ADDITIONAL TERMS SPECIFIC TO THE NOTES
You should read this pricing supplement together with the prospectus dated January 25, 2006, as supplemented by the prospectus supplement for leveraged index-linked securities dated December 1, 2006. These Buffered Return Enhanced Notes are an issuance of our leveraged index-linked securities and their terms are further described in the prospectus supplement for leveraged index-linked securities. This pricing supplement, together with the documents listed below, contains the terms of the notes, supplements the preliminary terms related hereto dated December 1, 2006 and supersedes all prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials. You should carefully consider, among other things, the matters set forth in “Risk Factors” in the accompanying prospectus supplement for leveraged index-linked securities, as the notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the notes.
You may access these documents on the SEC Web site at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC Web site):
- Prospectus Supplement for Leveraged Index-Linked
Securities dated December 1, 2006:
http://www.sec.gov/Archives/edgar/data/895421/000095010306002717/dp04146_424b2.htm
- Prospectus dated January 25, 2006:
http://www.sec.gov/Archives/edgar/data/895421/000095010306000145/jan2506_424b2.txt
Terms used in this pricing supplement are defined in the prospectus supplement for leveraged index-linked securities or in the prospectus. As used in this pricing supplement, the “Company,” “we,” “us,” or “our” refer to Morgan Stanley.
What is the Total Return on the Notes at Maturity Assuming a Range of Performance for the Index?
The following table and graph illustrate the hypothetical total return at maturity on the notes. The “total return” as used in this pricing supplement is the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000 principal amount note to $1,000. The hypothetical total returns set forth below assume an Initial Index Level of 16,070 and reflect the Maximum Total Return on the notes of 21.30% . The hypothetical total returns set forth below are for illustrative purposes only and may not be the actual total returns applicable to a purchaser of the notes. The numbers appearing in the following table, graph and examples have been rounded for ease of analysis.
| Ending Index Level | Index Return | Total Return |
| 28926.00 | 80.00% | 21.30% |
| 26515.50 | 65.00% | 21.30% |
| 24105.00 | 50.00% | 21.30% |
| 22498.00 | 40.00% | 21.30% |
| 20087.50 | 25.00% | 21.30% |
| 19284.00 | 20.00% | 21.30% |
| 17781.46 | 10.65% | 21.30% |
| 16873.50 | 5.00% | 10.00% |
| 16471.75 | 2.50% | 5.00% |
| 16230.70 | 1.00% | 2.00% |
| 16070.00 | 0.00% | 0.00% |
| 15266.50 | -5.00% | 0.00% |
| 14463.00 | -10.00% | 0.00% |
| 13659.50 | -15.00% | -5.56% |
| 12856.00 | -20.00% | -11.11% |
| 11249.00 | -30.00% | -22.22% |
| 9642.00 | -40.00% | -33.33% |
| 8035.00 | -50.00% | -44.44% |
| 6428.00 | -60.00% | -55.56% |
| 4821.00 | -70.00% | -66.67% |
| 3214.00 | -80.00% | -77.78% |
| 1607.00 | -90.00% | -88.89% |
| 0 | -100.00% | -100.00% |
2
Hypothetical Examples of Amounts Payable at Maturity
The following examples illustrate how the total returns set forth in the table and graph above are calculated.
Example 1: The level of the Index increases from the Initial Index Level of 16,070 to an Ending Index Level of 16,873.50. Because the Ending Index Level of 16,873.50 is greater than the Initial Index Level of 16,070 and the Index Return of 5% multiplied by 2 does not exceed the Maximum Total Return of 21.30%, the investor receives a payment at maturity of $1,100 per $1,000 principal amount note calculated as follows:
$1,000 + [$1,000 x (5% x 2)] = $1,100
Example 2: The level of the Index decreases from the Initial Index Level of 16,070 to an Ending Index Level of 14,463. Because the Ending Index Level of 14,463 is less than the Initial Index Level of 16,070 by not more than the Buffer Amount of 10%, the investor will receive a payment at maturity of $1,000 per $1,000 principal amount note.
Example 3: The level of the Index increases from the Initial Index Level of 16,070 to an Ending Index Level of 19,284. Because the Index Return of 20% multiplied by 2 exceeds the Maximum Total Return of 21.30%, the investor receives a payment at maturity of $1,213 per $1,000 principal amount note, the maximum payment on the notes.
Example 4: The level of the Index decreases from the Initial Index Level of 16,070 to an Ending Index Level of 12,856. Because the Ending Index Level of 12,856 is less than the Initial Index Level of 16,070 by more than the Buffer Amount of 10%, the Index Return is negative and the investor will receive a payment at maturity of $888.89 per $1,000 principal amount note calculated as follows:
$1,000 + [$1,000 x (-20% + 10%) x 1.1111] = $888.89
Selected Purchase Considerations
- APPRECIATION POTENTIAL – The notes
provide the opportunity to enhance equity returns by multiplying a
positive Index Return by two, up to the Maximum Total Return on the notes
of 21.30%, or $1,213 for every $1,000
principal amount note. Because the notes are our senior unsecured obligations,
payment of any amount at maturity
is subject to our ability to pay our obligations as they become due.
- LIMITED PROTECTION AGAINST LOSS – Payment
at maturity of the principal amount of the notes is protected
against a decline in the Ending Index Level, as compared to the Initial
Index Level, of up to 10%. If the
Ending Index Level declines by more than 10% of the Initial Index Level,
for every 1% decline of the Index
below 10% of the Initial Index Level, you will lose an amount equal to
1.1111% of the principal amount of
your notes.
- DIVERSIFICATION AMONG JAPANESE EQUITIES OF THE NIKKEI 225 INDEX – The return on the notes is linked to the performance of the Nikkei 225 Index which consists of 225 stocks listed on the First Section of the Tokyo Stock Exchange. It is a modified price-weighted average of 225 Japanese companies representing a broad cross-section of Japanese industries. For additional information about the Index, see the information set forth under “Underlying Indices and Underlying Index Publishers Information—Nikkei 225 Index” in Annex A of the accompanying prospectus supplement for leveraged index-linked securities.
3
- CAPITAL GAINS TAX TREATMENT – You should review carefully the section entitled “United States Federal Taxation” in the accompanying prospectus supplement for leveraged index-linked securities, which contains the opinion of our special tax counsel, Davis Polk & Wardwell, with respect to the tax consequences of an investment in the notes. Based on that opinion, subject to the conditions and limitations set forth in the section entitled “United States Federal Taxation” in the accompanying prospectus supplement for leveraged index-linked securities, we believe that it is reasonable to treat your purchase and ownership of the notes as an “open transaction” for U.S. federal income tax purposes. Assuming this characterization is respected, your gain or loss on the notes should be treated as long-term capital gain or loss if you hold the notes for more than a year, even if you are an initial purchaser of notes at a price that is below the principal amount of the notes. However, the Internal Revenue Service or a court may not respect this characterization of the notes, in which case the timing and character of any income or loss on the notes could be significantly and adversely affected. The risk that buffered notes would be recharacterized, for U.S. federal income tax purposes, as debt instruments giving rise to ordinary income, rather than as an open transaction, is higher than with other non-principal protected equity-linked notes. You should consult your tax advisor regarding the treatment of the notes, including possible alternative characterizations.
Selected Risk Considerations
An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the Index or any of the component stocks of the Index. These risks are explained in more detail in the “Risk Factors” section of the accompanying prospectus supplement for leveraged index-linked securities.
- YOUR INVESTMENT IN THE NOTES MAY
RESULT IN A LOSS – The notes do not guarantee any return of principal.
The return on the notes at maturity is linked to the performance of the
Index and will depend on whether,
and the extent to which, the Index Return is positive or negative. Your
investment will be exposed on a leveraged
basis of 1.1111% to each 1% decline in the Ending Index Level below the
10% Buffer Amount as compared to
the Initial Index Level.
- YOUR MAXIMUM GAIN ON THE NOTES
IS LIMITED TO THE MAXIMUM TOTAL RETURN – If the Ending Index Level
is greater than the Initial Index Level, for each $1,000 principal
amount note, you will receive at maturity $1,000
plus an additional amount that will not exceed the Maximum Total Return
of 21.30% on the $1,000 principal
amount, regardless of the appreciation in the Index, which may be significant.
- THE NOTES DO NOT PAY INTEREST – Unlike
ordinary debt securities, the notes do not pay interest and do
not guarantee any return of principal at maturity.
- NO DIVIDEND PAYMENTS OR VOTING
RIGHTS – As
a holder of the notes, you will not have voting rights or
rights to receive cash dividends or other distributions or other rights
that holders of securities composing
the Nikkei 225 Index would have.
- CERTAIN BUILT-IN COSTS ARE LIKELY
TO ADVERSELY AFFECT THE VALUE OF THE NOTES PRIOR TO MATURITY – While
the payment at maturity described in this pricing supplement is based on
the full stated principal amount
of your notes, the original issue price of the notes includes the agent’s commission
and the cost of hedging our obligations under the notes through one or
more of our affiliates. As a result,
the price, if any, at which affiliates of Morgan Stanley, will be willing
to purchase notes from you in secondary
market transactions, if at all, will likely be lower than the original
issue price, and any sale prior to
the maturity date could result in a substantial loss to you. The notes
are not designed to be short-term trading instruments. Accordingly,
you should be able and willing to hold your
notes to maturity.
- NO DIRECT EXPOSURE TO FLUCTUATIONS
IN FOREIGN EXCHANGE RATES – The value of your notes will not
be adjusted for exchange rate fluctuations between the U.S. dollar and
the currencies in which the stocks
composing the Index are denominated, although any currency fluctuations
could affect the performance of the
Index. Therefore, if the applicable currencies appreciate or depreciate
relative to the U.S. dollar over
the term of the notes, you will not receive any additional payment or incur
any reduction in your payment at
maturity.
- LACK OF LIQUIDITY – The notes will
not be listed on any securities exchange. Affiliates of Morgan Stanley
intend to offer to purchase the notes in the secondary market but are not
required to do so. Even if there is a secondary market, it may
not provide enough liquidity to allow you to trade or sell the notes
easily. Because other dealers are not likely to make a 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 affiliates of Morgan Stanley are
willing to buy the notes.
- POTENTIAL CONFLICTS – We and our affiliates play a variety of roles in connection with the issuance of the notes, including acting as calculation agent and hedging our obligations under the notes. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the notes.
4
- MANY ECONOMIC AND MARKET FACTORS
WILL IMPACT THE VALUE OF THE NOTES – In addition to the level of the Index on any
day, the value of the notes will be affected by a number of economic and
market factors that may either offset or magnify each other, including:
- the expected volatility of the Index;
- the time to maturity of the notes;
- the dividend rate on the common stocks underlying the Index;
- interest and yield rates in the market generally;
- geopolitical conditions and a variety of economic, financial, political, regulatory or judicial events; and
- our creditworthiness, including actual or anticipated downgrades in our credit ratings.
Use of Proceeds and Hedging
Part of the net proceeds we receive from the sale of the notes will be used in connection with hedging our obligations under the notes through one or more of our subsidiaries. The hedging or trading activities of our affiliates on or prior to the pricing date and on the Averaging Dates could adversely affect the value of the Index and, as a result, could decrease the amount you may receive on the notes at maturity.
Historical Information
The following graph sets forth the historical performance of the Nikkei 225 Index based on the weekly Index closing levels from January 5, 2001 through December 8, 2006. The Index closing level on December 8, 2006 was 16,417.82. We obtained the Index closing levels below from Bloomberg Financial Markets, without independent verification. We make no representation or warranty as to the accuracy or completeness of the information obtained from Bloomberg Financial Markets. The price source for determining the Ending Index Level will be the Bloomberg page “NKY” or any successor page.
The historical levels of the Index should not be taken as an indication of future performance, and no assurance can be given as to the Index closing level on any of the Averaging Dates. We cannot give you assurance that the performance of the Index will result in the return of any of your initial investment.
License Agreements
License Agreement between Nihon Keizai Shimbun, Inc. and Morgan Stanley. As of the issue date of any notes, we will have received the consent of Nihon Keizai Shimbun, Inc., the publisher of the Nikkei 225 Index, to use and refer to the Nikkei 225 Index in connection with the notes. Nihon Keizai Shimbun, Inc. has the copyright to the Nikkei 225 Index. All rights to the Nikkei 225 Index are owned by Nihon Keizai Shimbun, Inc. See “Underlying Indices and Underlying Index Publishers Information—Nikkei 225 Index—License Agreement between NIKKEI and Morgan Stanley” in Annex A of the prospectus supplement for leveraged index-linked securities.
ERISA
See “ERISA” in the prospectus supplement for leveraged index-linked securities.
5