Peps

MORGAN STANLEY DEAN WITTER

Dec 1998 The Global Convertible Recommended Portfolio and Strategy MORGAN STANLEY DEAN WITTER

Global Convertible Research

Dec 1998

Guide to PEPS

Premium Exchangeable Participating Securities

PEPS: A Convertible Structure Designed to Gallop

New York Anand S. Iyer, CFA

Group Head (212) 761-5783

Anthony Cichocki (212) 761-8836 Douglas Decker (212) 761-5661 David J. Rudnick (212) 761-5429 Michael H. Schwartz (212) 761-5600

London

Colum McCoole (0171) 425-6260 Tareen Hussain (0171) 425-6792

MORGAN STANLEY DEAN WITTER

December 1998

Contents

Executive Summary ........................................................................................ 3 Introduction ..................................................................................................... 7 Market Growth ........................................................................................... 7 PEPS Investors ........................................................................................... 7 PEPS Issuers .............................................................................................. 8 Issuer and Investor Benefits ....................................................................... 9 Typical Issue Terms ................................................................................. 11 Payoff Scenarios...................................................................................... 11 Performance Based Conversion Premium ................................................ 11 PEPS Structure and Evaluation....................................................................... 13 Call Spread............................................................................................... 14 Convertible Security with a Put................................................................. 15 PEPS Sensitivity Profiles ............................................................................... 16 A. Underlying Stock...