FWP 1 dp08070_fwp-ps469.htm
 
January 2008
Preliminary Terms No. 469
Registration Statement No. 333-131266
Dated December 26, 2007
Filed pursuant to Rule 433
STRUCTURED INVESTMENTS
Opportunities in Commodities
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodty Indices
Commodity-Linked Capital Protected Notes provide investors with exposure to a wide variety of individual commodities and commodity indices with no downside risk to the initial investment if held to maturity.  They are for investors who are concerned about principal risk and who are willing to forgo market interest rates in exchange for principal protection and upside exposure to the underlying commodities and/or commodity indices.
 
SUMMARY TERMS
  
Issuer:
Morgan Stanley
Issue price:
$1,000 per note (see “Commissions and Issue Price” below)
Stated principal amount:
$1,000 per note
Pricing date:
January   , 2008
Original issue date:
January   , 2008 (5 business days after the pricing date)
Maturity date:
March 31, 2011
Principal protection:
100%
Interest:
None
Basket:
Basket commodities
Bloomberg ticker symbol*
Weighting
Initial commodity price
 
Baltic Dry Index (“BDI”)
BDIY
25%
  
 
West Texas Intermediate light sweet crude oil
(“WTI crude oil”)
CL1
25%
  
 
High-Grade Primary Aluminum (“aluminum”)
LOAHDY
12.5%
  
 
S&P GSCI™ Gold Index – Excess Return (the “gold index”)
SPGCGCP
12.5%
  
 
Soybeans-CBOT (“soybeans”)
S 1
12.5%
  
 
Wheat-CBOT (“wheat”)
W 1
12.5%
  
 
*Bloomberg ticker symbols are being provided for reference purposes only. The initial commodity price and final average commodity price of each basket commodity will be determined based on the prices published by the index publisher or the relevant exchange, as applicable.
Payment at maturity:
$1,000 + supplemental redemption amount (if any)
Supplemental redemption amount:
$1,000 x basket performance x participation rate; provided that the supplemental redemption amount will not be less than zero
Participation rate:
140% to 150%. The actual participation rate will be determined on the pricing date.
Basket performance:
Sum of the commodity performance values of each of the basket commodities
Commodity performance value:
With respect to each basket commodity:
[(final average commodity price – initial commodity price) / initial commodity price] x weighting
Commodity price:
For any trading day or index business day, as applicable:
BDI: the official settlement price of the BDI
WTI crude oil: the official settlement price per barrel
aluminum: the official cash offer price per metric ton
gold index: the official settlement price of the gold index
soybeans and wheat: the official settlement price per bushel
Initial commodity price:
The commodity price for the applicable basket commodity on the pricing date.
Final average commodity price:
The arithmetic average of the commodity prices for the applicable basket commodity on each determination date for such basket commodity, as determined on the final determination date.
Determination dates:
In respect of each basket commodity, each trading day or index business day, as applicable, during the period from and including January 3, 2011 through and including March 25, 2011 on which there is no market disruption event in respect of the applicable basket commodity.
CUSIP:
6174462M0
Listing:
The notes will not be listed on any securities exchange.
Agent:
Morgan Stanley & Co. Incorporated
Commissions and Issue Price:
Price to Public(1)
Agent’s Commissions(1)(2)
Proceeds to Company
Per Note
100.00%
2.00%
98.00%
Total
$
$
$

(1)  The actual price to public and agent’s commissions for a particular investor may be reduced for volume purchase discounts depending on the aggregate amount of the notes purchased by that investor.  The lowest price payable by an investor is $992.50 per note.  Please see “Syndicate Information” on page 7 for further details.
(2)  For additional information, see “Plan of Distribution” in the accompanying prospectus supplement for commodity-linked capital protected notes.
 
YOU SHOULD READ THIS DOCUMENT TOGETHER WITH THE RELATED PROSPECTUS SUPPLEMENT AND PROSPECTUS, EACH OF WHICH CAN BE ACCESSED VIA THE HYPERLINKS BELOW, BEFORE YOU DECIDE TO INVEST.
 
The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling toll-free 1-800-584-6837.

 
 
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
Investment Overview
 
The Commodity-Linked Capital Protected Notes due March 31, 2011 (the “notes”) provide investors with an opportunity to gain direct exposure to a basket of commodities with no downside risk to their initial investment if the notes are held to maturity.
 
At maturity, the notes will pay the principal amount of $1,000 plus a supplemental redemption amount, if any, based on the performance of a basket of four physical commodities and two commodity indices (the “basket”) over the term of the notes, as measured over the specified determination dates.  The supplemental redemption amount provides 140% to 150% upside participation (e.g. a 10% appreciation of the basket will return 100% of principal plus 14% to 15%).  The actual participation rate will be determined on the pricing date. If the basket has depreciated or has not appreciated, the investment will return par at maturity.  The notes do not pay interest.
 
Maturity:
Approximately 3 years and 2 months
Protection at maturity:
100%
Interest:
None
Payment at maturity:
(i)  If the basket performance is greater than zero
Þ 140% to 150% of the basket performance
(ii) If the basket performance is less than or equal to zero
Þ par
 
Basket Overview
 
Basket Commodity
Bloomberg Ticker Symbol
Weighting
BDI
BDIY
25%
WTI crude oil
CL1
25%
aluminum
LOAHDY
12.5%
gold index
SPGCGCP
12.5%
soybeans
S 1
12.5%
wheat
W 1
12.5%
 
 
The graph illustrates the effect of any offset and/or correlation among the basket commodities during such period.  The graph does not attempt to show your expected return on an investment in the notes nor does the graph take into account the averaging of the commodity prices over the determination dates which will occur when we calculate the basket performance at maturity. The historical price performance of the basket and the degree of correlation between the price trends of the basket commodities (or lack thereof) should not be taken as an indication of future performance.
 
 
January 2008
Page 2
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
Key Investment Rationale
 
Exposure to commodities is a component of portfolio diversification.  Investors who believe they have underweight exposure to commodities or those concerned about the risks associated with investing directly in commodities can use the notes to gain exposure to the basket of commodities while protecting 100% of their principal at maturity.
 
Protect Principal
§
100% principal protection at maturity regardless of the performance of the basket
Access
§
 Exposure to a diversified basket of four physical commodities (WTI crude oil, aluminum, soybeans and wheat) and two commodity indices (BDI and gold index)
 
§
Portfolio diversification from traditional fixed income / equity investments
 
Summary of Selected Key Risks (see page 11)
 
§  
No interest payments / possibility of no return
 
§  
Market prices of the notes will be influenced by many unpredictable factors
 
§  
Prices for the basket commodities may change unpredictably and affect the value of the notes in unforeseeable ways
 
§  
Changes in the value of one or more of the basket commodities may offset each other
 
§  
Payout at maturity based on weighted average of prices of commodities as measured on the determination dates
 
§  
Inclusion of commissions / projected profit from hedging is likely to adversely affect secondary market prices
 
§  
Economic interests of the calculation agent may be potentially adverse to investors
 
§  
Hedging and trading activity could adversely affect the prices of the basket commodities
 
§  
Credit risk to Morgan Stanley
 
§  
The notes will not be listed, secondary trading may be limited and you could receive less than the stated principal amount per note if you try to sell your notes prior to maturity
 
§  
Suspension or disruptions of market trading in commodity and related futures markets may adversely affect the value of the notes
 
§  
Discontinuance of the Baltic Dry Index will result in an alternate method of calculation of the supplemental redemption amount, which could adversely affect the supplemental redemption amount, if any, you receive at maturity
 
Suitability
 
The notes may be suitable for investors who:
 
§  
Do not require current income / coupon payments
 
§  
Are capable of understanding the complexities / risks specific to the notes, and specifically, the basket commodities
 
§  
Are willing to receive no return on the notes should the basket depreciate or not appreciate
 
 
January 2008
Page 3
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
Fact Sheet
 
The notes offered are senior unsecured obligations of Morgan Stanley, will pay no interest, and have the terms described in the prospectus supplement for commodity-linked capital protected notes and the prospectus.  At maturity, an investor will receive for each $1,000 stated principal amount of notes that the investor holds, the $1,000 stated principal amount plus a supplemental redemption amount, if any, based on whether the basket performance is positive.
 
Expected Key Dates
    
Pricing Date:
Original Issue Date (Settlement Date):
Maturity Date:
January   , 2008
January   , 2008 (5 business days after the pricing date)
March 31, 2011

Key Terms
  
Issuer:
Morgan Stanley
Issue price:
$1,000 per note (see “Syndicate Information” on page 7)
Stated principal amount:
$1,000 per note
Denominations:
$1,000 per note and integral multiples thereof
Principal protection:
100% at maturity
Interest:
None
Basket:
Basket commodities
Bloomberg ticker symbol*
Weighting
Initial commodity price
 
Baltic Dry Index (“BDI”)
BDIY
25%
  
 
West Texas Intermediate light sweet crude oil
(“WTI crude oil”)
CL1
25%
  
 
High-Grade Primary Aluminum (“aluminum”)
LOAHDY
12.5%
  
 
S&P GSCI™ Gold Index – Excess Return
(the “gold index”)
SPGCGCP
12.5%
  
 
Soybeans-CBOT (“soybeans”)
S 1
12.5%
  
 
Wheat-CBOT (“wheat”)
W 1
12.5%
  
 
*Bloomberg ticker symbols are being provided for reference purposes only. The initial commodity price and final average commodity price of each basket commodity will be determined based on the prices published by the index publisher or the relevant exchange, as applicable.
Payment at maturity:
$1,000 + supplemental redemption amount (if any)
Supplemental
redemption amount:
$1,000 x basket performance x participation rate; provided that the supplemental redemption amount will not be less than zero
 
In the event the Baltic Dry Index is discontinued and is not replaced by a successor index, the supplemental redemption amount payable at maturity will be determined by the calculation agent using an alternate method of calculation.  See “Fact Sheet—Key Terms—Alternate Method of Calculating the Supplemental Redemption Amount” on page 5.
Participation rate:
140% to 150%. The actual participation rate will be determined on the pricing date.
Basket performance:
Sum of the commodity performance values (i.e., percentage appreciation or depreciation) of each of the basket commodities.
 
A depreciation of one or more basket commodities will partially or wholly offset any appreciation in any of the other basket commodities such that the basket performance as a whole may be less than or equal to zero, in which case you will only receive the $1,000 stated principal amount at maturity.
Commodity performance value:
With respect to each basket commodity:
[(final average commodity price – initial commodity price) / initial commodity price] x weighting
Commodity price:
For any trading day or index business day, as applicable:
 
BDI: the official settlement price of the BDI as published by the index publisher or its successor on such index business day
 
WTI crude oil: the official settlement price per barrel of the first nearby month futures contract (or, in the case of the last trading day of the first nearby month contract, the second nearby month contract) per barrel of WTI crude oil, stated in U.S. dollars, as made public on the relevant exchange on such trading day
 
aluminum: the official cash offer price per metric ton of High-Grade Primary Aluminum on the relevant exchange for the spot market, stated in U.S. dollars, as determined by the relevant exchange on such trading day
 
gold index: the official settlement price of the gold index as published by the index publisher or its successor on such index business day
 
 
 
January 2008
Page 4
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 

 
 
soybeans: the official settlement price of the first nearby month futures contract (or, in the case of the last 14 trading days of the first nearby month futures contract, the second nearby month futures contract) of deliverable-grade soybeans per bushel on the relevant exchange stated in U.S. cents on such trading day
 
wheat: the official settlement price of the first nearby month futures contract (or, in the case of the last 14 trading days of the first nearby month futures contract, the second nearby month futures contract) of deliverable-grade wheat per bushel on the relevant exchange stated in U.S. cents on such trading day
Initial commodity price:
The commodity price for the applicable basket commodity on the pricing date.
Final average commodity price:
The arithmetic average of the commodity prices for the applicable basket commodity on each determination date for such basket commodity, as determined on the final determination date.
Determination dates:
In respect of each basket commodity, each trading day or index business day, as applicable, during the period from and including January 3, 2011 through and including March 25, 2011 on which there is no market disruption event in respect of the applicable basket commodity.
Relevant exchange:
WTI crude oil: the NYMEX Division, or its successor, of the New York Mercantile Exchange
aluminum: London Metal Exchange
soybeans and wheat: Chicago Board of Trade
Index publisher:
BDI:  Baltic Exchange
gold index: Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.
Discontinuance of the Baltic Dry Index:
If the Baltic Exchange permanently discontinues publication of the BDI and the Baltic Exchange or another entity publishes a successor or substitute index that the calculation agent determines, in its sole discretion, to be comparable to the discontinued index (a “successor index”), then any subsequent commodity price for the BDI will be determined by reference to such successor index.
 
If the Baltic Exchange permanently discontinues publication of the BDI or fails to publish the level of the BDI for ten consecutive business days, and the calculation agent determines, in its sole discretion, that no successor index is available, then the calculation agent will determine the supplemental redemption amount at maturity using an alternate method of calculation described in “Fact Sheet—Key Terms—Alternate Method of Calculating the Supplemental Redemption Amount” below.
 
If the method of calculating the BDI is modified by the Baltic Exchange so that the value of the BDI is a fraction of what it would have been if it had not been modified, and the calculation agent, in its sole discretion, determines that such modification is not a material change in formula, then the calculation agent will adjust such index in order to arrive at a price of such index or successor index as if it had not been modified.
Alternate Method of Calculating the Supplemental Redemption Amount:
If the Baltic Exchange permanently discontinues publication of the BDI or fails to publish the level of the BDI for ten consecutive business days, and the calculation agent determines, in its sole discretion, that no successor index is available, the supplemental redemption amount, if any, payable at maturity will be determined by the calculation agent solely by reference to the value (the “Alternate Value Amount”) of the embedded option on all six basket commodities underlying the notes as of the day the Baltic Dry Index was discontinued or deemed to be discontinued on such 10th day of non-publication (the “Discontinuance Date”), plus interest accrued on the Alternate Value Amount during the remaining term of the notes from the Discontinuance Date at a rate equal to 3-month U.S. dollar LIBOR in effect on the date interest is first accrued and as determined quarterly thereafter by the calculation agent.  The Alternate Value Amount will be determined by the calculation agent and will be the greater of (i) the mean of the bid prices for such option on such day obtained from three recognized dealers and (ii) the bid price of MS & Co. or any of its affiliates.  If the calculation agent is unable to obtain three bid prices, the Alternate Value Amount will be determined by the calculation agent in its sole discretion.
Call right:
The notes are not callable prior to the maturity date.
 
 
January 2008
Page 5
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 

 
General Information
  
Listing:
The notes will not be listed on any securities exchange.
CUSIP:
6174462M0
Tax considerations:
The notes will be treated as “contingent payment debt instruments” for U.S. federal income tax purposes, as described in the section of the accompanying prospectus supplement called “United States Federal Taxation—Tax Consequences to U.S. Holders—Long-Term Notes.”  Under this treatment, if you are a U.S. taxable investor, you will generally be subject to annual income tax based on the “comparable yield” (as defined in the accompanying prospectus supplement) of the notes, even though no interest is payable on the notes.  In addition, any gain recognized by U.S. taxable investors on the sale or exchange, or at maturity, of the notes generally will be treated as ordinary income. If the notes were priced on December 18, 2007, the “comparable yield” would be a  rate of 4.6167% per annum, compounded semi-annually; however, the final comparable yield will be determined on the pricing date and may be different from the comparable yield set forth above.  Based on the comparable yield set forth above, the “projected payment schedule” for a note (assuming an issue price of $1,000) consists of a projected amount equal to $1,142.4317 due at maturity.  The actual comparable yield and the projected payment schedule of the notes will be updated in the final pricing supplement.  You should read the discussion under “United States Federal Taxation” in the accompanying prospectus supplement concerning the U.S. federal income tax consequences of investing in the notes.
 
 
The following table states the amount of original issue discount (“OID”) (without taking into account any adjustments to reflect the difference, if any, between the actual and the projected amount of any contingent payments on the notes) that will be deemed to have accrued with respect to a note for each accrual period (assuming a day count convention of 30 days per month and 360 days per year), based upon the comparable yield set forth above.
 
 
PERIOD
 
OID
DEEMED TO ACCRUE DURING ACCRUAL PERIOD (PER NOTE)
 
TOTAL OID DEEMED TO HAVE ACCRUED FROM ORIGINAL ISSUE DATE (PER NOTE) AS OF END OF ACCRUAL PERIOD
  
 
Original Issue Date through June 30, 2008
$18.9513
$18.9513
  
 
July 1, 2008 through December 31, 2008
$23.1725
$42.1238
  
 
January 1, 2009 through June 30, 2009
$23.6995
$65.8233
  
 
July 1, 2009 through December 31, 2009
$24.2384
$90.0617
  
 
January 1, 2010 through June 30, 2010
$24.7896
$114.8513
  
 
July 1, 2010 through December 31, 2010
$25.3534
$140.2047
  
 
January 1, 2011 through June 30, 2011
$12.9650
$153.1697
  
 
 
The comparable yield and the projected payment schedule are not provided for any purpose other than the determination of U.S. Holders’ accruals of OID and adjustments in respect of the notes, and we make no representation regarding the actual amounts of payments that will be made on a note.
 
 
If you are a non-U.S. investor, please also read the section of the accompanying prospectus supplement called “United States Federal Taxation—Tax Consequences to Non-U.S. Holders.”
 
 
You are urged to consult your own tax advisors regarding all aspects of the U.S. federal income tax consequences of investing in the notes as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
 
Trustee:
The Bank of New York (as successor Trustee to JPMorgan Chase Bank, N.A.)
Agent:
Morgan Stanley & Co. Incorporated (“MS & Co.”)
Calculation agent:
Morgan Stanley Capital Services Inc. (“MSCS”)
Contact:
Morgan Stanley clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776).  All other clients may contact their local brokerage representative.  Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
 
 
 
January 2008
Page 6
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 

 
Syndicate Information
    
Issue price of the note
Selling concession
Principal amount
of the note for any
single investor
100.00%
2.00%
<$999K
99.625%
1.625%
$1MM-$2.99MM
99.4375%
1.4375%
$3MM-$4.99MM
99.25%
1.25%
>$5MM
 
Selling concessions allowed to dealers in connection with the offering may be reclaimed by the agent, if, within 30 days of the offering, the agent repurchases the notes distributed by such dealers.
 
This offering summary represents a summary of the terms and conditions of the notes.  We encourage you to read the accompanying prospectus supplement for commodity-linked capital protected notes and prospectus related to this offering, which can be accessed via the hyperlinks on the front page of this document.
 
 
 
January 2008
Page 7
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
Payment at Maturity
 
At maturity, investors receive (i) $1,000 + (ii) supplemental redemption amount.
 
If the basket performance is:
The supplemental redemption amount will be:
Greater than zero
$1,000 x basket performance x 140% to 150%
Less than or equal to zero
$0. Investors will only receive $1,000 at maturity
 
Note:
As there is no cap on upside participation, there is no maximum payment on the notes.  Investors will receive 140%  to 150% of any appreciation in the value of the basket. The actual participation rate will be determined on the pricing date.
 
If the basket performance at maturity is zero or negative, investors will only receive the stated principal amount at maturity.
 
See “Hypothetical Payout on the Notes” for examples of how to calculate the payment at maturity.
 
See “Fact Sheet—Key Terms—Alternate Method of Calculating the Supplemental Redemption Amount” for the description of an alternate method of calculating the supplemental redemption amount that will be used if the Baltic Dry Index is discontinued and is not replaced by a successor index.
 
 
 
January 2008
Page 8
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
Hypothetical Payout on the Notes
 
Presented below are hypothetical examples showing how the payout on the notes at maturity, including the supplemental redemption amount, is calculated.  The following hypothetical examples are provided for illustrative purposes only.  Actual results will vary.
 
Below is one full example of how to calculate the basket performance based on the hypothetical data in the table below.  In addition, below are examples of how to calculate the payment at maturity.  Commodity prices used in the examples below, including the initial commodity prices, are hypothetical and do not reflect the actual commodity prices.
 
Basket Commodity
Weighting
Hypothetical
Initial Commodity Price
Hypothetical
Final Average Commodity Price
Percentage Change from
Hypothetical Initial Commodity Price
BDI
25%
$9,590
$9,973.60
4%
WTI crude oil
25%
$90
$93.60
4%
aluminum
12.5%
$2,360
$2,548.80
8%
gold index
12.5%
$70
$75.60
8%
soybeans
12.5%
1,160¢
1,252.8¢
8%
wheat
12.5%
970¢
1,047.6¢
8%
 
Basket Performance = Sum of Commodity Performance Values
 
[(final average BDI price – initial BDI price) / initial BDI price]  x  25%; plus
[(final average WTI crude oil price – initial WTI crude oil price) / initial WTI crude oil price]  x  25%; plus
 [(final average aluminum price – initial aluminum price) / initial aluminum price]  x  12.5%; plus
[(final average gold index price – initial gold index price) / initial gold index price]  x  12.5%; plus
[(final average soybeans price – initial soybeans price) / initial soybeans price]  x  12.5%; plus
 [(final average wheat price – initial wheat price) / initial wheat price]  x  12.5%
 
So, using the hypothetical prices above,
 
[($9,973.60 – $9,590) / $9,590] x 25%  =  1%; plus
[($93.60 – $90) / $90] x 25%  =  1%; plus
 [($2,548.80 – $2,360) / $2,360] x 12.5%  =  1%; plus
[($75.60 – $70) / $70] x 12.5%  =  1%; plus
 [(1,252.8¢– 1,160¢) / 1,160¢] x 12.5%  =  1%; plus
[(1,047.6¢– 970¢) / 970¢] x 12.5%  =  1%
 
equals
 
basket performance   =   6%
 
 
 
January 2008
Page 9
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
 
EXAMPLE #1:  Basket performance is positive
 
Hypothetical basket performance = 10%
 
Hypothetical participation rate = 145%
 
Basket Commodity
Weighting
Percentage Change from
Initial Commodity Price
Commodity Performance Value
BDI
   25%
10%
2.5%
WTI crude oil
   25%
12%
   3%
aluminum
12.5%
  8%
   1%
gold index
12.5%
12%
1.5%
soybeans
12.5%
  8%
   1%
wheat
12.5%
  8%
   1%
   
Basket Performance =
 10%
 
Supplemental redemption amount = $1,000 x 10% x 145% = $145
 
The total payment at maturity per note will equal $1,145, which is the sum of the $1,000 stated principal amount per note and a supplemental redemption amount of $145.
 
EXAMPLE #2:  Basket performance is 0% or negative
 
Hypothetical basket performance = – 5%
 
Hypothetical participation rate = 145%
 
Basket Commodity
Weighting
Percentage Change from
Initial Commodity Price
Commodity Performance Value
BDI
   25%
  10%
  2.5%
WTI crude oil
   25%
– 28%
  – 7%
aluminum
12.5%
    8%
     1%
gold index
12.5%
    8%
     1%
soybeans
12.5%
– 12%
– 1.5%
wheat
12.5%
  – 8%
  – 1%
   
Basket Performance =
  – 5%
 
Supplemental redemption amount = $1,000 x – 5% (less than zero) x 145% = $0
 
In this example, the final average prices of three of the basket commodities— BDI, aluminum and the gold index (with a combined weighting of 50% of the basket)—are higher than their respective initial prices by 10%, 8%, and 8%, respectively (BDI contributes a 2.5% increase to the basket performance on a weighted basis, aluminum, a 1% increase and the gold index, a 1% increase), but the final average prices of the three other basket commodities—WTI crude oil, soybeans and wheat (with a combined weighting of 50% of the basket)—are each lower than their respective initial prices by 28%, 12% and 8%, respectively (WTI crude oil contributes a 7% decrease to the basket performance on a weighted basis, soybeans, a 1.5% decrease and wheat, a 1% decrease).  Accordingly, although three of the basket commodities have positive performance values and three have negative performance values, the basket performance is less than zero.  Therefore, there will be no supplemental redemption amount and the total payment at maturity per note will equal only the $1,000 principal amount.
 
 
January 2008
Page 10
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
Selected Risk Factors
 
The notes are financial instruments that are suitable only for investors who are capable of understanding the complexities and risks specific to the notes.  Accordingly, you should consult with your own financial and legal advisors as to the risks entailed by an investment in the notes and the suitability of such notes in light of your particular circumstances.  The notes are not secured debt and investing in the notes is not equivalent to investing directly in the basket commodities.  The following is a non-exhaustive list of certain key considerations for investors in the notes.  For a complete list of considerations and risk factors, please see the section entitled “Risk Factors” beginning on page S-15 of the prospectus supplement for commodity-linked capital protected notes.  You should carefully consider whether the notes are suited to your particular circumstances before you decide to purchase them.
 
§  
No interest payments and possibility of no return.  The terms of the notes differ from ordinary debt securities in that no interest will be paid.  Because the supplemental redemption amount is variable and may equal zero, the overall return on the notes may be less than the amount that would be paid on an ordinary debt security of comparable maturity.
 
§  
The notes will not be listed and secondary trading may be limited.  The notes will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the notes.  Our affiliate, MS & Co., currently intends to act as a market maker for the notes but is not required to do so.  Even if there is a secondary market, it may not provide enough liquidity to allow you to sell the notes easily.  Because we do not expect that other market makers will participate significantly in the secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which MS & Co. is willing to transact.  If at any time MS & Co. were to cease acting as a market maker, it is likely that there would be no secondary market for the notes.  Because it is not possible to predict whether the market for the notes will be liquid or illiquid, you should be willing to hold your notes to maturity.
 
§  
Market prices of the notes will be influenced by many unpredictable factors.  The market value of the notes is affected by a variety of factors, including, (i) the price of each of the basket commodities, (ii) the volatility of the basket commodities, (iii) trends of supply and demand for each of the basket commodities at any time, (iv) interest and yield rates in the market, (v) geopolitical conditions, (vi) economic, financial, political and regulatory or judicial events that affect the basket commodities or commodities markets generally and that may affect the final average commodity prices, (vii) the time remaining to the maturity of the notes and (viii) our creditworthiness.  Some or all of these factors will influence the price that you will receive if you sell your notes prior to maturity and a sale of the notes prior to maturity may result in a loss.
 
§  
Values for the basket commodities may change unpredictably and affect the value of the notes in unforeseeable ways.  Investments, such as the notes, linked to the prices of commodities or the values of commodity indices, are considered speculative, and prices for commodities and related contracts and values of commodity indices may fluctuate significantly over short periods for a variety of factors, including: changes in supply and demand relationships, governmental programs and policies, national and international political and economic events, changes in interest and exchange rates, trading activities in commodities and related contracts, pestilence, technological change, weather, and agricultural, trade, fiscal, monetary and exchange control policies.  The price volatility of each basket commodity also affects the value of the forwards and forward contracts related to that commodity and, therefore, its price at any such time.  These factors may affect the values of the basket commodities and may cause the values for basket commodities to move in inconsistent directions and at inconsistent rates, which will affect the value of your notes in varying ways.
 
§  
Specific commodities prices are affected by numerous factors specific to each market. For more information on the WTI crude oil, aluminum and gold index, please see “Annex I—Certain Additional Commodity and Commodity Index Risks” in the accompanying prospectus supplement for commodity-linked capital protected notes. For information on the Baltic Dry Index, soybeans and wheat, please refer to the information below.
 
·     
The Baltic Dry Index: the Baltic Dry Index is designed to measure changes in the cost of transporting dry bulk material by sea. The dry cargo freight market is sensitive to a variety of external variables, the most important of which include fleet supply, commodity demand, seasonal pressures and fuel prices. For more information on the Baltic Dry Index, please see “Annex A—The Baltic Dry Index” to these preliminary terms.
 
 
January 2008
Page 11
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
 
·     
Soybeans: the price of soybeans is primarily affected by the global demand for and supply of soybeans, but is also influenced significantly from time to time by speculative actions and by currency exchange rates. In addition, prices for soybeans are affected by governmental programs and policies regarding agriculture, including soybeans, specifically, and trade, fiscal and monetary issues, more generally. Extrinsic factors also affect soybean prices such as weather, crop yields, natural disasters, pestilence, technological developments, wars and political and civil upheavals. Soy biodiesel, animal agriculture, edible soybean oil and new industrial uses are examples of major areas that may impact worldwide soybean demand. The United States, Argentina and Brazil are the three biggest suppliers of soybean crops.
 
·     
Wheat: wheat is a grain commodity.  Grain prices are primarily affected by weather and crop growing conditions generally and the global demand for and supply of grain, which are driven by global grain production, population growth and economic activity.  In addition, prices for grain are affected by governmental and intergovernmental programs and policies regarding trade, agriculture, including grains, and energy specifically and fiscal and monetary issues, more generally.  Alternative uses for grains such as energy sources or in manufacturing also drive the prices for grains.  Such alternative uses may be dependant on governmental action, such as subsidies or tariffs and technological innovation.  Extrinsic factors also affect grain prices such as natural disasters, pestilence, scientific developments, wars and political and civil upheavals.  Substitution of other commodities for grain could also impact the price of grain.
 
§  
Changes in the value of one or more of the basket commodities may offset each other.  Price movements in the basket commodities may not correlate with each other.  At a time when the price of one or more of the basket commodities increases, the price of one or more of the other basket commodities may increase to a lesser extent or may decline.  Therefore, in calculating the basket performance, increases in the value of one or more of the basket commodities may be moderated, or wholly offset, by lesser increases or declines in the value of one or more of the other basket commodities.
 
§  
The final average commodity price of each basket commodity is determined on multiple determination dates.  The final average commodity price for each basket commodity is equal to the arithmetic average of the prices of the relevant basket commodity on each of the determination dates.  Due to the multiple determination dates, increases in the price of any basket commodity on one or more determination dates may be partially or entirely offset by decreases in the price of such basket commodity on other determination dates.  Even if one or more basket commodities has increased substantially on the final determination date, the final average commodity price for such basket commodity may not be higher than the initial price and, accordingly, you may not receive at maturity an amount greater than the stated principal amount for each note you hold.
 
§  
Investing in the notes is not equivalent to investing directly in the basket commodities.  Because the basket performance is based on the average prices of the basket commodities over the determination dates over the final three months of the term of the notes, it is possible for the final average commodity price of any of the basket commodities to be lower than the initial commodity price of such basket commodity even if the price of the basket commodity has been above the initial commodity price during the term of the notes.
 
§  
The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices.  Assuming no change in market conditions or any other relevant factors, the price, if any, at which MS & Co. is willing to purchase notes in secondary market transactions will likely be lower than the original issue price, since the original issue price will include, and secondary market prices are likely to exclude, commissions paid with respect to the notes, as well as the projected profit included in the cost of hedging its obligations under the notes.  In addition, any such prices may differ from values determined by pricing models used by MS & Co., as a result of dealer discounts, mark-ups or other transaction costs.
 
§  
Adjustments to any basket index could adversely affect the value of the notes.  The index publisher of any basket index may make methodological changes in the relevant basket index that could directly or indirectly affect the value of the index.  These actions could adversely affect the value of the notes.  In addition, the index publisher may discontinue or suspend calculation or publication of the relevant basket index at any time.  In these circumstances, the calculation agent will have the sole discretion to substitute a successor index that is comparable to the discontinued index and is not precluded from considering indices that are calculated and published by the calculation agent or any of its affiliates.
 
 
January 2008
Page 12
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
 
§  
Alternate method of calculation in the event the BDI is discontinued. If the Baltic Exchange permanently discontinues publication of the BDI or fails to publish the level of the BDI for ten consecutive business days and the BDI is not replaced by a successor index, the supplemental redemption amount at maturity will be determined by the calculation agent using an alternate method of calculation described in more detail in “Fact Sheet—Key Terms—Alternate Method of Calculating the Supplemental Redemption Amount” on page 5.  The amount payable to you determined by the calculation agent using such alternate method of calculation may be less, and significantly less, than the amount that would be payable to you based on the standard method of calculation if the BDI continued to be published.
 
§  
Issuer’s credit ratings may affect the market value.  Investors are subject to the credit risk of the issuer.  Any decline in the issuer’s credit ratings may affect the market value of the notes.
 
§  
Economic interests of the calculation agent may be potentially adverse to the investors.  MSCS, the calculation agent, is an affiliate of the issuer.  Any determinations made by the calculation agent may affect the payout to investors at maturity.
 
§  
Hedging and trading activity could adversely affect the prices of the underlying commodities. The hedging or trading activities of the issuer’s affiliates on or prior to the pricing date could potentially increase the initial commodity prices for the basket commodities and, as a result, could increase the prices at which the basket commodities must close on the determination dates before you would receive a payment at maturity that exceeds the stated principal amount of the notes.  Additionally, such hedging or trading activities during the term of the notes could potentially affect the prices of the basket commodities, including the final average commodity prices, and, accordingly, the amount of cash you will receive upon a sale of the notes or at maturity.
 
 
 
January 2008
Page 13
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
Information about the Basket Commodities
 
The Baltic Dry Index.  The Baltic Dry Index is designed to measure changes in the cost of transporting dry bulk material such as grain, coal, iron ore and industrial metals by sea.  The Baltic Dry Index was developed by the Baltic Exchange and is calculated, maintained and published by the Baltic Exchange.  For additional information about the BDI, see “Annex A—The Baltic Dry Index” to these preliminary terms.
 
The S&P GSCITM Gold Index – Excess Return. The gold index represents only the gold component of the S&P GSCITM – ER. The value of the gold index on any given day is calculated in the same manner as the S&P GSCITM – ER except that (i) the daily contract reference prices, the contract production weight (“CPW”) and roll weights used in performing such calculations are limited to the gold futures contracts included in the gold index; and (ii) the gold index has a separate normalizing constant. For additional information, see “Annex I—Certain Additional Commodity Index Information” in the accompanying prospectus supplement for commodity-linked capital protected notes.
 
The S&P GSCITM – ER is described in “Annex II—Certain Additional Commodity Index Information” in the accompanying prospectus supplement for commodity-linked capital protected notes.
 
License Agreement between S&P and Morgan Stanley.  The Standard & Poor’s® Corporation, or S&P®, and Morgan Stanley have entered into a non-exclusive license agreement providing for the license to Morgan Stanley, and certain of its affiliated or subsidiary companies, in exchange for a fee, of the right to use the S&P GSCITM Index, which is owned and published by S&P, in connection with securities, including the notes.
 
The license agreement between S&P and Morgan Stanley provides that the following language must be set forth in these preliminary terms:
 
The notes are not sponsored, endorsed, sold or promoted by The McGraw-Hill Companies, Inc. (including its affiliates) (S&P, with its affiliates, are referred to as the “Corporations”).  The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the notes.  The Corporations make no representation or warranty, express or implied, to the holders of the notes or any member of the public regarding the advisability of investing in securities generally or in the notes particularly, or the ability of the S&P GSCITM Index to track general commodity market performance.  The Corporations’ only relationship to Morgan Stanley is the licensing of the S&P GSCITM Index and S&P® trademarks or service marks and certain trade names of the Corporations and the use of the S&P GSCITM Index which is determined, composed and calculated by S&P without regard to the licensee or the notes.  S&P has no obligation to take the needs of the licensee or the owners of the notes into consideration in determining, composing or calculating the S&P GSCITM Index.  The Corporations are not responsible for and have not participated in the determination of the timing, prices, or quantities of the notes to be issued or in the determination or calculation of the equation by which the notes are to be converted into cash.  The Corporations have no liability in connection with the administration, marketing or trading of the notes.
 
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE S&P GSCITM INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P GSCITM INDEX OR ANY DATA INCLUDED THEREIN.  THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P GSCITM INDEX OR ANY DATA INCLUDED THEREIN.  WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
 
“Standard & Poor’s®,” “S&P®,” “S&P GSCITM” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Morgan Stanley.  The notes have not been passed on by the Corporations as to their legality or suitability.  The notes are not issued, endorsed, sold or promoted by the Corporations.  THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE NOTES.
 
WTI crude oil, aluminum, soybeans and wheat.  For additional information on soybeans and wheat, please see “Selected Risk Factors—Specific commodities prices are affected by numerous factors specific to each market”.  For additional information about WTI crude oil and aluminum, see “Annex I—Certain Additional Commodity and Commodity Index Risks” in the accompanying prospectus supplement for commodity-linked capital protected notes.
 
 
January 2008
Page 14
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
Historical Information
 
The following tables set forth the published high and low official settlement prices or official cash offer prices, as applicable, as well as end-of-quarter official settlement prices or official cash offer price, as applicable, of each of the basket commodities for each quarter in the period from January 1, 2002 through December 19, 2007.  The related graphs set forth the official settlement prices or official cash offer prices, as applicable, for each of the basket commodities in the same period.  On December 19, 2007, the official settlement prices for BDI, WTI crude oil, the gold index, soybeans and wheat were $9,591.00, $91.24, $72.80, 1,159.00¢ and 973.50¢, respectively, and the official cash offer price for aluminum was $2,364.50.  We obtained the information in the tables and graphs below from Bloomberg Financial Markets, without independent verification.  The historical price performance of the basket commodities should not be taken as an indication of future performance.
 
Baltic Dry Index (in U.S. dollars)
High
Low
Period End
2002
      
First Quarter
1,086.00
   882.00
1,082.00
Second Quarter
1,104.00
   978.00
1,005.00
Third Quarter
1,367.00
   962.00
1,367.00
Fourth Quarter
1,739.00
1,334.00
1,738.00
2003
      
First Quarter
1,940.00
1,530.00
1,939.00
Second Quarter
2,337.00
1,943.00
2,125.00
Third Quarter
2,993.00
2,123.00
2,993.00
Fourth Quarter
4,765.00
3,138.00
4,765.00
2004
      
First Quarter
5,681.00
4,757.00
4,822.00
Second Quarter
4,763.00
2,622.00
3,005.00
Third Quarter
4,233.00
3,115.00
4,105.00
Fourth Quarter
6,208.00
4,112.00
4,598.00
2005
      
First Quarter
4,880.00
4,175.00
4,637.00
Second Quarter
4,835.00
2,510.00
2,521.00
Third Quarter
3,073.00
1,747.00
2,907.00
Fourth Quarter
3,370.00
2,407.00
2,407.00
2006
      
First Quarter
2,798.00
2,033.00
2,496.00
Second Quarter
2,964.00
2,364.00
2,964.00
Third Quarter
4,279.00
2,849.00
3,944.00
Fourth Quarter
4,407.00
3,931.00
4,397.00
2007
      
First Quarter
5,388.00
4,219.00
5,388.00
Second Quarter
6,688.00
5,254.00
6,278.00
Third Quarter
9,474.00
6,201.00
9,474.00
Fourth Quarter (through December 19, 2007)
11,039.00  
9,513.00
9,591.00

 
 
January 2008
Page 15
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
 
WTI Crude Oil (in U.S. dollars)
High
Low
Period End
2002
      
First Quarter
26.31
17.97
26.31
Second Quarter
29.36
23.47
26.86
Third Quarter
30.77
26.07
30.45
Fourth Quarter
32.72
25.19
31.20
2003
      
First Quarter
37.83
26.91
31.04
Second Quarter
32.36
25.24
30.19
Third Quarter
32.39
26.96
29.20
Fourth Quarter
33.71
28.47
32.52
2004
      
First Quarter
38.18
32.48
35.76
Second Quarter
42.33
34.27
37.05
Third Quarter
49.90
38.39
49.64
Fourth Quarter
55.17
40.71
43.45
2005
      
First Quarter
56.72
42.12
55.40
Second Quarter
60.54
46.80
56.50
Third Quarter
69.81
56.72
66.24
Fourth Quarter
65.47
56.14
61.04
2006
      
First Quarter
68.35
57.65
66.63
Second Quarter
75.17
66.23
73.93
Third Quarter
77.03
60.46
62.91
Fourth Quarter
63.72
55.81
61.05
2007
      
First Quarter
66.03
50.48
65.87
Second Quarter
70.68
61.47
70.68
Third Quarter
83.32
69.26
81.66
Fourth Quarter (through December 19, 2007)
98.18
79.02
91.24
 
 
 
 
January 2008
Page 16
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 

 
Aluminum (in U.S. dollars)
High
Low
Period End
2002
      
First Quarter
1,438.00
1,313.00
1,386.00
Second Quarter
1,398.00
1,318.00
1,364.50
Third Quarter
1,370.00
1,279.00
1,280.50
Fourth Quarter
1,399.00
1,275.50
1,344.50
2003
      
First Quarter
1,459.00
1,340.50
1,350.00
Second Quarter
1,440.50
1,314.50
1,389.00
Third Quarter
1,505.00
1,378.00
1,407.50
Fourth Quarter
1,592.50
1415.00
1,592.50
2004
      
First Quarter
1,754.00
1,578.50
1,688.50
Second Quarter
1,826.00
1,575.00
1,698.50
Third Quarter
1,823.00
1,647.00
1,823.00
Fourth Quarter
1,964.00
1,748.00
1,964.00
2005
      
First Quarter
2,031.50
1,809.00
1,973.00
Second Quarter
1,991.00
1,694.00
1,716.00
Third Quarter
1,909.00
1,675.00
1,857.00
Fourth Quarter
2,289.00
1,831.00
2,285.00
2006
      
First Quarter
2,634.00
2,267.00
2,512.50
Second Quarter
3,275.00
2,397.50
2,550.50
Third Quarter
2,614.00
2,367.50
2,572.00
Fourth Quarter
2,886.00
2,480.00
2,850.00
2007
      
First Quarter
2,953.00
2,682.00
2,792.00
Second Quarter
2,871.00
2,626.00
2,686.00
Third Quarter
2,791.00
2,316.50
2,440.00
Fourth Quarter (through December 19, 2007)
2,582.00
2,335.50
2,364.50

 
 
 
January 2008
Page 17
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 

 
Gold Index (in U.S. dollars)
High
Low
Period End
2002
      
First Quarter
33.70
30.91
33.52
Second Quarter
36.17
33.06
34.53
Third Quarter
35.75
33.27
35.53
Fourth Quarter
38.11
34.00
37.95
2003
      
First Quarter
41.29
35.45
36.53
Second Quarter
40.37
34.94
37.47
Third Quarter
41.84
37.03
41.59
Fourth Quarter
44.82
39.84
44.70
2004
      
First Quarter
45.85
42.09
45.79
Second Quarter
45.84
40.08
41.90
Third Quarter
44.52
41.28
44.52
Fourth Quarter
48.26
43.91
46.22
2005
      
First Quarter
46.86
43.45
44.95
Second Quarter
45.93
43.28
45.29
Third Quarter
48.63
43.54
48.27
Fourth Quarter
53.87
46.80
52.60
2006
      
First Quarter
58.91
53.50
58.40
Second Quarter
71.82
55.84
60.72
Third Quarter
65.83
56.30
58.34
Fourth Quarter
62.42
54.72
61.00
2007
      
First Quarter
65.31
58.03
62.73
Second Quarter
65.25
59.89
60.46
Third Quarter
68.37
59.98
68.37
Fourth Quarter (through December 19, 2007)
76.35
67.07
72.80
 
 
 
 
January 2008
Page 18
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 

Soybeans (in U.S. cents)
High
Low
Period End
2002
      
First Quarter
   476.25
418.00
476.25
Second Quarter
   536.50
456.50
536.50
Third Quarter
   602.00
534.75
545.75
Fourth Quarter
   580.50
523.50
569.50
2003
      
First Quarter
   589.50
549.00
574.50
Second Quarter
   648.75
573.75
621.25
Third Quarter
   683.25
532.50
677.25
Fourth Quarter
   800.00
678.00
789.00
2004
      
First Quarter
1,055.75
787.50
995.00
Second Quarter
1,053.50
806.00
893.00
Third Quarter
   979.50
523.50
527.00
Fourth Quarter
   561.25
502.00
547.75
2005
      
First Quarter
   681.00
499.50
627.50
Second Quarter
   744.50
603.75
651.75
Third Quarter
   723.00
557.50
573.25
Fourth Quarter
   613.00
554.00
602.00
2006
      
First Quarter
   621.00
562.00
571.50
Second Quarter
   609.00
555.25
594.75
Third Quarter
   608.50
527.25
547.50
Fourth Quarter
   688.00
542.50
683.50
2007
      
First Quarter
   783.75
653.50
761.25
Second Quarter
   855.25
709.75
850.00
Third Quarter
1,009.00
799.25
991.25
Fourth Quarter (through December 19, 2007)
1,159.00
925.50
1,159.00   
 
 
 
 
January 2008
Page 19
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 

 
Wheat (in U.S. cents)
High
Low
Period End
2002
      
First Quarter
308.25
267.25
285.00
Second Quarter
307.00
256.00
307.00
Third Quarter
416.00
313.00
396.50
Fourth Quarter
415.75
325.00
325.00
2003
      
First Quarter
337.00
279.25
286.75
Second Quarter
338.75
275.50
301.75
Third Quarter
383.50
298.25
360.25
Fourth Quarter
405.75
325.50
377.00
2004
      
First Quarter
422.75
355.00
408.00
Second Quarter
416.50
337.50
338.00
Third Quarter
341.00
299.50
306.75
Fourth Quarter
322.25
283.50
307.50
2005
      
First Quarter
368.00
287.75
331.00
Second Quarter
339.50
296.50
321.50
Third Quarter
352.25
301.50
346.25
Fourth Quarter
348.75
293.00
339.25
2006
      
First Quarter
376.00
322.50
347.75
Second Quarter
426.25
342.00
371.50
Third Quarter
445.50
359.75
443.00
Fourth Quarter
542.50
439.50
501.00
2007
      
First Quarter
489.50
438.00
438.00
Second Quarter
609.00
419.00
582.00
Third Quarter
939.00
569.50
939.00
Fourth Quarter (through December 19, 2007)
973.50
748.00
973.50

 
 
January 2008
Page 20
 
 
Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
Annex A
The Baltic Dry Index
 
We have derived all information contained in these preliminary terms regarding the Baltic Dry Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. Such information reflects the policies of, and is subject to change by the Baltic Exchange.  The Baltic Dry Index was developed by the Baltic Exchange and is calculated, maintained and published by the Baltic Exchange.  We make no representation or warranty as to the accuracy or completeness of such information.
 
The Baltic Dry Index (“BDI” or “Index”) is a leading indicator of the global dry cargo freight market, designed to measure changes in the cost of transporting dry bulk material such as grain, coal, iron ore and industrial metals by sea.  The BDI is an equally-weighted composite index of four sub-indices devoted to different sizes of dry bulk carriers (Baltic Capesize Index, Baltic Panamax Index, Baltic Supramax Index and Baltic Handysize Index), which together cover approximately 30 shipping routes measured on a timecharter ($/day) or voyage ($/tonne) basis.  The Index was first published on November 1, 1999 as the successor to the Baltic Freight Index which commenced publication on January 4, 1985.  You can obtain the level of the Baltic Dry Index on the Bloomberg website at http://quote.bloomberg.com/apps/quote?ticker=bdiy&exch=IND&x=15&y=11.  The Bloomberg website is being provided for reference purposes only.  The level of the Index will be determined for purposes of this pricing supplement based on the prices published by the Baltic Exchange, the publisher of the Index.
 
The Baltic Exchange is a global marketplace of shipbrokers, ship owners and charterers, based in London, England.  The Baltic Exchange provides freight indices and route assessments and also operates as a maker of markets in freight derivatives, specifically a type of forward contract known as forward freight agreements (FFAs) that are traded over the counter.  The Freight Indices and Futures Committee (FIFC) at the Baltic Exchange is responsible for production of the BDI and other freight indices published by the Baltic Exchange, utilizing the professional assessments made by a panel of reporting shipbrokers on the prevailing open market levels.  In compiling any of the sub-indices, the FIFC selects the component routes and determines their weightings with a goal of producing a weighted basket of routes which is as representative as possible of the world’s principal bulk cargo trades for that sub-index.  The daily level of the sub-index is based on the average assessment made by all reporting panellists of the current market rate with respect to each route included in the sub-index and the applicable weighting for such route.
 
The publication of the BDI and other freight indices of the Baltic Exchange is governed by the following rules.
 
Publication
 
The component sub-indices of the Index and the Index will normally be published by the Baltic Exchange at approximately 1 p.m. London time on each business day.  The Baltic Exchange may delay or cancel publication of the indices and routes if considered necessary or desirable.  The Baltic Exchange provides route and index data only if it is fully satisfied that sufficient assessments from an adequate quorum of its reporting panelists have been received.  If there are not sufficient panelists able or willing to report their assessments on any route or index then the Baltic Exchange has the right not to report on that day or any subsequent days until an adequate quorum has been assembled.
 
The Panel
 
The Baltic Exchange appoints a panel of shipbroker companies from its members.  The Baltic Exchange may change the number of panelists and the composition of the panel at any time but aims to have panels consisting of at least seven panelists per index.  As of July 2007, the number of panelists on each of the four sub-indices of the BDI ranges from 12 to 22.
 
The Routes
 
The Baltic Exchange has the right to decide which routes are to be included and may alter the composition of the routes from time to time.  Since September 2002, all panelists’ returns have been included in establishing the average assessment on dry routes.  Prior to that date, both the highest and lowest returns were excluded.
 
Weightings
 
The Baltic Exchange from time to time decides the weighting applied to any route for the purpose of ascertaining its contribution to an index.
 
 
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Commodity-Linked Capital Protected Notes due March 31, 2011
Based on the Performance of a Basket of Four Commodities and Two Commodity Indices
 
 
Weighting Factors
 
For the purpose of calculating the indices, the average rate for each route will be multiplied by the weighting factor for that route.  The weighting factor for each route is ascertained by the Baltic Exchange and may be adjusted by the Baltic Exchange to take account of alterations to routes or route weightings.
 
Alterations to the Indices
 
No more than one route will be removed from an index at any one time.  If a route is removed, one or more routes may be substituted for it.
 
The weighting of an existing route will not be altered by more than an amount equal to 25% of its existing weighting or 2.5% of the index at the date of the decision to make the alteration, whichever is the larger.  No such limitation will apply to routes that are removed from or added to an index.
 
Any one alteration to an index will not result in an adjustment of more than 5% in the regional or commodity composition of a given index.  The meaning of “region” and “commodity” for this purpose will be in the absolute discretion of the Baltic Exchange.
 
When an alteration is made, a revised set of weighting factors will be applied to the routes, so that the new index will have the same level as the old index at the date of the alteration.
 
The dry cargo freight market is sensitive to a variety of external variables, the most important of which include the following:
 
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Fleet supply:  The number and types of ships available have a significant impact on the dry freight market.  The recent short supply of bulk ships, even as compared to oil tankers or container ships, has driven up the dry bulk cargo rates.
 
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Commodity demand:  The level of industrial production significantly affects the dry freight market.  The pace of industrial development in China, India and other developing countries has compelled those countries to look farther for resources.
 
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Seasonal pressures:  The weather has a meaningful impact on the dry cargo freight market, from the size of agricultural harvests to river levels or presence of ice in ports that can cause delays.
 
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Fuel prices:  With bunker fuel accounting for between one quarter and one third of the cost of operating a vessel, oil price movements significantly affect the dry cargo freight market.
 
The notes are not sponsored, endorsed, sold or promoted by The Baltic Exchange.  The Baltic Exchange makes no representation or warranty, express or implied, to the owners of the notes or any member of the public regarding the advisability of investing in the notes. The Baltic Exchange will not accept any liability for any loss incurred in any way whatsoever by any person who seeks to rely on the information contained herein.

 
 
 
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