MORGAN STANLEY DEAN WITTERGlobal Convertibles Product Guide Understanding ASCOTs — (Asset Swapped Convertible Option Transactions) August 2000 The convertible asset-swap product has come to play an increasingly vital role in the functioning of convertible bond markets globally, especially in Europe and Japan, where convertible issuer credit’s tend to be of a higher grade. This guide is meant to serve as an introduction for investors who are not already familiar with the product and to demystify what are essentially very straight-forward transactions. * The key to determining the value of the ASCOT call option strike price is the value of the interest rate swap on any given date ASCOT Investor We look to summarise the: • • • Structuring and pricing of ASCOTs – including a quick tutorial on the Bloomberg’s ASW function. Motivations for the different investor- types in entering ASCOT transactions – both from the credit buyer’s and option buyer’s perspective. Relevant information on entering into asset-swap transactions with Morgan Stanley’s AA-minus rated entity – including key contacts on the trading and documentation. CB ASCOT* MSDW CB coupons CB CALL Interest Rate SWAP Credit Investor Floating coupons (Libor + spread) Source: Morgan Stanley Dean Witter Research This Memorandum is based upon information available to the public. No representation is made that it is accurate or complete. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. Morgan Stanley & Co International and others associated with it may have positions in, and may effect transactions in, securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. 2 Index of Contents MORGAN STANLEY DEAN WITTER 1. Development of the Market Asset swaps within the fixed income markets experienced explosive growth during the 1990’s due to a surge in investor appetite for bonds packaged with swaps to create synthetic floating rate securities. They are now an established part of the world’s credit markets. The global convertible market has taken advantage of this and convertibles now form a significant part of the corporate asset swap sector. Convertible bond asset swaps involve the restructuring of convertible bonds into synthetic debt securities and equity call options. In this way they offer the opportunity for different investors to participate in the separate attractive characteristics embedded in convertible bonds and have, by implication, widened the appeal of this asset class to a broader group of investors. Asset swaps play an important role in the pricing and sizing of convertible bonds in both the primary and secondary markets. No pricing discussion of a potential new issue occurs nowadays without a thorough assessment of the appetite for the asset swapped bonds. Spread discussion is referenced to the relevant swap curves (LIBOR EurIBOR etc.), therefore it is no longer practical to value convertibles on a spread-to-government bonds basis, particularly as swap/government spreads have become increasingly volatile themselves. The development of the asset swap market has contributed greatly to ability of companies to issue large sized deals into the market and has also been partly responsible for the explosive growth in hedge funds investing in convertible bonds whose ability to run large positions has been enhanced by the risk reduction that this product offers. There are no official statistics, but we estimate that in excess of $50 billion notional has been asset swapped over the past 3 years alone in the Japanese, European, Asian and American convertible bond markets. This guide offers a summary of some of the reasons why investors participate in this product. It looks at the mechanics of the transactions and highlights some of the key issues to be aware of. Included in the appendix, we provide indicative levels, across a wide spectrum of convertibles, of credit spreads based on our actual experience in the marketplace, both recent and historical. Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Topic Development of the Market Splitting a Convertible Bond Who are the Investors ? What does the Credit Investor get ? What does the ASCOT Investor get ? Mechanics of the Transaction Option Call Features Strike Price Features The Bloomberg Calculator The Leverage Effect – Example Protection against Credit Widening – Example Documentation Sample Confirmation Morgan Stanley Contacts Appendix – Indicative Swap Levels Page 2 3 3 4 4 5 6 6 7 7 8 8 9 10 This Memorandum is based upon information available to the public. No representation is made that it is accurate or complete. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. Morgan Stanley & Co International and others associated with it may have positions in, and may effect transactions in, securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. 937 Nat'l Ba nk of Gre ece (Stock Price) Credit Component Equity Compone nt • • • Credit Component: = Pure Bond Value The credit investor buys Synthetic Floating Rate Note Benefits to investor include access to a wider choice of credits as well as typically higher spreads than in other corporate bond markets.3 2. with the stock @ 17. These are then purchased by investors seeking separate return profiles. These two components can be reassembled at any time at the option of the equity component holder.000 25. Morgan Stanley & Co International and others associated with it may have positions in.000 10. securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies.000 MORGAN STANLEY DEAN WITTER 3.000 15. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. and may effect transactions in.000 The optionality of convertibles ensures that the equity drives valuation as the stock price rises above the fixed CB conversion price The Equity Component – Convertible bond asset swaps offer the ASCOT buyer a pure and leveraged play on the underlying equity of a convertible bond while eliminating credit risk and giving an improved interest rate risk profile Ø Hedge Funds Ø Convertible Funds Ø Institutional Equity Investors Ø Retail Investors Conversion Price = Drachma 19. Ø Bank Corporate Lending Departments Ø Corporate Treasuries Ø Bond & Money Market Funds Ø Insurance Companies Hellenic/NBG CB currently trades at 101. This Memorandum is based upon information available to the public. No representation is made that it is accurate or complete. Who are the Investors? The Credit Component – Convertible bond asset swaps offer the corporate credit buyer greater spreads than are available in the FRN. . Splitting a Convertible Bond Asset swapping is the splitting of a convertible bond into it’s two separate components. Bank Finance and Syndicated Loan Markets and give access to a more diverse range of borrowers.000 20. Equity Component: = Call Option = the ASCOT The equity investor buys CB call option (ASCOT) Benefits to investor include off-balance sheet treatment and ability to eliminate credit risk exposure to the issuer. Exhibit 1 Hellenic Finance/National Bank of Greece 2% due 07/2003 Convertible Value 140 120 100 80 60 40 20 0 5. 4 4. and may effect transactions in. If rates rise the pure bond value falls but with ASCOTs the strike price declines thereby offsetting the fall in value of the bond. In return he accepts the feature which allows the ASCOT holder to recall the asset swap package at any time. Ø Off Balance Sheet Financing – Transferring the ownership of convertible bonds but retaining the ASCOT successfully achieves an off-balance sheet position financed at a rate defined by LIBOR plus the recall spread Ø Improved Interest Rate Risk Profile – Convertible bond positions have negative Rho. What does the Credit Investor Get? The credit investor receives a higher spread than is normally available on more traditional investments. interest rate and credit risk allows investors to capture effectively the cheap implied volatility of a convertible bond with no loss in liquidity. . Ø Purer Access to Cheap Pricing Volatility – ASCOTs provide the final piece of the hedging jigsaw. No representation is made that it is accurate or complete. He also gains access to a wider range of corporate credits where there may be limited opportunity in the market to purchase conventional products. Ø Zero Credit Risk – There have been many examples of convertible bonds whose theoretical bond floors have failed to hold due to deteriorating credit circumstances. This is particularly attractive to leveraged hedge funds. Hedging equity. What does the ASCOT Investor get? Ø Leverage – ASCOTs give the same upside exposure to direct investment in convertible bonds but with a smaller initial outlay. He also accepts the lower liquidity inherent with this being a structured package. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. Exhibit 2 Current Euribor-plus Spreads Available on Different Forms of Vivendi Credit (May 2000) bp over Euribor 90 80 70 60 50 40 30 20 10 0 Bank Debt Straight Debt Credit Derivative CB Asset Swap + 35bp + 65bp + 75bp + 85bp MORGAN STANLEY DEAN WITTER 5. Morgan Stanley & Co International and others associated with it may have positions in. ASCOTs lock in the bond floor. Source: Morgan Stanley Dean Witter Research This Memorandum is based upon information available to the public. securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. This can be viewed as the pure bond floor. Ø The future cash flows on the fixed leg of the swap (CB coupons) are typically lower than those on the floating leg. Ø The option strike price is therefore floating rather than fixed. Mechanics of the Transaction The Credit Buyer is effectively buying a callable synthetic floating rate note:Ø The investor purchases from Morgan Stanley an asset swap package which comprises a notional amount of convertible bonds. The unwind value of the swap is the Net Present Value of the remaining fixed and floating cash flows of the interest rate swap. Th e intrin sic value of th e ASCOT be comes 7. it pays for the shortfall of the payments made on the floating leg versus the payments received on the fixed leg. MORGAN STANLEY DEAN WITTER Exhibit 3 Typical Asset-Swap Transaction Flowchart: Illustrates the Hellenic Finance/National Bank of Greece 2% due 07/2003 Fixed 2% Coupon Credit Investor buys CBs @ 100% Floating Coupons of 3 month €uribor +40bp MSDW buys ASCOT @ 0% Market Value of CBs (currently 101%) Equity Investor sells CBs @ 93. This NPV typically has a negative value to Morgan Stanley reflecting the excess in value of payments owing over receivable payments. the asset. he will sell those bonds at a price which is calculated by subtracting the NPV of the interest rate swap from 100% of the notional value of the bonds. The strike price thus increases/decreases as interest rates fall/rise.60%* (with €uribor +40bp strike) MSDW sells ASCOT @ 0% * The ASCOT buyer sells CBs @ 93.1 0 (euribor +50) bu t his strike price immed iately b ecomes 93.60% of the notional). At maturity however the strike price is 100% Ø The ASCOT is an individually negotiated contract with Morgan Stanley and has no public secondary market. The price paid is typically 100% of notional.60 (101 less 93.10 (€uribor +50bp) ASCOT Intrinsic Value of 7. Th is reflects th e bid/offer spread of en tering into the transaction.40 (eu ribor +40).e.60%) and by keeping this Morgan Stanley is able to meet its obligation on the swap payments i. that comes to 6. It can however be reassigned to a third party subject to consent. bonds plus swap. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. No representation is made that it is accurate or complete. The strike price is set at 100% minus the unwind value of the associated interest rate swap on the date of exercise. Ø The interest rate swap agreement is for the investor to pay Morgan Stanley the fixed coupons of the convertible bond (2% from Exhibit 3) in return for receiving quarterly floating rate coupons set at EurIBOR (or LIBOR) + the agreed spread (EurIBOR +40bp from Exhibit 3). . This Memorandum is based upon information available to the public. Ø Morgan Stanley retains an option to repurchase the entire package. coupled with an interest rate swap. By discounting all these future cash flows by the zero coupon curve implied in the swap curve we can calculate the Net Present Value of the swap (in this illustration. Ø Morgan Stanley has therefore purchased bonds at one price and sold them to the credit buyer at 100%. The difference between these two is the swap NPV (6. securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. from the credit investor at 100% plus accrued interest. and may effect transactions in. Ø The ASCOT investor simultaneously purchases at zero cost from Morgan Stanley an option to repurchase the convertible bonds. Morgan Stanley & Co International and others associated with it may have positions in.40 ) Source: Morgan Stanley Dean Witter The ASCOT Buyer is effectively buying an OTC call option to purchase a Convertible Bond:Ø Assuming the ASCOT investor already owns convertible bonds.5 6. Morgan Stanley & Co International and others associated with it may have positions in. the ASCOT will expire 10 days later. Ø The expiry date of the option is set to match either the maturity date or the put date of the underlying convertible bond.0 7. .0 6. MORGAN STANLEY DEAN WITTER 8. This avoids the potential scenario of missing the final date for conversion of bonds to equity. securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. the strike price will fall 94. No representation is made that it is accurate or complete.4 93 92 91 90. Ø If the Issuer of the bonds defaults. Options can also be structured with fixed strikes or strike prices referenced to a fixed yield to maturity. Ø The holder may exercise at any time but there may be restrictions for exercising within the first six months.6 90 4. Ø The spread of the reference swap which determines the strike price is agreed at the opening of the ASCOT position. Ø Bonds will be delivered back to the ASCOT holder for value date a maximum 10 (but typically less) days following exercise. and may effect transactions in.5 7. This spread is typically 10-20bp tighter than the spread used to determine the initial sale price of the bonds to Morgan Stanley and should be viewed as the Bid/Offer cost of the transaction. Such structures are subject to acceptance by the credit investor. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. Ø The floating strike is by no means the only structure employed in creating ASCOTs.5 6. Ø If the Issuer calls the convertible bonds for early redemption under the terms and conditions of the bonds then automatic exercise of the ASCOT is triggered whereby the holder must repurchase the bonds. Option Call Features Ø An ASCOT is an American-style over-the-counter call option to repurchase a convertible bond.2 As rates rise.5 5.0 5.5 3 month Euribor Rates (%) 96.0 4. Exhibit 4: Illustration of the Interest Rate/Strike Price Relationship Effective Strike Price (@ Euribor +40bp) 97 96 95 94 93. Strike Price Features Ø The strike price can be viewed as the pure bond value and is therefore subject to interest rate movements.8 92 Source:Morgan Stanley Dean Witter Research This Memorandum is based upon information available to the public.6 7. Ø The ‘ASW’ security specific function on Bloomberg for each individual convertible bond provides an accurate tool for calculating the strike price (see the following page). In a stable interest rate environment the strike price rises steadily towards the convertible bond redemption price over time. Morgan Stanley & Co International and others associated with it may have positions in.4. Exhibit 5 NEC #6 1.1 as the effective level at which the ASCOT buyer sells the CBs.00 60% 24% 100. Take the following example of ASCOTs in the Japanese electronics company NEC purchased by some of our clients at a timely moment in June 1999. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. #23 if USD #13 if JPY.00 - Return +131% +52% - ASCOT Price 3. #22 if GBP MORGAN STANLEY DEAN WITTER 10. The Leverage Effect Leveraged gains are attractive to all types of investors so long as they do not assume extra risk.00 4% 46% 101. A – for initial set up B – for recalling bonds Ensure that the Default swap curve is set to #45 if EUR. Exhibit 4: Illustration of the ASW Function on Bloomberg Change the floating leg to quarterly payments (by entering 4) Set the Bid/Ask side of the curve to use. The strike is calculated on the offer spread (40bp). securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies.00 +1. In the case of the Hellenic Finance / National Bank of Greece bond. The subsequent rise in NEC’s fortunes have provided a handsome return to the ASCOT holder. by entering the 50bp spread. The Bloomberg Calculator The ‘ASW’ function on Bloomberg for a single convertible bond allows the user to calculate the strike price of an ASCOT from a given credit spread. By paying less than 4 points for ASCOTs the buyer had an option on a convertible with a 60 % premium. For a considerably smaller outlay the same exposure to a convertible bond position can be achieved through ASCOTs. we derive 93. equating to a strike of 93.7 9. . using the same methodology. 1336 104.60 May 1st 2000 3090 156. and may effect transactions in.8% 2002 June 1st 1999 Stock Price CB Price Premium Implied Vol STRIKE (+80bp) .1 in this case) Enter the spread at which the swap is being executed This Memorandum is based upon information available to the public. No representation is made that it is accurate or complete.518% Source: Morgan Stanley Dean Witter Research Set the calculation mode to 1 (to Calculate Bond Price) The ASCOT buyer effectively sells the CBs at this interpolated price (93.40 55. 12. 1998 S$ 2. Based on option models and conservative volatility assumptions the market priced these ASCOTs to have a real value of 4 points. the Financial Services Authority (FSA). Documentation Ø Transactions are negotiated with MSIL. Protection against Credit Widening ASCOTs not only provide convertible investors with protection against the ultimate credit risk of issuer default. A few months later: (in the height of the Asian crisis) Stock Price: CB Price: CB Premium: Strike (L+50): ASCOT Intrinsic Price: ASCOT Market Price*: Loss on CB: Intrinsic Loss on ASCOT: Real Loss on ASCOT: Source: Morgan Stanley Dean Witter Research Sept. . Morgan Stanley & Co International and others associated with it may have positions in. and may effect transactions in. securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. Obviously an ASCOT of a bond which only carries an 18% premium has to have a value greater than zero.2 100 8% 94 6 MORGAN STANLEY DEAN WITTER The holder of the exchangeable bonds lost 14 points during the period under review while the ASCOT holder suffered less. but also protect against any credit widening which can have a significant impact on the valuation of a convertible bond. Ø All new counterparties are required to have capacity & authority documents approved by MSIL before a transaction can be executed. Ø Morgan Stanley Prime Brokerage offers equity financing services for hedged ASCOT positions. Ø MSIL (Morgan Stanley International Ltd.) is a member of the UK regulating body.5 0 4 14 points 6 points 4 points This Memorandum is based upon information available to the public. The bond price declined to 86. Ø MSIL dispatches ISDA confirmations for each transaction which need to be signed and returned. thus the decline in ASCOT value was limited to only 2 points. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. (Aa3/AA-).5 86 (L+200) 18% 94. Ø All counterparties are required to enter into an ISDA Master Agreement with MSIL. The following is an example of how a holder of ASCOTs fared relative to a holder of the Fullerton/Singapore Telecom 0% 2003 exchangeable bonds during the latest Asian crisis in 1998. Ø MSIL is guaranteed by Morgan Stanley Dean Witter & Co. No representation is made that it is accurate or complete. Exhibit 6 Fullerton / Singapore Telecom 0% 2003 Issue Date: STOCK Price: CB Price: CB Premium: Strike (L+50): ASCOT Purchase Price: March 1998 S$ 3.8 11. The intrinsic loss on the ASCOT was its full 6 points if valued only as the difference between the strike price and the CB price. Morgan Stanley’s operating entity. proving convincingly that the debt spread assumptions used in convertible bond models should not be viewed as a static input. which was an implied credit spread of +200. under ISDA guidelines for swaps & OTC options. the ISDA Master Agreement dated as of . the Bond Option Transaction will be deemed to be a Government Bond Option Transaction. and together with the Swap Definitions. International Limited. in each case as published by the International Swaps and Derivatives Association. forms part of and is subject to. All provisions contained in the Agreement govern this Confirmation except as expressly modified below). The Bond Definitions apply in relation to the Bond Option Transaction (paragraphs 2 and 3(1) below). The Swap Definitions apply in relation to the Notional Swap Transaction (paragraph 4 below). together the ''Transaction''). the ''Definitions''). The definitions and provisions contained in the 1991 ISDA Definitions (as supplemented by the 1998 Supplement. This Confirmation supplements.as amended and supplemented from time to time (the ''Agreement''). the ''Bond Option Transaction'' and the ''Notional Swap Transaction''. between Morgan Stanley + Co. In the event of any inconsistency between either set of Definitions and this Confirmation.: Fax No: From: Morgan Stanley + Co. Date: Our File Ref: Our Swap Ref: Taps Ref: Re: Convertible Bond Call and Notional Swap Transaction between Morgan Stanley + Co.. International Limited and you.MORGAN STANLEY DEAN WITTER Convertible Bond Asset Swap . For purposes of the Bond Definitions.Draft Confirmation – ASCOT Buyer To: Attn. and as amended and supplemented by the 1998 ISDA EURO Definitions) (the ''Swap Definitions'') and in the 1997 ISDA Government Bond Option Definitions (the ''Bond Definitions''. International Limited and The purpose of this facsimile (this ''Confirmation'') is to confirm the terms and conditions of the bond option transaction and notional swap transaction entered into between Morgan Stanley + Co. this Confirmation will govern. This Confirmation constitutes a ''Confirmation'' as referred to in the ISDA Master Agreement specified below. are incorporated into this Confirmation. . Member of FSA. Inc. International Limited and you on the Trade Date specified below (respectively. London. as provided in the Terms and Conditions of the Bonds.00 PCT. 2. This is providing Party A notify Party B of the Stock Redemption by at least Three (3) London and New York Business Days Prior to the 25 August 2003 Bond Maturity Date. Terms of Bond Option Transaction as follows: Option Style: Option Type: Seller: Buyer: Bonds: Stock Redemption: Should the Redemption be for Stock. and Party A will deliver to Party B the Redeemed Bonds. . International Limited General Terms: Party B: Trade Date: Time of execution of the transaction is available upon request.The Terms of the Transaction to which this Confirmation relates are as follows: 1. Party B will pay to Party A a USD amount equal to the Redemption Amount of the Bonds. Party B Party A Call American Terms of Bond Option Transaction: Bond Maturity Date: Investor Put Date: Number of Options: Option Entitlement: Option Strike Price: 100. Party A: Morgan Stanley + Co. Option Penalty: If the Option is Exercised for a Settlement Date prior to then Party B will make an Additional Payment to Party A of the present value of X basis points on the notional amount accruing from the Settlement Date until USD 1. and 4.00 p. (London time).m.m. Exercise Period: Seller Business Day: Any day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in The first to occur of: (a) The date on which notice is first given to the Holder of the Bonds by the issuer of the Bonds that any of the Bonds which are the subject of this Bond Option Transaction are for any reason called or redeemed by the issuer of the Bonds (expiration is limited to the Number of Options proportionate to the percentage of Bonds called or redeemed by the issuer of the Bonds). and (b) (c) (d) The Investor Put Date. the holder as determined by the Calculation Agent in its sole discretion.30 a. and The Bond Maturity Date.00 (Receipt of which is hereby acknowledged) Premium: Premium Payment Date: Procedure for Exercise: Multiple Exercise: Applicable Any Seller Business Day during the period commencing on and including the Premium Payment Date and ending on and including the Expiration Date between 8. at any given time. and Default Date Expiration Date: ''Holder of the Bonds'' means. . deliver irrevocable notice of exercise to Seller.00 p. and subject to any restrictions on transfer thereunder.m. by notice to the issuer declares the Bonds to be due and payable immediately or (iii) there is an Event of Default (as defined in the terms of the Bonds). (London time) The Seller Business Day (which shall also be a Cleaance r System Business Day) during the Exercise Period on which Buyer exercises the Option.of a nominal amount of the Bonds equal to the Option Entitlement. would become an Event of Default (as defined in the terms of the Bonds). or the Holder of the Bonds. and he issuer does not cure such default within the time specified after receipt or (ii) there is an Event of Default (as defined in the terms of the Bonds). or the Holder of the Bonds. otherwise this Option will expire thirty (30) Business Days following such Event of Default such thirtieth Business Day. (London time).00 p. . subject to The notice requirements and other terms specified in or pursuant to this Confirmation Notice of Exercise and Written Confirmation: Applicable. the ''Default Date'' Expiration Time: Exercise Date: 4.30 a. Buyer must within thirty (30) Business Days of such Event of Default.m. and the Bonds become immediately due and payable without any declaration or other act on the part of the Trustee for the Holder of the Bonds. Automatic Exercise: The applicable Options will be deemed to be automatically exercised on the date which notice is first given to the Holder of the Bonds by the issuer of the Bonds that any of the Bonds which are the subject of this Bond Option Transaction are for any reason (except for tax reasons) called or redeemed by the issuer of the Bonds in accordance with the terms and conditions of the Bonds. and 4. provided that Buyer must give notice of exercise in writing addressed to Alexandra MacGregor (Derivatives Products Group) at least ten (10) Seller Business Days prior to Exercise Date between the hours of 8. and either the Trustee for the Holder of the Bonds. ''Event of Default'' means that in the event that (i) either the Trustee for the Holder of the Bonds. notified the issuer of the Bonds of the occurrence of a default which with the giving of notice or the lapse of time or both.m. but for the occurrence of a Settlement Disruption Event. the Settlement Date shall be ten (10) Seller Business Days following the Exercise Date. 3. (1) In relation to the Bond Option Transaction. provided that (a) Market Quotations will be determined by the Calculation Agent using its estimates of the amounts that would be paid for Replacement Transactions (as that term is defined in the definition of ''Market Quotation'') and (b) in the event of a dispute as to the amount so determined. Party A will pay the absolute value of such amount to Party B on the Exercise Date. International Limited w notify you ill separately regarding settlement details. (2) Swap Cash Settlement Amount: An amount determined by the Calculation Agent as the amount that would be payable under Section 6(e)(ii)(2) of the Agreement if the Settlement Date had been designated as an Early Termination Date in respect of a Swap Transaction or portion thereof on the terms set out in paragraph 4 below as a result of a Termination Event. Settlement Terms: Clearance System: Clearance System Business Day: Any day on which the Clearance System is (or. in respect of which the Swap Transaction was the sole Affected Transaction. if the Bond Option Transaction is automatically exercised. the Calculation Agent shall obtain quotations from three mutually acceptable Reference Market Makers which will be averaged. . Morgan Stanley + Co. If the Swap Cash Settlement Amount is a negative amount. as provided below. the following terms shall apply: Settlement Date: The Exercise Date. however. Parties A and B are the Affected Parties and the Termination Currency was. provided. For the purpose of this paragraph 3(1). the Calculation Agent will determine the Swap Cash Settlement Amount. Physical Settlement will be applicable. Party B will pay such amount to Party A on the Exercise Date. would have been) open for the acceptance and execution of settlement instructions.Automatic Exercise will be limited to a Number of Options proportionate to the percentage of Bonds called or redeemed by the Issuer for each early redemption date. In addition to the foregoing. If the Swap Cash Settlement Amount is a positive amount. the excess shall be payable by Party A to Party B on the Exercise Date. (4) 4. If the Swap Cash Settlement Amount is payable by Party A. then the Swap Cash Settlement Amount will be deducted from the Bond Payment due from Party B to Party A on the Exercise Date. from and including the first of or to occur after the Effective Date to and including the Termination Date. The definition of ''Bond Payment'' contained in the Bond Definitions shall be amended for the purposes of this Transaction by including the word ''zero'' in place of the words ''accrued interest. Notional Amount: Effective Date: Settlement Date Termination Date: Terms of the Notional Swap Transaction: The Investor Put Date /the Bond Maturity Date. on the Option Entitlement computed in accordance with customary trade practices employed with respect to the Bonds''. subject to adjustment in accordance with the Following /Preceding Modified Following / Business Day Convention. Fixed Amount: Floating Amounts: Floating Rate Payer: Party B Party A Floating Rate Payer Payment Dates: . if any. subject to adjustment in accordancewith the Following / Preceding Modified Following / Business Day Convention. if the Swap Cash Settlement Amount is payable by Party B. Fixed Amounts: Fixed Rate Payer: Fixed Rate Payer Payment Dates: On and in each year. it will be aggregated with the Bond Payment due from Party B to Party A on the Exercise Date. provided that if the Swap Cash Settlement Amount exceeds the Bond Payment.(3) For purposes of settlement. The Additional Payment of USD / JPY from Party B to Party A should be wired to the Account detailed below for value Reset Dates: Plus XPCT. Calculation Agent: The Calculation Agent is Party A.On and in each year. Account Details: Account for Payments to Party A: Account for payments to Party B: Account for payments in USD: Please supply details 7. except for the Reset Date with respect to the first Calculation Period which will be the day which precedes the first day of the second Calculation Period by the number of months equal to the Designated Maturity. The expense of the Mutually Acceptable Calculation Agent shall be borne by the parties equally. from and including the first of or to occur after the Effective Date to and including the Termination Date. If the parties are unable to agree on a particular calculation another Mutually Acceptable Calculation Agent. who is a leading dealer in the relevant market. Floating Rate Option: Designated Maturity: Spread: Floating Rate Day Count Fraction: Actual/360 The first day of each Calculation Period. will be appointed to determine such calculation (the ''Mutually Acceptable Calculation Agent''). 6. All determinations by the Calculation Agent are subject to agreement by Party A and Party B. 3 Months USD-LIBOR-BBA Additional Payment: 5. subject to adjustment in accordance with the Modified Following Business Day Convention. Party A Documentation and Operation Contacts: Documentation: Telephone Number: ((0) 207) 513 7762 Operations: Telephone Number: ((0) 207) 677 7699 . International Limited and We acknowledge receipt of your facsimile dated with respect to the above referenced transaction between Morgan Stanley + Co. Lisa Conway London ((0) 207) 513 7988 London 8812564 Confirmation: Attn. Jack Inglis Annabel Littlewood Morgan Stanley + Co. Yours faithfully. Account details: Signed: By: Name: Title: Unquote We are delighted to have entered into the above referenced transaction with you. International Limited . Please confirm that the foregoing correctly sets forth the terms of our agreement by sending to us a return facsimile substantially to the following effect: Quote To: Morgan Stanley + Co. International Limited and with a Trade Date of and a Termination Date of and confirm that such facsimile correctly sets forth the terms of our agreement relating to the transaction described therein. London Alexandra MacGregor.8. International Limited.: Fax No: Telex No: From: Date: Your File Ref: Your Swap Ref: Re:Convertible Bond Call and Notional Swap Transaction between Morgan Stanley + Co. and we look forward to working with you again. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. Morgan Stanley & Co International and others associated with it may have positions in. Morgan Stanley Contacts MORGAN STANLEY DEAN WITTER Trading London Jack Inglis Annabel Littlewood Ross Webster Ermes Caramaschi Jim Bedell Tanya Ferencko Jackson Chou Kenichi Ii Taro Goto Gavin Connor +44 (0)20 7425 5994 +44 (0)20 7425 7763 +44 (0)20 7425 6144 +44 (0)20 7425 8466 +1 212 761 5830 +1 212 761 2654 +81 3 5424 7814 +81 3 5424 7816 +81 3 5424 7845 +81 3 5424 5633 New York Tokyo Documentation London Tracy Northey Alexandra MacGregor Craig Abruzzo +44 (0)20 7425 5639 +44 (0)20 7425 7762 +1 212 761 5365 New York This Memorandum is based upon information available to the public. securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. and may effect transactions in.9 14. No representation is made that it is accurate or complete. . and may effect transactions in. This Memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned herein. They are therefore not static. This Memorandum is based upon information available to the public. No representation is made that it is accurate or complete. This is not an exhaustive list and there are inevitably a large number of issues in the convertible market for which we have omitted to provide an indicated a credit spread. Morgan Stanley & Co International and others associated with it may have positions in. They are not firm bids nor should they be viewed as totally representative of the spreads currently trading in the market. Credit spreads are subject to supply and demand considerations as well as market sentiment. Readers should recognise that Morgan Stanley cannot find a credit bid for all the known names in the convertible universe although we will use our best endeavours to do so. securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. There may also be names on this list where there is no longer a credit bid available due to investors having exhausted their credit lines or due to changing market conditions. Please contact your sales representative for an update on particular issues or for a general market overview. .10 Appendix – Indicative Spreads MORGAN STANLEY DEAN WITTER The following is a list of indicative asset swap credit spread levels based on recent business we have seen in the marketplace or else where no recent business has been transacted. Sub-investment grade issues do not typically find ready interest from credit buyers and this is particularly so in the US and Pacific Rim convertible markets which are characterised predominantly by such issues. the spreads shown are historical for illustrative purposes (notably in the Asian market). 00 3.00 100.00 150.00 2.13 1.50 0.00 400.00 150.00 260.00 1.00 125.00 28.00 10.00 40.00 15.00 170.00 90.50 1. Savings & Loan Banks.00 3.50 2.00 2.00 3.00 67.00 85.75 2.00 40.88 4.13 2.00 300.50 4.00 2.00 0.00 175.00 Sector Utilities Banks.00 375.75 6.00 2.00 50.50 3.00 0.00 200.00 0.00 0. Savings & Loan Telecommunications Infrastructure Real Estate Real Estate Telecommunications Conglomerate Conglomerate Real Estate Computer Peripherals Oil & Energy Electronics Computer Peripherals Computer Peripherals Chemicals Computer Peripherals Retail Electronics Retail Telecommunications Telecommunications Banks.00 2.00 140.00 3.25 1.88 3.00 4.00 40.00 5.50 1.00 105.70 2.00 2.00 0.00 165.00 70.00 80. Savings & Loan Banks.00 2.00 53.00 3.00 38.00 2.00 115.00 310.00 1.00 300.00 0.50 0.00 4.00 140.50 0.00 7. Savings & Loan Banks.00 2.00 200.00 75. Savings & Loan Paper & Packaging Leisure Retail Housing & Construction Food & Beverages Food & Beverages Telecommunications Telecommunications Retail Insurance Electronics Utilities Utilities Metals Utilities Utilities Utilities Insurance Insurance Transportation Banks.00 18.00 1.50 1.50 1.00 200.78 0.00 175.00 5.00 130.00 21.00 1.25 1.00 87.25 2. Savings & Loan Country China Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Indonesia Korea Korea Korea Malaysia Malaysia Malaysia Philippines Singapore Singapore Singapore Singapore Singapore Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Thailand Thailand Thailand Austria Belgium Belgium Belgium Finland France France France France France France France France France France France France France France France France Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Greece Greece Hungary Region Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Asia Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe .00 1.00 25.00 225.00 60.00 1.50 4. Savings & Loan Telecommunications 18-Apr-02 19-Dec-01 27-Feb-01 08-Jul-02 30-Jun-02 15-Aug-00 08-Jul-01 08-May-03 06-Oct-02 15-Feb-01 15-Jun-02 21-Jul-02 31-May-01 15-Oct-01 22-Sep-04 12-Feb-02 17-Mar-03 09-Jul-03 25-Mar-02 Issue Issue # Ccy USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD CHF USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD EUR DEM DEM DEM USD EUR EUR EUR EUR EUR EUR EUR EUR EUR USD EUR EUR EUR EUR EUR EUR DEM EUR DEM EUR CHF USD DEM EUR DEM DEM EUR EUR USD Coupon 1.00 7.00 185.00 0.00 225.00 0.00 25.00 150. Savings & Loan Metals Financial Services Banks.00 18.38 1.00 175.00 200.00 2.50 2.00 61.00 185. Savings & Loan Municipal Food & Beverages Retail Municipal Banks.00 0.00 42.00 350.00 1.00 25.00 0.50 1.00 22.75 0.50 80.00 70.25 2.00 0.00 3.00 425.00 1.00 0.00 375.00 310.88 1.13 5.00 100.MORGAN STANLEY DEAN WITTER Issuer Huaneng Power Bank of East Asia Far Eastern Textiles First Pacific Guangnan Holdings HD Finance Hong Kong Land HSH Overseas Hutchinson Delta Finance Kerry Properties New World Development New World Infrastructure Peregrine Shanghai Industrial Shangri-La Asia Sino Land Zhenhai Refining Polymax Daewoo Corp Korea Electric Power LG Electronics Rashid Hussain Telekom Malaysia YTL JG Summit DBS Land Fullerton Global Keppel Corp Natsteel Wing Tai ADI Corp China Petrochemical CMC Magnetics Delta Electronics First International Computer Formosa Chemical GVC Corp Pou Chen Siliconware Precision Robinson Department Store Total Access Communications United Communications Bank Austria Arbed GBL KBC Metsa Serla Accor Artemis Bouygues Carrefour Financiere Agache France Telecom France Telecom Pinault Scor ST Microelectronics Suez Lyonnaise des Eaux Suez Lyonnaise des Eaux Usinor Vivendi Vivendi Vivendi Allianz Allianz Deutsche Bahn Deutsche Bank Deutsche Bank Deutsche Bank Dusseldorf Stadtwerke Kamps Metro Nordrhein-Westfalen EFG National Bank of Greece Matav Conglomerate Food & Beverages Real Estate Real Estate Leisure Real Estate Real Estate Infrastructure Financial Services Conglomerate Leisure Real Estate Oil & Energy Housing & Construction Trading Utilities Semiconductors Banks.00 600.00 20.00 65.00 60.75 4.00 136.13 2.50 1.75 Maturity 21-May-04 19-Jul-03 26-Jan-05 27-Mar-02 30-Jun-00 01-Jun-00 23-Feb-01 06-Jan-01 25-Nov-01 15-Jun-07 09-Jun-04 15-Jul-01 01-Dec-00 12-Jun-02 16-Dec-00 18-Apr-02 19-Dec-03 27-Feb-06 31-Dec-01 01-Aug-01 31-Dec-07 30-Jun-07 03-Oct-04 15-Aug-02 23-Dec-03 31-Dec-01 02-Feb-03 12-Aug-03 30-Jun-02 15-Jul-02 08-Jul-03 08-May-08 06-Oct-04 15-Feb-05 16-Oct-02 19-Jul-01 21-May-02 15-Jun-06 21-Jul-04 27-Jul-00 31-May-06 15-Dec-03 14-Oct-04 30-Oct-04 09-Jul-03 10-Dec-05 15-Oct-02 29-Mar-02 22-Feb-05 01-Jan-06 01-Jan-04 23-Apr-04 01-Jan-04 29-Nov-04 01-Jan-03 01-Jan-05 22-Sep-09 01-Jan-04 12-Jan-04 01-Jan-05 01-Jan-05 01-Jan-04 05-Jul-03 04-Feb-03 23-Mar-05 02-Apr-03 22-Dec-03 26-Jul-01 12-Feb-17 25-Aug-03 17-Mar-15 09-Jul-13 03-Dec-02 04-May-05 15-Jul-03 02-Jul-01 Next Put 21-May-02 19-Jul-01 26-Jan-01 Spread 380.00 175.00 50.00 2.00 95.00 50.00 40.00 175.00 50.00 205. 00 60.00 64. Savings & Loan Issue Issue # Ccy EUR ITL ITL EUR ITL ITL NLG USD NLG EUR NLG EUR EUR EUR EUR USD EUR EUR USD CHF CHF CHF EUR DEM JPY USD CHF USD USD CHF EUR NLG USD GBP GBP GBP GBP GBP GBP GBP USD EUR GBP EUR GBP JPY JPY JPY JPY JPY JPY JPY JPY USD JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY USD JPY CHF JPY JPY JPY JPY JPY JPY JPY Coupon 0.00 125.00 35.38 18.00 95.00 220.00 30.13 0.90 0. Savings & Loan Telecommunications Chemicals Chemicals Chemicals Chemicals Housing & Construction Housing & Construction Human Resources Leisure Drugs & Biotechnology Drugs & Biotechnology Air Transportation Insurance Insurance Insurance Insurance Insurance Banks.50 Sector Restaurants Banks.00 2.00 60.00 65.50 0.00 83.00 170.75 2.63 1.50 3.50 4.50 6.30 0.00 1.00 50.00 1.50 6.90 1.00 0.00 161.10 4. Savings & Loan Insurance Insurance Utilities Health & Personal Care Health & Personal Care Health & Personal Care Electronics Publishing Publishing Banks.00 145. Savings & Loan Financial Services Financial Services Publishing Publishing Telecommunications Banks.00 130. Savings & Loan Banks.70 0.00 142.00 52.25 2.00 2.00 100.88 6.00 50. Savings & Loan Leisure Air Transportation Real Estate Real Estate Media Real Estate Utilities Transportation Media Transportation Banks.00 45. Fuji Heavy Futaba Gunma Bank 28-Jul-02 25-Nov-01 11-Feb-03 19-Jan-04 euro 9 euro 2 10 5 2 euro euro 4 2 3 3 4 4 5 6 3 3 5 8 euro 4 1 11 16 euro 1 4 3 4 31-Mar-03 Banks.00 173.00 115.00 80.00 23.00 0.50 6.00 48.00 1.00 3.00 120.75 5.00 90.00 2.00 175.00 90.75 4.00 1.13 0.00 3.75 1.00 160.00 80.00 48.00 34.00 1.00 30.40 0.00 35.00 0.25 1.00 3.00 60.80 3.00 150.00 75.50 4.75 2.00 179.00 36. Savings & Loan Consumer Products Country Italy Italy Italy Italy Italy Italy Netherlands Netherlands Netherlands Netherlands Netherlands Netherlands Portugal Spain Spain Spain Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland Switzerland UK UK UK UK UK UK UK UK UK UK UK UK Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Region Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan .70 1.00 2. Savings & Loan Banks. Savings & Loan Banks.00 100.75 3.00 2.00 35.00 150.00 130.00 35.90 0.00 1.00 1.50 1.00 45.00 25.00 0.00 80.00 52.80 0.00 0.90 0.00 55.00 89.25 3.25 2.00 90.80 0.25 2.00 25.00 31.50 2. Savings & Loan Retail Electronics Banks.25 6.10 1.00 45. Savings & Loan Food & Beverages Banks.00 54.70 1.45 Maturity 16-Jun-14 02-Jan-01 08-Jul-03 08-Jun-05 18-Dec-01 18-Dec-03 30-Sep-03 06-Jan-04 06-Nov-03 29-Jul-04 15-Apr-05 15-Nov-04 07-Jun-04 06-Aug-03 30-Jul-02 15-Jul-05 29-Jul-03 22-Oct-03 24-Jul-03 19-Aug-02 28-Jul-14 14-May-04 25-Nov-04 11-Feb-13 25-Mar-05 19-Jan-15 07-Jul-05 10-Jun-04 20-May-03 20-May-05 20-May-03 23-Jun-03 16-Jun-02 05-Jan-04 29-Sep-04 17-Nov-07 31-Dec-06 05-Oct-04 12-Jun-06 17-Feb-08 10-May-04 24-Nov-03 18-Mar-09 30-Mar-10 03-Dec-03 31-Mar-02 29-Mar-02 31-Mar-15 29-Mar-02 26-Dec-03 26-Dec-08 28-Sep-07 31-Mar-03 30-Nov-02 28-Feb-02 28-Sep-01 30-Mar-03 31-Mar-03 30-Mar-01 31-Mar-06 30-Mar-06 30-Sep-08 28-Jun-02 30-Sep-05 31-May-02 30-Sep-03 30-Sep-04 29-Sep-00 30-Sep-00 29-Aug-03 29-Sep-06 30-Sep-04 31-Aug-01 30-Sep-03 30-Sep-03 28-Sep-01 Next Put 15-Jun-04 Spread 105.05 1.00 63.00 55.00 0.00 70.90 0.00 70. Savings & Loan Publishing Financial Services Food & Beverages Air Transportation Electronics Food & Beverages Industrial Products Banks.25 0.88 1.00 60.00 40.25 1.00 25.00 1.00 18.50 2. Savings & Loan Banks.50 0.00 60. Savings & Loan Health & Personal Care Electronics Financial Services Financial Services Industrial Products Retail Automotive Industrial Products Banks.00 1.00 150.25 1.00 100.MORGAN STANLEY DEAN WITTER Issuer Autogrill Banca di Roma Edizione Finmeccanica Mediobanca Mediobanca Ahold Cregem Finance Fortis Fortis VNU VNU Portugal Telecom Banco Santander BBV Telefonica Aventis Aventis Ciba Speciality Chemicals Clariant Holderbank Holderbank Meridian Moevenpick Roche Roche Swiss Air Swiss Air Swiss Life Swiss Life Swiss Life Swiss Re UBS Airtours BAA British Land Capital Shopping Daily Mail & General Trust Hammerson National Grid P&O Pathe Railtrack Standard Chartered United News & Media Acom Ajinomoto All Nippon Air Alps Electric Asahi Breweries Asahi Glass Bank of Fukuoka Bank of Tokyo-Mitsubishi Bank Of Tokyo-Mitsubishi Best Denki Capcom Chiba Bank Chiyoda Fire and Marine Chiyoda Fire and Marine Chubu Electric Power Chugai Pharm Chugai Pharm Chugai Pharm CMK Dai Nippon Printing Dai Nippon Printing Daiichi Kangyo Bank Daiichi Pharmaceutical Dainippon Screen Daiwa Securities Daiwa Securities Ebara Fuji Co.13 2.00 51.00 52.75 1.00 1.00 40.00 30.80 0.50 84.00 130.00 40.50 2. 00 15.20 0.40 0.90 1.00 48.00 43.00 0.90 1.50 12.00 170.50 71.00 150.00 109.80 0.00 75. Savings & Loan Insurance Food & Beverages Trading Country Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Region Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan .00 56.00 1.00 114.60 1.00 77.90 0.00 0.00 175.65 2.00 1.00 74.00 46.50 70.00 80.00 36.50 0.00 41.55 0.00 50.00 47.00 40.70 0.80 2.00 4.13 1.30 1.92 50.00 0.20 0.00 45.00 63.00 60.00 33.80 0.00 41.80 1.25 0.30 0.00 93.80 0.00 35.00 90.38 4.00 70.20 1.75 0.00 40.05 2.14 75.00 82.70 1.45 1.40 0.00 33. Savings & Loan Consumer Electronics Consumer Electronics Consumer Electronics Metals Instrumentation Trading Banks.80 1.00 99.00 90.80 2.00 57.50 40.00 70.00 38.40 1.00 153.00 208.00 1.00 200.00 43.50 58.00 99.00 75.00 56.40 1.35 1.00 110.90 1.00 4.00 45.50 1.00 135.70 0.00 85.00 1.90 0.00 38.40 1.20 0.50 0.00 0.00 145.00 225.70 1.MORGAN STANLEY DEAN WITTER Issuer Hankyu Corp Hankyu Department Store Hanshin Electric Hiroshima Bank Hitachi Hitachi Hitachi Hitachi Metals Horiba Itochu Kagawa Kanegafuchi Chemical Kanegafuchi Chemical Kanegafuchi Chemical Kansai Electric Power Kansai Electric Power Kawasaki Heavy Kawasaki Heavy Keihan Electric Railway Keihin Electric Express Keisei Electric Rail Keisei Electric Rail Kinki Nippon Railway Kinki Nippon Railway Kokusai Securities Koyo Seiko Kubota Corp Kubota Corp Kubota Corp Kubota Corp Kuraray Lintec Marubeni Marui Matsomoto Matsushita Electric Industrial Matsushita Electric Industrial Matsushita Electric Works Matsushita Electric Works Matsushita Electric Works Minebea Minebea Mitsubishi Electric Mitsubishi Logistics Mitsubishi Motor Mitsui & Co Mitsui Marine & Fire Mitsui Marine & Fire Mitsui Mining & Smelting Mitsui Mining & Smelting Mitsumi Electric Mizuno Corp Nagoya Bank Nagoya Rail Nankai Electric Rail NEC Corp NEC Corp NEC Corp NEC Systems NGK Insulator NGK Spark Plug Nichido Fire & Marine Nichido Fire & Marine Nichiei Nidec Corp Nidec Corp Nidec Corp Nippon Denso Nippon Express Nippon Mining & Metals Nippon Yusen Nishimatsu Nishi-Nippon Bank Nisshin Fire & Marine Nisshin Oil Mills Nissho Iwai 30-Sep-04 31-Mar-04 9 8 1 1 3 1 Issue Issue # Ccy euro JPY 1 JPY 7 JPY 3 JPY 5 JPY 6 JPY 7 JPY 12 JPY 2 JPY 1 JPY 1 JPY 6 JPY 7 JPY 8 JPY 2 JPY 3 JPY 3 JPY 4 JPY 6 JPY 18 JPY 31 JPY 32 JPY 6 JPY 5 JPY euro JPY 7 JPY 4 JPY 5 JPY 6 JPY 7 JPY 6 JPY 3 JPY 8 JPY 7 JPY 2 JPY 5 JPY 6 JPY 8 JPY 9 JPY 7 JPY 3 JPY 4 JPY 4 JPY 3 JPY 1 JPY 6 JPY 1 JPY 3 JPY euro JPY 1 JPY 3 JPY 7 JPY 2 JPY 7 JPY 1 JPY 6 JPY 7 JPY 9 JPY euro JPY 3 JPY 4 JPY 4 JPY 5 JPY euro JPY 2 JPY 3 JPY euro JPY 4 JPY 4 JPY JPY JPY JPY JPY JPY JPY JPY Coupon 1.60 0.50 1.80 0.40 1.90 0.00 83.80 1.50 2.00 40.40 0.30 0.00 1.00 135.00 0.00 2.90 0.85 0.00 50.50 1.00 62.50 Sector Transportation Retail Transportation Banks.00 134.00 17.65 Maturity 30-Sep-06 30-Sep-00 30-Mar-01 30-Sep-03 29-Sep-02 30-Sep-03 30-Sep-04 29-Mar-02 17-Mar-06 30-Mar-01 28-Sep-01 31-Mar-03 28-Sep-01 30-Sep-04 29-Mar-02 31-Mar-05 28-Sep-01 30-Sep-03 31-Mar-03 29-Sep-02 30-Sep-02 30-Sep-04 31-Mar-08 31-Mar-03 30-Sep-14 03-Mar-03 29-Sep-00 28-Sep-01 30-Sep-02 30-Sep-03 29-Sep-02 31-Mar-05 31-Mar-06 31-Jan-03 30-Mar-01 29-Mar-02 31-Mar-04 31-May-05 30-Nov-05 30-Nov-00 31-Mar-03 31-Mar-05 30-Sep-03 31-Mar-03 31-Mar-03 30-Sep-09 29-Mar-02 31-Mar-03 30-Sep-03 30-Sep-03 31-Mar-03 28-Sep-01 30-Sep-03 31-Mar-06 30-Mar-01 29-Mar-02 31-Mar-04 30-Mar-01 31-Mar-02 29-Sep-00 29-Mar-02 30-Mar-01 31-Mar-03 31-Mar-14 31-Mar-06 31-Mar-04 31-Mar-03 20-Dec-02 31-Mar-04 30-Sep-04 29-Sep-00 31-Mar-04 30-Sep-03 31-Mar-04 30-Mar-01 30-Sep-03 Next Put 30-Sep-03 Spread 150.05 2.00 114.65 1.30 1.00 59.00 0.10 0.00 37.35 0.55 1.00 115. Savings & Loan Transportation Transportation Electrical Equipment Electrical Equipment Electrical Equipment Electrical Equipment Industrial Products Industrial Products Insurance Insurance Financial Services Electrical Equipment Electrical Equipment Electrical Equipment Electrical Equipment Transportation Mining Transportation Infrastructure Banks.00 57.50 140.70 1. Savings & Loan Chemicals Chemicals Chemicals Utilities Utilities Automotive Automotive Transportation Transportation Transportation Transportation Transportation Transportation Financial Services Industrial Products Industrial Products Industrial Products Industrial Products Industrial Products Consumer Products Instrumentation Trading Retail Trading Consumer Electronics Consumer Electronics Housing & Construction Housing & Construction Housing & Construction Industrial Products Industrial Products Electrical Equipment Transportation Automotive Trading Insurance Insurance Instrumentation Mining Electronics Consumer Products Banks.85 1.00 30.00 37.40 2.00 83.00 41.00 72. 50 172.00 80.00 0.00 4.25 0.25 1.40 1.00 26.00 310.20 0.00 0.00 150.60 1. Savings & Loan Oil & Energy Telecommunications Telecommunications Leisure Media Media Telecom Equipment Retail Telecom Services Drugs & Biotechnology Utilities Healthcare REIT .30 2.00 75.88 0.43 0.00 225.38 0.00 60.40 0.50 0.00 115.00 160.00 200.00 75.60 0.00 1.00 125.00 150.80 0.00 6.00 60.00 145.50 2.00 110.75 2.87 5.70 1.00 180.00 1.35 1.00 180.00 48.00 3.25 0.00 1.25 0.70 0.00 57.30 0.00 0.00 1.00 175. Savings & Loan Financial Services Paper & Packaging Office Products Office Products Office Products Health & Personal Care Transportation Chemicals Housing & Construction Housing & Construction Housing & Construction Housing & Construction Housing & Construction Semiconductors Banks.00 61.Healthcare Electronics Advertising Oil & Energy Housing & Construction Oil Services Automotive Automotive Consumer Products Food & Beverages Drugs & Biotechnology Office Products Drug Distribution Automotive Drug Distribution Electronics Electronics Telecommunications Oil & Energy Issue Issue # Ccy 5 JPY 18 JPY 17 JPY 19 JPY 1 JPY euro JPY 10 JPY 8 JPY 9 JPY 3 JPY 3 JPY euro JPY 7 JPY 16 JPY 12 JPY 13 JPY 15 JPY 14 JPY 12 JPY 2 JPY 13 JPY 4 JPY euro JPY 8 JPY 2 JPY 3 JPY 6 JPY 4 JPY 4 JPY 3 JPY 4 JPY 1 JPY 9 JPY 3 JPY 2 JPY euro JPY 7 JPY 1 JPY 2 JPY euro JPY 2 JPY 3 JPY 3 JPY euro USD euro USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD Coupon 0.00 32.00 47.00 58.45 1.00 12.00 55.00 240.30 0.00 125.95 4. Savings & Loan Industrial Products Industrial Products Automotive Chemicals Trading Trading Electronics Electronics Insurance Insurance Transportation Country Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA Region Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA USA .50 4.00 40.00 100.00 50.50 0.00 5.50 86.00 0.MORGAN STANLEY DEAN WITTER Issuer NTN Corp Odakyu Electric Rail Oki Electric Oki Electric Okinawa Bank Orix Rengo Ricoh Ricoh Riso Kagaku Sankyo Seino Transport Sekisui Chemical Sekisui House Sekisui House Sekisui House Sekisui House Sekisui House Sharp Shiga Bank Shimadzu Shin Meiwa Showa Corp Sumitomo Chemical Sumitomo Corp Sumitomo Corp Sumitomo Electric Sumitomo Electric Sumitomo Marine & Fire Sumitomo Marine & Fire Sumitomo Warehouse Sysmex Tanabe Seiyaku THK Tokyo Electron Tomy Toppan Printing Toyama Chemical Toyo Communications Toyo Trust & Banking Toyoda Auto Loom Ube industries Yasuda Fire & Marine Yasuda Trust & Banking Yasuda Trust & Banking Anadarko Petroleum Bell Atlantic Bell Atlantic Cendant Corp Clear Channel Comms Clear Channel Comms Commscope Costco Wholesale Cox Comms Elan Finance Gener Healthsource Corp Heartport Ingram Micro Interpublic Kerr-McGee Lennar Corp Loews Magna International Magna International Mattell Merrill Lynch Merrill Lynch Office Depot Omnicare Pep Boys Rite Aid Solectron Solectron Telmex Transocean Sedco 07-Mar-03 19-Aug-02 19-Apr-05 14-Dec-03 09-Jun-01 29-Jul-03 11-Dec-02 20-Sep-01 08-May-03 27-Jan-02 24-May-03 Health & Personal Care Industrial Products Trading Retail Publishing Electronics Electrical Equipment Banks.00 46.00 50.85 1.63 4.00 110.75 4.20 1.00 165.00 5.00 255.60 1.00 Maturity 31-Mar-04 30-Sep-02 31-Mar-04 28-Sep-01 29-Mar-02 31-Mar-05 30-Jul-07 29-Mar-02 31-Mar-03 31-Mar-02 30-Mar-01 31-Mar-04 28-Sep-01 31-Jul-03 31-Jan-02 31-Jul-00 31-Jul-01 31-Jul-03 30-Sep-04 30-Sep-03 30-Sep-05 29-Sep-00 31-Mar-04 29-Dec-00 29-Mar-02 31-Mar-04 30-Sep-08 28-Sep-01 31-Mar-04 29-Mar-02 31-Mar-05 31-Mar-04 31-Mar-06 30-Sep-03 30-Sep-03 30-Sep-03 31-Mar-05 31-Mar-05 30-Sep-04 30-Sep-02 30-Sep-03 30-Sep-05 30-Mar-01 30-Sep-02 30-Sep-03 07-Mar-20 01-Apr-03 15-Sep-05 15-Feb-02 01-Dec-02 01-Apr-03 15-Dec-06 19-Aug-17 19-Apr-20 14-Dec-18 01-Mar-05 01-Apr-03 01-Oct-03 09-Jun-18 01-Jun-06 15-Feb-10 29-Jul-18 15-Sep-07 15-Feb-05 15-Oct-02 01-Nov-00 14-Apr-04 03-Mar-03 11-Dec-07 11-Dec-07 20-Sep-11 15-Sep-02 08-May-20 27-Jan-19 15-Jun-04 24-May-20 Next Put Spread 45.00 5.50 85.25 2.00 89.00 155. Savings & Loan Automotive Conglomerate Insurance Banks.25 7.00 118.00 180.00 0.00 65.70 0.10 0.00 375.14 43.00 1.00 153.00 90.90 1.30 0.00 53.00 70.88 0.10 1.00 45.20 1.25 0.00 88.00 78.00 138.50 2.00 90.80 0.00 225.00 Sector Industrial Products Transportation Telecom Equipment Telecom Equipment Banks.50 0.00 175.75 0.13 4.00 50.00 47.35 1.00 200.00 76.00 194.25 3.00 110.00 122.75 120.00 37.00 0.00 3.90 0.00 175.00 195.00 69.88 5.50 2.40 0.00 70.00 44.40 0.00 125.00 58.00 80.13 0.00 5. Savings & Loan Banks.60 2. 00 02-Jul-19 20-Jul-02 0.00 Office Products 150.00 15-Jan-05 Spread Sector 120.MORGAN STANLEY DEAN WITTER Issuer US Cellular Wellpoint Xerox Young & Rubicam Issue Issue # Ccy USD USD USD USD Coupon Maturity Next Put 0.00 Telecommunications 175.00 Healthcare 75.57 21-Apr-18 21-Apr-03 3.00 15-Jun-15 15-Jun-00 0.00 Advertising Country USA USA USA USA Region USA USA USA USA . In E. 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The price or value of the investments to which the presentation relates. or income derived from the investment. In addition. or current. price of. Investors must make their own investment decisions in light of their own objectives. In Japan. have positions in and effect transactions on a principal basis in securities and other instruments mentioned and may also perform or seek to perform investment banking services for issuers of these securities and other instruments. securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. Options are not for everyone. reproduced. the information is disseminated by Morgan Stanley Dean Witter Japan Limited. Prices included herein are indicative only and may vary significantly from prices available from other sources. policy or other reasons) of any issuer without advance notice and has no obligation to inform you of such discontinuance or suspension. International Limited and/or its affiliates ("Morgan Stanley Dean Witter") prepared the information and opinions accessible herein. risk profile and circumstances and using such independent advisors as they believe necessary. the research and other information provided herein are not intended to give investors specific advice as to whether they should. including rating changes. commissions and other transaction costs may significantly affect the economic consequences of the transactions discussed herein and should be reviewed carefully with their account representative and tax advisor.K. Past performance is not necessarily a guide to future performance.. Certain assumptions may have been made in this analysis which have resulted in any returns detailed herein. Other Morgan Stanley Dean Witter clients may receive research or other information. Indicative price and availability are subject to change without notice. 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