At Morgan Stanley, we believe it is important for you to understand the costs associated with obtaining investments and services from us. As our client, you benefit from the full scope of services and resources of a global industry leader. Through your Financial Advisor, you have access to our firm’s powerful capabilities: world-class equity research, high-quality debt and equity offerings, asset management expertise, financial planning and credit management tools and our team of in-house professionals, including retirement planning, estate and trust service specialists.

Depending on the types of relationships you establish and the ways you choose to do business with us, Morgan Stanley may be compensated for the services we provide through transaction commissions and markups, asset-based fees and other fees and charges.

Brokerage
For brokerage activity we offer transaction-based pricing in which you pay commissions, sales loads, markups/markdowns or other fees for each transaction you or your Financial Advisor execute. You can conduct transaction-based business in virtually all financial products and services within an Active Assets Account or in retirement, education savings, or other accounts we offer.

Investment Advisory
In Morgan Stanley’s investment advisory programs, you generally pay an annual fee, charged quarterly in advance, based on the total value of the assets in your account at the end of the previous quarter. The asset-based fee generally covers investment consulting and certain brokerage services provided by Morgan Stanley, as well as the external or internal investment management fees. However, the asset-based fee does not cover expenses paid within any mutual funds you may own.

You may select from our comprehensive suite of managed account programs, which are designed for various levels of investment experience and sophistication, with asset minimums that start as low as $10,000. Depending upon the program, your investment manager may invest in stocks, bonds, money market funds, mutual funds, exchange-traded funds and cash. You can establish investment advisory relationships for your retirement or trust accounts in addition to your personal investment accounts. If you select Morgan Stanley Advisory, our non-discretionary advisory account, your Financial Advisor will provide investment advice, but you will retain decision-making authority over the account.

Lending Services
Morgan Stanley offers a variety of lending products to individuals and businesses. Morgan Stanley is compensated for these services in two ways: through fees when the loan or credit line is initially established and through ongoing interest charges. These fees and payments depend on the type, structure and duration of the loan.

For margin, non-purpose margin¹ and overdraft loans², you are not charged up-front fees. Normally, ongoing interest charges are calculated and paid based on a variable interest rate. Principal is usually repaid at your discretion, although Morgan Stanley may exercise its rights under its agreement with you at any time, including if there is a collateral shortfall.

For the Portfolio Loan Account, clients are not charged upfront fees to set up the credit facility. Various loan structures can be established in one loan account, including a variable rate revolving line of credit or one or more fixed rate loans. The ongoing principal and interest payments depend on the type, structure and duration of the loan. Principal is usually repaid at the client’s discretion, although Morgan Stanley Bank may exercise its rights under its agreement with you at any time, including if there is a collateral shortfall. You can also establish a standby letter of credit. Fees on standby letters of credit are based on the issuance amount of the Letter of Credit. Fees, interest and principal payments are paid to Morgan Stanley Bank. The Portfolio Loan Account can be used for a variety of purposes but not for buying, trading or carrying securities, and is offered by Morgan Stanley Bank, an affiliate of Morgan Stanley & Co. Incorporated.

For mortgage loans, home equity loans and home equity lines of credit, available through the Morgan Stanley Home Loans³program, you repay the principal amount borrowed, with interest, to Morgan Stanley Credit Corporation. Some loans may involve an origination fee, which is typically up to one percent of the principal amount of the loan, and/or an application fee and closing costs.

Commercial loans available through Morgan Stanley Commercial Financial Services, Inc., have various structures (e.g., lines of credit, letters of credit, term loans, commercial mortgages). The structure and amount of both initial facility fees and ongoing principal and interest payments depend on the type, structure and duration of the loan.

How We Compensate Your Financial Advisor

Your Morgan Stanley Financial Advisor’s compensation is based on the fees and commissions that you pay us based on the products and services you choose.

There are two primary payout tiers for investment products and services as shown below. Certain products are sold pursuant to a prospectus. Please read the prospectus carefully before investing.

There are also some instances when your Financial Advisor will receive a reduced or no payout. For example, for many products, there is no payout for transactions with commissions under $85. Also, generally, your Financial Advisor receives no payout for households with less than $50,000 in assets and a reduced payout for households between $50,000 and $75,000. Exceptions to this policy include investments in Fund Solution or Portfolio Architect.

Your Financial Advisor may also be eligible for a bonus in 2007, based on the total amount of production he or she generates during the year. Additionally, Financial Advisors may receive ongoing compensation (called residuals) on some investment products. All residuals are paid out at the Tier I rate.

Beginning in 2007, Financial Advisors who are in their first three years of the Morgan Stanley Wealth Management Program will be eligible for a third payout tier of 50% on certain investment advisory services (Access, Vision, Fund Solution, Custom Portfolio, Portfolio Architect and Morgan Stanley Advisory).

Financial Advisors who join Morgan Stanley from other financial institutions may receive certain compensation incentives based on the activity in their clients’ accounts at their prior firm as well as at Morgan Stanley.

Lending Services
Your Financial Advisor may also receive compensation for lending services as described below. Financial Advisors are paid a percentage of the amount credited for Lending Services at the Tier I Payout rates.

Morgan Stanley and its affiliates may earn compensation in other, more indirect ways with regard to certain of the products you purchase or services you receive. For example, Morgan Stanley may earn compensation in connection with the provision of investment banking, prime brokerage, institutional brokerage or placement agent services, as well as stock loan or other lending, money-management or trading-desk activities. Certain investment vehicles may include securities of Morgan Stanley’s parent or other affiliates and companies in which Morgan Stanley or its affiliates make a market or in which Morgan Stanley or the officers or employees of Morgan Stanley or Morgan Stanley’s affiliates own securities.

Morgan Stanley & Co. Incorporated is committed to providing best execution for customer orders. In furtherance of this commitment, Morgan Stanley & Co. Incorporated considers several factors, including price, the available liquidity pool, execution speed, transaction costs, service and opportunities for price improvement in determining where to route customer orders for execution.

Industry regulations require that we disclose whether we receive compensation for directing client orders for execution to various dealers, exchanges or market centers. This compensation is commonly referred to as “payment for order flow.” Consistent with its best execution considerations, Morgan Stanley & Co. Incorporated accepts benefits that constitute payment for orderflow. Morgan Stanley & Co. Incorporated routes customer orders to national securities exchanges, alternative trading systems (“ATSs”), including electronic communications networks (“ECNs”), and other market centers. Certain market centers offer cash credits for orders that provide liquidity to their books and charge explicit fees for orders that extract liquidity from their books. From time to time, the amount of credits that Morgan Stanley & Co. Incorporated receives from one or more such market centers may exceed the amount that it is charged. Under these limited circumstances, such payments would constitute payment for order flow.

Notwithstanding the foregoing, Morgan Stanley & Co. Incorporated regularly and rigorously monitors the quality of the executions provided by all market centers to which customer orders are routed to ensure those market centers are providing the best execution reasonably available under the circumstances.