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Municipal Trust Program

Municipal Trust Program. Municipal Capital Markets February 2008. Creating Leverage. Highly Leveraged Example. In this example, the client receives the tax exempt income on $100,000,000, less the floating rate paid on $99,995,000. Cash flow is further reduced by fees paid.

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Municipal Trust Program

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  1. Municipal Trust Program Municipal Capital Markets February 2008 Creating Leverage Highly Leveraged Example • In this example, the client receives the tax exempt income on $100,000,000, less the floating rate paid on $99,995,000. Cash flow is further reduced by fees paid. • As a result of the steep municipal yield curve, this is an opportunity to earn positive carry • Because of the economic leverage, the client receives an enhanced return on a $5,000 investment (the Residual Certificates) • Floater Holders are entitled to 5% of the capital gain (if any) on the underlying tax exempt municipal bond Tax Exempt Bonds $100,000,000 Client Municipal Trust Floater Proceeds $99,995,000 Residual Certificates $5,000 Floating Rate Certificates $99,995,000 Floater Proceeds $99,995,000 Floater Investors This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Past performance is not necessarily a guide to future performance. Please refer to important information and qualifications at the end of this material.

  2. Municipal Trust Program Municipal Capital Markets February 2008 The Transaction Residual accrued plus most of the gain or all of the loss on tax exempt municipal bonds Tax Exempt Municipal Bonds Deposited into Trust Client Municipal Trust Floater Proceeds ($) Residual Certificates Floater Accrued Program Fees Collateralized Shortfall Agreement Floating Rate Certificates Floater Proceeds ($) Par Put Liquidity & Remarketing Morgan Stanley Floater Investors This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Past performance is not necessarily a guide to future performance. Please refer to important information and qualifications at the end of this material.

  3. Municipal Trust Program Municipal Capital Markets February 2008 Enhancing Lower Rated Investment Grade Bonds A and BBB Tax Exempt Municipal Bonds Deposited Client Custodial Receipt Program Form of Credit Enhancement Reimbursement Agreements for Liquidity and Credit Support BMA or LIBOR Swap (Client pays fixed) Enhanced Custodial Receipts Credit Enhancement Fee Municipal Trust (Certificates rated AA- or higher) Morgan Stanley Muni Funding (LP, swap CP, and Credit Enhancer) MS&Co (RemAgnt) Trust Program Fees Liquidity & Remarketing This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. Past performance is not necessarily a guide to future performance. Please refer to important information and qualifications at the end of this material.

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