Ascots Ascots Ascots Ascots: Understanding

MORGAN STANLEY DEAN WITTER
Global
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, * The key to
where convertible issuer credits tend to be of a higher grade. This guide is meant to ASCOT Investor determining the value
serve as an introduction for investors who are not already familiar with the product of the ASCOT call
option strike price is
and to demystify what are essentially very straight-forward transactions. the value of the
interest rate swap on
any given date
We look to summarise the: CB ASCOT*
Structuring and pricing of ASCOTs including a quick tutorial on the

Bloombergs ASW function.
MSDW CB coupons
Motivations for the different investor- types in entering ASCOT transactions
both from the credit buyers and option buyers perspective.
Relevant information on entering into asset-swap transactions with Morgan Interest Rate
Stanleys AA-minus rated entity including key contacts on the trading and CB CALL
SWAP
documentation.
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 MORGAN STANLEY DEAN WITTER
Index of Contents 1. Development of the Market
Asset swaps within the fixed income markets experienced explosive growth during
Section Topic Page the 1990s due to a surge in investor appetite for bonds packaged with swaps to
1. Development of the Market 2 create synthetic floating rate securities. They are now an established part of the
2. Splitting a Convertible Bond 3 worlds credit markets. The global convertible market has taken advantage of this
3. Who are the Investors ? 3 and convertibles now form a significant part of the corporate asset swap sector.
4. What does the Credit Investor get ? 4
5. What does the ASCOT Investor get ? 4 Convertible bond asset swaps involve the restructuring of convertible bonds into
6. Mechanics of the Transaction 5 synthetic debt securities and equity call options. In this way they offer the
7. Option Call Features 6 opportunity for different investors to participate in the separate attractive
8. Strike Price Features 6 characteristics embedded in convertible bonds and have, by implication, widened
9. The Bloomberg Calculator 7 the appeal of this asset class to a broader group of investors.
10. The Leverage Effect Example 7
11. Protection against Credit Widening Example 8 Asset swaps play an important role in the pricing and sizing of convertible bonds
12. Documentation 8 in both the primary and secondary markets. No pricing discussion of a potential
13. Sample Confirmation 9 new issue occurs nowadays without a thorough assessment of the appetite for the
14. Morgan Stanley Contacts 10 asset swapped bonds. Spread discussion is referenced to the relevant swap curves
Appendix Indicative Swap Levels (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.
2. Splitting a Convertible Bond 3. Who are the Investors?
Asset swapping is the splitting of a convertible bond into its two separate The Credit Component Convertible bond asset swaps offer the corporate credit
components. These are then purchased by investors seeking separate return profiles. buyer greater spreads than are available in the FRN, Bank Finance and Syndicated
These two components can be reassembled at any time at the option of the equity Loan Markets and give access to a more diverse range of borrowers.
component holder.
Bank Corporate Lending Departments
Exhibit 1 Corporate Treasuries
Hellenic Finance/National Bank of Greece 2% due 07/2003 Bond & Money Market Funds
Insurance Companies
Convertible Value
140 Hellenic/NBG CB The optionality of The Equity Component Convertible bond asset swaps offer the ASCOT buyer
currently trades convertibles ensures
120
at 101, with the a pure and leveraged play on the underlying equity of a convertible bond while
that the equity
stock @ 17,000 drives valuation as eliminating credit risk and giving an improved interest rate risk profile
100 the stock price rises
above the fixed CB Hedge Funds
conversion price
80
Convertible Funds
Institutional Equity Investors
60
Retail Investors
Conversion Price
40
= Drachma 19,937
20
0
5,000 10,000 15,000 20,000 25,000
Nat'l Ba nk of Gre ece (Stock Price)
Credit Equity
Component Compone nt
Credit Component: Equity Component:

= Pure Bond Value = Call Option = the ASCOT
The credit investor buys Synthetic The equity investor buys CB call option
Floating Rate Note (ASCOT)
Benefits to investor include access to a Benefits to investor include off-balance
wider choice of credits as well as sheet treatment and ability to eliminate
typically higher spreads than in other credit risk exposure to the issuer.
corporate bond markets.
4. What does the Credit Investor Get? 5. What does the ASCOT Investor get?
The credit investor receives a higher spread than is normally available on more Leverage ASCOTs give the same upside exposure to direct investment in
traditional investments. He also gains access to a wider range of corporate credits convertible bonds but with a smaller initial outlay. This is particularly attractive to
where there may be limited opportunity in the market to purchase conventional leveraged hedge funds.
products. In return he accepts the feature which allows the ASCOT holder to recall
the asset swap package at any time. He also accepts the lower liquidity inherent with Zero Credit Risk There have been many examples of convertible bonds
this being a structured package. whose theoretical bond floors have failed to hold due to deteriorating credit
circumstances. ASCOTs lock in the bond floor.
Exhibit 2
Current Euribor-plus Spreads Available on Different Forms of Vivendi Credit Off Balance Sheet Financing Transferring the ownership of convertible
(May 2000) bonds but retaining the ASCOT successfully achieves an off-balance sheet
bp over Euribor position financed at a rate defined by LIBOR plus the recall spread
90 + 85bp
Improved Interest Rate Risk Profile Convertible bond positions have
80 + 75bp
negative Rho. If rates rise the pure bond value falls but with ASCOTs the strike
70 + 65bp price declines thereby offsetting the fall in value of the bond.
60
Purer Access to Cheap Pricing Volatility ASCOTs provide the final piece
50 of the hedging jigsaw. Hedging equity, interest rate and credit risk allows investors
40 + 35bp
to capture effectively the cheap implied volatility of a convertible bond with no
loss in liquidity.
30
20
10
0
Bank Debt Straight Debt Credit Derivative CB Asset Swap
6. Mechanics of the Transaction Exhibit 3
Typical Asset-Swap Transaction Flowchart:
The Credit Buyer is effectively buying a callable synthetic floating rate note:- Illustrates the Hellenic Finance/National Bank of Greece 2% due 07/2003
The investor purchases from Morgan Stanley an asset swap package which
Fixed 2% Coupon
comprises a notional amount of convertible bonds, the asset, coupled with an interest
rate swap. The price paid is typically 100% of notional.
Credit Investor MSDW
The interest rate swap agreement is for the investor to pay Morgan Stanley the buys CBs @ 100% buys ASCOT @ 0%
fixed coupons of the convertible bond (2% from Exhibit 3) in return for receiving
Floating Coupons of
quarterly floating rate coupons set at EurIBOR (or LIBOR) + the agreed spread 3 month uribor +40bp
(EurIBOR +40bp from Exhibit 3).
The future cash flows on the fixed leg of the swap (CB coupons) are typically
Market Value of CBs
lower than those on the floating leg. By discounting all these future cash flows by (currently 101%)
the zero coupon curve implied in the swap curve we can calculate the Net Present Equity Investor
Value of the swap (in this illustration, that comes to 6.60% of the notional). This MSDW
sells CBs @ 93.10
sells ASCOT @ 0%
NPV typically has a negative value to Morgan Stanley reflecting the excess in value (uribor +50bp)
ASCOT Intrinsic Value
of payments owing over receivable payments. of 7.60%*
(with uribor +40bp strike)
Morgan Stanley retains an option to repurchase the entire package, bonds plus
swap, from the credit investor at 100% plus accrued interest. * The ASCOT buyer sells CBs @ 93.1 0 (euribor +50) bu t his strike price immed iately b ecomes 93.40 (eu ribor +40). Th is
reflects th e bid/offer spread of en tering into the transaction. Th e intrin sic value of th e ASCOT be comes 7.60 (101 less 93.40 )
Source: Morgan Stanley Dean Witter

The ASCOT Buyer is effectively buying an OTC call option to purchase a
Convertible Bond:- The ASCOT investor simultaneously purchases at zero cost from Morgan
Stanley an option to repurchase the convertible bonds. The strike price is set at
Assuming the ASCOT investor already owns convertible bonds, he will sell those 100% minus the unwind value of the associated interest rate swap on the date of
bonds at a price which is calculated by subtracting the NPV of the interest rate swap exercise.
from 100% of the notional value of the bonds. This can be viewed as the pure bond
floor. The option strike price is therefore floating rather than fixed. The unwind value
of the swap is the Net Present Value of the remaining fixed and floating cash flows
Morgan Stanley has therefore purchased bonds at one price and sold them to the of the interest rate swap. The strike price thus increases/decreases as interest rates
credit buyer at 100%. The difference between these two is the swap NPV (6.60%) fall/rise. At maturity however the strike price is 100%
and by keeping this Morgan Stanley is able to meet its obligation on the swap
payments i.e. it pays for the shortfall of the payments made on the floating leg The ASCOT is an individually negotiated contract with Morgan Stanley and has
versus the payments received on the fixed leg. no public secondary market. It can however be reassigned to a third party subject
to consent.
7. Option Call Features 8. Strike Price Features
An ASCOT is an American-style over-the-counter call option to repurchase a The strike price can be viewed as the pure bond value and is therefore subject to
convertible bond. interest rate movements. In a stable interest rate environment the strike price rises
steadily towards the convertible bond redemption price over time.
The holder may exercise at any time but there may be restrictions for exercising
within the first six months. The spread of the reference swap which determines the strike price is agreed at
the opening of the ASCOT position. This spread is typically 10-20bp tighter than
Bonds will be delivered back to the ASCOT holder for value date a maximum 10 the spread used to determine the initial sale price of the bonds to Morgan Stanley
(but typically less) days following exercise. and should be viewed as the Bid/Offer cost of the transaction.
The expiry date of the option is set to match either the maturity date or the put The floating strike is by no means the only structure employed in creating
date of the underlying convertible bond. ASCOTs. Options can also be structured with fixed strikes or strike prices
referenced to a fixed yield to maturity. Such structures are subject to acceptance
If the Issuer calls the convertible bonds for early redemption under the terms and by the credit investor.
conditions of the bonds then automatic exercise of the ASCOT is triggered whereby
the holder must repurchase the bonds. This avoids the potential scenario of missing The ASW security specific function on Bloomberg for each individual
the final date for conversion of bonds to equity. convertible bond provides an accurate tool for calculating the strike price (see the
following page).
If the Issuer of the bonds defaults, the ASCOT will expire 10 days later. Exhibit 4: Illustration of the Interest Rate/Strike Price Relationship
Effective Strike Price (@ Euribor +40bp)

97
96.2
96
95 As rates rise,
94.8 the strike price will fall
94
93.4
93
92 92
91
90.6
90
4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5
3 month Euribor Rates (%)
Source:Morgan Stanley Dean Witter Research
9. The Bloomberg Calculator 10. The Leverage Effect
The ASW function on Bloomberg for a single convertible bond allows the user to Leveraged gains are attractive to all types of investors so long as they do not
calculate the strike price of an ASCOT from a given credit spread. In the case of the assume extra risk. For a considerably smaller outlay the same exposure to a
Hellenic Finance / National Bank of Greece bond, by entering the 50bp spread, we convertible bond position can be achieved through ASCOTs.
derive 93.1 as the effective level at which the ASCOT buyer sells the CBs. The Take the following example of ASCOTs in the Japanese electronics company
strike is calculated on the offer spread (40bp), equating to a strike of 93.4, using the NEC purchased by some of our clients at a timely moment in June 1999. By
same methodology. paying less than 4 points for ASCOTs the buyer had an option on a convertible
with a 60 % premium. The subsequent rise in NECs fortunes have provided a
Exhibit 4: Illustration of the ASW Function on Bloomberg handsome return to the ASCOT holder.
Change the floating Set the Bid/Ask side of Ensure that the Default Exhibit 5
leg to quarterly the curve to use; swap curve is set to NEC #6 1.8% 2002
payments A for initial set up #45 if EUR; #23 if USD
(by entering 4) B for recalling bonds #13 if JPY; #22 if GBP
June 1st May 1st
1999 2000 Return
Stock Price 1336 3090 +131%
CB Price 104.00 156.00 +52%
Premium 60% 4% -
Implied Vol . 24% 46% -
STRIKE (+80bp) 100.60 101.00 -
ASCOT Price 3.40 55.00 +1,518%
Set the calculation The ASCOT buyer Enter the spread

mode to 1 (to Calculate effectively sells the CBs at which the
Bond Price) at this interpolated price swap is being
(93.1 in this case) executed
11. Protection against Credit Widening The holder of the exchangeable bonds lost 14 points during the period under
review while the ASCOT holder suffered less. The bond price declined to 86,
ASCOTs not only provide convertible investors with protection against the ultimate which was an implied credit spread of +200, proving convincingly that the debt
credit risk of issuer default, but also protect against any credit widening which can spread assumptions used in convertible bond models should not be viewed as a
have a significant impact on the valuation of a convertible bond. static input. 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. Obviously an ASCOT of
The following is an example of how a holder of ASCOTs fared relative to a holder a bond which only carries an 18% premium has to have a value greater than zero.
of the Fullerton/Singapore Telecom 0% 2003 exchangeable bonds during the latest Based on option models and conservative volatility assumptions the market priced
Asian crisis in 1998. these ASCOTs to have a real value of 4 points; thus the decline in ASCOT value
was limited to only 2 points.
Exhibit 6
Fullerton / Singapore Telecom 0% 2003
Issue Date: March 1998 12. Documentation

STOCK Price: S$ 3.2
CB Price: 100 Transactions are negotiated with MSIL, Morgan Stanleys operating entity,
CB Premium: 8% under ISDA guidelines for swaps & OTC options.
Strike (L+50): 94
ASCOT Purchase Price: 6 MSIL (Morgan Stanley International Ltd.) is a member of the UK regulating
body, the Financial Services Authority (FSA).
A few months later: Sept. 1998 All new counterparties are required to have capacity & authority documents
(in the height of the Asian crisis) approved by MSIL before a transaction can be executed.
Stock Price: S$ 2.5
CB Price: 86 (L+200) All counterparties are required to enter into an ISDA Master Agreement with
CB Premium: 18% MSIL.
Strike (L+50): 94.5
ASCOT Intrinsic Price: 0 MSIL is guaranteed by Morgan Stanley Dean Witter & Co. (Aa3/AA-).
ASCOT Market Price*: 4
MSIL dispatches ISDA confirmations for each transaction which need to be
Loss on CB: 14 points signed and returned.
Intrinsic Loss on ASCOT: 6 points
Real Loss on ASCOT: 4 points Morgan Stanley Prime Brokerage offers equity financing services for hedged
ASCOT positions.
Convertible Bond Asset Swap - Draft Confirmation ASCOT Buyer
To:
Attn.:
Fax No:
From: Morgan Stanley + Co. International Limited, London. Member of FSA.
Date:
Our File Ref:
Our Swap Ref:
Taps Ref:
Re: Convertible Bond Call and Notional Swap Transaction between Morgan Stanley + Co.
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.
International Limited and you on the Trade Date specified below (respectively, the ''Bond Option
Transaction'' and the ''Notional Swap Transaction''; together the ''Transaction''). This Confirmation
constitutes a ''Confirmation'' as referred to in the ISDA Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as supplemented by the
1998 Supplement, 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'', and together with the Swap Definitions, the ''Definitions''), in each case as published
by the International Swaps and Derivatives Association, Inc., are incorporated into this
Confirmation. The Bond Definitions apply in relation to the Bond Option Transaction (paragraphs
2 and 3(1) below). For purposes of the Bond Definitions, the Bond Option Transaction will be
deemed to be a Government Bond Option Transaction. The Swap Definitions apply in relation to
the Notional Swap Transaction (paragraph 4 below). In the event of any inconsistency between
either set of Definitions and this Confirmation, this Confirmation will govern.
This Confirmation supplements, forms part of and is subject to, the ISDA Master Agreement dated
as of ,as amended and supplemented from time to time (the ''Agreement''), between Morgan Stanley
+ Co. International Limited and you. All provisions contained in the Agreement govern this
Confirmation except as expressly modified below).
The Terms of the Transaction to which this Confirmation relates are as follows:
1. General Terms:
Party A: Morgan Stanley + Co. International
Limited
Party B:
Trade Date:
Time of execution of the transaction is
available upon request.
2. Terms of Bond Option Transaction:
Terms of Bond Option Transaction as follows:
Option Style: American
Option Type: Call
Seller: Party A
Buyer: Party B
Bonds:
Stock Redemption: Should the Redemption be for Stock, as provided in the Terms
and Conditions of the Bonds, Party B will pay to Party A a
USD amount equal to the Redemption Amount of the
Bonds, and Party A will deliver to Party B the Redeemed
Bonds. 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.
Bond Maturity
Date:
Investor Put
Date:
Number of
Options:
Option
Entitlement:
Option Strike
Price: 100.00 PCT.
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
Premium: USD 1.00 (Receipt of which is hereby acknowledged)
Premium Payment
Date:
Procedure for Exercise:
Multiple
Exercise: Applicable
Exercise Period: Any Seller Business Day during the period commencing on
and including the Premium Payment Date and ending on and
including the Expiration Date between 8.30 a.m. and 4.00
p.m. (London time).
Seller Business
Day: Any day on which commercial banks are open for business
(including dealings in foreign exchange and foreign currency
deposits) in
Expiration Date: 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) The Investor Put Date, and
(c) The Bond Maturity Date, and
(d) Default Date
''Holder of the Bonds'' means, at any given time, the holder
as determined by the Calculation Agent in its sole discretion,
of a nominal amount of the Bonds equal to the Option
Entitlement.
''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, would become
an Event of Default (as defined in the terms 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), and either the Trustee for
the Holder of the Bonds, or the Holder of the Bonds, 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), 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, or the Holder of the Bonds, Buyer must within thirty
(30) Business Days of such Event of Default, and subject to
any restrictions on transfer thereunder, deliver irrevocable
notice of exercise to Seller, otherwise this Option will expire
thirty (30) Business Days following such Event of Default
such thirtieth Business Day, the
''Default Date''
Expiration Time: 4.00 p.m. (London time)
Exercise Date: The Seller Business Day (which shall also be a Clearance
System Business Day) during the Exercise Period on which
Buyer exercises the Option, subject to The notice
requirements and other terms specified in or pursuant to this
Confirmation
Notice of Exercise
and Written
Confirmation: Applicable, 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 8.30 a.m. and 4.00
p.m. (London time).
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.
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.
3. Settlement Terms:
(1) In relation to the Bond Option Transaction, Physical
Settlement will be applicable. For the purpose of this
paragraph 3(1), the following terms shall apply:
Settlement Date: The Exercise Date; provided, however, if the Bond Option
Transaction is automatically exercised, the Settlement Date
shall be ten (10) Seller Business Days following the Exercise
Date.
Clearance System: Morgan Stanley + Co. International Limited will notify you
separately regarding settlement details.
Clearance System
Business Day: Any day on which the Clearance System is (or, but for the
occurrence of a Settlement Disruption Event, would have
been) open for the acceptance and execution of settlement
instructions.
(2) In addition to the foregoing, the Calculation Agent will
determine the Swap Cash Settlement Amount, as provided
below. If the Swap Cash Settlement Amount is a positive
amount, Party B will pay such amount to Party A on the
Exercise Date. If the Swap Cash Settlement Amount is a
negative amount, Party A will pay the absolute value of such
amount to Party B on the Exercise Date.
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, in respect of which the
Swap Transaction was the sole Affected Transaction, Parties
A and B are the Affected Parties and the Termination
Currency was, 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, the Calculation Agent shall obtain
quotations from three mutually acceptable Reference Market
Makers which will be averaged.
(3) For purposes of settlement, if the Swap Cash Settlement
Amount is payable by Party B, it will be aggregated with the
Bond Payment due from Party B to Party A on the Exercise
Date. 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, provided that if the Swap Cash
Settlement Amount exceeds the Bond Payment, the excess
shall be payable by Party A to Party B on the Exercise Date.
(4) 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, if any, on the Option Entitlement
computed in accordance with customary trade practices
employed with respect to the Bonds''.
4. Terms of the Notional Swap Transaction:
Notional Amount:
Effective Date:
Settlement Date
Termination Date: The Investor Put Date /the Bond Maturity Date, subject to
adjustment in accordance with the Following /Preceding
Modified Following / Business Day Convention.
Fixed Amounts:
Fixed Rate Payer: Party B
Fixed Rate Payer Payment Dates:
On and in each year, from and including the first of or to
occur after the Effective Date to and including the
Termination Date, subject to adjustment in accordancewith
the Following / Preceding Modified Following / Business
Day Convention.
Fixed Amount:
Floating Amounts:
Floating Rate
Payer: Party A
Floating Rate Payer Payment Dates:
On and in each year, from and including the first of or to
occur after the Effective Date to and including the
Termination Date, subject to adjustment in accordance with
the Modified Following Business Day Convention.
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 3 Months
Spread: Plus XPCT.
Floating Rate
Day Count Fraction: Actual/360
Reset Dates: The first day of each Calculation Period, 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.
Additional Payment: The Additional Payment of USD / JPY from Party B to Party
A should be wired to the Account detailed below for value
5. Calculation Agent:
The Calculation Agent is Party A. All determinations by the
Calculation Agent are subject to agreement by Party A and
Party B. 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, will be
appointed to determine such calculation (the ''Mutually
Acceptable Calculation Agent''). The expense of the
Mutually Acceptable Calculation Agent shall be borne by the
parties equally.
6. Account Details:
Account for Payments to Party A:
Account for payments to Party B:
Account for payments in USD: Please supply details
7. Party A Documentation and Operation Contacts:
Documentation: Telephone Number: ((0) 207) 513 7762
Operations: Telephone Number: ((0) 207) 677 7699
8. Confirmation:
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, London
Attn.: Alexandra MacGregor, Lisa Conway
Fax No: London ((0) 207) 513 7988
Telex No: London 8812564
From:
Date:
Your File Ref:
Your Swap Ref:
Re:Convertible Bond Call and Notional Swap Transaction between
Morgan Stanley + Co. International Limited and
We acknowledge receipt of your facsimile dated with respect to the
above referenced transaction between 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.
Account details:
Signed:
By:
Name:
Title:
Unquote
We are delighted to have entered into the above referenced transaction with you, and we look
forward to working with you again.
Yours faithfully,
Jack Inglis
Annabel Littlewood
Morgan Stanley + Co. International Limited
14. Morgan Stanley Contacts
Trading
London Jack Inglis +44 (0)20 7425 5994

Annabel Littlewood +44 (0)20 7425 7763
Ross Webster +44 (0)20 7425 6144
Ermes Caramaschi +44 (0)20 7425 8466
New York Jim Bedell +1 212 761 5830

Tanya Ferencko +1 212 761 2654
Tokyo Jackson Chou +81 3 5424 7814

Kenichi Ii +81 3 5424 7816
Taro Goto +81 3 5424 7845
Gavin Connor +81 3 5424 5633
Documentation
London Tracy Northey +44 (0)20 7425 5639

Alexandra MacGregor +44 (0)20 7425 7762
New York Craig Abruzzo +1 212 761 5365
Appendix Indicative Spreads
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, the spreads shown are historical for illustrative purposes (notably in the Asian market). They are not firm bids nor should they be viewed as totally representative
of the spreads currently trading in the market. 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. 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. Credit spreads are subject to supply and demand considerations as well as market sentiment. They are therefore not static.
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. 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. Please contact your sales representative for an update on particular issues or for a general market overview.
Issue
Issuer Issue # Ccy Coupon Maturity Next Put Spread Sector Country Region
Huaneng Power USD 1.75 21-May-04 21-May-02 380.00 Utilities China Asia
Bank of East Asia USD 2.00 19-Jul-03 19-Jul-01 85.00 Banks, Savings & Loan Hong Kong Asia
Far Eastern Textiles USD 0.00 26-Jan-05 26-Jan-01 175.00 Hong Kong Asia
First Pacific USD 2.00 27-Mar-02 175.00 Conglomerate Hong Kong Asia
Guangnan Holdings USD 1.75 30-Jun-00 310.00 Food & Beverages Hong Kong Asia
HD Finance USD 6.75 01-Jun-00 185.00 Real Estate Hong Kong Asia
Hong Kong Land USD 4.00 23-Feb-01 136.00 Real Estate Hong Kong Asia
HSH Overseas USD 5.00 06-Jan-01 310.00 Leisure Hong Kong Asia
Hutchinson Delta Finance USD 7.00 25-Nov-01 170.00 Hong Kong Asia
Kerry Properties USD 2.00 15-Jun-07 25-Mar-02 400.00 Real Estate Hong Kong Asia
New World Development USD 3.00 09-Jun-04 600.00 Real Estate Hong Kong Asia
New World Infrastructure USD 5.00 15-Jul-01 150.00 Infrastructure Hong Kong Asia
Peregrine USD 4.50 01-Dec-00 200.00 Financial Services Hong Kong Asia
Shanghai Industrial USD 1.00 12-Jun-02 425.00 Conglomerate Hong Kong Asia
Shangri-La Asia USD 2.88 16-Dec-00 150.00 Leisure Hong Kong Asia
Sino Land USD 4.00 18-Apr-02 18-Apr-02 260.00 Real Estate Hong Kong Asia
Zhenhai Refining USD 3.00 19-Dec-03 19-Dec-01 375.00 Oil & Energy Hong Kong Asia
Polymax USD 2.00 27-Feb-06 27-Feb-01 200.00 Housing & Construction Indonesia Asia
Daewoo Corp CHF 0.13 31-Dec-01 90.00 Trading Korea Asia
Korea Electric Power USD 5.00 01-Aug-01 140.00 Utilities Korea Asia
LG Electronics USD 0.25 31-Dec-07 08-Jul-02 100.00 Semiconductors Korea Asia
Rashid Hussain USD 1.50 30-Jun-07 30-Jun-02 375.00 Banks, Savings & Loan Malaysia Asia
Telekom Malaysia USD 4.00 03-Oct-04 60.00 Telecommunications Malaysia Asia
YTL USD 0.00 15-Aug-02 15-Aug-00 225.00 Infrastructure Malaysia Asia
JG Summit USD 3.50 23-Dec-03 175.00 Real Estate Philippines Asia
DBS Land USD 2.00 31-Dec-01 150.00 Real Estate Singapore Asia
Fullerton Global USD 0.00 02-Feb-03 130.00 Telecommunications Singapore Asia
Keppel Corp USD 2.00 12-Aug-03 175.00 Conglomerate Singapore Asia
Natsteel USD 3.00 30-Jun-02 200.00 Conglomerate Singapore Asia
Wing Tai USD 1.50 15-Jul-02 200.00 Real Estate Singapore Asia
ADI Corp USD 1.50 08-Jul-03 08-Jul-01 175.00 Computer Peripherals Taiwan Asia
China Petrochemical USD 1.00 08-May-08 08-May-03 300.00 Oil & Energy Taiwan Asia
CMC Magnetics USD 1.00 06-Oct-04 06-Oct-02 350.00 Electronics Taiwan Asia
Delta Electronics USD 0.00 15-Feb-05 15-Feb-01 185.00 Computer Peripherals Taiwan Asia
First International Computer USD 0.00 16-Oct-02 18.00 Computer Peripherals Taiwan Asia
Formosa Chemical USD 1.75 19-Jul-01 125.00 Chemicals Taiwan Asia
GVC Corp USD 0.00 21-May-02 20.00 Computer Peripherals Taiwan Asia
Pou Chen USD 1.50 15-Jun-06 15-Jun-02 300.00 Retail Taiwan Asia
Siliconware Precision USD 0.50 21-Jul-04 21-Jul-02 225.00 Electronics Taiwan Asia
Robinson Department Store USD 3.25 27-Jul-00 25.00 Retail Thailand Asia
Total Access Communications USD 2.00 31-May-06 31-May-01 140.00 Telecommunications Thailand Asia
United Communications USD 7.78 15-Dec-03 165.00 Telecommunications Thailand Asia
Bank Austria EUR 0.00 14-Oct-04 15-Oct-01 25.00 Banks, Savings & Loan Austria Europe
Arbed DEM 3.25 30-Oct-04 70.00 Metals Belgium Europe
GBL DEM 2.50 09-Jul-03 40.00 Financial Services Belgium Europe
KBC DEM 2.50 10-Dec-05 75.00 Banks, Savings & Loan Belgium Europe
Metsa Serla USD 4.38 15-Oct-02 100.00 Paper & Packaging Finland Europe
Accor EUR 1.00 29-Mar-02 53.00 Leisure France Europe
Artemis EUR 1.50 22-Feb-05 87.50 Retail France Europe
Bouygues EUR 1.70 01-Jan-06 80.00 Housing & Construction France Europe
Carrefour EUR 2.50 01-Jan-04 40.00 Food & Beverages France Europe
Financiere Agache EUR 0.00 23-Apr-04 67.00 Food & Beverages France Europe
France Telecom EUR 2.00 01-Jan-04 50.00 Telecommunications France Europe
France Telecom EUR 4.13 29-Nov-04 50.00 Telecommunications France Europe
Pinault EUR 1.50 01-Jan-03 65.00 Retail France Europe
Scor EUR 1.00 01-Jan-05 42.00 Insurance France Europe
ST Microelectronics USD 0.00 22-Sep-09 22-Sep-04 105.00 Electronics France Europe
Suez Lyonnaise des Eaux EUR 0.00 01-Jan-04 50.00 Utilities France Europe
Suez Lyonnaise des Eaux EUR 2.88 12-Jan-04 61.00 Utilities France Europe
Usinor EUR 3.88 01-Jan-05 95.00 Metals France Europe
Vivendi EUR 1.50 01-Jan-05 80.00 Utilities France Europe
Vivendi EUR 1.25 01-Jan-04 70.00 Utilities France Europe
Vivendi EUR 1.00 05-Jul-03 115.00 Utilities France Europe
Allianz DEM 3.00 04-Feb-03 21.00 Insurance Germany Europe
Allianz EUR 2.00 23-Mar-05 22.00 Insurance Germany Europe
Deutsche Bahn DEM 1.13 02-Apr-03 40.00 Transportation Germany Europe
Deutsche Bank EUR 2.00 22-Dec-03 25.00 Banks, Savings & Loan Germany Europe
Deutsche Bank CHF 1.00 26-Jul-01 18.00 Banks, Savings & Loan Germany Europe
Deutsche Bank USD 0.00 12-Feb-17 12-Feb-02 28.00 Banks, Savings & Loan Germany Europe
Dusseldorf Stadtwerke DEM 2.50 25-Aug-03 40.00 Municipal Germany Europe
Kamps EUR 0.00 17-Mar-15 17-Mar-03 205.00 Food & Beverages Germany Europe
Metro DEM 0.00 09-Jul-13 09-Jul-03 50.00 Retail Germany Europe
Nordrhein-Westfalen DEM 2.13 03-Dec-02 15.00 Municipal Germany Europe
EFG EUR 2.00 04-May-05 60.00 Banks, Savings & Loan Greece Europe
National Bank of Greece EUR 2.00 15-Jul-03 38.00 Banks, Savings & Loan Greece Europe
Matav USD 0.75 02-Jul-01 10.00 Telecommunications Hungary Europe
Issue
Autogrill EUR 0.00 16-Jun-14 15-Jun-04 105.00 Restaurants Italy Europe
Banca di Roma ITL 3.50 02-Jan-01 52.50 Banks, Savings & Loan Italy Europe
Edizione ITL 2.00 08-Jul-03 84.00 Consumer Products Italy Europe
Finmeccanica EUR 2.00 08-Jun-05 130.00 Italy Europe
Mediobanca ITL 0.00 18-Dec-01 35.00 Banks, Savings & Loan Italy Europe
Mediobanca ITL 1.50 18-Dec-03 45.00 Banks, Savings & Loan Italy Europe
Ahold NLG 3.00 30-Sep-03 150.00 Food & Beverages Netherlands Europe
Cregem Finance USD 2.75 06-Jan-04 18.00 Banks, Savings & Loan Netherlands Europe
Fortis NLG 2.63 06-Nov-03 36.00 Financial Services Netherlands Europe
Fortis EUR 1.50 29-Jul-04 60.00 Financial Services Netherlands Europe
VNU NLG 2.75 15-Apr-05 150.00 Publishing Netherlands Europe
VNU EUR 1.75 15-Nov-04 115.00 Publishing Netherlands Europe
Portugal Telecom EUR 1.50 07-Jun-04 35.00 Telecommunications Portugal Europe
Banco Santander EUR 2.00 06-Aug-03 50.00 Banks, Savings & Loan Spain Europe
BBV EUR 0.00 30-Jul-02 25.00 Banks, Savings & Loan Spain Europe
Telefonica USD 2.00 15-Jul-05 55.00 Telecommunications Spain Europe
Aventis EUR 2.75 29-Jul-03 52.00 Chemicals Switzerland Europe
Aventis EUR 3.25 22-Oct-03 65.00 Chemicals Switzerland Europe
Ciba Speciality Chemicals USD 1.25 24-Jul-03 55.00 Chemicals Switzerland Europe
Clariant CHF 1.00 19-Aug-02 80.00 Chemicals Switzerland Europe
Holderbank CHF 0.00 28-Jul-14 28-Jul-02 60.00 Housing & Construction Switzerland Europe
Holderbank CHF 1.00 14-May-04 40.00 Housing & Construction Switzerland Europe
Meridian EUR 1.50 25-Nov-04 25-Nov-01 60.00 Human Resources Switzerland Europe
Moevenpick DEM 0.00 11-Feb-13 11-Feb-03 50.00 Leisure Switzerland Europe
Roche JPY 0.25 25-Mar-05 45.00 Drugs & Biotechnology Switzerland Europe
Roche USD 0.00 19-Jan-15 19-Jan-04 35.00 Drugs & Biotechnology Switzerland Europe
Swiss Air CHF 0.13 07-Jul-05 64.38 Air Transportation Switzerland Europe
Swiss Air USD 2.25 10-Jun-04 18.00 Insurance Switzerland Europe
Swiss Life USD 2.00 20-May-03 30.00 Insurance Switzerland Europe
Swiss Life CHF 1.00 20-May-05 35.00 Insurance Switzerland Europe
Swiss Life EUR 2.00 20-May-03 40.00 Insurance Switzerland Europe
Swiss Re NLG 1.25 23-Jun-03 23.00 Insurance Switzerland Europe
UBS USD 2.75 16-Jun-02 25.00 Banks, Savings & Loan Switzerland Europe
Airtours GBP 5.75 05-Jan-04 220.00 Leisure UK Europe
BAA GBP 4.88 29-Sep-04 40.00 Air Transportation UK Europe
British Land GBP 6.50 17-Nov-07 80.00 Real Estate UK Europe
Capital Shopping GBP 6.25 31-Dec-06 150.00 Real Estate UK Europe
Daily Mail & General Trust GBP 2.50 05-Oct-04 90.00 Media UK Europe
Hammerson GBP 6.50 12-Jun-06 175.00 Real Estate UK Europe
National Grid GBP 4.25 17-Feb-08 63.00 Utilities UK Europe
P&O USD 6.00 10-May-04 75.00 Transportation UK Europe
Pathe EUR 3.00 24-Nov-03 125.00 Media UK Europe
Railtrack GBP 3.50 18-Mar-09 60.00 Transportation UK Europe
Standard Chartered EUR 4.50 30-Mar-10 130.00 Banks, Savings & Loan UK Europe
United News & Media GBP 6.13 03-Dec-03 90.00 Publishing UK Europe
Acom euro JPY 0.00 31-Mar-02 90.00 Financial Services Japan Japan
Ajinomoto 9 JPY 1.90 29-Mar-02 51.00 Food & Beverages Japan Japan
All Nippon Air euro JPY 0.75 31-Mar-15 31-Mar-03 100.00 Air Transportation Japan Japan
Alps Electric 2 JPY 2.00 29-Mar-02 170.00 Electronics Japan Japan
Asahi Breweries 10 JPY 1.00 26-Dec-03 95.00 Food & Beverages Japan Japan
Asahi Glass 5 JPY 1.90 26-Dec-08 89.00 Industrial Products Japan Japan
Bank of Fukuoka 2 JPY 1.10 28-Sep-07 161.00 Banks, Savings & Loan Japan Japan
Bank of Tokyo-Mitsubishi euro JPY 4.25 31-Mar-03 160.00 Banks, Savings & Loan Japan Japan
Bank Of Tokyo-Mitsubishi euro USD 3.00 30-Nov-02 30.00 Banks, Savings & Loan Japan Japan
Best Denki 4 JPY 1.90 28-Feb-02 70.00 Retail Japan Japan
Capcom 2 JPY 0.80 28-Sep-01 173.00 Electronics Japan Japan
Chiba Bank 3 JPY 0.00 30-Mar-03 60.00 Banks, Savings & Loan Japan Japan
Chiyoda Fire and Marine 3 JPY 0.80 31-Mar-03 48.00 Insurance Japan Japan
Chiyoda Fire and Marine 4 JPY 0.70 30-Mar-01 25.00 Insurance Japan Japan
Chubu Electric Power 4 JPY 1.00 31-Mar-06 31.00 Utilities Japan Japan
Chugai Pharm 5 JPY 1.10 30-Mar-06 80.00 Health & Personal Care Japan Japan
Chugai Pharm 6 JPY 1.05 30-Sep-08 100.00 Health & Personal Care Japan Japan
Chugai Pharm 3 JPY 1.70 28-Jun-02 52.00 Health & Personal Care Japan Japan
CMK 3 JPY 0.70 30-Sep-05 142.00 Electronics Japan Japan
Dai Nippon Printing 5 JPY 1.50 31-May-02 30.00 Publishing Japan Japan
Dai Nippon Printing 8 JPY 1.80 30-Sep-03 83.00 Publishing Japan Japan
Daiichi Kangyo Bank euro USD 3.88 30-Sep-04 120.00 Banks, Savings & Loan Japan Japan
Daiichi Pharmaceutical 4 JPY 1.80 29-Sep-00 34.00 Health & Personal Care Japan Japan
Dainippon Screen 1 CHF 0.25 30-Sep-00 130.00 Electronics Japan Japan
Daiwa Securities 11 JPY 1.40 29-Aug-03 70.00 Financial Services Japan Japan
Daiwa Securities 16 JPY 0.50 29-Sep-06 145.00 Financial Services Japan Japan
Ebara euro JPY 0.13 30-Sep-04 45.00 Industrial Products Japan Japan
Fuji Co. 1 JPY 0.90 31-Aug-01 100.00 Retail Japan Japan
Fuji Heavy 4 JPY 0.90 30-Sep-03 179.00 Automotive Japan Japan
Futaba 3 JPY 0.30 30-Sep-03 48.00 Industrial Products Japan Japan
Gunma Bank 4 JPY 0.45 28-Sep-01 54.50 Banks, Savings & Loan Japan Japan
Issue
Hankyu Corp euro JPY 1.50 30-Sep-06 30-Sep-03 150.00 Transportation Japan Japan
Hankyu Department Store 1 JPY 2.00 30-Sep-00 41.00 Retail Japan Japan
Hanshin Electric 7 JPY 4.80 30-Mar-01 40.00 Transportation Japan Japan
Hiroshima Bank 3 JPY 0.40 30-Sep-03 72.00 Banks, Savings & Loan Japan Japan
Hitachi 5 JPY 1.70 29-Sep-02 40.00 Consumer Electronics Japan Japan
Hitachi Metals 12 JPY 1.90 29-Mar-02 30.00 Metals Japan Japan
Horiba 2 JPY 0.85 17-Mar-06 153.50 Instrumentation Japan Japan
Itochu 1 JPY 0.00 30-Mar-01 140.00 Trading Japan Japan
Kagawa 1 JPY 0.00 28-Sep-01 85.00 Banks, Savings & Loan Japan Japan
Kanegafuchi Chemical 6 JPY 1.80 31-Mar-03 62.00 Chemicals Japan Japan
Kanegafuchi Chemical 7 JPY 1.80 28-Sep-01 43.00 Chemicals Japan Japan
Kanegafuchi Chemical 8 JPY 1.80 30-Sep-04 63.00 Chemicals Japan Japan
Kansai Electric Power 2 JPY 2.00 29-Mar-02 15.00 Utilities Japan Japan
Kansai Electric Power 3 JPY 1.40 31-Mar-05 17.00 Utilities Japan Japan
Kawasaki Heavy 3 JPY 0.80 28-Sep-01 38.00 Automotive Japan Japan
Kawasaki Heavy 4 JPY 0.90 30-Sep-03 37.00 Automotive Japan Japan
Keihan Electric Railway 6 JPY 1.00 31-Mar-03 33.00 Transportation Japan Japan
Keihin Electric Express 18 JPY 1.50 29-Sep-02 90.00 Transportation Japan Japan
Keisei Electric Rail 31 JPY 0.90 30-Sep-02 134.00 Transportation Japan Japan
Keisei Electric Rail 32 JPY 0.45 30-Sep-04 109.50 Transportation Japan Japan
Kinki Nippon Railway 6 JPY 1.00 31-Mar-08 70.00 Transportation Japan Japan
Kinki Nippon Railway 5 JPY 0.70 31-Mar-03 47.00 Transportation Japan Japan
Kokusai Securities euro JPY 0.25 30-Sep-14 30-Sep-04 70.00 Financial Services Japan Japan
Koyo Seiko 7 JPY 0.50 03-Mar-03 150.00 Industrial Products Japan Japan
Kubota Corp 4 JPY 1.50 29-Sep-00 36.50 Industrial Products Japan Japan
Kuraray 6 JPY 2.20 29-Sep-02 57.00 Consumer Products Japan Japan
Lintec 3 JPY 0.20 31-Mar-05 75.00 Instrumentation Japan Japan
Marubeni 8 JPY 0.85 31-Mar-06 170.00 Trading Japan Japan
Marui 7 JPY 1.40 31-Jan-03 99.00 Retail Japan Japan
Matsomoto 2 JPY 1.20 30-Mar-01 145.00 Trading Japan Japan
Matsushita Electric Industrial 5 JPY 1.30 29-Mar-02 33.00 Consumer Electronics Japan Japan
Matsushita Electric Industrial 6 JPY 1.40 31-Mar-04 37.00 Consumer Electronics Japan Japan
Matsushita Electric Works 8 JPY 2.70 31-May-05 59.00 Housing & Construction Japan Japan
Matsushita Electric Works 9 JPY 1.00 30-Nov-05 48.00 Housing & Construction Japan Japan
Matsushita Electric Works 7 JPY 4.30 30-Nov-00 70.00 Housing & Construction Japan Japan
Minebea 3 JPY 0.80 31-Mar-03 83.00 Industrial Products Japan Japan
Minebea 4 JPY 0.65 31-Mar-05 90.00 Industrial Products Japan Japan
Mitsubishi Electric 4 JPY 2.00 30-Sep-03 57.00 Electrical Equipment Japan Japan
Mitsubishi Logistics 3 JPY 1.90 31-Mar-03 75.00 Transportation Japan Japan
Mitsubishi Motor 1 JPY 0.40 31-Mar-03 35.50 Automotive Japan Japan
Mitsui & Co 6 JPY 1.05 30-Sep-09 58.50 Trading Japan Japan
Mitsui Marine & Fire 1 JPY 2.10 29-Mar-02 12.00 Insurance Japan Japan
Mitsui Marine & Fire 3 JPY 0.70 31-Mar-03 82.00 Insurance Japan Japan
Mitsui Mining & Smelting euro JPY 0.00 30-Sep-03 135.00 Instrumentation Japan Japan
Mitsui Mining & Smelting 1 JPY 0.40 30-Sep-03 114.00 Mining Japan Japan
Mitsumi Electric 3 JPY 0.40 31-Mar-03 225.00 Electronics Japan Japan
Mizuno Corp 7 JPY 0.55 28-Sep-01 50.00 Consumer Products Japan Japan
Nagoya Bank 2 JPY 0.35 30-Sep-03 83.50 Banks, Savings & Loan Japan Japan
Nagoya Rail 7 JPY 1.05 31-Mar-06 71.00 Transportation Japan Japan
Nankai Electric Rail 1 JPY 2.70 30-Mar-01 77.00 Transportation Japan Japan
NEC Corp 6 JPY 1.80 29-Mar-02 43.00 Electrical Equipment Japan Japan
NEC Systems euro JPY 0.38 31-Mar-02 135.00 Electrical Equipment Japan Japan
NGK Insulator 3 JPY 4.50 29-Sep-00 60.00 Industrial Products Japan Japan
NGK Spark Plug 4 JPY 1.30 29-Mar-02 93.00 Industrial Products Japan Japan
Nichido Fire & Marine 4 JPY 0.90 30-Mar-01 45.00 Insurance Japan Japan
Nichido Fire & Marine 5 JPY 1.00 31-Mar-03 50.00 Insurance Japan Japan
Nichiei euro JPY 1.75 31-Mar-14 31-Mar-04 200.00 Financial Services Japan Japan
Nidec Corp 2 JPY 0.80 31-Mar-06 208.00 Electrical Equipment Japan Japan
Nidec Corp 3 JPY 0.50 31-Mar-04 115.00 Electrical Equipment Japan Japan
Nidec Corp euro JPY 0.13 31-Mar-03 110.00 Electrical Equipment Japan Japan
Nippon Denso 4 JPY 1.60 20-Dec-02 56.00 Electrical Equipment Japan Japan
Nippon Express 4 JPY 1.00 31-Mar-04 45.00 Transportation Japan Japan
Nippon Mining & Metals JPY 0.00 30-Sep-04 175.00 Mining Japan Japan
Nippon Yusen 9 JPY 2.00 29-Sep-00 80.00 Transportation Japan Japan
Nishimatsu 8 JPY 0.35 31-Mar-04 99.14 Infrastructure Japan Japan
Nishi-Nippon Bank 1 JPY 0.20 30-Sep-03 75.00 Banks, Savings & Loan Japan Japan
Nisshin Fire & Marine 1 JPY 0.65 31-Mar-04 74.92 Insurance Japan Japan
Nisshin Oil Mills 3 JPY 1.00 30-Mar-01 50.00 Food & Beverages Japan Japan
Nissho Iwai 1 JPY 0.65 30-Sep-03 40.50 Trading Japan Japan
Issue
NTN Corp 5 JPY 0.85 31-Mar-04 45.00 Industrial Products Japan Japan
Odakyu Electric Rail 18 JPY 1.60 30-Sep-02 58.00 Transportation Japan Japan
Oki Electric 17 JPY 2.20 31-Mar-04 122.00 Telecom Equipment Japan Japan
Oki Electric 19 JPY 1.80 28-Sep-01 88.00 Telecom Equipment Japan Japan
Okinawa Bank 1 JPY 0.30 29-Mar-02 78.00 Banks, Savings & Loan Japan Japan
Orix euro JPY 0.38 31-Mar-05 75.00 Financial Services Japan Japan
Rengo 10 JPY 0.45 30-Jul-07 115.50 Paper & Packaging Japan Japan
Ricoh 8 JPY 1.50 29-Mar-02 85.00 Office Products Japan Japan
Ricoh 9 JPY 0.35 31-Mar-03 76.75 Office Products Japan Japan
Riso Kagaku 3 JPY 1.88 31-Mar-02 120.00 Office Products Japan Japan
Sankyo 3 JPY 0.70 30-Mar-01 57.00 Health & Personal Care Japan Japan
Seino Transport euro JPY 0.13 31-Mar-04 70.00 Transportation Japan Japan
Sekisui Chemical 7 JPY 0.10 28-Sep-01 46.00 Chemicals Japan Japan
Sekisui House 16 JPY 0.30 31-Jul-03 26.00 Housing & Construction Japan Japan
Sekisui House 12 JPY 2.50 31-Jan-02 70.00 Housing & Construction Japan Japan
Sharp 12 JPY 1.60 30-Sep-04 61.00 Semiconductors Japan Japan
Shiga Bank 2 JPY 0.40 30-Sep-03 69.00 Banks, Savings & Loan Japan Japan
Shimadzu 13 JPY 0.95 30-Sep-05 60.00 Industrial Products Japan Japan
Shin Meiwa 4 JPY 4.70 29-Sep-00 47.00 Industrial Products Japan Japan
Showa Corp euro JPY 0.50 31-Mar-04 110.00 Automotive Japan Japan
Sumitomo Chemical 8 JPY 4.70 29-Dec-00 37.00 Chemicals Japan Japan
Sumitomo Corp 2 JPY 1.60 29-Mar-02 32.00 Trading Japan Japan
Sumitomo Corp 3 JPY 1.50 31-Mar-04 80.00 Trading Japan Japan
Sumitomo Electric 6 JPY 0.25 30-Sep-08 58.00 Electronics Japan Japan
Sumitomo Electric 4 JPY 2.00 28-Sep-01 50.00 Electronics Japan Japan
Sumitomo Marine & Fire 4 JPY 1.20 31-Mar-04 47.00 Insurance Japan Japan
Sumitomo Marine & Fire 3 JPY 1.10 29-Mar-02 12.00 Insurance Japan Japan
Sumitomo Warehouse 4 JPY 1.00 31-Mar-05 110.00 Transportation Japan Japan
Sysmex 1 JPY 0.20 31-Mar-04 89.14 Japan Japan
Tanabe Seiyaku 9 JPY 0.30 31-Mar-06 43.00 Health & Personal Care Japan Japan
THK 3 JPY 0.30 30-Sep-03 138.00 Industrial Products Japan Japan
Tokyo Electron 2 JPY 0.90 30-Sep-03 65.00 Trading Japan Japan
Tomy euro JPY 0.25 30-Sep-03 145.00 Retail Japan Japan
Toppan Printing 7 JPY 1.40 31-Mar-05 44.00 Publishing Japan Japan
Toyama Chemical 1 JPY 1.00 31-Mar-05 180.00 Electronics Japan Japan
Toyo Communications 2 JPY 1.40 30-Sep-04 194.00 Electrical Equipment Japan Japan
Toyo Trust & Banking euro JPY 0.75 30-Sep-02 225.00 Banks, Savings & Loan Japan Japan
Toyoda Auto Loom 2 JPY 0.35 30-Sep-03 48.50 Automotive Japan Japan
Ube industries 3 JPY 1.25 30-Sep-05 172.50 Conglomerate Japan Japan
Yasuda Fire & Marine 3 JPY 0.60 30-Mar-01 86.00 Insurance Japan Japan
Yasuda Trust & Banking euro USD 1.75 30-Sep-02 90.00 Banks, Savings & Loan Japan Japan
Yasuda Trust & Banking euro USD 2.88 30-Sep-03 90.00 Banks, Savings & Loan Japan Japan
Anadarko Petroleum USD 0.00 07-Mar-20 07-Mar-03 100.00 Oil & Energy USA USA
Bell Atlantic USD 5.75 01-Apr-03 50.00 Telecommunications USA USA
Bell Atlantic USD 4.25 15-Sep-05 55.00 Telecommunications USA USA
Cendant Corp USD 3.00 15-Feb-02 80.00 Leisure USA USA
Clear Channel Comms USD 1.50 01-Dec-02 153.00 Media USA USA
Clear Channel Comms USD 2.63 01-Apr-03 150.00 Media USA USA
Commscope USD 4.00 15-Dec-06 240.00 Telecom Equipment USA USA
Costco Wholesale USD 0.00 19-Aug-17 19-Aug-02 75.00 Retail USA USA
Cox Comms USD 0.43 19-Apr-20 19-Apr-05 160.00 Telecom Services USA USA
Elan Finance USD 0.00 14-Dec-18 14-Dec-03 225.00 Drugs & Biotechnology USA USA
Gener USD 6.00 01-Mar-05 310.00 Utilities USA USA
Healthsource Corp USD 3.25 01-Apr-03 125.00 Healthcare USA USA
Heartport USD 7.50 01-Oct-03 180.00 REIT - Healthcare USA USA
Ingram Micro USD 0.00 09-Jun-18 09-Jun-01 375.00 Electronics USA USA
Interpublic USD 1.87 01-Jun-06 155.00 Advertising USA USA
Kerr-McGee USD 5.25 15-Feb-10 165.00 Oil & Energy USA USA
Lennar Corp USD 0.00 29-Jul-18 29-Jul-03 175.00 Housing & Construction USA USA
Loews USD 3.13 15-Sep-07 118.00 Oil Services USA USA
Magna International USD 4.88 15-Feb-05 175.00 Automotive USA USA
Magna International USD 5.00 15-Oct-02 150.00 Automotive USA USA
Mattell USD 5.50 01-Nov-00 40.00 Consumer Products USA USA
Merrill Lynch USD 2.00 14-Apr-04 45.00 Food & Beverages USA USA
Merrill Lynch USD 1.00 03-Mar-03 50.00 Drugs & Biotechnology USA USA
Office Depot USD 0.00 11-Dec-07 11-Dec-02 200.00 Office Products USA USA
Omnicare USD 5.00 11-Dec-07 175.00 Drug Distribution USA USA
Pep Boys USD 0.00 20-Sep-11 20-Sep-01 125.00 Automotive USA USA
Rite Aid USD 5.25 15-Sep-02 200.00 Drug Distribution USA USA
Solectron USD 0.00 08-May-20 08-May-03 180.00 Electronics USA USA
Solectron USD 0.00 27-Jan-19 27-Jan-02 195.00 Electronics USA USA
Telmex USD 4.25 15-Jun-04 255.00 Telecommunications USA USA
Transocean Sedco USD 0.00 24-May-20 24-May-03 110.00 Oil & Energy USA USA
Issue
US Cellular USD 0.00 15-Jun-15 15-Jun-00 120.00 Telecommunications USA USA
Wellpoint USD 0.00 02-Jul-19 20-Jul-02 175.00 Healthcare USA USA
Xerox USD 0.57 21-Apr-18 21-Apr-03 75.00 Office Products USA USA
Young & Rubicam USD 3.00 15-Jan-05 150.00 Advertising USA USA
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The trading of futures or options on futures contains inherent risks. Investors should be aware that tax considerations, margin requirements, 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. The price or value of the investments to which this report relates,
either directly or indirectly, may fall or rise. Investors may be required to sign additional risk disclosure statements.
In E.U. countries the information herein has been issued by Morgan Stanley & Co. International Ltd., regulated by the Securities and Futures Authority. In Japan, Singapore and Australia, the information is
disseminated by Morgan Stanley Dean Witter Japan Limited, Morgan Stanley Dean Witter Asia (Singapore) Pte. and Morgan Stanley Dean Witter Australia Limited, respectively. ADDITIONAL INFORMATION IS
AVAILABLE UPON REQUEST. NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND FUTURES AUTHORITY.
Additional information on recommended securities is available on request

Ascots Ascots Ascots Ascots: Understanding

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MORGAN STANLEY DEAN WITTER

Understanding ASCOTs (Asset Swapped Convertible Option Transactions)

Structuring and pricing of ASCOTs including a quick tutorial on the

Credit Component: Equity Component:

Source: Morgan Stanley Dean Witter Research

Source: Morgan Stanley Dean Witter

Effective Strike Price (@ Euribor +40bp)

Source:Morgan Stanley Dean Witter Research

Stock Price 1336 3090 +131%

CB Price 104.00 156.00 +52%

Implied Vol . 24% 46% -

STRIKE (+80bp) 100.60 101.00 -

ASCOT Price 3.40 55.00 +1,518%

Source: Morgan Stanley Dean Witter Research

Set the calculation The ASCOT buyer Enter the spread

Issue Date: March 1998 12. Documentation

London Jack Inglis +44 (0)20 7425 5994

New York Jim Bedell +1 212 761 5830

Tokyo Jackson Chou +81 3 5424 7814

London Tracy Northey +44 (0)20 7425 5639

New York Craig Abruzzo +1 212 761 5365

Additional information on recommended securities is available on request

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