FWP 1 dp13341_fwp-ps98.htm FREE WRITING PROSPECTUS
 
May 2009
 
Preliminary Terms No. 98
Registration Statement No. 333-156423
Dated May 4, 2009
Filed pursuant to Rule 433
STRUCTURED INVESTMENTS
Opportunities in Equities
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
PLUS offer leveraged exposure to a wide variety of assets and asset classes, including equities, commodities and currencies.  These investments allow investors to capture enhanced returns relative to the asset’s actual positive performance.  The leverage typically applies only for a certain range of price performance.  In exchange for enhanced performance in that range, investors generally forgo performance above a specified maximum return.  At maturity, an investor will receive an amount in cash that may be greater than, equal to or less than the principal amount based upon the closing value of the asset on the valuation date.  The PLUS are senior unsecured obligations of Morgan Stanley, and all payments on the PLUS are subject to the credit risk of Morgan Stanley.
SUMMARY TERMS
Issuer:
Morgan Stanley
Maturity date:
November    , 2009
Underlying index:
S&P 500® Index
Aggregate principal amount:
$
Payment at maturity:
If final index value is greater than initial index value,
 
$10 + leveraged upside payment
 
In no event will the payment at maturity exceed the maximum payment at maturity.
 
If final index value is less than or equal to initial index value,
 
$10 x index performance factor
 
This amount will be less than or equal to the stated principal amount of $10.
Leveraged upside payment:
$10 x leverage factor x index percent increase
Index percent increase:
(final index value – initial index value) / initial index value
Initial index value:
The index closing value on the pricing date
Final index value:
The index closing value on the valuation date
Valuation date:
November    , 2009, subject to adjustment for certain market disruption events
Leverage factor:
300%
Index performance factor:
final index value / initial index value
Maximum payment at maturity:
$11.20 to $11.80 per PLUS (112% to 118% of the stated principal amount).  The actual maximum payment at maturity will be determined on the pricing date.
Stated principal amount:
$10 per PLUS
Issue price:
$10 per PLUS
Pricing date:
May      , 2009
Original issue date:
May      , 2009 (5 business days after the pricing date)
CUSIP:
617483128
ISIN:
US6174831288
Listing:
The PLUS will not be listed on any securities exchange.
Agent:
Morgan Stanley & Co. Incorporated
Commissions and Issue Price:
Price to Public
Agent’s Commissions(1)
Proceeds to Company
Per PLUS
$10
$0.10
$9.90
Total
$
$
$
(1)
For additional information, see “Plan of Distribution” in the accompanying prospectus supplement for PLUS.
 
You should read this document together with the related prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below, before you decide to invest.
 
 
THE PLUS ARE NOT BANK DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY, NOR ARE THEY OBLIGATIONS OF, OR GUARANTEED BY, A BANK.  FURTHERMORE, THE PLUS WILL NOT BE GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION UNDER THE FDIC’S TEMPORARY LIQUIDITY GUARANTEE PROGRAM.
 
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.
 
FWP: MSPRB1208009
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
Investment Overview
 
Performance Leveraged Upside Securities
The S&P 500® Index PLUS (the “PLUS”) can be used:
 
§  
As an alternative to direct exposure to the underlying index that enhances returns for a certain range of price performance of the underlying index.
 
§  
To enhance returns and potentially outperform the underlying index in a moderately bullish scenario.
 
§  
To achieve similar levels of exposure to the underlying index as a direct investment, subject to the maximum payment at maturity, while using fewer dollars by taking advantage of the leverage factor.
 
The PLUS are exposed on a 1:1 basis to the negative performance of the underlying index.
 
 
Maturity:
6 Months
 
Leverage factor:
300%
 
Maximum payment at maturity:
$11.20 to $11.80 per PLUS (112% to 118% of the stated principal amount)
 
Principal protection:
None
 
S&P 500® Index Overview
 
The S&P 500® Index, which is calculated, maintained and published by Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc., consists of 500 component stocks selected to provide a performance benchmark for the U.S. equity markets.  The calculation of the S&P 500® Index is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time as compared to the aggregate average market capitalization of the 500 similar companies during the base period of the years 1941 through 1943.
 
Information as of market close on April 30, 2009:
 
 
Bloomberg Ticker Symbol:
SPX
 
Current Index Value:
872.81
 
52 Weeks Ago:
1,385.59
 
52 Week High (on 5/19/08):
1,426.63
 
52 Week Low (on 3/9/09):
676.53

 
Underlying Index Historical Performance – Daily Closing Values
January 1, 2004 to April 30, 2009
 
May 2009
Page 2
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
Key Investment Rationale
 
This 6 month investment offers 300% leveraged upside, subject to a maximum payment at maturity of $11.20 to $11.80 per PLUS (112% to 118% of the stated principal amount).
 
Investors can use the PLUS to triple returns up to the maximum payment at maturity, while maintaining similar risk as a direct investment in the underlying index.
 
Leveraged Performance
The PLUS offer investors an opportunity to capture enhanced returns relative to a direct investment in the underlying index within a certain range of price performance.
Best Case Scenario
The underlying index increases in value and, at maturity, the PLUS redeem for the maximum payment at maturity of $11.20 to $11.80 per PLUS (112% to 118% of the stated principal amount).
Worst Case Scenario
The underlying index declines in value and, at maturity, the PLUS redeem for less than the stated principal amount by an amount proportionate to the decline.
 
Summary of Selected Key Risks (see page 8)
 
§  
No guaranteed return of principal.
 
§  
No interest payments.
 
§  
Appreciation potential is limited by the maximum payment at maturity.
 
§  
The market price of the PLUS will be influenced by many unpredictable factors, including the value, volatility and dividend yield of the underlying index, and you may receive less, and possibly significantly less, than the stated principal amount per PLUS if you try to sell your PLUS prior to maturity.
 
§  
The PLUS are subject to the credit risk of Morgan Stanley, and its credit ratings and credit spreads may adversely affect the market value of the PLUS.
 
§  
Investing in the PLUS is not equivalent to investing in the underlying index or the stocks composing the underlying index.
 
§  
Adjustments to the underlying index by the underlying index publisher could adversely affect the value of the PLUS.
 
§  
The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices and you could receive less, and possibly significantly less, than the stated principal amount per PLUS if you try to sell your PLUS prior to maturity.
 
§  
The PLUS will not be listed on any securities exchange and secondary trading may be limited.
 
§  
Hedging and trading activity could potentially adversely affect the value of the PLUS.
 
§  
Economic interests of the calculation agent may be potentially adverse to investors.
 
§  
The U.S. federal income tax consequences of an investment in the PLUS are uncertain.
 
May 2009
Page 3
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
Fact Sheet
 
The PLUS offered are senior unsecured obligations of Morgan Stanley, will pay no interest, do not guarantee any return of principal at maturity and have the terms described in the prospectus supplement for PLUS and the prospectus, as supplemented or modified by these preliminary terms.  At maturity, an investor will receive for each stated principal amount of PLUS that the investor holds, an amount in cash that may be greater than, equal to or less than the stated principal amount based upon the closing value of the underlying index on the valuation date.  The PLUS are senior notes issued as part of Morgan Stanley’s Series F Global Medium-Term Notes program.  All payments on the PLUS are subject to the credit risk of Morgan Stanley.
 
Expected Key Dates
    
Pricing date:
Original issue date (settlement date):
Maturity date:
May   , 2009
May   , 2009 (5 business days after the pricing date)
November    , 2009, subject to postponement due to a market disruption event
Key Terms
  
Issuer:
Morgan Stanley
Underlying index:
S&P 500® Index
Underlying index publisher:
Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc.
Aggregate principal amount:
$
Issue price:
$10 per PLUS
Stated principal amount:
$10 per PLUS
Denominations:
$10 per PLUS and integral multiples thereof
Interest:
None
Bull market or bear market PLUS:
Bull market PLUS
Payment at maturity:
If final index value is greater than initial index value,
 
$10 + leveraged upside payment
 
In no event will the payment at maturity exceed the maximum payment at maturity.
 
If final index value is less than or equal to initial index value,
 
$10 x index performance factor
 
This amount will be less than or equal to the stated principal amount of $10.
Leveraged upside payment:
$10 x leverage factor x index percent increase
Index percent increase:
(final index value – initial index value) / initial index value
Leverage factor:
300%
Index performance factor:
final index value / initial index value
Initial index value:
The index closing value on the pricing date as published on Bloomberg under the ticker symbol “SPX” or any successor symbol.
Final index value:
The index closing value on the valuation date as published on Bloomberg under the ticker symbol “SPX” or any successor symbol.
Valuation date:
November    , 2009, subject to adjustment for certain market disruption events
Maximum payment at maturity:
$11.20 to $11.80 per PLUS (112% to 118% of the stated principal amount).  The actual maximum payment at maturity will be determined on the pricing date.
Postponement of maturity date:
If the scheduled valuation date is not an index business day or if a market disruption event occurs on that day so that the valuation date as postponed falls less than two scheduled trading days prior to the scheduled maturity date, the maturity date of the PLUS will be postponed until the second scheduled trading day following that valuation date as postponed.
Risk factors:
Please see “Risk Factors” on page 8.
 
May 2009
Page 4
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
General Information
Listing:
The PLUS will not be listed on any securities exchange.
CUSIP:
617483128
ISIN:
US6174831288
Minimum ticketing size:
100 PLUS
Tax considerations:
Although the issuer believes that, under current law, the PLUS should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes, there is uncertainty regarding the U.S. federal income tax consequences of an investment in the PLUS.
 
 
Assuming this treatment of the PLUS is respected and subject to the discussion in “United States Federal Taxation” in the accompanying prospectus supplement for PLUS, the following U.S. federal income tax consequences should result based on current law:
 
 
▪     A U.S. Holder should not be required to recognize taxable income over the term of the PLUS prior to maturity, other than pursuant to a sale or exchange.
 
 
▪     Upon sale, exchange or settlement of the PLUS at maturity, a U.S. Holder should recognize short-term capital gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the PLUS.
 
 
On December 7, 2007, the Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments, such as the PLUS.  The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment.  It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income that is subject to an interest charge.  While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the PLUS, possibly with retroactive effect.
 
 
Both U.S. and non-U.S. investors considering an investment in the PLUS should read the discussion under “Risk Factors” in this document and the discussion under “United States Federal Taxation” in the accompanying prospectus supplement for PLUS and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the PLUS, including possible alternative treatments, the issues presented by the aforementioned notice and any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
Trustee:
The Bank of New York Mellon (as successor trustee to JPMorgan Chase Bank, N.A.)
Calculation agent:
Morgan Stanley & Co. Incorporated (“MS & Co.”)
Use of proceeds and hedging:
The net proceeds we receive from the sale of the PLUS will be used for general corporate purposes and, in part, in connection with hedging our obligations under the PLUS through one or more of our subsidiaries.
 
On or prior to the pricing date, we, through our subsidiaries or others, will hedge our anticipated exposure in connection with the PLUS by taking positions in futures and options contracts on the underlying index and any other securities or instruments we may wish to use in connection with such hedging. Such purchase activity could increase the value of the underlying index, and therefore the value at which the underlying index must close on the valuation date before investors would receive at maturity a payment that exceeds the principal amount of the PLUS.  For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the prospectus supplement for PLUS.
Benefit plan investor considerations:
See “Benefit Plan Investor Considerations” in the accompanying prospectus supplement for PLUS.
Contact:
Morgan Stanley clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776).  All other clients may contact their local brokerage representative.  Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
 
This offering summary represents a summary of the terms and conditions of the PLUS.  We encourage you to read the accompanying prospectus supplement for PLUS and prospectus for this offering, which can be accessed via the hyperlinks on the front page of this document.
 
May 2009
Page 5
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
How PLUS Work
 
Payoff Diagram
The payoff diagram below illustrates the payment at maturity on the PLUS based on the following terms:
 
 
Stated principal amount:
$10 per PLUS
 
Leverage factor:
300%
 
Hypothetical maximum payment
at maturity:
$11.50 per PLUS (115% of the stated principal amount)

 
PLUS Payoff Diagram
How it works
 
§  
If the final index value is greater than the initial index value, then investors receive the $10 stated principal amount plus 300% of the appreciation of the underlying index over the term of the PLUS, subject to the maximum payment at maturity.  In the payoff diagram, an investor will realize the maximum payment at maturity at a final index value of 105% of the initial index value.
 
§  
If the underlying index appreciates 4%, the investor would receive a 12% return, or $11.20 per PLUS.
 
§  
If the underlying index appreciates 10%, the investor would receive only the hypothetical maximum payment at maturity of $11.50 per PLUS, or 115% of the stated principal amount.
 
§  
If the final index value is less than or equal to the initial index value, the investor would receive an amount less than or equal to the $10 stated principal amount, based on a 1% loss of principal for each 1% decline in the underlying index.
 
§  
If the underlying index depreciates 10%, the investor would lose 10% of its principal and receive only $9 per PLUS at maturity, or 90% of the stated principal amount.
 
May 2009
Page 6
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
Payment at Maturity
 
At maturity, investors will receive for each $10 stated principal amount of PLUS that they hold an amount in cash based upon the value of the underlying index, determined as follows:
 
If the final index value is greater than the initial index value:
 
$10    +    Leveraged Upside Payment;
 
subject to the maximum payment at maturity of $11.20 to $11.80 for each PLUS,
 


If the final index value is less than or equal to the initial index value:
 
$10    x    Index Performance Factor
 

 
Because the index performance factor will be less than or equal to 1.0, this payment will be less than or equal to $10.
 
May 2009
Page 7
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
Risk Factors
The following is a non-exhaustive list of certain key risk factors for investors in the PLUS.  For further discussion of these and other risks, you should read the section entitled “Risk Factors” beginning on page S-19 of the prospectus supplement for PLUS.  We also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the PLUS.
 
§  
PLUS do not pay interest or guarantee return of principal.  The terms of the PLUS differ from those of ordinary debt securities in that the PLUS do not pay interest nor guarantee payment of the principal amount at maturity.  If the final index value is less than the initial index value, the payout at maturity will be an amount in cash that is less than the $10 stated principal amount of each PLUS by an amount proportionate to the decrease in the value of the underlying index.
 
§  
Appreciation potential is limited.  The appreciation potential of PLUS is limited by the maximum payment at maturity of $11.20 to $11.80 per PLUS (112% to 118% of the stated principal amount).  Although the leverage factor provides 300% exposure to any increase in the value of the underlying index at maturity above the initial index value, because the payment at maturity will be limited to 112% to 118% of the stated principal amount for the PLUS, the percentage exposure provided by the leverage factor is progressively reduced as the final index value exceeds 104% to 106% of the initial index value.
 
§  
Market price influenced by many unpredictable factors.  Several factors will influence the value of the PLUS in the secondary market and the price at which MS & Co. may be willing to purchase or sell the PLUS in the secondary market, including: the value, volatility and dividend yield of the underlying index, interest and yield rates, time remaining to maturity, geopolitical conditions and economic, financial, political and regulatory or judicial events and any actual or anticipated changes in our credit ratings or credit spreads. The level of the underlying index may be, and has recently been, extremely volatile, and we can give you no assurance that the volatility will lessen.  See “Historical Information” below.  You may receive less, and possibly significantly less, than the stated principal amount per PLUS if you try to sell your PLUS prior to maturity.
 
§  
The PLUS are subject to the credit risk of Morgan Stanley, and its credit ratings and credit spreads may adversely affect the market value of the PLUS.  Investors are dependent on Morgan Stanley’s ability to pay all amounts due on the PLUS at maturity, and therefore investors are subject to the credit risk of Morgan Stanley and to changes in the market’s view of Morgan Stanley’s creditworthiness.  Any decline in Morgan Stanley’s credit ratings or increase in the credit spreads charged by the market for taking Morgan Stanley credit risk is likely to adversely affect the market value of the PLUS.
 
§  
Not equivalent to investing in the underlying index.  Investing in the PLUS is not equivalent to investing in the underlying index or its component stocks.  Investors in the PLUS will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to stocks that constitute the underlying index.
 
§  
Adjustments to the underlying index could adversely affect the value of the PLUS.  The underlying index publisher may discontinue or suspend calculation or publication of the underlying index at any time.  In these circumstances, the calculation agent will have the sole discretion to substitute a successor index that is comparable to the discontinued underlying index and is not precluded from considering indices that are calculated and published by the calculation agent or any of its affiliates.
 
§  
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 the PLUS in secondary market transactions will likely be lower than the original issue price, since the original issue price will include, and secondary market prices are likely to exclude, commissions paid with respect to the PLUS, as well as the cost of hedging our obligations under the PLUS.  The cost of hedging includes the projected profit that our subsidiaries may realize in consideration for assuming the risks inherent in managing the hedging transactions.  In addition, any secondary market prices may differ from values determined by pricing models used by MS & Co., as a result of dealer discounts, mark-ups or other transaction costs.
 
May 2009
Page 8
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
§  
The PLUS will not be listed on any securities exchange and secondary trading may be limited.  The PLUS will not be listed on any securities exchange.  Therefore, there may be little or no secondary market for the PLUS.  MS & Co. may, but is not obligated to, make a market in the PLUS.  Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the PLUS easily.  Because we do not expect that other broker-dealers will participate significantly in the secondary market for the PLUS, the price at which you may be able to trade your PLUS is likely to depend on the price, if any, at which MS & Co. is willing to transact.  If, at any time, MS & Co. were to cease making a market in the PLUS, it is likely that there would be no secondary market for the PLUS.  Accordingly, you should be willing to hold your PLUS to maturity.
 
§  
Hedging and trading activity by the calculation agent and its affiliates could potentially adversely affect the value of the PLUS.  MS & Co., the calculation agent, is our subsidiary.  MS & Co. or other affiliates of ours will carry out hedging activities related to the PLUS (and possibly to other instruments linked to the underlying index or its component stocks), including trading in the stocks that constitute the underlying index as well as in other instruments related to the underlying index.  MS & Co. and some of our other subsidiaries also trade the stocks that constitute the underlying index and other financial instruments related to the underlying index on a regular basis as part of their general broker-dealer and other businesses.  Any of these hedging or trading activities on or prior to the pricing date could potentially affect the initial index value and, therefore, could increase the value at which the underlying index must close before an investor receives a payment at maturity that exceeds the issue price of the PLUS.  Additionally, such hedging or trading activities during the term of the PLUS, including on the valuation date, could adversely affect the value of the underlying index on the valuation date and, accordingly, the amount of cash an investor will receive at maturity.
 
§  
Economic interests of the calculation agent and other of the issuer’s affiliates may be adverse to the investors.  The economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the PLUS.  As calculation agent, MS & Co. will determine the initial index value and the final index value, and calculate the amount of cash you will receive at maturity.  Determinations made by MS & Co., in its capacity as calculation agent, including with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of the final index value in the event of a discontinuance of the underlying index, may adversely affect the payout to you at maturity.
 
§  
The U.S. federal income tax consequences of an investment in the PLUS are uncertain.  Please read the discussion under “Fact Sheet ― General Information ― Tax Considerations” in this document and the discussion under “United States Federal Taxation” in the accompanying prospectus supplement for PLUS (together the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of an investment in the PLUS.  If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment, the timing and character of income on the PLUS might differ significantly from the tax treatment described in the Tax Disclosure Sections.  For example, if the PLUS were characterized as a short-term debt obligation, certain U.S. Holders might be required to accrue ordinary income over the term of the PLUS before maturity, and all or a portion of the gain recognized by a U.S. Holder upon sale, exchange or settlement would be characterized as ordinary income. The issuer does not plan to request a ruling from the IRS regarding the tax treatment of the PLUS, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections.  On December 7, 2007, the Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments, such as the PLUS.  The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment.  It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long term capital gain as ordinary income that is subject to an interest charge.  While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations
 
May 2009
Page 9
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
       
or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the PLUS, possibly with retroactive effect.  Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the PLUS, including possible alternative treatments,  the issues presented by this notice and any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
 
May 2009
Page 10
PLUS Based on the Value of the S&P 500® Index due November    , 2009
Performance Leveraged Upside SecuritiesSM
 
The S&P 500® Index.  The S&P 500® Index, which is calculated, maintained and published by Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc. (“S&P”), consists of 500 component stocks selected to provide a performance benchmark for the U.S. equity markets.  The calculation of the S&P 500® Index is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time as compared to the aggregate average market capitalization of the 500 similar companies during the base period of the years 1941 through 1943. For additional information about the S&P 500® Index, see the information set forth under “Annex A—Underlying Indices and Underlying Index Publishers Information—S&P 500® Index” in the accompanying prospectus supplement for PLUS.

License Agreement between S&P and Morgan Stanley.  “Standard & Poor’s®,” “S&P®,” “S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Morgan Stanley. See “Annex A—Underlying Indices and Underlying Index Publishers Information—S&P 500® Index—License Agreement between S&P and Morgan Stanley” in the accompanying prospectus supplement for PLUS.
 
Historical Information
The following table sets forth the published high and low closing values, as well as end-of-quarter closing values, of the underlying index for each quarter in the period from January 1, 2004 through April 30, 2009.  The closing value of the underlying index on April 30, 2009 was 872.81.  We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.  The historical values of the underlying index should not be taken as an indication of future performance, and no assurance can be given as to the level of the underlying index on the valuation date.
 
S&P 500® Index
High
Low
Period End
2004
      
First Quarter
1,157.76
1,091.33
1,126.21
Second Quarter
1,150.57
1,084.10
1,140.84
Third Quarter
1,129.30
1,063.23
1,114.58
Fourth Quarter
1,213.55
1,094.81
1,211.92
2005
      
First Quarter
1,225.31
1,163.75
1,180.59
Second Quarter
1,216.96
1,137.50
1,191.33
Third Quarter
1,245.04
1,194.44
1,228.81
Fourth Quarter
1,272.74
1,176.84
1,248.29
2006
      
First Quarter
1,307.25
1,254.78
1,294.83
Second Quarter
1,325.76
1,223.69
1,270.20
Third Quarter
1,339.15
1,234.49
1,335.85
Fourth Quarter
1,427.09
1,331.32
1,418.30
2007
      
First Quarter
1,459.68
1,374.12
1,420.86
Second Quarter
1,539.18
1,424.55
1,503.35
Third Quarter
1,553.08
1,406.70
1,526.75
Fourth Quarter
1,565.15
1,407.22
1,468.36
2008
      
First Quarter
1,447.16
1,273.37
1,322.70
Second Quarter
1,426.63
1,278.38
1,280.00
Third Quarter
1,305.32
1,106.39
1,166.36
Fourth Quarter
1,161.06
752.44
903.25
2009
      
First Quarter
934.70
676.53
797.87
Second Quarter (through April 30, 2009)
873.64
811.08
872.81
 
 
May 2009
Page 11