|
| Preliminary Terms No. 149 |
| Registration Statement No. 333-131266 |
| Dated November 22, 2006 |
| Rule 433 |
10% SPARQS® DUE JANUARY 20,
2008
(Stock Participation Accreting Redemption Quarterly-pay Securities SM)
ISSUED BY MORGAN STANLEY
MANDATORILY EXCHANGEABLE
FOR THE COMMON STOCK OF
CIRCUIT CITY STORES, INC.
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.
Prospectus
Supplement for SPARQS dated January 25, 2006
Prospectus
dated January 25, 2006
| MORGAN STANLEY | |
 |
| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
| Overview |
Stock Participation Accreting Redemption Quarterly-pay SecuritiesSM
SPARQS are short-term yield-enhancement securities that provide enhanced current income with exposure to an underlying security. In exchange for current income, investors forgo upside potential above the yield to call.
How SPARQS Work
SPARQS pay a relatively high fixed quarterly coupon compared to the dividend yield of the underlying stock in exchange for a limit on the opportunity for appreciation. Regardless of the stated maturity, SPARQS are callable by the issuer at any time after the call date, typically 6 months from the issue date. If called, the SPARQS will return a stated annualized return, inclusive of any coupons previously paid and accrued to the Call Date. If not called, SPARQS will return a fixed number of shares of the underlying stock per SPARQS. SPARQS are not principal protected.
| page 2 of 10 | MORGAN STANLEY |
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| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
| Fact Sheet |
The SPARQS offered are senior unsecured obligations of Morgan Stanley, will pay 10% interest per year and will have the terms described in the prospectus supplement for SPARQS and the prospectus, as supplemented or modified by these preliminary terms. At maturity the SPARQS will pay a number of shares of Circuit City Stores, Inc. common stock, subject to the Issuer’s right to call the SPARQS for cash at any time beginning July 20, 2007. The SPARQS do not guarantee any return of principal at maturity.
Expected Key Dates |
| Expected Pricing Date: December , 2006 | Expected Issue Date
(Settlement Date): December , 2006 (5 trading days after the Pricing Date) |
Maturity Date: January
20, 2008, subject
to
postponement due to a Market Disruption Event |
Key Terms |
| Issuer: Morgan Stanley |
Underlying Equity: Circuit City Stores, Inc.
common stock (the “CC Stock”) |
Interest: 10% per annum, payable quarterly
beginning April 20, 2007 |
Issue Price: |
CC Stock closing price on the Pricing Date, provided that the SPARQS will be issued at 100% of the Stated Principal Amount per SPARQS and the agent’s commissions will be 1.625% of the Stated Principal Amount per SPARQS; provided that the price to public and the agent's commissions for any single transaction to purchase between $1,000,000 to $2,999,999 principal amount of SPARQS will be 99.75% of the Stated Principal Amount per SPARQS and 1.375% of the Stated Principal Amount per SPARQS, respectively, for any single transaction to purchase between $3,000,000 to $4,999,999 principal amount of SPARQS will be 99.625% of the Stated Principal Amount per SPARQS and 1.25% of the Stated Principal Amount per SPARQS, respectively, and for any single transaction to purchase $5,000,000 or more principal amount of SPARQS will be 99.50% of the Stated Principal Amount per SPARQS and 1.125% of the Stated Principal Amount per SPARQS, respectively. 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 SPARQS distributed by such dealers. |
Stated Principal Amount (Par): |
CC Stock closing price on the Pricing Date |
Interest Payment Dates: |
April 20, 2007, July 20, 2007, October 20, 2007 and the Maturity Date |
Exchange at Maturity: |
At maturity, unless previously called by the Issuer, each SPARQS will be exchanged into CC Stock at the Exchange Ratio |
Exchange Ratio: |
The initial exchange ratio will be 1.0, subject to adjustment for corporate events; however, if the Issuer determines to price the SPARQS at a fraction of the closing price of CC Stock, the initial exchange ratio will be adjusted so that it represents that fraction. |
Issuer Call Right: |
Beginning on July 20, 2007, the Issuer may call the SPARQS for a cash Call Price that, together with coupons paid from the Issue Date through the Call Date, implies an annualized rate of return on the Stated Principal Amount equal to the Yield to Call |
Expected Yield to Call: |
20-24% per annum on the Stated Principal Amount (actual yield to call to be determined on the Pricing Date). See “Hypothetical Call Price Calculations” beginning on page 6. |
Call Notice Date: |
If the Issuer calls the SPARQS, at least 10 but not more than 30 calendar days notice will be given before the Call Date specified in the notice |
First Call Date: |
July 20, 2007 |
Final Call Date: |
January 10, 2008 |
Risk Factors: |
Please see “Risk Factors” on page 9. |
| page 3 of 10 | MORGAN STANLEY |
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| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
General Information |
Listing: |
Application will be made to list the SPARQS on the American Stock Exchange (“AMEX”) under the ticker symbol “CKK”, subject to meeting the listing requirements. If accepted for listing, the SPARQS will begin trading the day after the Pricing Date. |
CUSIP: |
61750V204 |
Minimum Ticketing Size: |
100 SPARQS |
Tax Consideration: |
The U.S. federal income tax consequences of an investment in the SPARQS are uncertain. There is no direct legal authority as to the proper tax treatment of the SPARQS, and the Issuer’s counsel has not rendered an opinion as to their proper characterization for U.S. federal income tax purposes. Pursuant to the terms of the SPARQS and subject to the discussion in the accompanying prospectus supplement for SPARQS under “United States Federal Taxation,” you agree with the Issuer to treat a SPARQS as a unit consisting of (i) a terminable forward contract and (ii) a deposit with the Issuer of a fixed amount of cash to secure your obligation under the terminable forward contract. Assuming the characterization of the SPARQS as set forth above is respected, a portion of the stated interest payments on the SPARQS will be treated as the Yield on the Deposit, and the remainder will be attributable to the Contract Fees, as described in the section of the accompanying prospectus supplement for SPARQS called “United States Federal Taxation — Tax Treatment of the SPARQS.” The Yield on the Deposit will be determined as of the pricing date and set forth in the applicable pricing supplement to the accompanying prospectus supplement for SPARQS. Assuming the characterization of the SPARQS as set forth above is respected, the following U.S. federal income tax consequences would result. The portion of the stated interest payment on the SPARQS that is attributable to the deposit will be taxable to a U.S. Holder as ordinary interest income. The Issuer will treat the portion of the stated interest payment that is attributable to the terminable forward contract as ordinary income. Based on the tax treatment described above, upon sale, exchange or redemption of the SPARQS solely for cash, a U.S. Holder will generally recognize capital gain or loss equal to the difference between the amount realized and the issue price. Upon physical settlement of the terminable forward contract at maturity, a U.S. Holder generally will not recognize any gain or loss with respect to the underlying equity received and will have a tax basis in the underlying equity received equal to the issue price. Please read the discussion under “Risk Factors – Structure Specific Risk Factors” in these preliminary terms and the discussion under “United States Federal Taxation” in the accompanying prospectus supplement for SPARQS concerning the U.S. federal income tax consequences of investing in the SPARQS. Notwithstanding the foregoing, any stated interest payments on the SPARQS made to non-U.S. holders (as defined in the accompanying prospectus supplement for SPARQS) will generally be withheld upon at a rate of 30%. See the section called “United States Federal Taxation — Tax Consequences to Non-U.S. Holders” in the accompanying prospectus supplement for SPARQS. Non-U.S. holders should also note that the discussion in the accompanying prospectus supplement for SPARQS does not address the tax consequences to non-U.S. holders for whom income or gain in respect of the SPARQS is effectively connected with a trade or business in the United States. The Issuer does not render any advice on tax matters. This material is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. You are urged to consult your own tax advisors regarding all aspects of the U.S. federal tax consequences of investing in the SPARQS, 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.) |
Calculation Agent: |
Morgan Stanley & Co. Incorporated |
Contact: |
You may contact your local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York, 10036 (telephone number (866) 477-4776 / (914) 225 7000) |
This offering summary represents a summary of the terms and conditions of the SPARQS. We encourage you to read the accompanying prospectus supplement for SPARQS and prospectus related to this offering.
| page 4 of 10 | MORGAN STANLEY |
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| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
Key Benefits / Key Risks /
Key Investment Rationale
| Key Benefits | Key Investment Rationale | |||
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| • | 10% yield, which is higher than the current dividend yield of 0.38% on CC Stock. | You may be interested in the SPARQS if you are: | ||
| • | Seeking exposure to CC Stock but are willing to limit your appreciation in exchange for a higher current yield. | |||
| • | A defensive, total return strategy linked to CC Stock. | |||
| • | A holder of CC Stock and, if, consistent with your investment objectives, after taking into account the tax considerations, may consider switching into a security that provides a 10% yield while still retaining CC Stock exposure, which is limited by the Call Price. | |||
| • | Not concerned about principal risk. | |||
| Key Risks | ||||
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| • | No guaranteed return of principal. | Please carefully review all the “Risk Factors” on page 9 | ||
| • | Your return on the SPARQS is limited by the Issuer’s call right. | |||
| • | 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. | |||
| • | If the SPARQS are accelerated, you may receive an amount worth substantially less than the principal amount of the SPARQS. | |||
| • | Circuit City Stores, Inc. is not involved with this offering in any way. The Issuer has not made any due diligence inquiry in connection with this offering. | |||
| • | The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect CC Stock. | |||
| • | The U.S. federal income tax consequences of an investment in the SPARQS are uncertain. | |||
| • | Credit Risk to Morgan Stanley whose credit rating is currently Aa3/A+. | |||
| page 5 of 10 | MORGAN STANLEY |
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| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
Hypothetical Call Price Calculations
The following tables set forth sample values based on calculations of the Call Price for hypothetical Call Dates as indicated based on the following hypothetical terms:
| • | Original Issue Date: | December 29, 2006 | |
| • | Interest Payment Dates: | April 20, 2007, July 20, 2007, October 20, 2007 and the Maturity Date | |
| • | Yield to Call: | 22% per annum (computed on the basis of a 360-day year of twelve 30-day months) | |
| • | Stated Principal Amount: | $24.00 per SPARQS | |
| • | Interest Rate: | 10% per annum | |
| • | Discount Factor: | 1 / 1.22x , where x is the number of years from the Original Issue Date to and including the applicable payment date. | |
The Call Price with respect to any Call Date is an amount of cash per SPARQS such that the sum of the present values of all cash flows on each SPARQS to and including the Call Date (i.e., the Call Price and all of the interest payments and accrued interest on each SPARQS), discounted to the Original Issue Date at the applicable Discount Factor, equals the Stated Principal Amount. The Discount Factor is based on the hypothetical Yield to call rate of 22% per annum and the number of years (or fraction of a year) from the Original Issue Date to and including the applicable payment date.
Each of the Call Price and total amount received calculations below are based upon the hypothetical terms set forth above and the sample Call Dates as indicated. The actual amount you will receive if the Issuer calls the SPARQS will depend upon the actual terms of the SPARQS and the actual Call Date.
| Call on July 20, 2007 (First Call Date) | |
| Call Price received | $25.4403 |
| Total amount received over the term of the SPARQS | $26.7803 |
| Call on August 29, 2007 (random interim Call date) | |
| Call Price received | $25.7345 |
| Total amount received over the term of the SPARQS | $27.3345 |
| Call on January 20, 2008 (Maturity Date) | |
| Call Price received | $26.8692 |
| Total amount received over the term of the SPARQS | $29.4092 |
The table on the following page sets forth a more detailed sample calculation of the Call Price for a hypothetical Call Date of July 20, 2007 based upon the hypothetical terms set forth above.
| page 6 of 10 | MORGAN STANLEY |
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| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
Hypothetical Call Price Calculation on the First Call Date (continued)
The Call Price in the hypothetical example shown below is determined as follows:
The Call Price calculated in the following table is based upon the hypothetical terms set forth above and the sample Call Date of July 20, 2007. The actual amount you will receive if the Issuer calls the SPARQS will depend upon the actual terms of the SPARQS and the actual Call Date.
| Payment Date |
Stated Principal Amount |
Interest Payments Received |
Accrued but Unpaid Interest Received on Call Date |
Call Price Received1 |
Total Cash Received on Payment Date |
Days from Original Issue Date2 |
Years from Original Issue Date (Days2 /360) |
Discount Factor at Yield to Call3 |
Present Value at Original Issue Date of Call Received on Payment Date at Yield to Call |
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| December 29, 2006 | ($24.00) | 0 | .00000 | 100.000% | ||||||||||||||
| April 20, 2007 | $0.7400 | $0.7400 | 111 | .30833 | 94.053% | $0.6960 | ||||||||||||
| Call Date (July 20, 2007) | $0.6000 | $0.6000 | 201 | .55833 | 89.492% | $0.5370 | ||||||||||||
| Call Date (July 20, 2007) | $25.4403 | $25.4403 | 201 | .55833 | 89.492% | $22.7670 | ||||||||||||
| Total amount received on the Call Date: $26.0403 | Total: | $24.0000 | ||||||||||||||||
| Total amount received over the term of the SPARQS: $26.7803 | ||||||||||||||||||
| 1 | The Call Price of $25.4403 is the dollar amount that has a present value of $22.7670, which has been discounted to the Original Issue Date from the Call Date at the Yield to Call rate of 22% so that the sum of the present values of all of the interest payments on the SPARQS and the present value of the Call Price is equal to the Stated Principal Amount of $24.0000. |
| 2 | Based upon a 360-day year of twelve 30-day months. |
| 3 | Discount Factor = 1 / 1.22x , where x is years from Original Issue Date to and including the applicable payment date |
| page 7 of 10 | MORGAN STANLEY |
|
| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
Information about Circuit City Stores, Inc.
Circuit City Stores, Inc. is a specialty retailer of consumer electronics, home office products, entertainment software and related services. CC Stock is registered under the Exchange Act. Information provided to or filed with the Commission by Circuit City Stores, Inc. pursuant to the Exchange Act can be located by reference to Commission file number 001-05767 through the Commission’s website at http://www.sec.gov. In addition, information regarding Circuit City Stores, Inc. may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. See the section called “Underlying Company and Stock—Public Information” in the prospectus supplement for SPARQS.
These preliminary terms relate only to the SPARQS offered hereby and do not relate to CC Stock or other securities of Circuit City Stores, Inc. The Issuer has derived all disclosures contained in these preliminary terms regarding Circuit City Stores, Inc. from the publicly available documents described in the preceding paragraph. In connection with the offering of the SPARQS, neither the Issuer nor the Agent has participated in the preparation of such documents or made any due diligence inquiry with respect to Circuit City Stores, Inc. Neither the Issuer nor the Agent makes any representation that such publicly available documents or any other publicly available information regarding Circuit City Stores, Inc. is accurate or complete.
Neither the Issuer nor any of its affiliates makes any representation to you as to the performance of CC Stock.
Historical Information
The following graph presents the published high and low closing prices of CC Stock for 2003, 2004, 2005 and 2006 through November 20, 2006. The closing price of CC Stock on November 20, 2006 was $23.55. The Issuer obtained the closing prices and other information below from Bloomberg Financial Markets, without independent verification. You should not take the historical prices of CC Stock as an indication of future performance.
| High | Low | Dividends | ||||
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| (CUSIP 172737108) | ||||||
| 2003 | ||||||
| First Quarter | 7.55 | 4.13 | 0.0175 | |||
| Second Quarter | 8.87 | 5.14 | 0.0175 | |||
| Third Quarter | 11.35 | 8.66 | 0.0175 | |||
| Fourth Quarter | 13.02 | 9.36 | 0.0175 | |||
| 2004 | ||||||
| First Quarter | 11.90 | 8.84 | 0.0175 | |||
| Second Quarter | 13.21 | 10.60 | 0.0175 | |||
| Third Quarter | 15.59 | 12.09 | 0.0175 | |||
| Fourth Quarter | 17.49 | 14.45 | 0.0175 | |||
| 2005 | ||||||
| First Quarter | 16.53 | 13.46 | 0.0175 | |||
| Second Quarter | 17.65 | 15.35 | 0.0175 | |||
| Third Quarter | 18.63 | 15.51 | 0.0175 | |||
| Fourth Quarter | 23.08 | 16.28 | 0.0175 | |||
| 2006 | ||||||
| First Quarter | 25.57 | 22.79 | 0.0175 | |||
| Second Quarter | 31.29 | 23.41 | 0.0175 | |||
| Third Quarter | 26.85 | 22.50 | 0.0175 | |||
| Fourth Quarter | ||||||
| (through November 20, 2006) | 28.82 | 23.55 | 0.0400 |
The Issuer makes no representation as to the amount of dividends, if any, that Circuit City Stores, Inc. will pay in the future. In any event, as an investor in the SPARQS, you will not be entitled to receive dividends, if any, that may be payable on CC Stock.
| page 8 of 10 | MORGAN STANLEY |
|
| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
Risk Factors
The SPARQS are financial instruments that are suitable only for investors who are capable of understanding the complexities and risks specific to the SPARQS. Accordingly, investors should consult their own financial and legal advisors as to the risks entailed by an investment in the SPARQS and the suitability of such SPARQS in light of an investor’s particular circumstances.
The following is a non-exhaustive list of certain key considerations for investors in the SPARQS. For a complete list of considerations and risk factors, please see the accompanying prospectus supplement for SPARQS and the accompanying prospectus.
Structure Specific Risk Factors
| No guaranteed return of principal. If at maturity the closing price of CC Stock has declined from the closing price on the day the SPARQS were priced for initial sale to the public, and the Issuer has not called the SPARQS, the payout at maturity will be less than the principal amount of the SPARQS. | |
| The return on the SPARQS is limited by the Issuer’s call right. The return you realize on the SPARQS is limited by the Issuer’s call right. The Issuer may call the SPARQS at any time beginning July 20, 2007, including at maturity, for the cash Call Price, which will be calculated based on the Call Date. The Call Price will be an amount of cash per SPARQS that, together with all of the interest paid on the SPARQS to and including the Call Date, gives you a yield to call of 20-24% per annum on the Stated Principal Amount of each SPARQS from and including the date of issuance to but excluding the Call Date. You should not expect to obtain a total yield (including interest payments) of more than 20-24% per annum on the Stated Principal Amount of the SPARQS to the Call Date. | |
| Market price influenced by many unpredictable factors. Several factors will influence the value of the SPARQS in the secondary market. It is expected that generally the trading price of CC Stock on any day will affect the value of the SPARQS more than any other single factor. However, because of the Issuer’s call right, the SPARQS may trade differently from CC Stock. Other factors that may influence the value of the SPARQS include: the volatility of CC Stock, geopolitical conditions and economic, financial, political, regulatory or judicial events, interest and yield rates, time remaining until the Issuer can call the SPARQS and until the SPARQS mature, the dividend rate on CC Stock, the Issuer’s creditworthiness and the occurrence of certain events affecting Circuit City Stores, Inc. that may or may not require an adjustment to the exchange ratio. | |
| Maturity date of the SPARQS may be accelerated. The maturity of the SPARQS will be accelerated if (i) the closing price of CC Stock on any two consecutive trading days is less than $2.00 or (ii) there is an event of default with respect to the SPARQS. | |
| The amount payable to you if the maturity of the SPARQS is accelerated will differ depending on the reason for the acceleration and may be substantially less than the principal amount of the SPARQS. | |
| No shareholder rights. Investing in SPARQS is not equivalent to investing in CC Stock. As an investor in the SPARQS, you will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to CC Stock. | |
| The SPARQS may become exchangeable into the common stock of companies other than Circuit City Stores, Inc. | |
| Following certain corporate events relating to CC Stock, you will receive at maturity either the common stock of three companies in the same industry group as Circuit City Stores, Inc. in lieu of, or in addition to, CC Stock or the common stock of a successor corporation to Circuit City Stores, Inc. The occurrence of such corporate events and the consequent adjustments may materially and adversely affect the market price of the SPARQS. | |
| Antidilution adjustments. Although the calculation agent will adjust the amount payable at maturity for certain corporate events affecting CC Stock, other corporate events may occur (such as partial tender or exchange offers) for which the calculation agent is not required to make any adjustments. If an event occurs that does not require the calculation agent to adjust the amount of CC Stock payable at maturity, the market price of the SPARQS may be materially and adversely affected. | |
| 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 SPARQS 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 SPARQS, as well as the projected profit included in the cost of hedging the Issuer’s obligations under the SPARQS. | |
| The U.S. federal income tax consequences of an investment in the SPARQS are uncertain. There is no direct legal authority as to the proper tax treatment of the SPARQS, and the Issuer’s counsel has not rendered an opinion as to their proper characterization for U.S. federal income tax purposes. | |
| Please read the discussion under “Fact Sheet – General Information – Tax Consideration” in these preliminary terms and the discussion under “United States Federal Taxation” in the accompanying prospectus supplement for SPARQS (together the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of investing in the SPARQS. If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative characterization for the SPARQS, the timing and character of | |
| page 9 of 10 | MORGAN STANLEY |
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| 10% SPARQS due January 20, 2008 |
| Mandatorily Exchangeable for the Common Stock of |
| Circuit City Stores, Inc. |
income on the SPARQS might differ from the tax treatment described in the Tax Disclosure Sections. The Issuer does not plan to request a ruling from the IRS regarding the tax treatment of the SPARQS, and the IRS or a court may not agree with the tax treatment described in these preliminary terms and the prospectus supplement for SPARQS.
Other Risk Factors
| page 10 of 10 | MORGAN STANLEY |