THE NEW FACE OF AGRICULTURE

4Y C A P P E D P E R FO R M A N C E N OT E

The 4-year Capped Performance Note offers exposure to a selection

of agricultural commodities: these commodities are used for food but

also, increasingly, in the production of bio-fuels. The Note offers:

Exposure to wheat, corn, soybean, soybean oil, palm oil and rapeseed

Full participation in the positive performance of each commodity, up to

a preset cap level

100% capital protection at maturity

MORGAN STANLEY – YOUR PARTNER IN COMMODITIES

Morgan Stanley is a leading player in Commodities. Our activities range

from trading and risk management solutions to active participation in the

physical commodity markets. This in-depth involvement allows us to offer

exposure to the broadest range of commodities, including crops such as

palm oil where investment opportunities are currently limited.

As governments look to diversify their energy supplies and cut

emissions, bio-fuels are moving into the mainstream. At the same

time, the world population is growing, demanding more energy

and more food. Current concerns over food infl ation are partly a

refl ection of these dual pressures on agricultural commodities.

THE CASE FOR BIO-FUEL

“The use of vegetable oils for engine fuels may seem insignifi cant

today. But such oils may become in the course of time as

important as the petroleum and coal tar products of the present

time” - Rudolf Diesel, 1912

Although the use of bio-fuels is not new, global production has

tripled between 2000 and 20071, driving increased demand for

the crops used to make them and changing the landscape of

global agriculture. What is driving this agricultural revolution?

Bio-fuels are considered “renewable”, unlike fossil fuels,

which take millions of years to form.

Bio-fuels are seen as less harmful to the environment:

compared to fossil fuels, bio-fuels result in lower emissions of

carbon dioxide,and many other pollutants. Bio-fuels are also

biodegradable and non-toxic. However, the overall impact of

bio-fuels on the environment may not yet be fully understood.

Additional considerations include the energy required to

produce the fuel and the impact of bio-fuels on biodiversity

and land use (eg deforestation).

Government policy is a key driver of demand. For example,

the EU is targeting a combined market share of 5.75% for

bio-fuels in transportation by 20102, as part of its strategy to

reduce emissions Similarly, the U.S recently passed the Energy

Independence and Security Act 2007, which sets mandatory

targets for bio-fuel usage to be met by 2022. Developing

alternative energy sources, also allows governments to

diversify their energy supply, reducing dependency on foreign

oil supplies.

WHAT ARE BIO-FUELS?

Bio-fuels are combustible gas, liquid or solid fuels derived from

biological matter (biomass). The automotive, mining and

marine industries are the main potential end users. Some

common types of bio-fuel include the following:

Bio-ethanol: made primarily from starch found in corn, wheat

and sugar cane. The US and Brazil account for the majority of

global ethanol production and usage. Petrol containing up to 10%

ethanol can usually be used in ordinary petrol engines. Higher

concentrations of ethanol usually require engine modifi cations.

Bio-diesel: made from vegetable oil (e.g. soybean oil,

rapeseed oil, palm oil), animal fat or recycled cooking grease.

Bio-diesel can be blended with petroleum diesel in ratios of

2% (B2), 5% (B5), or most typically 20% (B20). It can also be

used in pure form a (B100). Blended versions can generally

be used in traditional diesel vehicles without any modifi cations.

Europe represents an important market: total EU-27 bio-diesel

production for 2006 was over 4.8 million metric tonnes, an

increase of 54% from the 2005 fi gures3.

Bio-butanol from similar feedstocks to those used for bio-

ethanol, as well as other agricultural by-products such as

straw and corn stalks. The US is the biggest market in terms

of consumption and production. Bio-butanol can be blended

into standard grade petrol, petrol-ethanol blends or diesel. It

is compatible with existing vehicle technology and has the

potential to be incorporated into the existing fuel supply

infrastructure. However, bio-butanol production is currently

more expensive than ethanol so has not been commercialised

on a large scale.

feeling the squeeze AGRICULTURAL COMMODITIES ARE UNDER PRESSURE, AS DEMAND FOR FOOD COMPETES WITH THE INCREASING USE OF BIO-FUELS

1 Source: Energy Information Administration, 20072 Source: European Commission, Jan 20083 Source: The European Biodiesel Board, 2007

Source: Morgan Stanley / Bloomberg as at 20 February 2008. Prices shown are for near-month futures contracts. Past performance is no guide to future performance.4 U.S. Department of Agriculture, 20075 Source: US Department of Agriculture, February 20086 Source: US Department of Agriculture, 2007

WHEAT

Soybeans are a major global crop with some diverse uses – from an alternative protein source to use by Henry Ford to make car panels. In addition, soybeans can be used in the production of bio-diesel: one bushel

of soybeans makes around one and a half gallons of bio-diesel. The U.S. is the

major producer of soybeans, although Brazil and Argentina also account for a

signifi cant proportion of global supply. China has overtaken the European Union

to become the main importer of soybeans, accounting for 42% of global imports

in 2006/74.

Wheat is an important food source for both humans and livestock. It is also used, along with sugar, to produce bio-ethanol. Although excessive

rainfall can damage wheat, it is one of the more resilient agricultural

commodities. Since different varieties are planted in different climatic regions,

production shortfalls in some regions can often be offset by supply from others.

The main wheat producers are the European Union, China and India, followed

by the U.S. These regions are also the main consumers.

Corn is one of the most widely cultivated crops in the world.Traditionally an important food source for both people and livestock, its uses

are becoming more diverse. As well as for the production of ethanol, corn is

increasingly used to produce plastics and fabrics as part of a trend to fi nd

alternative, “greener” ways of living. The plant is vulnerable to cold and heavily

dependent on soil moisture. Drought or frost can completely destroy harvests,

and even the expectation of bad weather can impact prices.

Palm oil has been used as a versatile vegetable oil in food preparation for over 5000 years. Today, it is primarily used globally as

cooking oil and, increasingly as a source for bio-diesel fuel. Other uses include

in the making of soap manufacturing. Palm oil is high in saturated fatty acids

and tends to be of a reddish colour due to its high content of beta-carotene.

China is the largest consumer of palm oil in the world. The chief producers and

exporters are Malaysia and Indonesia holding 87% of the world’s palm oil supply 5.

Rapeseed is now consumed by humans in many different forms,

including dietary supplements, margarine, and as cooking oil – principally owing

to its health attributes (low acid, low glucosinalate and low saturated fat). But

rapeseed is also the preferred oil stock for biodiesel production in Europe.

Worldwide production of rapeseed has grown by over 50% over the past 10

years to reach 47 million tonnes in 20066. Leading producers of rapeseed

include China, Canada, the EU and India. These are also the main consumers.

CORN

SOYBEAN

PALM OIL

RAPESEED

JAN08

WHEAT

US

CE

NTS

JAN03

JAN04

JAN05

JAN06

JAN07

1,200

800

400

0

JAN08

CORN

US

CE

NTS

JAN03

JAN04

JAN05

JAN06

JAN07

600

400

200

0

SOYBEANSOYBEAN OIL

US

CE

NTS

JAN08

JAN03

JAN04

JAN05

JAN06

JAN07

1,600

1,200

800

400

0

JAN08

PALM OIL

MYR

JAN03

JAN04

JAN05

JAN06

JAN07

4,000

3,000

2,000

1,000

0

JAN08

RAPESEED

EU

R

JAN03

JAN04

JAN05

JAN06

JAN07

500

400

300

200

100

0

80

60

40

20

0 US

D

The Capped Performance Note is a 4-year euro-denominated Note

offering exposure to a selection of agricultural commodities currently

used in the production of bio-fuels: wheat, corn, soybean, soybean oil, palm oil

and rapeseed. The Note offers 100% capital protection at maturity.

HOW IS THE RETURN CALCULATED?7

At maturity, investors receive 100% of the principal, plus a return based on the

performance of the basket of commodities over the 4-year investment term. The

return is the average performance of the six commodities in the basket, except

that the performance of each individual commodity is capped. This cap will be

fi xed on the 28 March 2008 and is indicatively set between 75% and 95%.

The table shows example redemption amounts in a range of scenarios,

assuming an initial investment of EUR 1,000 and a performance cap of 85%

for each commodity. Where the performance of an individual commodity is

85% or more (the shaded squares), a fi xed 85% is used in the calculation

of the fi nal redemption amount.

The minimum redemption is 100% of the initial investment. The maximum

redemption is 185% (if the performance of each commodity is 85% or

greater).

Basket Component Performance

Scenario: 1 2 3 4 5

Wheat 120% 25% 10% 5% -5%

Corn 95% 100% 50% 10% -10%

Soybean 130% 70% 95% 0% -20%

Soybean Oil 86% 60% -15% -5% -50%

Palm Oil 88% 80% 20% -10% -20%

Rapeseed 100% 40% 30% -10% -40%

Final Redemption Amount at Maturity (EUR) 1,850 1,600 1,300 1,000 1,000

For example:

In scenario 3, all the commodities except soybeans have performance less

than 85%. In the calculation, soybeans contributes a fi xed 85% and the other

components their actual performance. The return is the average of (10% +

50% + 85% - 15% + 20% + 30%) = 30%, and the fi nal redemption amount

is EUR 1,300.

4 year capped performance note

INVESTMENT CONSIDERATIONS:

Returns could be zero, if the performance of

the basket is fl at or negative.

The maximum return is limited by caps on the

performance of each of the individual commodities.

Commodities can be volatile. Sudden price

movements in any of the underlying commodities

could signifi cantly impact the return of the Notes.

Results achieved in the past are no guarantee of

future results.

Commodity markets are subject to temporary

disruptions due to factors including the lack of

liquidity in the market, the participation of speculators

and government regulation and intervention. These

circumstances could impact the return of the

Notes.

Capital protection is provided at maturity only.

If the Notes are sold prior to the maturity date, or

if the Issuer redeems the Notes early for reasons

stated in the prospectus, the fi nal proceeds may

be less than the full principal invested. Investors

may also be subject to transaction costs including

a bid-offer spread.

There may be no relationship between the

prices of the agricultural commodities in the basket

and the price of bio-fuels or the environmental, policy

and energy usage trends described in the brochure.

7 All examples are based on gross returns and do not take into account any costs or taxes. Examples are provided

for illustrative purposes only. Morgan Stanley makes no representation or warranty in respect of the future

performance of the Note.

IMPORTANT INFORMATION

Any investment decision should be made only based on the terms of the base prospectus and fi nal terms for the product (if any) including the risk factors (the “Offering Documents”), which is the only binding document and the terms of which will supersede the terms herein. Copies of the Offering Documents dated 7 April 2008 will be available at Morgan Stanley & Co. International plc, 25 Cabot Square, Canary Wharf, London E14 4QA.

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. 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 UK it is directed only to those persons who are eligible counterparties or professional clients and must not be acted on or relied upon by retail clients (each as defi ned in the UK Financial Services Authority’s rules). 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. Morgan Stanley and its affi liates may make discretionary determinations or be engaged in transactions, including hedging activities and proprietary trading involving underlying instruments, that could affect the value of the Note. In such cases, the interests of Morgan Stanley may confl ict with the interests of investors and Morgan Stanley will not be required to consider the interests of investors.

This information is a marketing communication; it is not a product of Morgan Stanley’s Research Department and should not be regarded as a research recommendation. Morgan Stanley does not intend the information contained herein to have legal effect or to give rise to any form of legal relationship with any person whatsoever. Any reference (whether express or implied) to the contrary in this document is an error and is superseded by the terms of this disclaimer.

The Notes are not collective investment schemes as per the Federal Act on Collective Investment Schemes (“CISA”) and are not subject to approval or supervision by the Swiss Federal Banking Commission. A simplifi ed prospectus pursuant to article 5 CISA will be available on 3 March 2008 and can be obtained free of charge from Bank Morgan Stanley AG, Bahnhofstrasse 92, CH-8023 Zurich, Switzerland and on the website www.morganstanleyiq.ch. Investors bear the issuer risk. The value of the Notes is dependent not only on the development of the underlying(s), but also on the creditworthiness of the issuer, which may vary over the term of the Notes. This information is not an issue prospectus as that term is understood pursuant to article 652a or article 1156 of the Swiss Federal Code of Obligations and, according to Article 5 paragraph 4 CISA, the prospectus requirement is therefore not applicable.

This document constitutes an advertisement within the meaning of article 15 of Directive 2003/17/EC and article 17 of the Luxembourg Act dated 10 July 2005 (that applies to prospectuses for securities) implementing Directive 2003/17/EC into Luxembourg law.

© 2008 Morgan Stanley. All rights reserved.

Product Information

Issuer: Morgan Stanley

Issuer Rating: Aa3 (Moody’s) /AA- (Standard & Poor’s)

Issue Price: 100%

Issue Date: 7 April 2008

Maturity Date: 7 April 2012

Subscription Period: 3 March 2008 up to and including 27 March 2008. The issuer has the right to close the subscription period early.

Denominations: EUR 1,000

Underlying: An equally weighted basket of agricultural commodities: Corn, Soybean, Soybean Oil, Wheat, Rapeseed (all referencing

the 1st near-month futures contracts) and Palm Oil (referencing the 3rd near-month futures contract).

Minimum Redemption: 100% at maturity

Liquidity: Daily. Under normal market conditions, Morgan Stanley & Co. International plc will use reasonable efforts to quote bid and

offer prices but will not be legally obliged to do so.

ISIN: XS0351189690

Valor: 3845003

MORGAN STANLEY & CO INTERNATIONAL PLC25 CABOT SQUARECANARY WHARFLONDON E14 4QA

TEL: +44 (0) 20 7677 8880FAX: +44 (0) 20 7056 0404EMAIL: INFO@MORGANSTANLEYIQ.COM

WWW.MORGANSTANLEYIQ.COM

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