offering that Morgan Stanley has filed with the SEC for more complete information about Morgan Stanley and this offering. You may get these documents without cost by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, Morgan Stanley will arrange to send you the prospectus and the prospectus supplement for PLUS if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at www.sec.gov as follows:
Terms used in this pricing supplement are defined in the prospectus supplement for PLUS or in the prospectus. As used in this pricing supplement, the “Company,” “we,” “us,” and “our” refer to Morgan Stanley.
Your Return on the Bear Market PLUS
No interest and provides for only 50% return of principal at maturity. Unlike ordinary debt securities, the Bear Market PLUS do not pay interest and provide for only a minimum 50% return of principal at maturity. If the final index value is greater than the initial index value, we will pay to you an amount in cash per Bear Market PLUS that is less than the $10 stated principal amount of each Bear Market PLUS by an amount proportionate to the increase in the value of the underlying index, subject to the minimum payment at maturity of $5. The Bear Market PLUS are not callable prior to maturity.
Payment at maturity. At maturity, you will receive for each $10 principal amount of Bear Market PLUS that you hold an amount in cash based inversely upon the value of the underlying index, determined as follows:
$10 + enhanced downside payment,
where,
enhanced downside payment = $10 × 400% × index percent decrease
and
| initial index value - final index value | ||||||
| index percent decrease | = |
|
||||
| initial index value |
subject to a maximum payment at maturity of $14.80, or 148% of the stated principal amount of $10 for each Bear Market PLUS.
$10 upside reduction amount
subject to a minimum payment at maturity of $5, or 50% of the stated principal amount of $10 for each Bear Market PLUS,
PS-2
where,
upside reduction amount = $10 × index percent increase
and
| final index value - initial index value | ||||||
| index percent increase | = |
|
||||
| initial index value |
Investing in the Bear Market PLUS is not equivalent to investing in the underlying index or its component stocks.
PS-3
Hypothetical Payouts on the Bear Market PLUS at Maturity
For each Bear Market PLUS, the following graph illustrates the payment at maturity on the Bear Market PLUS for a range of hypothetical percentage changes in the index. The PLUS Zone illustrates the leveraging effect of the leverage factor taking into account the maximum payment at maturity. The graph is based on the following terms:
| • | Stated principal amount: | $10 | |
| • | Initial index value: | 1,766.28 | |
| • | Leverage factor: | 400% | |
| • | Maximum payment at maturity: | $14.80 (148% of the stated principal amount per Bear Market PLUS) | |
| • | Minimum payment at maturity: | $5 (50% of the stated principal amount per Bear Market PLUS) |
Where the final index value is less than the initial index value, the payment at maturity on the Bear Market PLUS reflected in the graph below is greater than the $10 principal amount per Bear Market PLUS, but in all cases is subject to the maximum payment at maturity. Where the final index value is greater than the initial index value, the payment at maturity on the Bear Market PLUS reflected in the graph below is less than the $10 principal amount per Bear Market PLUS, subject to the minimum payment at maturity.
You would realize the maximum payment at maturity at a final index value of 88% of the initial index value, or approximately 1,554.33. The graph does not show every situation that may occur.
PS-4
The Underlying Index
The NASDAQ-100 Index® is a modified capitalization-weighted index of 100 of the largest non-financial companies listed on The NASDAQ Stock Market LLC. The NASDAQ-100 Index® constitutes a broadly diversified segment of the largest securities listed on The NASDAQ Stock Market LLC and includes companies across a variety of major industry groups. For a discussion of the NASDAQ-100 Index® see “Underlying Indices and Underlying Index Publishers Information— NASDAQ-100 Index®” in the prospectus supplement for leveraged index-linked securities.
License Agreement. License Agreement. The “NASDAQ®,” “NASDAQ-100®” and “NASDAQ-100® Index” are trade or service marks of The Nasdaq Stock Market, Inc. and have been licensed for use by Morgan Stanley. See “Underlying Indices and Underlying Index Publishers Information—NASDAQ-100 Index—License Agreement between The Nasdaq Stock Market, Inc. and Morgan Stanley” in the prospectus supplement for PLUS.
Historical Information. The following table sets forth the published high and low underlying index closing values, as well as end-of-quarter index closing values, of the underlying index for each quarter in the period from January 1, 2001 through December 21, 2006. The underlying index closing value on December 21, 2006 was 1,766.28. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical values of the underlying index should not be taken as an indication of future performance, and no assurance can be given as to the level of the underlying index on the index valuation date. The payment of dividends on the stocks that constitute the underlying index is not reflected in the level of the underlying index and, therefore, have no effect on the calculation of the payment at maturity.
| NASDAQ-100 Index | High | Low | Period End | |||
|
|
|
|
|
|||
| 2001 | ||||||
| First Quarter | 2,730.05 | 1,563.14 | 1,573.25 | |||
| Second Quarter | 2,052.57 | 1,370.75 | 1,830.19 | |||
| Third Quarter | 1,827.07 | 1,126.95 | 1,168.37 | |||
| Fourth Quarter | 1,720.91 | 1,151.24 | 1,577.05 | |||
| 2002 | ||||||
| First Quarter | 1,675.03 | 1,348.25 | 1,452.81 | |||
| Second Quarter | 1,478.52 | 1,022.74 | 1,051.41 | |||
| Third Quarter | 1,060.89 | 832.52 | 832.52 | |||
| Fourth Quarter | 1,127.06 | 804.64 | 984.36 | |||
| 2003 | ||||||
| First Quarter | 1,094.87 | 951.90 | 1,018.66 | |||
| Second Quarter | 1,247.90 | 1,022.63 | 1,201.69 | |||
| Third Quarter | 1,400.13 | 1,207.28 | 1,303.70 | |||
| Fourth Quarter | 1,470.37 | 1,335.34 | 1,467.92 | |||
| 2004 | ||||||
| First Quarter | 1,553.66 | 1,370.04 | 1,438.41 | |||
| Second Quarter | 1,516.64 | 1,379.90 | 1,516.64 | |||
| Third Quarter | 1,489.57 | 1,304.43 | 1,412.74 | |||
| Fourth Quarter | 1,627.46 | 1,425.21 | 1,621.12 | |||
| 2005 | ||||||
| First Quarter | 1,603.51 | 1,464.34 | 1,482.53 | |||
| Second Quarter | 1,568.96 | 1,406.85 | 1,493.52 | |||
| Third Quarter | 1,627.19 | 1,490.53 | 1,601.66 | |||
| Fourth Quarter | 1,709.10 | 1,521.19 | 1,645.20 | |||
| 2006 | ||||||
| First Quarter | 1,758.24 | 1,645.09 | 1,703.66 | |||
| Second Quarter | 1,739.20 | 1,516.85 | 1,575.23 | |||
| Third Quarter | 1,661.59 | 1,451.88 | 1,654.13 | |||
| Fourth Quarter (through | ||||||
| December 21, 2006) | 1,819.76 | 1,632.81 | 1,776.28 |
PS-5
Use of Proceeds and Hedging
The net proceeds we receive from the sale of the Bear Market PLUS will be used for general corporate purposes and, in part, in connection with hedging our obligations under the Bear Market PLUS through one or more of our subsidiaries.
On or prior to the date of this pricing supplement, we, through our subsidiaries or others, hedged our anticipated exposure in connection with the Bear Market PLUS by taking short positions in futures and options contracts on the underlying index. Such sale activity could have decreased the value of the underlying index, and therefore the value at which the underlying index must close on the index valuation date before you would receive at maturity a payment that exceeds the principal amount of the Bear Market PLUS. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the prospectus supplement for PLUS.
PS-6
Risk Factors
The Bear Market PLUS involve risks not associated with conventional debt securities, some of which are briefly summarized below:
The Bear Market PLUS do not pay interest and provide for only a minimum 50% return of principal. If the final index value is greater than the initial index value, you will receive an amount in cash that is less than the $10 principal amount of each Bear Market PLUS by an amount proportionate to the increase in the value of the underlying index, subject to the minimum payment at maturity, and will lose money on your investment.
Your appreciation potential is limited. The appreciation potential of the Bear Market PLUS is limited by the maximum payment at maturity of $14.80, or 148% of the stated principal amount of $10 for each Bear Market PLUS. Although the leverage factor provides 400% exposure to any decrease in the value of the underlying index at maturity, because the payment at maturity will be limited to 148% of the stated principal amount of $10 for each Bear Market PLUS, the percentage exposure provided by the leverage factor is progressively reduced as the final index value decreases to 88% of the initial index value.
Secondary trading may be limited. The Bear Market PLUS will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the Bear Market PLUS. Even if there is a secondary market, it may not provide significant liquidity. Accordingly, you should be willing to hold your Bear Market PLUS to maturity.
Market price of the Bear Market PLUS will be influenced by many unpredictable factors. Several factors, many of which are beyond our control, will influence the value of the Bear Market PLUS in the secondary market and the price at which MS & Co. may be willing to purchase or sell the Bear Market PLUS in the secondary market, including: the value of the underlying index at any time and on the index valuation date, the volatility of the underlying index, interest and yield rates in the market, geopolitical conditions and economic, financial, political and regulatory or judicial events, the time remaining to the maturity of the Bear Market PLUS, the dividend rate on the stocks comprising the underlying index and our creditworthiness.
The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices. Assuming no change in market conditions or any other relevant factors, the price, if any, at which MS & Co. is willing to purchase Bear Market PLUS in secondary market transactions will likely be lower than the original issue price, since the original issue price included, and secondary market prices are likely to exclude, commissions paid with respect to the Bear Market PLUS, as well as the projected profit included in the cost of hedging our obligations under the Bear Market PLUS. In addition, any such prices may differ from values determined by pricing models used by MS & Co., as a result of dealer discounts, mark-ups or other transaction costs.
Adjustments to the underlying index could adversely affect the value of the Bear Market PLUS. The underlying index publisher may discontinue or suspend calculation or publication of the underlying index at any time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable to the discontinued underlying index and is not precluded from considering indices that are calculated and published by MS & Co. or any of its affiliates.
The economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests. The hedging or trading activities of our affiliates on or prior to the pricing date and on the index valuation date could adversely affect the value of the underlying index and, as a result, could decrease the amount you may receive on the Bear Market PLUS at maturity. Any of these hedging or trading activities on or prior to the pricing date could have affected the initial index value and, therefore, have decreased the value at which the underlying index must close on the index valuation date before you receive a payment at maturity that exceeds the principal amount of the Bear Market PLUS. Additionally, such hedging or trading activities during the term of the Bear Market PLUS could potentially affect the value of the underlying index on the index valuation date and, accordingly, the amount of cash you will receive at maturity.
PS-7
Investing in the Bear Market PLUS is not equivalent to investing in the underlying index. Investing in the Bear Market PLUS is not equivalent to investing in the underlying index or its component stocks. As an investor in the Bear Market PLUS, you will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the stocks that constitute the underlying index.
Because the characterization of the Bear Market PLUS for U.S. federal income tax purposes is uncertain, the material U.S. federal income tax consequences of an investment in the Bear Market PLUS are uncertain. You should also consider the U.S. federal income tax consequences of investing in the Bear Market PLUS. Please note that the discussions in this pricing supplement concerning the U.S. federal income tax consequences of investing in the Bear Market PLUS supersede the discussions contained in the accompanying prospectus supplement. There is no direct legal authority as to the proper tax treatment of the Bear Market PLUS, and consequently significant aspects of the tax treatment of the Bear Market PLUS are uncertain. Our counsel has not rendered an opinion as to the proper characterization of the Bear Market PLUS for U.S. federal income tax purposes. Pursuant to the terms of the Bear Market PLUS, you have agreed with us to treat a Bear Market PLUS as a single financial contract, as described in the section of this pricing supplement called “United States Federal Income Taxation—General.” If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative characterization for the Bear Market PLUS, the timing and/or character of income or loss with respect to the Bear Market PLUS would differ. We do not plan to request a ruling from the IRS regarding the tax treatment of the Bear Market PLUS, and the IRS or a court may not agree with the tax treatment described in this pricing supplement. Please read carefully the section of this pricing supplement called “United States Federal Income Taxation.”
If you are a non-U.S. investor, please also read the section of this pricing supplement called “United States Federal Income Taxation—Tax Consequences to Non-U.S. Holders.”
You are urged to consult your own tax advisors regarding all aspects of the U.S. federal tax consequences of investing in the Bear Market PLUS as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
For further discussion of these and other risks you should read the section entitled “Risk Factors” beginning on S-11 of the prospectus supplement for PLUS. We also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Bear Market PLUS.
ERISA
See “ERISA” in the prospectus supplement for PLUS.
UNITED STATES FEDERAL INCOME TAXATION
Prospective investors should note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus supplement does not apply to the Bear Market PLUS issued under this pricing supplement and is superseded by the following discussion.
The following summary is a general discussion of the principal U.S. federal tax consequences of ownership and disposition of the Bear Market PLUS. This discussion only applies to initial investors in the Bear Market PLUS who:
This discussion does not describe all of the tax consequences that may be relevant to a particular holder in light of the holder’s particular circumstances or to holders subject to special rules, such as:
PS-8
As stated above, this discussion does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances. For example, an investor who holds any securities the return on which is based on or linked to the performance of the NASDAQ-100 Index or any component thereof should discuss with its tax advisors the U.S. federal income tax consequences of investing in the Bear Market PLUS (including the potential application of the “straddle” rules). As the law applicable to the U.S. federal income taxation of instruments such as the Bear Market PLUS is technical and complex, the discussion below necessarily represents only a general summary. Moreover, the effect of any applicable state, local or foreign tax laws is not discussed.
This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to any of which subsequent to the date of this pricing supplement may affect the tax consequences described herein. Persons considering the purchase of the Bear Market PLUS are urged to consult their tax advisors with regard to the application of the U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
General
Pursuant to the terms of the Bear Market PLUS, we and every investor in the Bear Market PLUS agree (in the absence of an administrative determination or judicial ruling to the contrary) to characterize a Bear Market PLUS for all tax purposes as a single financial contract that is an “open transaction” for U.S. federal income tax purposes which (i) requires the investor to pay us at inception an amount equal to the purchase price of the Bear Market PLUS and (ii) entitles the investor to receive at maturity an amount in cash based upon the performance of the underlying index. The characterization of the Bear Market PLUS described above is not, however, binding on the Internal Revenue Service (the “IRS”) or the courts. No statutory, judicial or administrative authority directly addresses the characterization of the Bear Market PLUS (or of similar instruments) for U.S. federal income tax purposes, and no ruling is being requested from the IRS with respect to their proper characterization and treatment. Significant aspects of the U.S. federal income tax consequences of an investment in the Bear Market PLUS are uncertain. Davis Polk & Wardwell, our counsel (“Tax Counsel”), has not rendered an opinion as to whether the U.S. federal income tax characterization and treatment of the Bear Market PLUS stated above should be respected, and no assurance can be given that the IRS or the courts will agree with the characterization and tax treatment described herein. Accordingly, you are urged to consult your own tax advisors regarding the U.S. federal tax consequences of an investment in the Bear Market PLUS (including possible alternative characterizations of the Bear Market PLUS) and regarding any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Unless otherwise stated, the following discussion is based on the characterization and treatment of the Bear Market PLUS described above.
Tax Consequences to U.S. Holders
As used herein, the term “U.S. Holder” means a beneficial owner of a Bear Market PLUS that is, for U.S. federal income tax purposes:
PS-9
The term U.S. Holder also includes certain former citizens and residents of the United States.
Tax Treatment of the Bear Market PLUS
Assuming the characterization of the Bear Market PLUS as set forth above is respected, Tax Counsel believes that the following U.S. federal income tax consequences should result.
Tax Treatment Prior to Maturity. A U.S. holder should not be required to recognize taxable income over the term of the Bear Market PLUS prior to maturity, other than pursuant to a sale or exchange as described below.
Tax Basis. A U.S. Holder’s tax basis in the Bear Market PLUS should equal the amount paid by the U.S. Holder to acquire the Bear Market PLUS.
Sale, Exchange or Settlement of the Bear Market PLUS. Upon a sale or exchange of the Bear Market PLUS, or upon settlement of the Bear Market PLUS at maturity, a U.S. Holder should generally recognize gain or loss equal to the difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Bear Market PLUS sold, exchanged, or settled. Any capital gain or loss recognized upon sale, exchange or settlement of a Bear Market PLUS should be long-term capital gain or loss if the U.S. Holder has held the Bear Market PLUS for more than one year at such time.
Possible Alternative Tax Treatments of an Investment in the Bear Market PLUS
Due to the absence of authorities that directly address the proper characterization of the Bear Market PLUS, no assurance can be given that the IRS will accept, or that a court will uphold, the characterization and treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning a Bear Market PLUS under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the Bear Market PLUS, the timing and character of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue original issue discount on the Bear Market PLUS every year at a “comparable yield” determined at the time of their issuance. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale or other disposition of the Bear Market PLUS would generally be treated as ordinary income, and any loss realized at maturity would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue discount, and as capital loss thereafter.
Even if the Contingent Debt Regulations do not apply to the Bear Market PLUS, other alternative federal income tax characterizations of the Bear Market PLUS are also possible, which if applied could also affect the timing and character of the income or loss with respect to the Bear Market PLUS. It is possible, for example, that a Bear Market PLUS could be treated as a unit consisting of a loan and a forward contract, in which case a U.S. Holder would be required to accrue original issue discount as income on a current basis. Accordingly, prospective investors are urged to consult their own tax advisors regarding all aspects of the U.S. federal income tax consequences of an investment in the Bear Market PLUS.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of the amounts paid to a U.S. Holder, unless such U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number, or otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is furnished to the IRS. In addition, information returns will be filed with the
PS-10
IRS in connection with payments on the Bear Market PLUS and the proceeds from a sale or other disposition of the Bear Market PLUS, unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section only applies to you if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Bear Market PLUS that is, for U.S. federal income tax purposes:
“Non-U.S. Holder” does not include a holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income tax purposes. Such holder is urged to consult his or her own tax advisors regarding the U.S. federal income tax consequences of the sale, exchange or other disposition of a Bear Market PLUS.
Tax Treatment upon Sale, Exchange or Settlement of a Bear Market PLUS
In general. Assuming the characterization of the Bear Market PLUS as set forth above is respected, a Non-U.S. Holder of the Bear Market PLUS will not be subject to U.S. federal income or withholding tax in respect of amounts paid to the Non-U.S. Holder.
If all or any portion of a Bear Market PLUS were recharacterized as a debt instrument, any payment made to a Non-U.S. Holder with respect to the Bear Market PLUS would not be subject to U.S. federal withholding tax, provided that:
Certification Requirement. The certification requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Bear Market PLUS (or a financial institution holding the Bear Market PLUS on behalf of the beneficial owner) furnishes to us an IRS Form W-8BEN, in which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty benefit, the Bear Market PLUS are likely to be treated as U.S. situs property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described above, are urged to consult their own tax advisors regarding the U.S. federal estate tax consequences of investing in the Bear Market PLUS.
Backup Withholding and Information Reporting
Information returns may be filed with the IRS in connection with the payment on the Bear Market PLUS at maturity as well as in connection with the proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S.
PS-11
Holder complies with certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. The certification procedures described above under “—Tax Treatment upon Sale, Exchange or Settlement of a Bear Market PLUS — Certification Requirement” will satisfy the certification requirements necessary to avoid the backup withholding as well. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is furnished to the IRS.
PS-12