FWP 1 dp13596_fwp-ps116a.htm FREE WRITING PROSPECTUS
 
May 2009
 
Amendment No. 1 dated May 26, 2009 to
Preliminary Terms No. 116
Registration Statement No. 333-156423
Dated May 26, 2009
Filed pursuant to Rule 433
STRUCTURED INVESTMENTS
Opportunities in International Equities
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June    , 2011
Buffered Performance Leveraged Upside SecuritiesSM
Buffered PLUS offer leveraged exposure to a wide variety of assets and asset classes, including equities, commodities and currencies while providing limited protection against negative performance by the asset.  Once the asset has decreased below a specified buffer amount, the investor is exposed to the negative price performance, subject to a minimum payment at maturity.  At maturity, if the asset has appreciated, investors will receive the stated principal amount of their investment plus leveraged upside performance of the underlying asset, subject to the maximum payment at maturity.  At maturity, if the asset has depreciated, (i) if the closing price of the asset has not declined below the specified buffer amount, the Buffered PLUS will redeem for par or (ii) if the closing price of the asset is below the buffer amount, the investor will lose 1% for every 1% decline below the specified buffer amount, subject to a minimum payment at maturity. The Buffered PLUS are senior unsecured obligations of Morgan Stanley, and all payments on the Buffered PLUS are subject to the credit risk of Morgan Stanley.
SUMMARY TERMS
  
Issuer:
Morgan Stanley
Maturity date:
June    , 2011
Underlying shares:
Shares of the iShares® MSCI EAFE Index Fund
Aggregate principal amount:
$
Payment at maturity per Buffered PLUS:
§
If the final share price is greater than the initial share price:
$10 + leveraged upside payment
In no event will the payment at maturity exceed the maximum payment at maturity.
 
§
If the final share price is less than or equal to the initial share price but has decreased from the initial share price by an amount less than or equal to the buffer amount of 10% from the initial share price: $10
 
§
If the final share price is less than the initial share price and has decreased from the initial share price by an amount greater than the buffer amount of 10% from the initial share price:
   
($10 x share performance factor) + $1.00
   
This amount will be less than the stated principal amount of $10. However, under no circumstances will the payment at maturity be less than $1.00 per Buffered PLUS.
Share percent increase:
(final share price – initial share price) / initial share price
Share performance factor:
final share price / initial share price
Leveraged upside payment:
$10 x leverage factor x share percent increase
Initial share price:
The closing price of one underlying share on the pricing date
Final share price:
The closing price of one underlying share on the valuation date, times the adjustment factor on such date
Adjustment factor:
1.0, subject to adjustment in the event of certain events affecting the underlying shares.
Valuation date:
June    , 2011, subject to postponement for certain market disruption events
Leverage factor:
200%
Buffer amount:
10%
Maximum payment at maturity:
$14.10 to $14.40 (141% to 144% of the stated principal amount).  The actual maximum payment at maturity will be determined on the pricing date.
Minimum payment at maturity:
$1.00 per Buffered PLUS (10% of the stated principal amount of the Buffered PLUS)
Interest:
None
Stated principal amount:
$10 per Buffered PLUS
Issue price:
$10 per Buffered PLUS
Pricing date:
May     , 2009
Original issue date:
June     , 2009 (5 business days after the pricing date)
CUSIP:
617484134
ISIN
US6174841345
Listing:
The Buffered 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 Buffered PLUS
$10
$0.175
$9.825
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 BUFFERED 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 BUFFERED 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 this offering will arrange to send you the prospectus if you request it by calling toll-free 1-800-584-6837.
 
FWP: MSPRB1208009
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
Investment Overview
 
Buffered Performance Leveraged Upside Securities
 
The Buffered PLUS Based on the iShares® MSCI EAFE Index Fund (the “Buffered PLUS”) due June    , 2011 can be used:
 
§
As an alternative to direct exposure to the underlying shares that enhances returns for a certain range of positive performance of the underlying shares
 
§
To enhance returns and potentially outperform the underlying shares in a moderately bullish scenario
 
§
To achieve similar levels of upside exposure to the underlying shares as a direct investment, subject to the maximum payment at maturity, while using fewer dollars by taking advantage of the leverage factor
 
§
To obtain a buffer against a specified level of negative performance in the underlying shares
 
Maturity:
2 years
   
Leverage factor:
200%
   
Maximum payment at maturity:
$14.10 to $14.40 per Buffered PLUS (141% to 144% of the stated principal amount) (to be determined on the pricing date)
   
Buffer amount:
10%
   
Minimum payment at maturity:
$1.00 per Buffered PLUS (10% of the stated principal amount)
   
Coupon:
None
 
iShares® MSCI EAFE Index Fund Overview
 
The iShares® MSCI EAFE Index Fund is an exchange-traded fund managed by iShares®, Inc., a registered investment company, which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI EAFE Index®. The MSCI EAFE Index® is a stock index calculated, published and disseminated daily by Morgan Stanley Capital International Inc. and is intended to provide performance benchmarks for the developed equity markets in Australia and New Zealand and those in Europe and Asia, which include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.  Information provided to or filed with the Securities and Exchange Commission (the “Commission”) by the iShares® MSCI EAFE Index Fund pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission file numbers 033-97598 and 811-09102, respectively, through the Commission’s website at http://www.sec.gov.  In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents.  For additional information, please see “Information about the Underlying Shares” in these preliminary terms.
 
Information as of market close on May 21, 2009:
 
Bloomberg Ticker Symbol:
EFA
   
Current Share Price:
45.78
   
52 Weeks Ago:
$76.60
   
52 Week High (on 5/22/2008):
$77.49
   
52 Week Low (on 3/9/2009):
$31.70
 
Shares of the iShares® MSCI EAFE Index Fund
Daily Closing Prices
January 1, 2004 to May 21, 2009
 
 
May 2009
Page 2
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
Key Investment Rationale
 
The Buffered PLUS offer 200% leveraged upside on the positive performance of the underlying shares, subject to a maximum payment at maturity of $14.10 to $14.40 per Buffered PLUS (141% to 144% of the states principal amount), and provide a buffer against a decline of 10% in the underlying shares, ensuring a minimum payment of $1.00 per Buffered PLUS at maturity.
 
Leveraged Performance
The Buffered PLUS offer investors an opportunity to capture enhanced returns for a certain range of positive performance relative to a direct investment in the underlying shares.
Payment Scenario 1
The underlying shares increase in price and, at maturity, the Buffered PLUS redeem for the stated principal amount of $10 plus 200% of the share percent increase, subject to a maximum payment at maturity of $14.10 to $14.40 per Buffered PLUS (141% to 144% of the stated principal amount).
Payment Scenario 2
The underlying shares decline in price by no more than 10% and, at maturity, the Buffered PLUS redeem for the stated principal amount of $10.
Payment Scenario 3
The underlying shares decline in price by more than 10% and, at maturity, the Buffered PLUS redeem for less than the stated principal amount by an amount that is proportionate to the percentage decrease of the price of the underlying shares from the intial share price, plus the buffer amount of 10%.  (Example: if the underlying shares decrease in price by 30%, the Buffered PLUS will redeem for $8.00.)  The minimum payment at maturity is $1.00 per Buffered PLUS.
 
Summary of Selected Key Risks (see page 9)
 
§
90% of the stated principal amount is at risk.
 
§
No interest payments.
 
§
The appreciation potential of the Buffered PLUS is limited by the maximum payment at maturity.
 
§
Market price of the PLUS will be influenced by many unpredictable factors, including the trading price, volatility and dividends of the underlying shares and of the stocks composing the MSCI EAFE Index, and you may receive less, and possibly significantly less, than the stated principal amount per Buffered PLUS if you try to sell your Buffered PLUS prior to maturity
 
§
The Buffered 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 Buffered PLUS.
 
§
Investing in the Buffered PLUS is not equivalent to investing in the underlying shares or the stocks composing the MSCI EAFE Index.
 
§
The price of the underlying shares is subject to currency exchange risk.
 
§
There are risks associated with investments in securities such as the Buffered PLUS linked to the value of foreign equity securities.
 
§
Adjustments to the underlying shares or to the MSCI EAFE Index could adversely affect the value of the Buffered PLUS.
 
§
The underlying shares and the MSCI EAFE Index are different.
 
§
The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices.
 
§
The antidilution adjustments do not cover every event that could affect the shares of the iShares® MSCI EAFE Index Fund.
 
§
The Buffered PLUS will not be listed on any securities exchange and secondary trading may be limited.
 
§
Economic interests of the calculation agent, an affiliate of the issuer, may be adverse to the investors.
 
§
Hedging and trading activity could potentially adversely affect the value of the Buffered PLUS.
 
§
The U.S. federal income tax consequences of an investment in the Buffered PLUS are uncertain.
 
 
May 2009
Page 3
 
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
Fact Sheet
 
The Buffered PLUS offered are senior unsecured obligations of Morgan Stanley, will pay no interest, provide a minimum payment at maturity of only 10% of the stated principal amount and have the terms described in the accompanying prospectus supplement for PLUS and the accompanying prospectus, as supplemented or modified by these preliminary terms.  At maturity, an investor will receive for each stated principal amount of Buffered 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 price of one underlying share on the valuation date.  Under no circumstances will the payment at maturity on the Buffered PLUS be less than $1.00 per Buffered PLUS.  The Buffered PLUS are senior notes issued as part of Morgan Stanley’s Series F Global Medium-Term Notes program.  All payments on the Buffered PLUS are subject to the credit risk of Morgan Stanley.
 
Expected Key Dates
    
Pricing Date:
Original Issue Date (Settlement Date):
Maturity Date:
May     , 2009
June     , 2009 (5 business days after the pricing date)
June    , 2011, subject to postponement due to a market disruption event

Key Terms
  
Issuer:
Morgan Stanley
Underlying shares:
Shares of the iShares® MSCI EAFE Index Fund
$10 per Buffered PLUS
Aggregate principal amount:
$
Stated principal amount:
$10 per Buffered PLUS
Denominations:
$10 per Buffered PLUS and integral multiples thereof
Interest:
None
Bull market or bear market PLUS:
Bull market PLUS
Payment at maturity per Buffered PLUS:
§     If the final share price is greater than the initial share price:
$10 + leveraged upside payment
 In no event will the payment at maturity exceed the maximum payment at maturity.
 
§     If the final share price is less than or equal to the initial share price but has decreased by an amount less than or equal to the buffer amount of 10% from the initial share price: $10
 
§     If the final share price is less than the initial share price and has decreased by an amount greater than the buffer amount of 10% from the initial share price:
 
($10 x share performance factor) + $1.00
 
This amount will be less than the stated principal amount of $10. However, under no circumstances will the payment at maturity be less than $1.00 per Buffered PLUS.
Leverage factor:
200%
Buffer amount:
10%
Share percent increase:
(final share price – initial share price) / initial share price
Leveraged upside payment:
$10 x leverage factor x share percent increase
Initial share price:
The closing price of one underlying share on the pricing date.
Final share price:
The closing price of one underlying share on the valuation date, times the adjustment factor on such date
Valuation date:
June    , 2011, subject to adjustment for certain market disruption events
Share performance factor:
(final share price / initial share price)
Maximum payment at maturity:
$14.10 to $14.40 (141% to 144% of the stated principal amount). The actual maximum payment at maturity will be determined on the pricing date.
Minimum payment at maturity:
$1.00 per Buffered PLUS (10% of the stated principal amount of the Buffered PLUS)
Adjustment factor:
1.0, subject to adjustment in the event of certain events affecting the underlying shares.
Postponement of
maturity date:
If the scheduled valuation date is not a trading 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 Buffered PLUS will be postponed until the second scheduled trading day following that valuation date as postponed.
Risk factors:
Please see “Risk Factors” beginning on page 9.
 
 
May 2009
Page 4
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
 
General Information
  
Listing:
The Buffered PLUS will not be listed on any securities exchange.
CUSIP:
617484134
ISIN:
US6174841345
Minimum ticketing size:
100 Buffered PLUS
Tax considerations:
Although the issuer believes that, under current law, the Buffered 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 Buffered PLUS.
 
 
Assuming this treatment of the Buffered 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 Buffered PLUS prior to maturity, other than pursuant to a sale or exchange.
  §
Upon sale, exchange or settlement of the Buffered PLUS at maturity, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the Buffered PLUS.  Subject to the discussion below concerning the potential application of the “constructive ownership” rule under Section 1260 of the Internal Revenue Code of 1986, as amended, any gain or loss recognized upon sale, exchange or settlement of a Buffered PLUS should be long-term capital gain or loss if the U.S. Holder has held the Buffered PLUS for more than one year at such time.
     
 
Because the Buffered PLUS is linked to shares of an exchange-traded fund, although the matter is not clear, there is a substantial risk that an investment in the Buffered PLUS will be treated as a “constructive ownership transaction.”  If this treatment applies, it is not clear to what extent any long-term capital gain of the U.S. Holder in respect of the Buffered PLUS will be recharacterized as ordinary income (which ordinary income would also be subject to an interest charge).  U.S. investors should read the section of the accompanying prospectus supplement for PLUS called “United States Federal Taxation – Tax Consequences to U.S. Holders – Tax Treatment of the PLUS – Possible Application of Section 1260 of the Code” for additional information and consult their tax advisers regarding the potential application of the “constructive ownership” rule.
 
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 Buffered 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.  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 Buffered PLUS, possibly with retroactive effect.
 
Both U.S. and non-U.S. investors considering an investment in the Buffered 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 Buffered PLUS, including possible alternative treatments, the potential application of the constructive ownership regime, 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.”)
 
 
 
May 2009
Page 5
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
Use of proceeds and hedging:
The net proceeds we receive from the sale of the Buffered PLUS will be used for general corporate purposes and, in part, in connection with hedging our obligations under the Buffered 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 Buffered PLUS by taking positions in the underlying shares and in futures and options contracts on the underlying shares, or in any other securities or instruments that we may wish to use in connection with such hedging.  Such purchase activity could increase the price of the underlying shares, and therefore the price at which the underlying shares must close on the valuation date before investors would receive at maturity a payment that exceeds the stated principal amount of the Buffered PLUS.  For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying 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 Buffered PLUS.  We encourage you to read the accompanying prospectus supplement for PLUS and prospectus related to this offering, which can be accessed via the hyperlinks on the front page of this document.
 
 
 
May 2009
Page 6
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
 
How Buffered PLUS Work
 
Payoff Diagram
 
The payoff diagram below illustrates the payment at maturity on the Buffered PLUS based on the following terms:

Stated principal amount:
$10 per Buffered PLUS
   
Leverage factor:
200%
   
Buffer amount:
10%
   
Hypothetical maximum payment at maturity:
$14.25 per Buffered PLUS (142.5% of the stated principal amount)
   
Minimum payment at maturity:
$1.00 per Buffered PLUS

Buffered PLUS Payoff Diagram
 
How it works
 
§
If the final share price is greater than the initial share price, investors will receive the $10 stated principal amount plus 200% of the appreciation of the underlying shares over the term of the Buffered PLUS, subject to the maximum payment at maturity of $14.25 per Buffered PLUS.  In the payoff diagram, an investor will realize the maximum payment at maturity at a final share price of 121.25% of the initial share price.
 
§
If the final share price is less than or equal to the initial share price but has decreased from the initial share price by an amount less than or equal to the buffer amount of 10%, investors will receive the stated principal amount of $10 per Buffered PLUS.
 
§
If the final share price is less than the initial share price and has decreased from the initial share price by an amount greater than the buffer amount of 10%, investors will receive an amount that is less than the stated principal amount by an amount that is proportionate to the percentage decrease of the price of the underlying shares from the initial share price, plus the buffer amount of 10%  The minimum payment at maturity is $1.00 per Buffered PLUS.
 
 
o
For example, if the underlying shares depreciate 30%, investors would lose 20% of their principal and receive only $8.00 per Buffered PLUS at maturity, or 80% of the stated principal amount.
 
 
 
May 2009
Page 7
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
 
Payment at Maturity
 
 
If the final share price is greater than the initial share price:
 
$10    +    leveraged upside payment; subject to the maximum payment at maturity.
 
 
If the final share price is less than or equal to the initial share price, but has decreased from the initial share price by an amount less than or equal to the buffer amount of 10%:
 
the stated principal amount of $10
 
If the final share price is less than the initial share price and has decreased from the initial share price by an amount greater than the buffer amount of 10%:
 
($10    X    Share Performance Factor)    +    $1.00
 
 
Because the share performance factor will be less than 0.9, the payment at maturity will be less than the stated principal amount under this scenario.
 
Under no circumstances will the payment at maturity be less than $1.00 per Buffered PLUS.
 
 
May 2009
Page 8
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 

Risk Factors
 
The following is a non-exhaustive list of certain key risk factors for investors in the Buffered PLUS.  For further discussion of these and other risks, you should read the section entitled “Risk Factors” beginning on page S-18 in the accompanying prospectus supplement for PLUS.  We also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Buffered PLUS.
 
§
Buffered PLUS do not pay interest and provide a minimum payment at maturity of only 10% of your principal.  The terms of the Buffered PLUS differ from those of ordinary debt securities in that the Buffered PLUS do not pay interest, and provide a minimum payment at maturity of only 10% of the stated principal amount of the Buffered PLUS, subject to the credit risk of Morgan Stanley.  If the final share price is less than 90% of the initial share price, you will receive for each Buffered PLUS that you hold a payment at maturity that is less than the stated principal amount of each Buffered PLUS by an amount proportionate to the decline in the closing price of the underlying shares, plus $1.00 per Buffered PLUS.
 
§
The appreciation potential of the Buffered PLUS is limited by the maximum payment at maturity.  The appreciation potential of the Buffered PLUS is limited by the maximum payment at maturity of $14.10 to $14.40 per Buffered PLUS, or 141% to 144% of the stated principal amount. The actual maximum payment at maturity will be determined on the pricing date.  Although the leverage factor provides 200% exposure to any increase in the final share price over the initial share price, because the payment at maturity will be limited to 141% to 144% of the stated principal amount for the Buffered PLUS, any increase in the final share price over the initial share price by more than 20.5% to 22% of the initial share price will not increase the return on the Buffered PLUS.
 
§
Market price of the PLUS will be 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 trading price, volatility (frequency and magnitude of changes in value) and dividends of the underlying shares and of the stocks composing the MSCI EAFE Index, interest and yield rates in the market, time remaining until the PLUS mature, geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying shares or equities markets generally and which may affect the final share price of the underlying shares, the exchange rates of the U.S. dollar relative to the currency in which the stocks underlying the MSCI EAFE Index trade, the occurrence of certain events affecting the underlying shares that may or may not require an adjustment to the adjustment factor, and any actual or anticipated changes in our credit ratings or credit spreads.  The price of the underlying shares 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 Buffered 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 Buffered PLUS.  Investors are dependent on Morgan Stanley’s ability to pay all amounts due on the Buffered 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 Buffered PLUS.
 
§
Investing in the Buffered PLUS is not equivalent to investing in the underlying shares.  Investing in the Buffered PLUS is not equivalent to investing in the underlying shares, the MSCI EAFE Index or the stocks that constitute the MSCI EAFE Index.  Investors in the Buffered PLUS will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the underlying shares or the stocks that constitute the MSCI EAFE Index.
 
§
The price of the underlying shares is subject to currency exchange risk. Because the price of the underlying shares is related to the U.S. dollar value of stocks underlying the MSCI EAFE Index, holders of the Buffered PLUS will be exposed to currency exchange rate risk with respect to each of the currencies in which such component securities trade.  Exchange rate movements for a particular currency are volatile and are the result of numerous factors specific to that country including the supply of, and the demand for, those currencies, as well as government policy, intervention or actions, but are also influenced significantly from time to time by political or economic developments, and by macroeconomic factors and speculative actions related to each region.  An investor’s net exposure will depend on the extent to which the currencies of the component countries strengthen or weaken
 
 
May 2009
Page 9
 
Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
 
  against the U.S. dollar and the relative weight of each currency.  If, taking into account such weighting, the dollar strengthens against the currencies of the component securities represented in the MSCI EAFE Index, the price of the underlying shares will be adversely affected and the payment at maturity on the Buffered PLUS may be reduced.
 
Of particular importance to potential currency exchange risk are:
 
 
·
existing and expected rates of inflation;
 
 
·
existing and expected interest rate levels;
 
 
·
the balance of payments; and
 
 
·
the extent of governmental surpluses or deficits in the component countries and the United States of America.
 
All of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of various component countries and the United States and other countries important to international trade and finance.
 
§
There are risks associated with investments in securities such as the Buffered PLUS linked to the value of foreign equity securities.  The stocks included in the MSCI EAFE Index and that are generally tracked by the underlying shares have been issued by companies in various foreign countries.  Investments in securities linked to the value of foreign equity securities involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental intervention in those markets and cross-shareholdings in companies in certain countries.  Also, there is generally less publicly available information about foreign companies than about U.S. companies that are subject to the reporting requirements of the United States Securities and Exchange Commission, and foreign companies are subject to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting companies.  The prices of securities in foreign markets may be affected by political, economic, financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws.  Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times.  Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.
 
§
Adjustments to the underlying shares or to the MSCI EAFE Index could adversely affect the value of the Buffered PLUS. Barclays Global Fund Advisors, which we refer to as BGFA, is the investment adviser to the iShares® MSCI EAFE Index Fund, which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI EAFE Index.  MSCI Inc. (“MSCI”) is responsible for calculating and maintaining the MSCI EAFE Index.  MSCI may add, delete or substitute the stocks constituting the MSCI EAFE Index or make other methodological changes that could change the value of the MSCI EAFE Index. MSCI could be considered an affiliate of Morgan Stanley. Pursuant to its investment strategy or otherwise, BGFA may add, delete or substitute the stocks composing the iShares® MSCI EAFE Index Fund.  Any of these actions could adversely affect the price of the underlying shares and, consequently, the value of the Buffered PLUS.  MSCI may discontinue or suspend calculation or publication of the MSCI EAFE 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 MSCI EAFE Index and is not precluded from considering indices that are calculated and published by the calculation agent or any of its affiliates.
 
§
The underlying shares and the MSCI EAFE Index are different. The performance of the underlying shares may not exactly replicate the performance of the MSCI EAFE Index because the iShares® MSCI EAFE Index Fund will reflect transaction costs and fees that are not included in the calculation of the MSCI EAFE Index.  It is also possible that the iShares® MSCI EAFE Index Fund may not fully replicate or may in certain circumstances diverge significantly from the performance of the MSCI EAFE Index due to the temporary unavailability of certain securities in the secondary market, the performance of any derivative instruments contained in this fund, differences in trading hours between the iShares® MSCI EAFE Index Fund and the MSCI EAFE Index or due to other circumstances.  BGFA may invest up to 10% of the iShares® MSCI EAFE Index Fund’s assets in shares of other iShares® funds that seek to track the performance of equity securities of constituent countries of the MSCI EAFE Index.
 
§
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 Buffered PLUS in secondary market
 
 
May 2009
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Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
 
  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 Buffered PLUS, as well as the cost of hedging our obligations under the Buffered 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.
 
§
The antidilution adjustments do not cover every event that could affect the shares of the iShares® MSCI EAFE Index Fund.  MS & Co., as calculation agent, will adjust the amount payable at maturity for certain events affecting the shares of the iShares® MSCI EAFE Index Fund.  However, the calculation agent will not make an adjustment for every event that could affect the shares of the iShares® MSCI EAFE Index Fund.  If an event occurs that does not require the calculation agent to adjust the amount payable at maturity, the market price of the Buffered PLUS may be materially and adversely affected.
 
§
The Buffered PLUS will not be listed on any securities exchange and secondary trading may be limited.  The Buffered PLUS will not be listed on any securities exchange.  Therefore, there may be little or no secondary market for the Buffered PLUS.  MS & Co. may, but is not obligated to, make a market in the Buffered PLUS.  Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Buffered PLUS easily.  Because we do not expect that other broker-dealers will participate significantly in the secondary market for the Buffered PLUS, the price at which you may be able to trade your Buffered 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 Buffered PLUS, it is likely that there would be no secondary market for the Buffered PLUS.  Accordingly, you should be willing to hold your Buffered PLUS to maturity.
 
§
Economic interests of the calculation agent and other affiliates of the issuer 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 Buffered PLUS.  As calculation agent, MS & Co. will determine the initial share price and the final share price, 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 share price in the event of a discontinuance of the MSCI EAFE Index or a market disruption event, may adversely affect the payout to you at maturity.
 
§
Hedging and trading activity by the calculation agent and its affiliates could potentially adversely affect the value of the Buffered PLUS.  MS & Co., the calculation agent, is our subsidiary.  MS & Co. or other affiliates of ours will carry out hedging activities related to the Buffered PLUS (and to other instruments linked to the underlying shares or the MSCI EAFE Index), including trading in the underlying shares and in other instruments related to the underlying shares or the MSCI EAFE Index.  MS & Co. and some of our other subsidiaries also trade the underlying shares and the stocks that constitute the MSCI EAFE Index and other financial instruments related to the MSCI EAFE 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 share price and, therefore, could increase the price at which the shares of the iShares® MSCI EAFE Index Fund must close before an investor receives a payment at maturity that exceeds the issue price of the Buffered PLUS.  Additionally, such hedging or trading activities during the term of the Buffered PLUS, including on the valuation date, could adversely affect the closing price of the shares of the iShares® MSCI EAFE Index Fund on the valuation date and, accordingly, the amount of cash an investor will receive at maturity.
 
§
The U.S. federal income tax consequences of an investment in the Buffered 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 Buffered PLUS.  As discussed in the Tax Disclosure Sections, there is a substantial risk that the “constructive ownership” rule could apply, in which case all or a portion of any long-term capital gain recognized by a U.S. Holder might be recharacterized as ordinary income (which ordinary income would also be subject to an interest charge). In addition, if the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment, the timing and character of income on the Buffered PLUS might differ significantly from the tax treatment described in the Tax Disclosure Sections.  For example, under one treatment, U.S. Holders could be required to accrue original issue discount on the Buffered PLUS every year at a “comparable yield” determined at the time of issuance and recognize all income and gain in respect of the Buffered PLUS as ordinary income.  The risk that buffered securities
 
 
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Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
 
  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 securities.  The issuer does not plan to request a ruling from the IRS regarding the tax treatment of the Buffered 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 Buffered 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.  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 Buffered 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 Buffered PLUS, including possible alternative treatments, the potential application of the constructive ownership regime, the issues presented by this notice and any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

 
 
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Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
 
Information about the Underlying Shares

The iShares® MSCI EAFE Index Fund. The iShares® MSCI EAFE Index Fund is an exchange-traded fund managed by iShares®, Inc. (“iShares”), a registered investment company.  iShares consists of numerous separate investment portfolios, including the iShares® MSCI EAFE Index Fund.   This fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI EAFE Index.  Information provided to or filed with the Commission by iShares pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission file numbers 033-97598 and 811-09102, respectively, through the Commission’s website at http://www.sec.gov.  In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents.  We make no representation or warranty as to the accuracy or completeness of such information.
 
These preliminary terms relate only to the Buffered PLUS offered hereby and do not relate to the underlying shares.  We have derived all disclosures contained in these preliminary terms regarding iShares from the publicly available documents described in the preceding paragraph.  In connection with the offering of the Buffered PLUS, neither we nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to iShares.  Neither we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding iShares is accurate or complete.  Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph) that would affect the trading price of the underlying shares (and therefore the price of the underlying shares at the time we price the Buffered PLUS) have been publicly disclosed.  Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning iShares could affect the value received at maturity with respect to the Buffered PLUS and therefore the trading prices of the Buffered PLUS.
 
Neither we nor any of our affiliates makes any representation to you as to the performance of the underlying shares.
 
We and/or our affiliates may presently or from time to time engage in business with iShares.  In the course of such business, we and/or our affiliates may acquire non-public information with respect to iShares, and neither we nor any of our affiliates undertakes to disclose any such information to you.  In addition, one or more of our affiliates may publish research reports with respect to the underlying shares.  The statements in the preceding two sentences are not intended to affect the rights of investors in the Buffered PLUS under the securities laws.  As a prospective purchaser of the Buffered PLUS, you should undertake an independent investigation of iShares as in your judgment is appropriate to make an informed decision with respect to an investment in the underlying shares.

iShares® is a registered mark of Barclays Global Investors, N.A. (“BGI”).  The PLUS are not sponsored, endorsed, sold, or promoted by BGI.  BGI makes no representations or warranties to the owners of the PLUS or any member of the public regarding the advisability of investing in the PLUS.  BGI has no obligation or liability in connection with the operation, marketing, trading or sale of the PLUS.

The MSCI EAFE Index®. The MSCI EAFE Index® is a stock index calculated, published and disseminated daily by MSCI Inc. and is intended to provide performance benchmarks for the developed equity markets in Australia and New Zealand and those in Europe and Asia, which include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.  The MSCI EAFE Index® is described under the heading “Underlying Indices and Underlying Index Publishers Information—MSCI EAFE Index®“ and “—MSCI Global Investable Market Indices Methodology” in Annex A of the accompanying prospectus supplement for PLUS.
 
 
May 2009
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Buffered PLUS Based on the iShares® MSCI EAFE Index Fund due June     , 2011
Buffered Performance Leveraged Upside SecuritiesSM
 
Historical Information
 
The following table sets forth the published high and low closing prices, as well as the end-of-quarter closing prices of the shares of the iShares® MSCI EAFE Index Fund for each quarter in the period from January 1, 2004 through May 21, 2009.  The closing price of the shares of the iShares® MSCI EAFE Index Fund on May 21, 2009 was $45.78  We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.  The historical closing prices of the shares of the iShares® MSCI EAFE Index Fund should not be taken as an indication of future performance, and no assurance can be given as to the price of the shares of the iShares® MSCI EAFE Index Fund on the valuation date.
 
iShares® MSCI EAFE Index Fund (CUSIP 464287465)
High
Low
Period End
2004
      
First Quarter
48.10
45.12
47.20
Second Quarter
48.10
43.38
47.67
Third Quarter
47.40
44.47
47.13
Fourth Quarter
53.42
47.13
53.42
2005
      
First Quarter
55.25
51.26
52.96
Second Quarter
53.83
51.28
52.39
Third Quarter
58.48
51.95
58.10
Fourth Quarter
60.94
54.72
59.43
2006
      
First Quarter
65.38
60.33
64.92
Second Quarter
70.58
59.46
65.39
Third Quarter
68.36
61.70
67.75
Fourth Quarter
74.33
67.94
73.22
2007
      
First Quarter
76.72
70.90
76.26
Second Quarter
81.78
76.50
80.77
Third Quarter
83.62
73.94
82.59
Fourth Quarter
86.10
78.24
78.50
2008
      
First Quarter
78.35
68.34
71.90
Second Quarter
78.52
68.08
68.67
Third Quarter
68.00
53.08
56.30
Fourth Quarter
55.88
35.73
44.86
2009
      
 First Quarter
45.44
31.70
37.59
 Second Quarter (through May 21, 2009)
46.13
38.57
45.78



 
May 2009
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