FWP 1 dp08071_fwp-ps468.htm

January 2008
Preliminary Terms No. 468
Registration Statement No. 333-131266
Dated December 26, 2007
Filed pursuant to Rule 433
STRUCTURED INVESTMENTS
Opportunities in Equities
Bear Market PLUS based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
Bear Market PLUS offer an enhanced short exposure to a wide variety of assets and asset classes, including equities, commodities and currencies.  Having short exposure to an underlying asset means that investors will earn a positive return if the underlying asset declines in value, but will lose up to 80% of their investment if the underlying asset increases in value.  These investments allow investors to capture enhanced returns when the underlying asset declines in value.  The enhancement typically applies only for a certain range of negative price performance.  In exchange for enhanced performance in that range, investors generally forgo performance above a specified maximum return.  At maturity, an investor will receive an amount in cash that may be more or less than the principal amount based upon the closing value of the asset at maturity.
 
SUMMARY TERMS
  
Issuer:
Morgan Stanley
Maturity date:
February 20, 2009
Underlying index:
Russell 2000® Index
Aggregate principal amount:
$
Payment at maturity:
If the final index value is less than the initial index value,
$10 + enhanced downside payment
In no event will the payment at maturity exceed the maximum payment at maturity.
If the final index value is greater than or equal to the initial index value,
$10 – upside reduction amount
In no event will the payment at maturity be less than the minimum payment at maturity.
Enhanced downside payment:
$10 x leverage factor x index percent decrease
Upside reduction amount:
$10 x index percent increase
Index percent decrease:
(initial index value – final index value) / initial index value
Index percent increase:
(final index value – initial index value) / initial index value
Initial index value:
The index closing value of the underlying index on the pricing date
Final index value:
The index closing value of the underlying index on the index valuation date
Index valuation date:
February 18, 2009, subject to adjustment for certain market disruption events
Leverage factor:
400%
Maximum payment at maturity:
$13.60 to $14.00 (136% to 140% of the stated principal amount) per Bear Market PLUS
Minimum payment at maturity:
$2 (20% of the stated principal amount) per Bear Market PLUS
Stated principal amount:
$10 per Bear Market PLUS
Issue price:
$10.  See “Commissions and Issue Price” below.
Pricing date:
January   , 2008
Original issue date:
January   , 2008 (5 business days after the pricing date)
CUSIP:
61747W356
Listing:
Application will be made to list the Bear Market PLUS on the American Stock Exchange LLC under the ticker symbol “RZP”, subject to meeting the listing requirements.  We do not expect to announce whether the Bear Market PLUS will meet such requirements prior to the pricing of the Bear Market PLUS.  If accepted for listing, the Bear Market PLUS will begin trading the day after the pricing date.
Agent:
Morgan Stanley & Co. Incorporated
       
Commissions and Issue Price:
Price to Public(1)
Agent’s Commissions(1)(2)
Proceeds to Company
Per Bear Market PLUS
$10
$0.15
$9.85
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 Bear Market PLUS purchased by that investor.  The lowest price payable by an investor is $9.95 per Bear Market PLUS.  Please see “Syndicate Information” on page 6 for further details.
(2) For additional information, see “Plan of Distribution” in the prospectus supplement for PLUS.
 
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.
 
HThe 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 this offering will arrange to send you the prospectus if you request it by calling toll-free 1-800-584-6837.

 
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
 
Investment Overview
 
Performance Leveraged Upside Securities
 
The Russell 2000® Index Bear Market PLUS (the “Bear Market PLUS”) can be used:
 
§  
As an alternative to a direct short exposure to the Russell 2000® Index that enhances returns for a certain range of negative price performance of the Russell 2000® Index
 
§  
To enhance returns and potentially outperform a short strategy on the Russell 2000® Index in a moderately bearish scenario
 
§  
To achieve similar levels of short exposure to the Russell 2000® Index as a direct short investment while using fewer dollars by taking advantage of the leverage factor
 
The Bear Market PLUS are exposed on a 1:1 basis to the positive performance of the Russell 2000® Index, subject to the minimum payment at maturity.
 
Maturity:
13 Months
   
Leverage factor:
400%
   
Maximum payment at maturity:
136% to 140% of the stated principal amount
   
Principal protection:
20% protection of principal
 
Russell 2000® Index Overview
 
The Russell 2000® Index, which is calculated, maintained and published by the Frank Russell Company, is a capitalization weighted index designed to track the performance of the small capitalization segment of the U.S. equity market.  The Russell 2000® Index measures the composite price performance of the smallest 2,000 companies (incorporated in the U.S. and its territories) included in the Russell 3000® Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index.  The Russell 3000® Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of the investable U.S. equity market.
 
Information as of market close on December 19, 2007
 
Bloomberg Ticker Symbol:
RTY
   
Current Index Value:
756.13
   
52 Weeks Ago:
782.10
   
52 Week High (on July 13, 2007):
855.77
   
52 Week Low (on November 26, 2007):
735.07
 
 
 
January 2008
Page 2
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
 
Key Investment Rationale
 
This 13 month investment offers 400% enhanced exposure to the downside movement of the Russell 2000® Index, subject to a maximum payment at maturity of 136% to 140% of the stated principal amount.
 
Investors can use the Bear Market PLUS to quadruple returns up to the maximum payment at maturity, while maintaining similar risk as a direct short investment in the Russell 2000® Index.
 
Enhanced Performance
The Bear Market PLUS offer investors an opportunity to capture enhanced returns relative to a direct short investment in the Russell 2000® Index within a certain range of negative price performance.

Best Case Scenario
The Russell 2000® Index decreases in value and, at maturity, the Bear Market PLUS redeem for the maximum payment at maturity, 136% to 140% of the stated principal amount.

Worst Case Scenario
The Russell 2000® Index increases in value and, at maturity, the Bear Market PLUS redeem for less than the stated principal amount by an amount proportionate to the increase, subject to a specified minimum payment at maturity.

Summary of Selected Key Risks (see page 9)
 
§  
The minimum payment at maturity only provides 20% protection of principal.  You will lose money on your investment if the underlying index increases over the term of the Bear Market PLUS.
 
§  
No interest payments.
 
§  
Appreciation potential is limited by the maximum payment at maturity.
 
§  
Secondary trading may be limited, and the inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices and you could receive less, and possibly significantly less, than the stated principal amount per Bear Market PLUS if you try to sell your Bear Market PLUS prior to maturity.
 
§  
The market price of the Bear Market PLUS will be influenced by many unpredictable factors, including the value, volatility and dividend yield of the Russell 2000® Index.
 
§  
The U.S. federal income tax consequences of an investment in the Bear Market PLUS are uncertain.
 
§  
Credit risk to Morgan Stanley.
 
 
 
 
January 2008
Page 3
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
 
Fact Sheet
 
The Bear Market PLUS offered are senior unsecured obligations of Morgan Stanley, will pay no interest, guarantee only a minimum 20% return of principal at maturity and have the terms described in the prospectus supplement for PLUS and the prospectus, as supplemented or modified by these preliminary terms.  At maturity, an investor will receive for each stated principal amount of Bear Market PLUS that the investor holds, an amount in cash that may be more or less than the stated principal amount based inversely upon the closing value of the underlying index at maturity.  The Bear Market PLUS are senior notes issued as part of Morgan Stanley’s Series F Global Medium-Term Notes program.
 
Expected Key Dates
    
Pricing Date:
Original Issue Date (Settlement Date):
Maturity Date:
January    , 2008
January    , 2008 (5 business days after the
pricing date)
February 20, 2009, subject to postponement due to a market disruption event

Key Terms
  
Issuer:
Morgan Stanley
Underlying index:
Russell 2000® Index
Underlying index publisher:
The Frank Russell Company
Issue price:
$10 per Bear Market PLUS (see “Syndicate Information” below)
Stated principal amount:
$10 per Bear Market PLUS
Denominations:
$10 per Bear Market PLUS and integral multiples thereof
Interest:
None
Bull market or bear market PLUS:
Bear Market PLUS
Payment at maturity:
If the final index value is less than the initial index value,
$10 + enhanced downside payment
In no event will the payment at maturity exceed the maximum payment at maturity.
If the final index value is greater than or equal to the initial index value,
$10 – upside reduction amount
In no event will the payment at maturity be less than the minimum payment at maturity.
Enhanced downside payment:
$10 x leverage factor x index percent decrease
Leverage factor:
400%
Index percent decrease:
(initial index value – final index value) / initial index value
Upside reduction amount:
$10 x index percent increase
Index percent increase:
(final index value – initial index value) / initial index value
Initial index value:
The index closing value of the underlying index on the pricing date.
Final index value:
The index closing value of the underlying index on the index valuation date as published under Bloomberg ticker symbol “RTY” or any successor symbol.
Index valuation date:
February 18, 2009, subject to adjustment for certain market disruption events.
Maximum payment at maturity:
$13.60 to $14.00 (136% to 140% of the stated principal amount)
Minimum payment at maturity:
$2 (20% of the stated principal amount)
Postponement of maturity date:
If the scheduled index valuation date is not an index business day or if a market disruption event occurs on that day so that the index valuation date as postponed falls less than two scheduled index business days prior to the scheduled maturity date, the maturity date of the Bear Market PLUS will be postponed until the second scheduled index business day following that index valuation date as postponed.
Risk factors:
Please see “Risk Factors” on page 9.
 
 
 
January 2008
Page 4
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 

 

General Information
  
Listing:
Application will be made to list the Bear Market PLUS on the American Stock Exchange LLC under the ticker symbol “RZP”, subject to meeting the listing requirements.  We do not expect to announce whether the Bear Market PLUS will meet such requirements prior to the pricing of the Bear Market PLUS.  If accepted for listing, the Bear Market PLUS will begin trading the day after the pricing date.
CUSIP:
61747W356
Minimum ticketing size:
100 Bear Market PLUS
Tax considerations:
Although the issuer believes that, under current law, the Bear Market PLUS should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes, there is uncertainty regarding the U.S. federal income tax consequences of an investment in the Bear Market PLUS.
 
Assuming this characterization of the Bear Market PLUS is respected and subject to the discussion under “United States Federal Taxation” in the accompanying prospectus supplement for PLUS, the following U.S. federal income tax consequences should result based on current law:
 
•      A U.S. Holder should not be required to recognize taxable income over the term of the Bear Market PLUS prior to maturity, other than pursuant to a sale or exchange.
•      Upon sale, exchange or settlement of the Bear Market PLUS at maturity, a U.S. Holder should generally recognize capital gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the Bear Market PLUS.  Such gain or loss should generally be long-term capital gain or loss if the investor has held the Bear Market PLUS for more than one year.
 
On December 7, 2007, the Treasury Department and IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments (which may well include the Bear Market PLUS).  The notice focuses in particular on whether to require holders of such instruments to accrue income over the term of their investment.  It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; the relevance of factors such as exchange-traded status of the instruments and the nature of the underlying property to which they are linked; the degree, if any, to which any income (including any mandated accruals) recognized by non-U.S. holders should be subject to withholding tax; and whether these investments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gains as ordinary income that is subject to an interest charge.  While the notice requests comments on appropriate transition rules and effective dates, Treasury regulations or other forms of guidance, if any, issued after consideration of these issues could materially and adversely affect the tax consequences of an investment in the Bear Market PLUS, possibly on a retroactive basis.  Both U.S. and non-U.S. investors considering an investment in the Bear Market PLUS should consult their tax advisers regarding the notice and its potential implications for an investment in the Bear Market PLUS.
 
Both U.S. and non-U.S. investors should read the discussion under “Risk Factors ― Structure Specific Risk Factors” in these preliminary terms and the discussion under “United States Federal Taxation” in the prospectus supplement for PLUS concerning the U.S. federal income tax consequences of investing in the Bear Market PLUS.  Investors should note that the accompanying prospectus supplement for PLUS does not address the tax consequences to an investor holding the Bear Market PLUS as part of a hedging transaction, “straddle,” conversion transaction, or integrated transaction or as part of a constructive sale transaction.  An investor who holds any securities the return on which is based on or linked to the performance of the Russell 2000 Index or any component thereof should discuss with its tax advisors the U.S. federal income tax consequences of investing in the Bear Market PLUS (including the potential application of the “straddle” rules).
Trustee:
The Bank of New York (as successor trustee to JPMorgan Chase Bank, N.A.)
Calculation agent:
Morgan Stanley & Co. Incorporated (“MS & Co.”)
 
 
 
January 2008
Page 5
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 

 
Use of proceeds and hedging:
The net proceeds we receive from the sale of the Bear Market PLUS will be used for general corporate purposes and, in part, in connection with hedging our obligations under the Bear Market PLUS through one or more of our subsidiaries.
On or prior to the pricing date, we, through our subsidiaries or others, will hedge our anticipated exposure in connection with the Bear Market PLUS by taking positions in futures and options contracts on the underlying index. Such activities could decrease the value of the underlying index, and therefore the value at which the underlying index must close on the index valuation date before investors would receive at maturity a payment that exceeds the principal amount of the Bear Market PLUS.  For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the prospectus supplement for PLUS.
ERISA:
See “ERISA” in the prospectus supplement for PLUS.
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.

Syndicate Information
    
Issue Price of the Bear Market PLUS
Selling Concession
Principal Amount of the Bear Market PLUS
for any single investor
  $10.00
$0.15
<$999K
  $9.975
$0.125
$1MM-$2.99MM
$9.9625
$0.1125
$3MM-$4.99MM
    $9.95
$0.10
>$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 Bear Market PLUS distributed by such dealers.
 
This offering summary represents a summary of the terms and conditions of the Bear Market PLUS.  We encourage you to read the accompanying prospectus supplement for PLUS and prospectus for this offering, which can be accessed via the hyperlinks on the front page of this document.
 
 
 
January 2008
Page 6
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
 
How Bear Market PLUS Work
 
Payoff Diagram
 
The payoff diagram below illustrates the payment at maturity on the Bear Market PLUS based on the following terms:
 
Stated principal amount:
$10
   
Leverage factor:
400%
   
Hypothetical maximum payment at maturity:
138% of the stated principal amount
   
Minimum payment at maturity:
$2 (20% of the stated principal amount)
 
 
How it works
 
§  
If the final index value is less than the initial index value, then investors receive the $10 stated principal amount plus 400% of the decline in the underlying index over the term of the Bear Market PLUS, subject to the maximum payment at maturity.  In the payoff diagram, an investor will realize the hypothetical maximum payment at maturity at a final index value of 90.5% of the initial index value.
 
o     
If the underlying index depreciates 5%, the investor would receive a 20% return, or $12.00.
 
o     
If the underlying index depreciates 50%, the investor would receive the hypothetical maximum payment at maturity of 138% of the stated principal amount, or $13.80.
 
§  
If the final index value is greater than or equal to the initial index value, the investor would receive an amount less than or equal to the $10 stated principal amount, based on a 1% loss of principal for each 1% increase in the underlying index, subject to the minimum payment at maturity.
 
o     
If the underlying index appreciates 10%, the investor would lose 10% of their principal and receive only $9 per Bear Market PLUS at maturity, or 90% of the stated principal amount.
 
o     
If the underlying index appreciates 90%, the investor would receive the minimum payment at maturity of 20% of the stated principal amount, or $2.
 
 
January 2008
Page 7
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
 
Payment at Maturity
 
At maturity, investors will receive for each $10 stated principal amount of Bear Market PLUS that they hold an amount in cash based upon the value of the underlying index, determined as follows:
 
If the final index value is less than the initial index value, investors will receive for each $10 stated principal amount of Bear Market PLUS that they hold a payment at maturity equal to:
 
$10    +    enhanced downside payment,
 
subject to a maximum payment at maturity of $13.60 to $14.00, or 136% to 140% of the stated principal amount of $10 for each Bear Market PLUS,
 
where,
 
enhanced downside payment   =   ($10    ×    400%    ×    index percent decrease)
 
and
 
index percent decrease
=
  initial index value − final index value  
initial index value
 
If the final index value is greater than or equal to the initial index value, investors will receive for each $10 stated principal amount of Bear Market PLUS that they hold a payment at maturity equal to:
 
$10    –    upside reduction amount
 
subject to a minimum payment at maturity of $2, or 20% of the stated principal amount of $10 for each Bear Market PLUS,
 
where,
 
upside reduction amount   =   ($10    ×    index percent increase)
 
and
 
index percent increase
=
  final index value − initial index value  
initial index value
 
Because the upside reduction amount will be greater than or equal to 0, the payment at maturity in this case will be less than or equal to $10, subject to the minimum payment at maturity.
 
 
January 2008
Page 8
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
 
Risk Factors
 
The following is a non-exhaustive list of certain key risk factors for investors in the Bear Market PLUS.  For further discussion of these and other risks, you should read the section entitled “Risk Factors” beginning on page S-18 of the prospectus supplement for PLUS.  We also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Bear Market PLUS.
 
Structure Specific Risk Factors
 
§  
Bear Market PLUS do not pay interest and guarantee only a minimum 20% return of principal.  The terms of the Bear Market PLUS differ from those of ordinary debt securities in that the Bear Market PLUS do not pay interest and guarantee only a minimum 20% payment of the principal amount at maturity.  If the final index value is greater than the initial index value, the payout at maturity will be an amount in cash that is less than the $10 stated principal amount of each Bear Market PLUS by an amount proportionate to the increase in the value of the underlying index, subject to the minimum payment at maturity.
 
§  
Appreciation potential is limited.  The appreciation potential of Bear Market PLUS is limited by the maximum payment at maturity of $13.60 to $14.00, or 136% to 140% of the stated principal amount.  Although the leverage factor provides 400% exposure to any decline in the value of the underlying index at maturity, because the payment at maturity will be limited to 136% to 140% of the stated principal amount for the Bear Market PLUS, the percentage exposure provided by the leverage factor is progressively reduced as the final index value falls below 91% to 90% of the initial index value.
 
§  
Market price influenced by many unpredictable factors.  Several factors will influence the value of the Bear Market PLUS in the secondary market and the price at which MS & Co. may be willing to purchase or sell the Bear Market PLUS in the secondary market, including: the value, volatility and dividend yield of the underlying index, interest and yield rates, time remaining to maturity, geopolitical conditions and economic, financial, political and regulatory or judicial events and creditworthiness of the issuer.
 
§  
Not equivalent to investing in or taking a short position with respect to the underlying index.  Investing in the Bear Market PLUS is not equivalent to investing in or taking a short position with respect to the underlying index or its component stocks.  Investors in the Bear Market PLUS will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to stocks that constitute the underlying index.
 
§  
Adjustments to the underlying index could adversely affect the value of the Bear Market PLUS.  The underlying index publisher may discontinue or suspend calculation or publication of the underlying index at any time.  In these circumstances, the calculation agent will have the sole discretion to substitute a successor index that is comparable to the discontinued underlying index and is not precluded from considering indices that are calculated and published by the calculation agent or any of its affiliates.
 
§  
The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices.  Assuming no change in market conditions or any other relevant factors, the price, if any, at which MS & Co. is willing to purchase Bear Market PLUS in secondary market transactions will likely be lower than the original issue price, since the original issue price included, and secondary market prices are likely to exclude, commissions paid with respect to the Bear Market PLUS, as well as the projected profit included in the cost of hedging the issuer’s obligations under the Bear Market PLUS.  In addition, any such prices may differ from values determined by pricing models used by MS & Co., as a result of dealer discounts, mark-ups or other transaction costs.
 
§  
The U.S. federal income tax consequences of an investment in the Bear Market PLUS are uncertain.Please read the discussion under “Fact Sheet ― General Information ― Tax Considerations” in these preliminary terms and the discussion under “United States Federal Taxation” in the accompanying prospectus supplement for PLUS (together the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of investing in the Bear Market PLUS.  If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative characterization or treatment for the Bear Market PLUS, the timing and character of income on the Bear Market PLUS might differ significantly from the tax treatment described in the Tax Disclosure Sections.  For example, under one characterization, U.S. Holders could be required to accrue original issue discount on the Bear Market PLUS every year at a “comparable yield” determined at the time of issuance and recognize all income and gain in respect of the Bear Market PLUS as ordinary income.  The issuer does not plan to request a ruling from the IRS regarding the tax treatment of the Bear Market PLUS, and the IRS or a court may not agree with the tax treatment described in these preliminary terms and the accompanying prospectus supplement for PLUS.  On December 7, 2007, the Treasury Department and IRS released a
 
 
January 2008
Page 9
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
 
 
notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments (which may well include the Bear Market PLUS).  The notice focuses in particular on whether to require holders of such instruments to accrue income over the term of their investment.  It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; the relevance of factors such as exchange-traded status of the instruments and the nature of the underlying property to which they are linked; the degree, if any, to which any income (including any mandated accruals) recognized by non-U.S. holders should be subject to withholding tax; and whether these investments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gains as ordinary income that is subject to an interest charge.  While the notice requests comments on appropriate transition rules and effective dates, Treasury regulations or other forms of guidance, if any, issued after consideration of these issues could materially and adversely affect the tax consequences of an investment in the Bear Market PLUS, possibly on a retroactive basis.  Both U.S. and non-U.S. investors considering an investment in the Bear Market PLUS should consult their tax advisers regarding the notice and its potential implications for an investment in the Bear Market PLUS.
 
Other Risk Factors
 
§  
Secondary trading may be limited.  There may be little or no secondary market for the Bear Market PLUS.  Application will be made to list the Bear Market PLUS on the American Stock Exchange LLC under the symbol “RZP”.  For a security to be listed on the American Stock Exchange LLC, the requirements include, among other things, that there be 1 million units and 400 holders of such security.  However, it is not possible to predict whether the Bear Market PLUS will meet the requirements for listing or trade in the secondary market or if such market will be liquid or illiquid, and we do not expect to announce whether or not the Bear Market PLUS will meet those requirements prior to the pricing of the Bear Market PLUS.  Because it is not possible to predict whether the market for the Bear Market PLUS will be liquid or illiquid, you should be willing to hold your Bear Market PLUS to maturity.
 
§  
Potential adverse economic interest of the calculation agent.  The hedging or trading activities of the issuer’s affiliates on or prior to the pricing date and prior to maturity could adversely affect the value of the underlying index and, as a result, could decrease the amount an investor may receive on the Bear Market PLUS at maturity.  Any of these hedging or trading activities on or prior to the pricing date could potentially affect the initial index value and, therefore, could decrease the value at which the underlying index must close before an investor receives a payment at maturity that exceeds the issue price of the Bear Market PLUS.  Additionally, such hedging or trading activities during the term of the Bear Market PLUS, including on the index valuation date, could potentially affect the value of the underlying index on the index valuation date and, accordingly, the amount of cash an investor will receive at maturity.

 
 
 
January 2008
Page 10
 
 
Bear Market PLUS Based Inversely on the Value of the Russell 2000® Index due February 20, 2009
Performance Leveraged Upside SecuritiesSM
 
 
Information about the Russell 2000® Index
 
The Russell 2000® Index.  The Russell 2000® Index, which is calculated, maintained and published by the Frank Russell Company, is a capitalization weighted index designed to track the performance of the small capitalization segment of the U.S. equity market.  The RTY Index measures the composite price performance of the smallest 2,000 companies (incorporated in the U.S. and its territories) included in the Russell 3000® Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index.  The Russell 3000® Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of the investable U.S. equity market.
 
License Agreement between Frank Russell Company and Morgan Stanley. 
The “Russell 2000® Index” is a trademark of Frank Russell Company and has been licensed for use by Morgan Stanley.  See “Underlying Indices and Underlying Index Publishers Information—Russell 2000® Index—License Agreement between Frank Russell Company and Morgan Stanley” in Annex A of the accompanying prospectus supplement for PLUS.
 
Historical Information
 
The following table sets forth the published high and low closing values, as well as end-of-quarter closing values, of the underlying index for each quarter in the period from January 1, 2002 through December 19, 2007.  The closing value of the underlying index on December 19, 2007 was 756.13.  We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.  The historical values of the underlying index should not be taken as an indication of future performance, and no assurance can be given as to the level of the underlying index on the index valuation date.  The payment of dividends on the stocks that constitute the underlying index are not reflected in its level and, therefore, have no effect on the calculation of the payment at maturity.
 
Russell 2000® Index
High
Low
Period End
2002
      
First Quarter
506.46
458.40
506.46
Second Quarter
522.95
452.45
462.65
Third Quarter
447.73
356.58
362.27
Fourth Quarter
410.24
327.04
383.09
2003
      
First Quarter
398.45
345.94
364.54
Second Quarter
458.01
368.69
448.37
Third Quarter
520.20
449.17
487.68
Fourth Quarter
565.47
500.32
556.91
2004
      
First Quarter
601.50
557.63
590.31
Second Quarter
606.39
535.34
591.52
Third Quarter
582.72
517.10
572.94
Fourth Quarter
654.57
564.88
651.57
2005
      
First Quarter
644.95
604.53
615.07
Second Quarter
644.19
575.02
639.66
Third Quarter
688.51
643.04
667.80
Fourth Quarter
690.57
621.57
673.22
2006
      
First Quarter
765.14
684.05
765.14
Second Quarter
781.83
672.72
724.67
Third Quarter
734.48
671.94
725.59
Fourth Quarter
797.73
718.35
787.66
2007
      
First Quarter
829.44
760.06
800.71
Second Quarter
855.09
803.22
833.70
Third Quarter
855.77
751.54
805.45
Fourth Quarter (through December 19, 2007)
845.72
735.07
756.13

 
 
January 2008
Page 11