Dry Freight Elevator Note

DRY FREIGHT ELEVATOR NOTE

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As commodity markets grow, so does the need for freight: the transportation of raw materials between producers, manufacturers and consumers. Demand for dry freight has historically come from the OECD countries. However, recent industrial growth in markets like China has had a major impact on global demand.

As well as demand for raw materials, there are many additional dynamics that inﬂ uence the freight market. These include the supply of ships, port congestion problems, weather conditions and fuel prices.

The dry freight market offers investors an interesting investment story but has traditionally been hard to access. Direct investment in shipping is illiquid and inconvenient for many investors. Morgan Stanley offers convenient access to the freight market, with the added beneﬁ t of capital protection. with principal protection on board

USD Dry Freight Elevator Note

X Return linked to the Baltic Exchange Dry Index, a well- established benchmark for dry freight

X Minimum return of 40% as long as index performance is ﬂ at or positive

X Potential for attractive return if index performance is slightly negative

X 100% capital protection at maturity

X 3-year term the Baltic Dry Index

The Baltic Exchange is the world’s main freight exchange, bringing together ship owners and charterers. The Baltic Exchange Dry Index (the “Index”) covers shipping rates for dry bulk such as iron ore, grains and coal, across 40 shipping routes.

Dry freight vessels are classiﬁ ed by size: Handysize, Supramax, Panamax and Capesize. Each ship size has its own sub-index and the Baltic Exchange Dry Index is the weighted average of these.

Compared to direct investment in shipping, the index is a well-diversiﬁ ed and convenient way to track the freight market.

Baltic Exchange Dry Index Capesize Handysize Supramax Panamax (BCI) (BHSI) (BSI) (BPI) Average 145,000 28,000 45,000 65,000 volume 200,000 32,000 60,000 80,000 (tonnes) mt mt mt mt

Source: Baltic Exchange

The Baltic Exchange Dry Index has seen gains of around 49% per annum over the past six years. In the past year alone, the index has returned over 110%2. Past performance is not indicative of future erformance.

2 As at 5 October 2007 Payout Details

The Dry Freight Elevator Note can offer an attractive return for investors with a positive or even neutral view on dry freight. Investors enjoy full exposure to any increase in the Baltic Exchange Dry Index over the three year term. What’s more, if the index is weak or slightly negative, the “Elevator” feature provides a boost and investors can achieve still achieve an attractive return.

Baltic Exchange Dry Index: Historic Performance September 2002 - September 2007

10,000 BALTIC EXCHANGE DRY INDEX

8,000

6,000

4,000

2,000

0 USD SEP SEP SEP SEP SEP SEP 2002 2003 2004 2005 2006 2007

Source: Bloomberg, Morgan Stanley, October 2007, in USD Past performance is not indicative of future performance Payout

At maturity, investors receive a return based on the performance of the Baltic Exchange Dry Index:

X If index performance is greater than 40%, the return reﬂ ects the actual performance

X If the index performance is between 0% and 40%, the return is a ﬁ xed 40%

X If the index performance is negative, investors receive a 40% return, minus the negative performance

X If is the index is down by 40% or more, the note redeems at par (100%)

The index performance is based on a daily average over the ﬁ nal calendar quarter of the investment term.

Performance Baltic Exchange Dry Index Redemption Amount

+60% 160%

+30% 140%

+10% 140%

0% 140%

-10% 130%

-30% 110%

-60% 100% important information

This information is not an offer or a solicitation to buy or sell the product and has been prepared solely for information purposes. Past performance is not necessarily indicative of future results. All prices or values are indicative only, and may vary signifi cantly from executable prices or from prices obtained from elsewhere. Any investment decision should be made only based on the terms of the base prospectus and fi nal terms for the product (if any) (the “Offering Documents”), which is the only binding document and the terms of which will supersede the terms herein. Copies of the Offering Documents will be available at Morgan Stanley & Co International plc, 25 Cabot Square, Canary Wharf, London E14 4QA. The product may only be offered or sold in jurisdictions in which such offer or distribution is permitted. In particular, the product may not be offered, sold, transferred or delivered directly or indirectly in the United States to, or for the account or benefi t of, any U.S. Person (as defi ned in Regulation S under the United States Securities Act 1933). This document may only be distributed and published in jurisdictions in which such distribution and publication is permitted. In the U.K. it is directed only to those persons who are market counterparties or intermediate customers. No representation or warranty is given with respect to the accuracy or completeness of the information herein. Morgan Stanley does not give investment, tax, accounting, legal, regulatory or other advice; prospective investors should consult their own professional advisors.

This product does not constitute any Collective Investment Schemes Unit in the meaning of the Swiss Federal Act on Collective Investment Schemes (CISA). Accordingly, holders of the product do not beneﬁ t from the investor protection under the CISA or the approval or supervision by the Swiss Federal Banking Commission. Investors are exposed to the credit risk of the issuer. Accordingly, the value of the product is not only subject to the performance of the underlying assets but, among others, also the solvency of the issuer. Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor.

Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto.

Issuer: Morgan Stanley Issuer Rating: AA- (S&P) Issue Price: 100% Denomination: USD 1,000 Underlying: Baltic Exchange Dry Index Initial Fixing Date: 16 October 2007 Issue Date: 23 October 2007 Maturity: 23 October 2010 ISIN: XS0325389244 Valor: 3464604

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