Morgan Stanley plans issue of 0% notes linked to 97 stocks, S&P 500 Total Return

By Angela McDaniels

Seattle, Oct. 10 - Morgan Stanley plans to price an issue of 0% outperformance securities due Oct. 20, 2007 linked to the performance of a basket of 97 stocks and the S&P 500 Total Return index, according to a 424B2 filing with the Securities and Exchange Commission.

The equally weighted basket includes the common stocks of ACE Ltd., Aetna Inc., Aflac Inc., The Allstate Corp., AmerisourceBergen Corp., AmSouth Bancorp., Anadarko Petroleum Corp., Apache Corp., Apollo Group, Inc., AutoZone, Inc., Baker Hughes Inc., Ball Corp., Bank of America Corp., Barr Pharmaceuticals, Inc., BB&T Corp., Biomet, Inc., BJ Services Co., The Black & Decker Corp., Boston Scientific Corp.;

Chesapeake Energy Corp., Chevron Corp., The Chubb Corp., ConocoPhillips, Consol Energy Inc., Constellation Brands, Inc., Constellation Energy Group, Inc., Countrywide Financial Corp., Coventry Health Care, Inc., Devon Energy Corp., Dominion Resources, Inc., The Dow Chemical Co., Embarq Corp., Entergy Corp., Exelon Corp., Express Scripts, Inc.;

Federal Home Loan Mortgage Corp., Fifth Third Bancorp, First Data Corp., First Horizon National Corp., Fisher Scientific International Inc., Freeport-McMoRan Copper & Gold Inc., Gannett Co., Inc., Golden West Financial Corp.;

H&R Block, Inc., Halliburton Co., HCA Inc., Health Management Associates, Inc., Hess Corp., Huntington Bancshares Inc., KB Home, KeyCorp, L-3 Communications Holdings, Inc., Lennar Corp., Lockheed Martin Corp., Marathon Oil Corp., Masco Corp., MedImmune, Inc., Meredith Corp., Murphy Oil Corp., Mylan Laboratories Inc.;

National City Corp., National Oilwell Varco, Inc., Navistar International Corp., NIKE, Inc., Norfolk Southern Corp., North Fork Bancorporation, Inc., Northrop Grumman Corp., Occidental Petroleum Corp., Patterson Cos., Inc., Prudential Financial, Inc.;

Quest Diagnostics Inc., Raytheon Co., Regions Financial Corp., Safeco Corp., Schering-Plough Corp., Schlumberger NV, SLM Corp., The Southern Co., The St. Paul Travelers Cos., Inc., Sunoco, Inc., SunTrust Banks, Inc., Transocean Inc., TXU Corp.;

UnitedHealth Group Inc., UnumProvident Corp., Valero Energy Corp., Wachovia Corp., Washington Mutual, Inc., Watson Pharmaceuticals, Inc., Weatherford International Ltd., WellPoint, Inc., Wells Fargo & Co., Wendy's International, Inc., Whirlpool Corp., XL Capital Ltd., XTO Energy Inc. and Zimmer Holdings, Inc.

The stocks in the basket were chosen by applying an "intrinsic value" model based on the Edwards-Bell-Ohlson variation of the Residual Income Model in order to identify the most undervalued quintile of stocks in the S&P 500 index.

The payout at maturity will be the arithmetic average of the daily performance value on the three business days beginning Oct. 15, 2007.

The daily performance value on each day will equal 98% of the sum of (i) the value of the stock basket and (ii) 50% of the difference, whether positive or negative, between the basket value and the S&P 500 Total Return value.

The $10 par notes will be called if the daily performance value falls to $5 or less on any day during the life of the notes. The redemption amount will be the arithmetic average of the daily performance value on the three business days preceding the redemption date.

Morgan Stanley & Co. will be the agent.

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