424B2 1 dp21949_424b2-ps740.htm FORM 424B2
CALCULATION OF REGISTRATION FEE
         
Title of Each Class of Securities Offered  
Maximum Aggregate
Offering Price
  
Amount of Registration
Fee
Performance Leveraged Upside Securities due 2012
  
$5,870,000
  
$681.51
 
March 2011
 
Pricing Supplement No. 740
Registration Statement No. 333-156423
Dated March 31, 2011
Filed pursuant to Rule 424(b)(2)
S T R U C T U R E D   I N V E S T M E N T S
Opportunities in U.S. Equities
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM
The PLUS 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 accompanying prospectus supplement for PLUS and the accompanying prospectus, as supplemented or modified by this pricing supplement.  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 basket closing value on the valuation date.  The PLUS are 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.
FINAL TERMS
  
Issuer:
Morgan Stanley
Maturity date:
January 5, 2012
Original issue price:
$10 per PLUS
Stated principal amount:
$10 per PLUS
Pricing date:
March 31, 2011
Original issue date:
April 5, 2011 (3 business days after the pricing date)
Aggregate principal amount:
$5,870,000
Interest:
None
Basket:
 
Basket component
Bloomberg ticker symbol
Basket component weighting
Initial basket component value
 
Multiplier
 
S&P MidCap 400® Index
MID
50%
989.05
0.005055356
 
Russell 2000® Index
RTY
50%
843.55
0.005927331
 
The S&P MidCap 400 Index and the Russell 2000 Index are referred to together as the “basket components.”
Payment at maturity
(per PLUS):
§
If the final basket value is greater than the initial basket value:
$10 + leveraged upside payment
In no event will the payment at maturity exceed the maximum payment at maturity.
 
§
If the final basket value is less than or equal to the initial basket value:
$10 x the basket performance factor
This amount will be less than or equal to the stated principal amount of $10 and could be zero.
Leverage factor:
150%
Leveraged upside payment:
$10 × leverage factor × basket percent increase
Maximum payment at maturity:
$11.215 per PLUS (112.15% of the stated principal amount)
Valuation date:
December 30, 2011, subject to adjustment for non-index business days and certain market disruption events.
Closing value:
For each basket component, the closing value of such basket component as published by the respective index publisher.
Initial basket value:
10, which is equal to the sum of the products of the initial basket component values of each of the basket components as set forth under “Basket – Initial basket component value”  above and the applicable multiplier for each of the basket components as set forth under “Basket—Multiplier” above.
Final basket value:
The basket closing value on the valuation date.
Basket closing value:
The basket closing value on any date is the sum of the products of the closing value of each of the basket components on such date and the multiplier for such basket component on such date.
Multiplier:
The multipliers were set on the pricing date based on each basket component’s respective initial basket component value so that each basket component represents its applicable basket component weighting in the predetermined initial basket value.  Each multiplier will remain constant for the term of the PLUS.  See “Basket – Multiplier” above.
Basket percent increase:
(final basket value – initial basket value) / initial basket value
Basket performance factor:
final basket value / initial basket value
Listing:
The PLUS will not be listed on any securities exchange.
CUSIP:
61760E887
ISIN:
US61760E8874
Agent:
Morgan Stanley & Co. Incorporated (“MS & Co.”), a wholly-owned subsidiary of Morgan Stanley.  See “Supplemental information regarding plan of distribution; conflicts of interest.”
Commissions and Issue Price:
  
Price to Public
Agent’s Commissions(1)
Proceeds to Issuer
Per PLUS
  
$10
$0.1875
$9.8125
Total
  
$5,870,000
$110,062.50
$5,759,937.50
(1)
Selected dealers, including Morgan Stanley Smith Barney LLC (an affiliate of the Agent), and their financial advisors will collectively receive from the Agent, MS & Co., a fixed sales commission of $0.1875 for each PLUS they sell.  See “Supplemental information concerning plan of distribution; conflicts of interest.”  For additional information, see “Plan of Distribution (Conflicts of Interest)” 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.
 
 
The PLUS are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
 

 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

Fact Sheet
 
The PLUS 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 accompanying prospectus supplement for PLUS and the accompanying prospectus, as supplemented or modified by this pricing supplement.  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 basket closing value on the valuation date.  The PLUS are 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.
 
Key Dates
    
Pricing date:
Original issue date (settlement date):
Maturity date:
March 31, 2011
April 5, 2011 (3 business days after the pricing date)
January 5, 2012, subject to postponement due to market disruption events
Key Terms
  
Issuer:
Morgan Stanley
Original issue price:
$10 per PLUS
Stated principal amount:
$10 per PLUS
Denominations:
$10 and integral multiples thereof
Interest:
None
Aggregate principal amount:
$5,870,000
Basket:
 
 
Basket component
Bloomberg ticker symbol
Basket component weighting
Initial basket component value
 
 
Multiplier
 
S&P MidCap 400® Index
MID
50%
989.05
0.005055356
 
Russell 2000® Index
RTY
50%
843.55
0.005927331
 
The S&P MidCap 400 Index and the Russell 2000 Index are referred to together as the “basket components.”
Payment at maturity
(per PLUS):
§
If the final basket value is greater than the initial basket value:
$10 + leveraged upside payment
In no event will the payment at maturity exceed the maximum payment at maturity.
 
§
If the final basket value is less than or equal to the initial basket value:
   
$10 × the basket performance factor
This amount will be less than or equal to the stated principal amount of $10, and could be zero.
Leverage factor:
150%
Leveraged upside payment:
$10 × leverage factor × basket percent increase
Maximum payment at maturity:
$11.215 per PLUS (112.15% of the stated principal amount)
Valuation date:
December 30, 2011, subject to adjustment for non-index business days and certain market disruption events.
Closing value:
For each basket component, the closing value of such basket component as published by the respective index publisher.
Index publisher:
With respect to the S&P MidCap 400 Index, Standard & Poor’s Financial Services LLC (“S&P”), and with respect to the Russell 2000 Index, Russell Investments.
Initial basket value:
10, which is equal to the sum of the products of the initial basket component values of each of the basket components as set forth under “Basket – Initial basket component value” above and the applicable multiplier for each of the basket components as set forth under “Basket—Multiplier” above.
Final basket value:
The basket closing value on the valuation date.
Basket closing value:
The basket closing value on any date is the sum of the products of the closing value of each of the basket components on such date and the multiplier for such basket component on such date.
Multiplier:
The multipliers were set on the pricing date based on each basket component’s respective initial basket component value so that each basket component represents its applicable basket component weighting in the predetermined initial basket value.  Each multiplier will remain constant for the term of the PLUS.  See “Basket – Multiplier” above.
Risk factors:
Please see “Risk Factors” beginning on page 8.
 
 
March 2011
Page 2
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

 
Basket percent increase:
(final basket value – initial basket value) / initial basket value
Basket performance factor:
final basket value / initial basket value
Postponement of maturity date:
If the valuation date is postponed so that it falls less than two business days prior to the scheduled maturity date, the maturity date will be the second business day following the valuation date as postponed.
General Information
  
Listing:
The PLUS will not be listed on any securities exchange.
CUSIP:
61760E887
ISIN:
US61760E8874
Minimum ticketing size:
100 PLUS
Bull market or bear market PLUS:
Bull Market 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:
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, hedged our anticipated exposure in connection with the PLUS by taking positions in the component stocks of the basket components and in futures and/or options contracts listed on major securities markets on any component stocks of the basket components.  Such purchase activity could potentially increase the initial basket component values of the basket components, and, therefore, increase the values at which the basket components must close on the valuation date before you will receive at maturity a payment that exceeds the stated principal amount of the PLUS.  For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying prospectus supplement for PLUS.
 
 
March 2011
Page 3
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

 
Benefit plan investor considerations:
Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing an investment in the PLUS.  Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan.
 
In addition, we and certain of our subsidiaries and affiliates, including MS & Co., may be considered a “party in interest” within the meaning of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”).  ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans and parties in interest or disqualified persons.  Prohibited transactions within the meaning of ERISA or the Code would likely arise, for example, if the PLUS are acquired by or with the assets of a Plan with respect to which MS & Co. or any of its affiliates is a service provider or other party in interest, unless the PLUS are acquired pursuant to an exemption from the “prohibited transaction” rules.  A violation of these “prohibited transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
 
The U.S. Department of Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting from the purchase or holding of the PLUS.  Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers).  In addition, ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code may provide an exemption for the purchase and sale of securities and the related lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called “service provider” exemption).  There can be no assurance that any of these class or statutory exemptions will be available with respect to transactions involving the PLUS.
 
Because we may be considered a party in interest with respect to many Plans, the PLUS may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding or disposition is otherwise not prohibited.  Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or holder of the PLUS will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the PLUS that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such PLUS on behalf of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition are eligible for exemptive relief or such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar Law.
 
Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other persons considering purchasing the PLUS on behalf of or with “plan assets” of any Plan consult with their counsel regarding the availability of exemptive relief.
 
Each purchaser and holder of the PLUS has exclusive responsibility for ensuring that its purchase, holding and disposition of the PLUS do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law.  The sale of any PLUS to any Plan or plan subject to Similar Law is in no respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular plan.
 
However, individual retirement accounts, individual retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts, will not be permitted to purchase or hold the PLUS if the account, plan or annuity is for the benefit of an employee of Citigroup Global Markets Inc., Morgan Stanley or Morgan Stanley Smith Barney LLC (“MSSB”) or a family member and the employee receives any compensation (such as, for example, an addition to bonus) based on the purchase of the PLUS by the account, plan or annuity.
Additional considerations:
Client accounts over which Citigroup Inc., Morgan Stanley, MSSB or any of their respective subsidiaries have investment discretion are not permitted to purchase the PLUS, either directly or indirectly.
 
 
March 2011
Page 4
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

 
Supplemental information regarding plan of distribution; conflicts of interest:
The agent may distribute the PLUS through MSSB, as selected dealer, or other dealers, which may include Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley AG.  MSSB, MSIP and Bank Morgan Stanley AG are affiliates of Morgan Stanley.  Selected dealers, including MSSB, and their financial advisors will collectively receive from the Agent, MS & Co., a fixed sales commission of $0.1875 for each PLUS they sell.
 
MS & Co. is our wholly-owned subsidiary. MS & Co. will conduct this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See "Plan of Distribution (Conflicts of Interest)" and “Use of Proceeds and Hedging” in the accompanying prospectus supplement for PLUS.
Validity of the PLUS:
In the opinion of Davis Polk & Wardwell LLP, as special counsel to Morgan Stanley, when the PLUS offered by this pricing supplement have been executed and issued by Morgan Stanley and authenticated by the trustee pursuant to the Senior Debt Indenture, and delivered against payment as contemplated herein, such PLUS will be valid and binding obligations of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above. This opinion is given as of the date hereof and is limited to the federal laws of the United States of America, the laws of the State of New York and the General Corporation Law of the State of Delaware. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the Senior Debt Indenture and its authentication of the PLUS and the validity, binding nature and enforceability of the Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated March 24, 2011, which has been filed as an exhibit to a Current Report on Form 8-K by Morgan Stanley on March 24, 2011.
Contact:
Morgan Stanley Smith Barney clients may contact their local Morgan Stanley Smith Barney 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 is 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.
 
 
 
 
March 2011
Page 5
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

How the 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:
150%
Maximum payment at maturity:
$11.215 per PLUS (112.15% of the stated principal amount)
 
PLUS Payoff Diagram
 
How it works
 
§
If the final basket value is greater than the initial basket value, investors will receive the $10 stated principal amount plus 150% of the appreciation of the basket 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 basket value of 108.10% of the initial basket value.
 
 
§
If the basket appreciates 4%, the investor would receive a 6% return, or $10.60 per PLUS.
 
 
§
If the basket appreciates 20%, the investor would receive only the maximum payment at maturity of $11.215 per PLUS, or 112.15% of the stated principal amount.
 
§
If the final basket value is less than or equal to the initial basket 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 value of the basket.
 
 
§
If the basket 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.
 
 
 
March 2011
Page 6
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
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 final basket value on the valuation date, as determined as follows:
 
If the final basket value is greater than the initial basket value:
 
$10    +    leveraged upside payment,
 
where,
 
leveraged upside payment
=
$10 × leverage factor × basket percent increase
leverage factor
=
150%
basket percent increase
=
final basket value − initial basket value
initial basket value
 
subject to the maximum payment at maturity for each PLUS of $11.215.
 
 
If the final basket value is less than or equal to the initial basket value:
 
$10    ×    basket performance factor

Principal
  
Basket Performance Factor
$10
×
final basket value
initial basket value
 
Because in this case the basket performance factor will be less than or equal to 1.0, this payment will be less than or equal to $10.
 
 
 
March 2011
Page 7
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
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” in the accompanying prospectus supplement for PLUS and prospectus.  You should also consult with your investment, legal, tax, accounting and other advisers in connection with your investment in the PLUS.
 
§
PLUS do not pay interest or guarantee return of any principal.  The terms of the PLUS differ from those of ordinary debt securities in that we will not pay you interest on the PLUS or guarantee the repayment of any principal at maturity.  Instead, you will receive at maturity for each $10 stated principal amount of PLUS that you hold an amount in cash based upon the performance of the basket on the valuation date.  If the value of the basket has increased over the term of the PLUS, you will receive an amount in cash equal to $10 plus the leveraged upside payment, subject to the maximum payment at maturity.  If, however, the value of the basket has decreased over the term of the PLUS, you will lose money on your investment as you will receive 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 basket from its initial basket value and which could be zero.  See “How the PLUS Work” above.
 
§
Appreciation potential is limited. The appreciation potential of PLUS is limited by the maximum payment at maturity of $11.215 per PLUS (or 112.15% of the stated principal amount).  Although the leverage factor provides 150% exposure to any increase in the value of the basket on the valuation date, because the payment at maturity will be limited to 112.15% of the stated principal amount for the PLUS, any increase in the final basket value over the initial basket value by more than 8.1% of the initial basket value will not further increase the return on the PLUS.
 
§
Market price of the PLUS may be influenced by many unpredictable factors.  Several factors, many of which are beyond our control, 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 of each of the basket components at any time and, in particular, on the pricing date and the valuation date,
 
 
§
the volatility (frequency and magnitude of changes in price or value) of each of the basket components,
 
 
§
interest and yield rates in the market,
 
 
§
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the basket components or stock markets generally and which may affect the initial basket component values and/or the closing values of the basket components on the valuation date,
 
 
§
the time remaining until the PLUS mature, and
 
 
§
any actual or anticipated changes in our credit ratings or credit spreads.
 
Some or all of these factors will influence the price that you will receive if you sell your PLUS prior to maturity.  For example, you may have to sell your PLUS at a substantial discount from the stated principal amount of $10 per PLUS if the values of the basket components at the time of sale are at or below their initial values or if market interest rates rise.  You cannot predict the future performance of either of the basket components based on their historical performance.  The basket performance factor may be negative so that you will receive at maturity an amount that is less than the $10 stated principal amount of each PLUS (and which could be significantly less or zero) by an amount proportionate to the decrease in the value of the basket from the initial basket value.  There can be no assurance that there will be any basket percent increase such that you will receive at maturity an amount in excess of the stated principal amount of the PLUS, or any amount at all.
 
§
The PLUS are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings or credit spreads may adversely affect the market value of the PLUS.  You are dependent on Morgan Stanley's ability to pay all amounts due on the PLUS at maturity and therefore you are subject to the credit risk of Morgan Stanley.  If Morgan Stanley defaults on its obligations under the PLUS, your investment would be at risk and you could lose some or all of your investment.  As a result, the market value of the PLUS prior to maturity will be affected by changes in the market’s view of Morgan Stanley's creditworthiness.  Any actual or anticipated 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.
 
 
 
March 2011
Page 8
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM
 
 
§
Changes in the value of one of the basket components may offset the value of the other.  Movements in the values of the basket components may not correlate with each other.  At a time when the value of one basket component increases in value, the value of the other basket component may not increase as much, or may even decline in value.  Therefore, in calculating the basket percent increase or basket performance factor, as applicable, an increase in the value of one basket component may be moderated, or wholly offset, by a lesser increase or decline in the value of the other basket component.  If the final basket value is less than the initial basket value, you will receive at maturity an amount that is less than the stated principal amount of the PLUS, and which could be significantly less or zero.
 
§
Investing in the PLUS is not equivalent to investing in the basket components; you have no shareholder or other rights in the basket components and are exposed to the credit risk of Morgan Stanley. Investing in the PLUS is not equivalent to investing in the basket components.  As an investor in the PLUS, you will not have voting rights or the right to receive dividends or other distributions or any other rights with respect to the component stocks of either basket component. Furthermore, investing in the PLUS is not equivalent to investing in the basket components or their component stocks.  The PLUS will provide less opportunity for appreciation than an investment in a similar security that is directly linked to the appreciation of the basket and is not subject to a maximum return.  In addition, you do not have the right to exchange your PLUS for any basket components at any time, and are subject to the credit risk of Morgan Stanley.
 
§
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 PLUS at any time in secondary market transactions will likely be significantly lower than the original issue price, since secondary market prices are likely to exclude commissions paid with respect to the PLUS and the cost of hedging our obligations under the PLUS that are included in the original issue price.  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.  These secondary market prices are also likely to be reduced by the costs of unwinding the related hedging transactions.  Our subsidiaries may realize a profit from the expected hedging activity even if investors do not receive a favorable investment return under the terms of the PLUS or in any secondary market transaction.  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.
 
§
Adjustments to the basket components could adversely affect the value of the PLUS.  The index publisher of a basket component can add, delete or substitute the stocks underlying basket component, and can make other methodological changes that could change the value of such basket component.  Any of these actions could adversely affect the value of the PLUS.  In addition the index publisher of a basket component may discontinue or suspend calculation or publication of such basket component at any time.  In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable to the discontinued basket component and is permitted to consider indices that are calculated and published by MS & Co. or any of its affiliates.  If MS & Co. determines that there is no appropriate successor index, the payment at maturity on the PLUS will be an amount based on the closing prices on the valuation date of the securities underlying such basket component at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance with the formula for calculating such basket component last in effect prior to discontinuance of such basket component.
 
§
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 not to make 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.
 
 
March 2011
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PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

 
§
Hedging and trading activity by our subsidiaries could potentially affect the value of the PLUS.  MS & Co., the calculation agent, is our subsidiary.  MS & Co. or other affiliates of ours have carried out, and will continue to carry out, hedging activities related to the PLUS, including trading in the component stocks of the S&P MidCap 400 Index or the Russell 2000 Index, as well as in other instruments related to the basket components.  MS & Co. and some of our other subsidiaries also trade in the component stocks of the S&P MidCap 400 Index or the Russell 2000 Index as well as in other instruments related to the basket components 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 have increased the initial basket component values of the basket components and, therefore, the values at which the basket components must close on the valuation date before an investor receives a payment at maturity that exceeds the original 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 values of one or both basket components on the valuation date and, accordingly, the amount of cash an investor will receive at maturity.
 
§
The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the PLUS.  As calculation agent, MS & Co. has determined the initial basket component values and the multipliers for the basket components and will determine the closing value of each basket component on the valuation date, the final basket value, whether any changes to any adjustment factor are required, whether any market disruption event has occurred, the basket performance factor or basket percent increase, as applicable, and will calculate the amount of cash, if any, 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 calculation of any closing values in the event of a market disruption event, 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 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.
 
 
 
March 2011
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PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

Information About the Basket Components
 
The S&P MidCap 400® Index
 
The S&P MidCap 400 Index is published by Standard & Poor’s Financial Services LLC (“S&P”) and is intended to provide a benchmark for performance measurement of the medium capitalization segment of the U.S. equity markets. It tracks the stock price movement of 400 companies with mid-sized market capitalizations, primarily ranging from $1 billion to $4 billion. S&P chooses companies for inclusion in the S&P MidCap 400 Index with an aim of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population of the medium capitalization segment of the U.S. equity market. For additional information about the S&P MidCap 400® Index, see the information set forth under “Annex A––Underlying Indices and Underlying Index Publishers Information—S&P MidCap 400® Index” in the accompanying prospectus supplement for PLUS.
 
License Agreement between S&P and Morgan Stanley.  “Standard & Poor’s®,” “S&P®,” “S&P 400®,” “Standard & Poor’s MidCap 400® Index” and “S&P MidCap Index” are trademarks of Standard & Poor’s Financial Services LLC, an affiliate 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 MidCap 400® Index—License Agreement between S&P and Morgan Stanley” in the accompanying prospectus supplement for PLUS.

The Russell 2000® Index
 
The Russell 2000® Index is an index calculated, maintained and published by Russell Investments, a subsidiary of Russell Investment Group.  The Russell 2000 Index measures the composite price performance of stocks of 2,000 companies (the “Russell 2000 Component Stocks”) incorporated in the U.S. and its territories.  All 2,000 stocks are traded on either the NYSE or NYSE Alternext US LLC or in the over-the-counter market and are the 2,000 smallest securities that form the Russell 3000® Index.  The Russell 3000 Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of the U.S. equity market.  The Russell 2000 Index consists of the smallest 2,000 companies included in the Russell 3000 Index and represents a small portion of the total market capitalization of the Russell 3000 Index.  The Russell 2000 Index is designed to track the performance of the small capitalization segment of the U.S. equity market.
 
License Agreement between Russell Investments and Morgan Stanley.  The “Russell 2000® Index” is a trademark of Russell Investments and has been licensed for use by Morgan Stanley. See “Annex A––Underlying Indices and Underlying Index Publishers Information—Russell 2000® Index—License Agreement between Frank Russell Company and Morgan Stanley” in the accompanying prospectus supplement for PLUS.
 
 

 
March 2011
Page 11
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

Historical Information
 
The following tables set forth the published high and low closing values, as well as end-of-quarter closing values, for each of the basket components for each quarter in the period from January 1, 2006 through March 31, 2011.  The related graphs set forth the daily closing values for each of the basket components in the same period.  The closing value of each of the basket components on March 31, 2011 was, (i) in the case of the S&P MidCap 400 Index, 989.05, and (ii) in the case of the Russell 2000 Index, 843.55.  We obtained the information in the tables and graphs below from Bloomberg Financial Markets, without independent verification.  The historical values of the basket components should not be taken as an indication of future performance, and no assurance can be given as to the basket closing value on the valuation date.  The payment of dividends on the stocks that underlie the basket components are not reflected in their levels and, therefore, have no effect on the calculation of the payment at maturity.

S&P MidCap 400® Index
High
Low
Period End
2006
      
First Quarter
792.11
749.02
792.11
Second Quarter
817.95
716.62
764.87
Third Quarter
770.44
712.86
754.25
Fourth Quarter
820.37
748.13
804.37
2007
      
First Quarter
867.61
800.40
848.47
Second Quarter
925.90
852.41
895.51
Third Quarter
926.23
819.97
885.06
Fourth Quarter
917.18
821.32
858.20
2008
      
First Quarter
847.56
744.89
779.51
Second Quarter
897.27
797.80
818.99
Third Quarter
824.99
698.21
727.29
Fourth Quarter
718.88
417.12
538.28
2009
      
First Quarter
559.37
404.62
489.00
Second Quarter
598.71
494.45
578.14
Third Quarter
706.30
546.53
691.02
Fourth Quarter
739.71
659.15
726.67
2010
      
First Quarter
799.95
692.52
789.90
Second Quarter
849.82
711.73
711.73
Third Quarter
802.10
700.16
802.10
Fourth Quarter
913.20
795.50
907.25
2011
      
First Quarter (through March 31, 2011)
989.05
909.76
989.05

S&P MidCap 400® Index – Daily Closing Value
January 1, 2006 to March 31, 2011
 
 
March 2011
Page 12
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM

 
Russell 2000® Index
High
Low
Period End
2006
      
First Quarter
765.14
684.05
765.14
Second Quarter
781.83
672.72
724.67
Third Quarter
734.48
671.94
725.59
Fourth Quarter
797.73
718.35
787.66
2007
      
First Quarter
829.44
760.06
800.71
Second Quarter
855.09
803.22
833.70
Third Quarter
855.77
751.54
805.45
Fourth Quarter
845.72
735.07
766.03
2008
      
First Quarter
753.55
643.97
687.97
Second Quarter
763.27
686.07
689.66
Third Quarter
754.38
657.72
679.58
Fourth Quarter
671.59
385.31
499.45
2009
      
First Quarter
514.71
343.26
422.75
Second Quarter
531.68
429.16
508.28
Third Quarter
620.69
479.27
604.28
Fourth Quarter
634.07
562.40
625.39
2010
      
First Quarter
690.30
586.49
678.64
Second Quarter
741.92
609.49
609.49
Third Quarter
677.64
590.03
676.14
Fourth Quarter
792.35
669.45
783.65
2011
      
First Quarter (through March 31, 2011)
843.55
773.18
843.15
 
 
Russell 2000® Index  – Daily Closing Values
January 1, 2006 to March 31, 2011


March 2011
Page 13
 
 
 
PLUS Based on a Basket Consisting of the S&P MidCap 400® Index and the Russell 2000® Index due January 5, 2012
Performance Leveraged Upside SecuritiesSM


Where You Can Find More Information
 
Morgan Stanley has filed a registration statement (including a prospectus, as supplemented by the prospectus supplement for PLUS) with the Securities and Exchange Commission, or SEC, for the offering to which this pricing supplement relates.  You should read the prospectus in that registration statement, the prospectus supplement for PLUS and any other documents relating to this offering that Morgan Stanley has filed with the SEC for more complete information about Morgan Stanley and this offering.  You may get these documents without cost by visiting EDGAR on the SEC web site at.www.sec.gov.  Alternatively, Morgan Stanley will arrange to send you the prospectus and the prospectus supplement for PLUS if you so request by calling toll-free 800-584-6837.
 
You may access these documents on the SEC web site at.www.sec.gov as follows:
 
 
Terms used in this pricing supplement are defined in the prospectus supplement for PLUS or in the prospectus.  As used in this pricing supplement, the “Company,” “we,” “us” and “our” refer to Morgan Stanley.

“Performance Leveraged Upside SecuritiesSM” and “PLUSSM” are our service marks.
 
 
 
 
 
March 2011
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