MORGAN STANLEY - Capital/Financing Update 2010

CALCULATION OF REGISTRATION FEE

| Title
of Each Class of Securities Offered | Maximum
Aggregate Offering Price | Amount
of Registration Fee |
| --- | --- | --- |
| ELKS
due 2011 | $5,765,830 | $411.10 |

PROSPECTUS Dated December 23, 2008 PROSPECTUS SUPPLEMENT Dated December 23, 2008 Pricing Supplement No. 266 to Registration Statement No. 333-156423 Dated January 11, 2010 Rule 424(b)(2)

$5,765,830

GLOBAL MEDIUM-TERM NOTES, SERIES F

Senior Fixed Rate Notes

ELKS Based Upon the Common Stock of Amazon.com, Inc. due February 14, 2011

Equity LinKed Securities (“ELKS ® ”)

The ELKS will pay a monthly coupon of 9.7% per year but, unlike conventional debt securities, do not guarantee any return of principal at maturity. Instead, the ELKS will pay at maturity either (i) an amount of cash equal to the stated principal amount of the ELKS, or (ii) if the closing price of Amazon.com, Inc. common stock decreases to or below the downside threshold price (as defined below) on any trading day over the term of the ELKS, a number of shares of Amazon.com, Inc. common stock, which we refer to as the underlying equity, equal to the equity ratio (as defined below) or, if we so elect, the cash value of such shares, determined as of the valuation date. The value of those shares could be significantly less than the stated principal amount of the ELKS and may be zero. The ELKS are senior unsecured obligations of Morgan Stanley, and all payments on the ELKS are subject to the credit risk of Morgan Stanley.

• The stated principal amount and original issue price of each ELKS is $10.

• We will pay a monthly coupon of 9.7% per annum on the $10 stated principal amount of each ELKS. Interest will be paid monthly, beginning on February 14, 2010.

• At maturity, for each $10 stated principal amount of ELKS that you hold:

º if the closing price of the underlying equity has not decreased to or below 75% of the initial equity price, or $97.7325, which we refer to as the downside threshold price, on any trading day from but excluding the pricing date to and including the valuation date, you will receive an amount in cash equal to $10 per ELKS; or

º if the closing price of the underlying equity has decreased to or below the downside threshold price on any trading day from but excluding the pricing date to and including the valuation date, you will receive a number of shares of the underlying equity in exchange for each ELKS equal to the equity ratio or, if we so elect, the cash value of such shares, determined as of the valuation date.

The initial equity price is $130.31, which is the closing price of one share of the underlying equity on the day we priced the ELKS for initial sale to the public, which we refer to as the pricing date.

The equity ratio, 0.07674, is equal to the $10 stated principal amount of the ELKS divided by the initial equity price.

• The valuation date will be February 9, 2011.

• Investing in the ELKS is not equivalent to investing in the underlying equity and you will receive no dividends or other distributions on the underlying equity.

• Amazon.com, Inc. is not involved in this offering of ELKS in any way and will have no obligation of any kind with respect to the ELKS.

• The ELKS will not be listed on any securities exchange.

• The CUSIP number for the ELKS is 617484670. The ISIN number for the ELKS is US6174846708.

You should read the more detailed description of the ELKS in this pricing supplement. In particular, you should review and understand the descriptions in “Summary of Pricing Supplement” and “Description of ELKS.”

The ELKS are riskier than ordinary debt securities. See “Risk Factors” beginning on PS-8.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this pricing supplement is truthful or complete. Any representation to the contrary is a criminal offense.

PRICE $10 PER ELKS

| | Price
to Public (1) | Agent’s Commissions (1)(2) | Proceeds
to Issuer |
| --- | --- | --- | --- |
| Per
ELKS | $10 | $0.20 | $9.80 |
| Total | $5,765,830 | $115,316.60 | $5,650,513.40 |

(1) The ELKS will be issued at $10 per ELKS and the agent’s commissions will be $0.20 per ELKS; provided that the price to public and the agent's commissions for the purchase by any single investor of greater than or equal to $1,000,000 and less than $3,000,000 principal amount of ELKS will be $9.9625 per ELKS and $0.1625 per ELKS, respectively; for the purchase by any single investor of greater than or equal to $3,000,000 and less than $5,000,000 principal amount of ELKS will be $9.9438 per ELKS and $0.1438 per ELKS, respectively; and for the purchase by any single investor of $5,000,000 or more principal amount of ELKS will be $9.925 per security and $0.125 per ELKS, respectively.

(2) Selected dealers, including Morgan Stanley Smith Barney LLC (an affiliate of the Agent), and their financial advisors will collectively receive from the Agent, Morgan Stanley & Co. Incorporated, a fixed sales commission of $0.20 for each ELKS they sell. See “Supplemental Information Concerning Plan of Distribution; Conflicts of Interest” in this pricing supplement. For additional information, see “Plan of Distribution” in the accompanying prospectus supplement.

The agent for this offering, Morgan Stanley & Co. Incorporated, is our wholly owned subsidiary. See “Supplemental Information Concerning Plan of Distribution; Conflicts of Interest.”

The ELKS 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.

MORGAN STANLEY

For a description of certain restrictions on offers, sales and deliveries of the ELKS and on the distribution of this pricing supplement and the accompanying prospectus supplement and prospectus relating to the ELKS, see the section of this pricing supplement called “Description of ELKS–Supplemental Information Concerning Plan of Distribution; Conflicts of Interest.”

No action has been or will be taken by us, the agent or any dealer that would permit a public offering of the ELKS or possession or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Neither this pricing supplement nor the accompanying prospectus supplement and prospectus may be used for the purpose of an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

The ELKS have not been and will not be registered with the Comissão de Valores Mobiliários (The Brazilian Securities Commission). The ELKS may not be offered or sold in the Federative Republic of Brazil except in circumstances which do not constitute a public offering or distribution under Brazilian laws and regulations.

The ELKS have not been registered with the Superintendencia de Valores y Seguros in Chile and may not be offered or sold publicly in Chile. No offer, sales or deliveries of the ELKS or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus, may be made in or from Chile except in circumstances which will result in compliance with any applicable Chilean laws and regulations.

No action has been taken to permit an offering of the ELKS to the public in Hong Kong as the ELKS have not been authorized by the Securities and Futures Commission of Hong Kong and, accordingly, no advertisement, invitation or document relating to the ELKS, whether in Hong Kong or elsewhere, shall be issued, circulated or distributed which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong other than (i) with respect to the ELKS which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong (“SFO”) and any rules made thereunder or (ii) in circumstances that do not constitute an invitation to the public for the purposes of the SFO.

The ELKS have not been registered with the National Registry of Securities maintained by the Mexican National Banking and Securities Commission and may not be offered or sold publicly in Mexico. This pricing supplement and the accompanying prospectus supplement and prospectus may not be publicly distributed in Mexico.

The agent and each dealer represent and agree that they will not offer or sell the ELKS nor make the ELKS the subject of an invitation for subscription or purchase, nor will they circulate or distribute this pricing supplement or the accompanying prospectus supplement or prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the ELKS, whether directly or indirectly, to persons in Singapore other than:

(a) an institutional investor (as defined in section 4A of the Securities and Futures Act (Chapter 289 of Singapore (the “SFA”));

(b) an accredited investor (as defined in section 4A of the SFA), and in accordance with the conditions, specified in Section 275 of the SFA;

(c) a person who acquires the ELKS for an aggregate consideration of not less than Singapore dollars Two Hundred Thousand (S$200,000) (or its equivalent in a foreign currency) for each transaction, whether such amount is paid for in cash, by exchange of shares or other assets, unless otherwise permitted by law; or

(d) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

PS-2

SUMMARY OF PRICING SUPPLEMENT

The following summary describes the ELKS ® in general terms only. You should read the summary together with the more detailed information that is contained in the rest of this pricing supplement and in the accompanying prospectus and prospectus supplement. You should carefully consider, among other things, the matters set forth in “Risk Factors.”

The ELKS are medium-term debt securities of Morgan Stanley. The return on the ELKS at maturity is linked to the performance of the common stock of Amazon.com, Inc., which we refer to as the underlying equity. We may not redeem the ELKS prior to maturity. All payments on the ELKS are subject to the credit risk of Morgan Stanley.

ELKS is a registered service mark of Citigroup Global Markets Inc. Used under license.

| Each
ELKS costs $10 | We,
Morgan Stanley, are offering ELKS ® Based Upon the Common Stock of Amazon.com, Inc. due February 14, 2011,
which we refer to as the ELKS. The stated principal amount and
issue price of each ELKS is $10. The
original issue price of the ELKS includes the agent’s commissions paid
with respect to the ELKS and the cost of hedging our obligations under the
ELKS. 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. The fact that
the original issue price of the ELKS includes these commissions and
hedging costs is expected to adversely affect the secondary market prices
of the ELKS. See “Risk Factors—The inclusion of commissions and
projected profit from hedging in the original issue price is likely to
adversely affect secondary market prices” and “Description of ELKS—Use of
Proceeds and Hedging.” |
| --- | --- |
| No
guaranteed return of principal | Unlike
ordinary debt securities, ELKS do not guarantee any return of principal at
maturity. If the closing price of the underlying equity
decreases to or below the downside threshold price on any trading day from
but excluding the day we price the ELKS for initial sale to the public,
which we refer to as the pricing date, to and including the valuation
date, which is scheduled to be February 9, 2011, you will receive, in lieu
of the stated principal amount of the ELKS, a number of shares of the
underlying equity per ELKS equal to the equity ratio or, if we so elect,
the cash value of such shares, determined as of the valuation date, the
value of which may be significantly less than the stated principal amount
of the ELKS and could be zero. See “—Payment at maturity”
below. |
| | The
downside threshold price of $97.7325 was determined on the pricing date
and equals 75% of the initial equity price (the closing price of one share
of the underlying equity on the pricing date). |
| | If,
however, the closing price of the underlying equity does not decline to or
below the downside threshold price on any trading day from
but excluding the pricing date to and including the valuation date, then
at maturity you will receive an amount in cash equal to the $10 stated
principal amount of each ELKS. You will not, therefore,
participate in any appreciation in the price of the underlying equity,
unless: (i) the closing price of the underlying equity declines to or
below the downside threshold price over the term of the ELKS and (ii) the closing
price of the underlying equity at maturity is greater than the initial
equity price of the underlying
equity. |

PS-3

| 9.7%
per annum paid monthly | We
will pay a monthly coupon on the ELKS, at the rate of 9.7% per annum, on
the 14th day of each month, beginning on February 14, 2010. The
coupon we will pay on the ELKS is more than the current dividend rate on
the underlying equity and more than the rate that we would pay on a
conventional debt security with the same maturity. You will be
entitled to receive all coupon payments on the stated principal amount of
your ELKS whether we deliver cash or shares of the underlying equity at
maturity. |
| --- | --- |
| Payment
at maturity | We
will deliver to you on the maturity date for each $10 stated principal
amount of ELKS that you hold: · if the closing price of the underlying equity has not decreased to or
below the downside threshold price on any trading day from
but excluding the pricing date to and including the valuation date, an
amount in cash equal to $10 per ELKS; or · if the closing price of the underlying equity has decreased to or
below the downside threshold price on any trading day from
but excluding the pricing date to and including the valuation date, a
number of shares of the underlying equity in exchange for each ELKS equal
to the equity ratio or, if we so elect, the cash value of such shares,
determined as of the valuation date. The
equity ratio is 0.07674, which is equal to the $10 stated principal amount
of the ELKS divided by the closing price of the underlying equity on the
pricing date. The
equity ratio will be subject to adjustment for certain corporate events
relating to Amazon.com, Inc., which we refer to as the underlying equity
issuer. You should read about those adjustments in the sections
of this pricing supplement called “Risk Factors—The antidilution
adjustments the calculation agent is required to make do not cover every
corporate event that could affect the underlying equity” and “Description
of ELKS—Payment at Maturity,” and “—Antidilution
Adjustments.” You
will not have the right to exchange your ELKS for cash or shares of the
underlying equity prior to maturity. |
| | You
can review the historical prices of the underlying equity in the section
of this pricing supplement called “Description of ELKS—Historical
Information.” The historical performance of the underlying
equity included in this pricing supplement should not be taken as an
indication of the future performance of the underlying equity during the
term of the ELKS. |
| The
ELKS may become exchangeable into the common stock of companies other than
the underlying equity issuer | Following
certain corporate events relating to the underlying equity, such as a
stock-for-stock merger where the underlying equity issuer is not the
surviving entity, you will receive at maturity cash or a number of shares
of the common stock of a successor corporation to the underlying equity
issuer, based on the closing price of such successor’s common
stock. We describe the specific corporate events that can lead
to these adjustments in the section of this pricing supplement called
“Description of ELKS—Antidilution Adjustments.” You should read
this section in order to understand these and other adjustments that may
be made to your ELKS. |
| MS
& Co. will be the calculation agent | We
have appointed our affiliate, Morgan Stanley & Co. Incorporated, which
we refer to as MS & Co., to act as calculation agent for The Bank of
New York Mellon, a New York banking corporation (as successor trustee to
JPMorgan Chase Bank, N.A. |

PS-4

(formerly known as JPMorgan Chase Bank)), the trustee for our senior notes. As calculation agent, MS & Co. has determined the initial equity price, the downside threshold price and the equity ratio and will determine whether the closing price of the underlying equity has decreased to or below the downside threshold price, whether a market disruption event has occurred, the payment you receive at maturity and any adjustment to the equity ratio for certain extraordinary dividends or corporate events affecting the underlying equity that we describe in the section of this pricing supplement called “Description of ELKS—Antidilution Adjustments.”

| No
affiliation with the underlying equity issuer | Amazon.com,
Inc. is not an affiliate of ours and is not involved with this offering in
any way. The obligations represented by the ELKS are
obligations of Morgan Stanley and not of Amazon.com,
Inc. |
| --- | --- |
| MS
& Co. will be the agent; conflicts of interest | The
agent for the offering of the ELKS, MS & Co., our wholly-owned
subsidiary, will conduct this offering in compliance with the requirements
of NASD Rule 2720 of the Financial Industry Regulatory Authority, Inc.,
which is commonly referred to as FINRA, regarding a FINRA member firm’s
distribution of the ELKS of an affiliate and related conflicts of
interest. In accordance with NASD Rule 2720, MS & Co. or
any of our other affiliates may not make sales in this offering to any
discretionary account without the prior written approval of the
customer. See “Description of ELKS—Supplemental Information
Concerning Plan of Distribution; Conflicts of Interest” on
PS-29. |
| Where
you can find more information on the ELKS | The
ELKS are senior notes issued as part of our Series F medium-term note
program. You can find a general description of our Series F
medium-term note program in the accompanying prospectus supplement dated
December 23, 2008. We describe the basic features of this type
of note in the section of the prospectus supplement called “Description of
Notes—Exchangeable Notes” and in the section of the prospectus called
“Description of Debt Securities—Fixed Rate Debt
Securities.” |
| | For
a detailed description of the terms of the ELKS, you should read the
section of this pricing supplement called “Description of
ELKS.” You should also read about some of the risks involved in
investing in ELKS in the section called “Risk Factors.” The tax
and accounting treatment of investments in equity-linked securities such
as the ELKS may differ from that of investments in ordinary debt
securities or common stock. See the section of this pricing
supplement called “Description of ELKS—United States Federal
Taxation.” You should consult with your investment, legal, tax,
accounting and other advisers with regard to any proposed or actual
investment in the ELKS. |
| How
to reach us | You
may contact your local Morgan Stanley Smith Barney branch office or call
us at (866) 477-4776. |

PS-5

HYPOTHETICAL PAYMENTS ON THE ELKS AT MATURITY

At maturity:

The following examples illustrate the payment at maturity on the ELKS for a range of hypothetical closing prices for the underlying equity at maturity under two different scenarios for the hypothetical closing prices of the underlying equity during the term of the ELKS, to illustrate the effect on the return at maturity of both the closing price of the underlying equity at maturity and the closing price of the underlying equity relative to the downside threshold price over the term of the ELKS, including on the valuation date.

The hypothetical examples are based on the following hypothetical values and assume a term of one year:

· Issue Price (per ELKS): $10

· Initial Equity Price: $130 (the hypothetical closing price of one share of the underlying equity on the pricing date)

· Equity Ratio: 0.0769 (the $10 stated principal amount per ELKS divided by the hypothetical initial equity price)

· Downside Threshold Price: $97.50 (75% of the hypothetical initial equity price)

· Hypothetical Annual Coupon: 9.50%

· Hypothetical Annualized Dividend Yield: 0.00%

TABLE 1: This table represents the hypothetical payment at maturity and the total payment over the term of the ELKS (assuming a one year term) on a $10 investment in the ELKS if the closing price of the underlying equity HAS NOT decreased to or below the hypothetical downside threshold price of $97.50 on any trading day from but excluding the pricing date to and including the valuation date. Consequently, the payment at maturity in each of these examples would be made in cash and would not be affected by the value of the underlying equity at maturity.

| Hypothetical
underlying equity closing price at maturity | Value
of cash payment at
maturity per ELKS | Total
monthly coupon payments per ELKS | Value
of total payment per ELKS | Total
return on the underlying equity* | Total
return on the ELKS |
| --- | --- | --- | --- | --- | --- |
| $ 0.00 | N/A | N/A | N/A | N/A | N/A |
| $ 91.00 | N/A | N/A | N/A | N/A | N/A |
| $ 104.00 | $ 10.00 | $ 0.95 | $ 10.95 | -20.00% | 9.50% |
| $ 117.00 | $ 10.00 | $ 0.95 | $ 10.95 | -10.00% | 9.50% |
| $ 130.00 | $ 10.00 | $ 0.95 | $ 10.95 | 0.00% | 9.50% |
| $ 162.50 | $ 10.00 | $ 0.95 | $ 10.95 | 25.00% | 9.50% |
| $ 195.00 | $ 10.00 | $ 0.95 | $ 10.95 | 50.00% | 9.50% |
| $ 227.50 | $ 10.00 | $ 0.95 | $ 10.95 | 75.00% | 9.50% |
| $ 260.00 | $ 10.00 | $ 0.95 | $ 10.95 | 100.00% | 9.50% |

*Assumes that Amazon.com, Inc. continues not to pay dividends

PS-6

TABLE 2: This table represents the hypothetical payment at maturity and the total payment over the term of the ELKS (assuming a one year term) on a $10 investment in the ELKS if the closing price of the underlying equity HAS decreased to or below the downside threshold price of $97.50 on any trading day from but excluding the pricing date to and including the valuation date. Consequently, the payment at maturity in each of these examples could be made by the delivery of shares of the underlying equity and, if so, would be affected by the value of the underlying equity at maturity.

| Hypothetical
underlying equity closing price at maturity | Value
of the underlying equity delivered as payment at maturity per
ELKS | Total
monthly coupon payments per ELKS | Value
of total payment per ELKS | Total
return on the underlying equity* | Total
return on the ELKS |
| --- | --- | --- | --- | --- | --- |
| $
0.00 | $ 0.00 | $ 0.95 | $ 0.95 | -100.00% | -90.50% |
| $
32.50 | $ 2.50 | $ 0.95 | $ 3.45 | -75.00% | -65.50% |
| $ 91.00 | $ 7.00 | $ 0.95 | $ 7.95 | -30.00% | -20.50% |
| $ 104.00 | $ 8.00 | $ 0.95 | $ 8.95 | -20.00% | -10.50% |
| $ 117.00 | $ 9.00 | $ 0.95 | $ 9.95 | -10.00% | -0.50% |
| $ 117.65 | $ 9.05 | $ 0.95 | $ 10.00 | -9.50% | 0.00% |
| $ 130.00 | $ 10.00 | $ 0.95 | $ 10.95 | 0.00% | 9.50% |
| $ 162.50 | $ 12.50 | $ 0.95 | $ 13.45 | 25.00% | 34.50% |
| $ 195.00 | $ 15.00 | $ 0.95 | $ 15.95 | 50.00% | 59.50% |
| $ 227.50 | $ 17.50 | $ 0.95 | $ 18.45 | 75.00% | 84.50% |
| $ 260.00 | $ 20.00 | $ 0.95 | $ 20.95 | 100.00% | 109.50% |

*Assumes Amazon.com, Inc. continues not to pay dividends

Because the closing price of the underlying equity may be subject to significant fluctuation over the term of the ELKS, it is not possible to present a chart or table illustrating the complete range of possible payments at maturity. The examples of the hypothetical payment calculations above are intended to illustrate the effect of general trends in the price of the underlying equity over the term of the ELKS on the amount payable to you at maturity, if any. However, the price of the underlying equity may not increase or decrease over the term of the ELKS in accordance with any of the trends depicted by the hypothetical examples above. The actual payment amounts received by investors will depend on (a) whether the closing price of the underlying equity falls to or below the downside threshold price on any trading day from but excluding the pricing date to and including the valuation date and (b) the closing price of the underlying equity at maturity (or on the valuation date if we elect to deliver the cash value, determined as of such date, of the shares of the underlying equity we would otherwise be required to deliver to you at maturity).

You can review the historical prices of the underlying equity in the section of this pricing supplement called “Description of ELKS—Historical Information.” The historical performance of the underlying equity included in this pricing supplement should not be taken as an indication of the future performance of the underlying equity during the term of the ELKS. It is impossible to predict whether the price of the underlying equity will rise or fall during the term of the ELKS, whether the price of the underlying equity will or will not decrease to or below the downside threshold price during the term of ELKS, or whether the closing price of the underlying equity at maturity (or on the valuation date if we elect to deliver the cash value, determined as of such date, of the shares of the underlying equity we would otherwise be required to deliver to you at maturity) will be above the initial equity price.

PS-7

RISK FACTORS

The ELKS are not secured debt and are riskier than ordinary debt securities. Because the return to investors is linked to the performance of the underlying equity, there is no guaranteed return of principal at maturity. This section describes the most significant risks relating to the ELKS.

| The
ELKS are not ordinary debt securities — no guaranteed return of
principal | The
ELKS combine features of equity and debt. The terms of the ELKS
differ from those of ordinary debt securities in that we will not pay you
a fixed amount at maturity. Our payment to you at maturity will
either be (i) cash equal to the stated principal amount of each ELKS or
(ii) if the closing price of the underlying equity decreases to or below
the downside threshold price over the term of the ELKS, a number of shares
of the underlying equity equal to the equity ratio or, if we so elect, the
cash value of such shares, determined as of the valuation
date. If we deliver shares of the underlying equity at maturity
(or the cash value of such shares, determined as of the valuation date) in
exchange for each ELKS, the value of those shares or that cash, as
applicable, may be significantly less than the stated principal amount of
each ELKS and could be zero. In addition, if we elect to
deliver cash in lieu of shares of the underlying equity at maturity, the
amount of cash we deliver will be determined as of the valuation
date. Therefore, you will not participate in any appreciation
of the underlying equity between the valuation date and the maturity
date. |
| --- | --- |
| You
will not participate in any appreciation in the value of the underlying
equity, except in certain limited circumstances | You
will not participate in any appreciation in the price of the underlying
equity, and your return on the ELKS will be limited to the coupon payable
on the ELKS, unless: (i) the closing price of the underlying equity
declines to or below the downside threshold price on any trading day from
but excluding the pricing date to and including the valuation date,
scheduled to be February 9, 2011, and (ii) the closing
price of the underlying equity at maturity (or on the valuation date if we
elect to deliver the cash value, determined as of such date, of the shares
of the underlying equity we would otherwise be required to deliver to you
at maturity) has recovered and is greater than the initial equity price of
the underlying equity. |
| The
ELKS 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 ELKS | Investors
are dependent on Morgan Stanley’s ability to pay all amounts due on the
ELKS on coupon payment dates and 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 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
ELKS. |
| The
ELKS will not be listed and secondary trading may be
limited | The
ELKS will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the ELKS. MS
& Co. may, but is not obligated to, make a market in the
ELKS. Even if there is a secondary market, it may not provide
enough liquidity to allow you to trade or sell the ELKS
easily. Because we do not expect that other broker-dealers will
participate significantly in the secondary market for the ELKS, the price
at which you may be able to trade your ELKS 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 ELKS, it is
likely that there would be no secondary market for the
ELKS. Accordingly, you should be willing to hold your ELKS to
maturity. |
| Market
price of the ELKS will be influenced by many unpredictable
factors | Several
factors, many of which are beyond our control, will influence the value of
the ELKS in the secondary market and the price at which MS & Co. may
be willing to purchase or sell the ELKS in the secondary
market. We
expect that generally the price of the underlying equity on any day will
affect the value of the ELKS |

PS-8

more than any other single factor. However because the payment on the ELKS is not directly correlated to the value of the underlying equity, the ELKS will trade differently from the underlying equity. Other factors that may influence the value of the ELKS include:

| • | whether
the closing price of the underlying equity has decreased to or below the
downside threshold price on any trading day; |
| --- | --- |
| • | the
volatility (frequency and magnitude of changes in price) of the underlying
equity; |
| • | the
dividend rate on the underlying equity; |
| • | geopolitical
conditions and economic, financial, political, regulatory or judicial
events that affect stock markets generally and that may affect the
underlying equity issuer and the price of the underlying
equity; |
| • | interest
and yield rates in the market; |
| • | the
time remaining to the maturity of the ELKS; |
| • | the
occurrence of certain events affecting the underlying equity issuer that
may or may not require an adjustment to the equity ratio;
and |
| • | any
actual or anticipated changes in our credit ratings or credit
spreads. |

| | Some
or all of these factors will influence the price you will receive if you
sell your ELKS prior to maturity. For example, you may have to
sell your ELKS at a substantial discount from the stated principal amount
if the price of the underlying equity has declined below the initial
equity price, especially if the closing price has decreased to or below
the downside threshold price on any trading day after the pricing date of
the ELKS. |
| --- | --- |
| | You
cannot predict the future performance of the underlying equity based on
its historical performance. The price of the underlying equity
may decrease to or below the downside threshold price and remain below the
initial equity price to maturity (or the valuation date if we elect to
deliver the cash value, determined as of such date, of the shares of the
underlying equity we would otherwise be required to deliver to you at
maturity) so that you will receive at maturity shares of the underlying
equity or cash worth less than the stated principal amount of the
ELKS. We cannot guarantee that the price of the underlying
equity will stay above the downside threshold price over the life of the
ELKS or that, if the price of the underlying equity has decreased to or
below the downside threshold price, the price of the underlying equity
will recover and be at or above the initial equity price at maturity or on
the valuation date, as applicable, so that you will receive an amount at
least equal to the stated principal amount of the ELKS. |
| 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 ELKS in secondary
market transactions will likely be lower than the original issue price,
since the original issue price includes, and secondary market prices are
likely to exclude, commissions paid with respect to the ELKS, as well as
the cost of hedging our obligations under the ELKS. 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. |

PS-9

| No
affiliation with the underlying equity issuer | The
underlying equity issuer is not an affiliate of ours and is not involved
with this offering in any way. Consequently, we have no ability to control
the actions of the underlying equity issuer, including any corporate
actions of the type that would require the calculation agent to adjust the
payment to you at maturity. The underlying equity issuer has no
obligation to consider your interest as an investor in the ELKS in taking
any corporate actions that might affect the value of your
ELKS. None of the money you pay for the ELKS will go to the
underlying equity issuer. |
| --- | --- |
| Morgan
Stanley may engage in business with or involving the underlying equity
issuer without regard to your interests | We
or our affiliates may presently or from time to time engage in business
with the underlying equity issuer without regard to your interests,
including extending loans to, or making equity investments in, the
underlying equity issuer or providing advisory services to the underlying
equity issuer, such as merger and acquisition advisory
services. In the course of our business, we or our affiliates
may acquire non-public information about the underlying equity
issuer. Neither we nor any of our affiliates undertakes to
disclose any such information to you. In addition, we or our
affiliates from time to time have published and in the future may publish
research reports with respect to the underlying equity
issuer. These research reports may or may not recommend that
investors buy or hold the underlying equity. |
| You
have no shareholder rights | Investing
in the ELKS is not equivalent to investing in the underlying
equity. As an investor in the ELKS, you will not have voting
rights or rights to receive dividends or other distributions or any other
rights with respect to the underlying equity. In addition, you
do not have the right to exchange your ELKS for cash or for the underlying
equity prior to maturity. |
| The
ELKS may become exchangeable into the common stock of companies other than
the underlying equity issuer | Following
certain corporate events relating to the underlying equity, such as a
stock-for-stock merger where the underlying equity issuer is not the
surviving entity, you will receive at maturity cash or a number of shares
of the common stock of a successor corporation to the underlying equity
issuer based on the closing price of such successor’s common
stock. We describe the specific corporate events that can lead
to these adjustments in the section of this pricing supplement called
“Description of ELKS—Antidilution Adjustments.” The occurrence
of such corporate events and the consequent adjustments may materially and
adversely affect the market price of the ELKS. |
| The
antidilution adjustments the calculation agent is required to make do not
cover every corporate event that could affect the underlying
equity | MS
& Co., as calculation agent, will adjust the equity ratio and the
downside threshold price for certain events affecting the underlying
equity, such as stock splits and stock dividends, and certain other
corporate actions involving the underlying equity issuer, such as
mergers. However, the calculation agent will not make an
adjustment for every corporate event that could affect the underlying
equity. For example, the calculation agent is not required to
make any adjustments if the underlying equity issuer offers common stock
for cash or in connection with acquisitions. If an event occurs
that does not require the calculation agent to adjust the amount of the
underlying equity payable at maturity, the market price of the ELKS may be
materially and adversely affected. |
| The
economic interests of the calculation agent and other of our affiliates
are potentially adverse to your interests | The
economic interests of the calculation agent and other of our affiliates
are potentially adverse to your interests as an investor in the
ELKS. As calculation agent, MS & Co. has determined the
initial equity price, the downside threshold price and the equity ratio
and will determine whether the closing price of the underlying equity has
decreased to or below the downside threshold price during the term of the
ELKS, whether a market disruption event has occurred, the appropriate
payment you receive at maturity, including, if we elect to deliver cash in
lieu of shares of the underlying equity, the cash value of such shares on
the valuation date, |

PS-10

| | any
adjustment to the equity ratio to reflect certain corporate and other
events and the appropriate underlying security or securities to be
delivered at maturity following certain extraordinary dividends or
reorganization events. Determinations made by MS & Co, in
its capacity as calculation agent, including adjustments to the equity
ratio, may affect the amount payable to you at maturity of the
ELKS. See the section of this pricing supplement called
“Description of ELKS—Antidilution Adjustments.” |
| --- | --- |
| | The
original issue price of the ELKS includes the agent’s commissions and
certain costs of hedging our obligations under the ELKS. The
subsidiaries through which we hedge our obligations under the ELKS expect
to make a profit. Since hedging our obligations entails risk
and may be influenced by market forces beyond our or our subsidiaries’
control, such hedging may result in a profit that is more or less than
initially projected. |
| Hedging
and trading activity by the calculation agent and its affiliates could
potentially affect the value of the ELKS | MS
& Co. and other affiliates of ours have carried out, and will continue
to carry out, hedging activities related to the ELKS, including trading in
the underlying equity as well as in other instruments related to the
underlying equity. MS & Co. and some of our other
subsidiaries also trade the underlying equity and other financial
instruments related to the underlying equity 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
affected the price of the underlying equity and, accordingly, could have
increased the initial equity price used to calculate the downside
threshold price and, therefore, have increased the downside threshold
price relative to the price of the underlying equity on the pricing date
absent such hedging or trading activity. Additionally, such
hedging or trading activities during the term of the ELKS could
potentially affect whether the closing price of the underlying equity
decreases to or below the downside threshold price and, therefore, whether
or not you will receive the stated principal amount of the ELKS or shares
of the underlying equity (or, if we so elect, the cash value of such
shares, determined as of the valuation date) at
maturity. |
| Because
the characterization of the ELKS for U.S. federal income tax purposes is
uncertain, the material U.S. federal income tax consequences of an
investment in the ELKS are unclear. | There
is no direct legal authority as to the proper tax treatment of the ELKS,
and our counsel has not rendered an opinion as to their proper
characterization for U.S. federal income tax
purposes. Significant aspects of the tax treatment of the ELKS
are uncertain. Pursuant to the terms of the ELKS and subject to
the discussion in this pricing supplement under “United States Federal
Taxation,” you agree with us to treat an ELKS for all U.S. federal tax
purposes as a unit consisting of (i) an option on a forward contract,
pursuant to which, if exercised, you agree to purchase the underlying
equity (and cash in lieu of fractional shares) or the cash value of the
underlying equity determined as of the valuation date and (ii) a deposit
with us of a fixed amount of cash to secure your obligation under the
forward contract. Please read the discussion under “United
States Federal Taxation” in this pricing supplement concerning the U.S.
federal income tax consequences of an investment in the
ELKS. If the Internal Revenue Service (the “IRS”) were
successful in asserting an alternative treatment for the ELKS, the timing
and character of income on the ELKS could differ
significantly. |
| | 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. While it is not
entirely clear whether the ELKS would be viewed as similar to the prepaid
forward contracts described in the notice, it is possible that any
Treasury regulations or other guidance issued after consideration of these
issues could materially and adversely affect the tax consequences of an
investment in the ELKS, possibly with retroactive effect. The
notice focuses on a number of issues, the most relevant of which for
holders of the ELKS are the character and timing of income or loss
(including whether the portion |

PS-11

| of
the coupon payment treated as option premium might instead be required to
be included currently as ordinary income) and the degree, if any, to which
income realized by non-U.S. investors should be subject to withholding
tax. Non-U.S. Holders (as defined in the section of this
pricing supplement called “United States Federal Taxation ─ Tax
Consequences to Non-U.S. Holders”) should note that we currently do not
intend to withhold on any payments made with respect to the ELKS to
Non-U.S. Holders (subject to compliance by such holders with certification
necessary to establish an exemption from withholding). However,
in the event of a change of law or any formal or informal guidance by the
IRS, Treasury or Congress, we may decide to withhold on payments made with
respect to the ELKS to Non-U.S. Holders and will not be required to pay
any additional amount with respect to amounts withheld. |
| --- |
| If
you are a non-U.S. investor, please also read the section of this pricing
supplement called “United States Federal Taxation—Tax Consequences to
Non-U.S. Holders.” |
| You
should consult your tax advisers regarding all aspects of the U.S. federal
income tax consequences of an investment in the ELKS, as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction. |

PS-12

DESCRIPTION OF ELKS

Terms not defined herein have the meanings given to such terms in the accompanying prospectus supplement. The term “ELKS” refers to each $10 stated principal amount of our ELKS ® Based Upon the Common Stock of Amazon.com, Inc. due February 14, 2011. In this pricing supplement, the terms “we,” “us” and “our” refer to Morgan Stanley.

| Aggregate
Principal Amount | $5,765,830 |
| --- | --- |
| Pricing
Date | January
11, 2010 |
| Original
Issue Date (Settlement Date) | January
14, 2010 |
| Maturity
Date | February
14, 2011 |
| Valuation
Date | February
9, 2011 |
| Coupon | 9.7%
per annum |
| Coupon
Payment Dates | Monthly,
on the 14th day of each month, beginning on February 14, 2010 and ending
on the Maturity Date. |
| Record
Date | The
Record Date for each Coupon Payment Date, including the Coupon Payment
Date scheduled to occur on the Maturity Date, will be the date 15 calendar
days prior to such scheduled Coupon Payment Date, whether or not that date
is a Business Day. |
| Specified
Currency | U.S.
dollars |
| Stated
Principal Amount | $10
per ELKS |
| Original
Issue Price | $10
per ELKS |
| Denominations | $10
and integral multiples thereof |
| CUSIP
Number | 617484670 |
| ISIN
Number | US6174846708 |
| Initial
Equity Price | $130.31,
the Closing Price of one share of the Underlying Equity on the Pricing
Date. |
| Downside
Threshold Price | $97.7325
(75% of the Initial Equity Price). The Downside Threshold Price will be
subject to adjustment upon the occurrence of certain extraordinary
dividends and corporate events affecting the Underlying Equity through and
including the Valuation Date. See “—Antidilution Adjustments”
below. |
| Underlying
Equity Issuer | Amazon.com,
Inc. |
| Underlying
Equity | Shares
of common stock of the Underlying Equity Issuer |
| Trading
Price | The
Trading Price of the Underlying Equity or any other capital stock (as
described under “—Antidilution Adjustments” below) on any date of
determination will be (1) if the security is listed on a national
securities exchange on that date of determination, the most recently
reported sale price, regular way, at such time on such date for such
security during the principal trading session
on |

PS-13

| | the
principal national securities exchange on which the security is listed or
admitted to trading, and (2) if the security is not listed on a national
securities exchange on that date of determination, or if the reported sale
price for such security on such date on such exchange is not obtainable
(even if the security is listed or admitted to trading on such exchange),
the most recently reported sale price at such time on such date for such
security during the principal trading session in the over−the−counter
market as reported on the OTC Bulletin Board, the National Quotation
Bureau or a similar organization. The determination of the Trading Price
by the Calculation Agent in the event of a Market Disruption Event may be
deferred by the Calculation Agent for up to five consecutive Trading Days
on which a Market Disruption Event occurs, but not past the Valuation
Date. If no sale price is available pursuant to clauses (1) or (2) above
or if there is a Market Disruption Event, the Trading Price on any date of
determination, unless deferred by the Calculation Agent as described in
the preceding sentence, will be the arithmetic mean, as determined by the
Calculation Agent, of the bid prices of the security obtained from as many
dealers in such security (which may include Morgan Stanley & Co.
Incorporated (“MS & Co.”) or any of our other affiliates or
subsidiaries, but only to the extent that any such bid is the highest of
the bids obtained), but not exceeding three such dealers, as will make
such bid prices available to the Calculation Agent. If no bid
prices are provided from any dealers, the Trading Price will be determined
by the Calculation Agent in its sole and absolute discretion (acting in
good faith) taking into account any information that it deems relevant.
The term “OTC Bulletin Board” will include any successor to such
service. |
| --- | --- |
| Payment
at Maturity | On
the Maturity Date, upon delivery of the ELKS to the Trustee, we will
deliver to you for each $10 Stated Principal Amount of the ELKS
either: |

| • | if
the Closing Price of the Underlying Equity has not decreased to or
below the Downside Threshold Price on any Trading Day from
but excluding the Pricing Date to and including the Valuation Date, an amount in cash
equal to the $10 Stated Principal Amount, or |
| --- | --- |
| • | if
the Closing Price of the Underlying Equity has decreased to or below the Downside Threshold Price on
any Trading Day from but excluding the Pricing Date to and
including the Valuation Date, a number of shares of the Underlying Equity
equal to the Equity Ratio or, if we so elect, the cash value of such
shares, each as determined by the Calculation Agent as of the Valuation
Date. See “—Equity Ratio” below. The Equity Ratio
and the Downside Threshold Price are subject to adjustment upon the
occurrence of certain extraordinary dividends and corporate events
relating to the Underlying Equity. See “—Antidilution
Adjustments” below. |

PS-14

| | As
a result, if the Closing Price of the Underlying Equity on any Trading Day
from but excluding the Pricing Date up to and including the Valuation Date
is less than or equal to the Downside Threshold Price, the value of the
Underlying Equity or cash that you receive at maturity for each ELKS may
be significantly less than the price paid for each ELKS, and could be
zero. You will not in any case receive an amount at maturity
with a value greater than $10 unless (1) the Closing Price of the
Underlying Equity on any Trading Day from but excluding the Pricing Date
up to and including the Valuation Date is less than or equal to the
Downside Threshold Price and (2) the Closing
Price of the Underlying Equity at maturity (or on the Valuation Date, if
we elect to deliver the cash value, determined as of the Valuation Date,
of the shares of the Underlying Equity we would otherwise be required to
deliver to you on the Maturity Date) is greater than the Initial Equity
Price. |
| --- | --- |
| | We
shall, or shall cause the Calculation Agent to, (i) provide written notice
to the Trustee (upon which notice the Trustee may conclusively rely) and
to the Depositary, on or prior to 10:30 a.m. (New York City time) on the
Trading Day immediately prior to the Maturity Date of the ELKS (but if
such Trading Day is not a Business Day, prior to the close of business on
the Business Day preceding the Maturity Date), of the amount of cash or
the number of shares of the Underlying Equity, as applicable, to be
delivered with respect to the $10 Stated Principal Amount of each ELKS and
(ii) deliver such cash or shares of the Underlying Equity (and cash in
respect of the Coupon and any fractional shares of the Underlying Equity),
if applicable, to the Trustee for delivery to the holders on the Maturity
Date. |
| Equity
Ratio | 0.07674. The
Equity Ratio is equal to the $10 Stated Principal Amount of the ELKS
divided by the Initial Equity Price and was determined by the Calculation
Agent on the Pricing Date. The Equity Ratio will be subject to
adjustment upon the occurrence of certain extraordinary dividends and
corporate events affecting the Underlying Equity and the Underlying Equity
Issuer through and including the Valuation Date. See
“—Antidilution Adjustments” below. |
| No
Fractional Shares | If
at maturity we deliver shares of the Underlying Equity as described in
“—Payment at Maturity” above, we will pay cash in lieu of delivering
fractional shares of the Underlying Equity in an amount equal to the
corresponding fractional Closing Price of the Underlying Equity, as
determined by the Calculation Agent on the Valuation Date. The
number of full shares and any cash in lieu of a fractional share that you
receive at maturity will be calculated based on the aggregate number of
ELKS you hold. |
| Business
Day | Any
day, other than a Saturday, a Sunday or a day on which the securities
exchanges or banking institutions or trust companies in The City of New
York are authorized or obligated by law or executive order to
close. |
| Closing
Price | The
Closing Price of the Underlying Equity (or any other security for which a
Closing Price must be determined) on any date of |

PS-15

| | determination
will be (1) if the common stock or other security is listed on a national
securities exchange on that date of determination, the closing sale price
or, if no closing sale price is reported, the last reported sale price on
that date on the principal U.S. exchange on which the common stock or
other security is listed or admitted to trading, (2) if the common stock
or other security is a security of The NASDAQ Stock Market LLC (the
“NASDAQ”), the official closing price published by the NASDAQ on such
date, and (3) if the common stock or other security are not listed on a
national securities exchange on that date of determination, or if the
closing sale price or last reported sale price is not obtainable (even if
the common stock or other security is listed or admitted to trading on
such exchange), the last quoted bid price for the common stock or other
security in the over−the−counter market on that date as reported by the
OTC Bulletin Board, the National Quotation Bureau or a similar
organization. The determination of the Closing Price by the Calculation
Agent in the event of a Market Disruption Event may be deferred by the
Calculation Agent for up to five consecutive Trading Days on which a
Market Disruption Event is occurring, but not past the Valuation Date. If
no closing sale price or last reported sale price is available pursuant to
clauses (1), (2) or (3) above or if there is a Market Disruption Event,
the Closing Price on any date of determination, unless deferred by the
Calculation Agent as described in the preceding sentence, will be the
arithmetic mean, as determined by the Calculation Agent, of the bid prices
of the common stock or other security obtained from as many dealers in
such security (which may include the Calculation Agent or any of our other
subsidiaries or affiliates, but only to the extent that any such bid is
the highest of the bids obtained), but not exceeding three such dealers,
as will make such bid prices available to the Calculation
Agent. If no bid prices are provided from any dealers, the
Closing Price will be determined by the Calculation Agent in its sole and
absolute discretion (acting in good faith) taking into account any
information that it deems relevant. The term “OTC Bulletin
Board” will include any successor to such service. |
| --- | --- |
| Then−Current
Market Price | The
Then−Current Market Price of the Underlying Equity (or any other security
for which a Closing Price must be determined), for the purpose of applying
any antidilution adjustment, means the average Closing Price per share of
the Underlying Equity for the ten Trading Days immediately before this
adjustment is effected or, in the case of an adjustment effected at the
opening of business on the Business Day next following a record date,
immediately before the earlier of the date the adjustment is effected and
the related Ex−Date (as defined in “—Antidilution Adjustments”). For
purposes of determining the Then−Current Market Price, the determination
of the Closing Price by the Calculation Agent in the event of a Market
Disruption Event, as described in the definition of Closing Price, may be
deferred by the Calculation Agent for up to five consecutive Trading Days
on which a Market Disruption Event is occurring, but not past the Trading
Day prior to maturity. |

PS-16

| | If,
during any period of ten Trading Days used to calculate the Then−Current
Market Price, there occurs any event requiring an adjustment to be
effected as described under “—Antidilution Adjustments”, then the Closing
Price for each Trading Day in such period of ten Trading Days occurring
prior to the day on which such adjustment is effected will be adjusted by
the Calculation Agent to give effect to the
relevant antidilution adjustment. |
| --- | --- |
| Trading
Day | A
day, as determined by the Calculation Agent, on which trading is generally
conducted (or was scheduled to have been generally conducted, but for the
occurrence of a Market Disruption Event) on the New York Stock Exchange,
Inc., NYSE Amex Equities, the NASDAQ, the Chicago Mercantile Exchange and
the Chicago Board of Options Exchange, and in the over-the-counter market
for equity securities in the United States, or in the case of a security
traded on one or more non-U.S. securities exchanges or markets, on the
principal non-U.S. securities exchange or market for such
security. |
| Book
Entry Note or Certificated Note | Book
Entry. The ELKS will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf
of, DTC and will be registered in the name of a nominee of
DTC. DTC’s nominee will be the only registered holder of the
ELKS. Your beneficial interest in the ELKS will be evidenced
solely by entries on the books of the securities intermediary acting on
your behalf as a direct or indirect participant in DTC. In this
pricing supplement, all references to actions taken by “you” or to be
taken by “you” refer to actions taken or to be taken by DTC and its
participants acting on your behalf, and all references to payments or
notices to you will mean payments or notices to DTC, as the registered
holder of the ELKS, for distribution to participants in accordance with
DTC’s procedures. For more information regarding DTC and book
entry notes, please read “Forms of Securities—The Depositary” and “Form of
Securities—Global Securities—Registered Global Securities” in the
accompanying prospectus. |
| Optional
Redemption | We
do not have the option to redeem the ELKS prior to the Maturity Date, and
the ELKS will not be subject to the defeasance provisions described in the
accompanying prospectus under “Description of Debt Securities—Discharge,
Defeasance and Covenant Defeasance.” |
| Senior
Note or Subordinated Note | Senior |
| Trustee | The
Bank of New York Mellon, a New York banking corporation (as successor
trustee to JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase
Bank)) |
| Agent | MS
& Co. |
| Calculation
Agent | MS
& Co. |
| | All
determinations made by the Calculation Agent will be at the sole
discretion of the Calculation Agent and will, in the
absence |

PS-17

| | of
manifest error, be conclusive for all purposes and binding on you, the
Trustee, and us. |
| --- | --- |
| | All
calculations with respect to the Equity Ratio will be made by the
Calculation Agent and will be rounded to the nearest one
hundred-thousandth, with five one-millionths rounded upward ( e.g., .876545 would be
rounded to .87655); all dollar amounts related to determination of the
amount of cash payable per ELKS will be rounded to the nearest
ten-thousandth, with five one hundred-thousandths rounded upward (e.g.,
.76545 would be rounded up to .7655); and all dollar amounts paid on the
aggregate number of ELKS related to Coupon payments or the payment at
maturity will be rounded to the nearest cent, with one-half cent rounded
upward. |
| | Because
the Calculation Agent is our affiliate, potential conflicts of interest
may exist between the Calculation Agent and you, including with respect to
certain determinations and judgments that the Calculation Agent must make
in determining amounts due to you. The Calculation Agent is
obligated to carry out its duties and functions as Calculation Agent in
good faith and using its reasonable judgment. |
| Antidilution
Adjustments | The
Equity Ratio will be subject to adjustment from time to time in certain
situations. Any of these adjustments could have an impact on the amount to
be paid by us to you. The Calculation Agent will be responsible for the
effectuation and calculation of any adjustment described herein and will
furnish the Trustee with notice of any adjustment, upon which adjustment
the Trustee may conclusively rely. |
| | If
the Underlying Equity Issuer, after the Pricing Date: |
| | (1)
pays a share dividend or makes a distribution with respect to its common
stock in such shares of common stock (excluding any share dividend or
distribution for which the number of shares of common stock paid or
distributed is based on a fixed cash equivalent value), |
| | (2)
subdivides or splits its outstanding common stock into a greater number of
shares, |
| | (3)
combines its outstanding common stock into a smaller number of shares,
or |
| | (4)
issues by reclassification of its common stock any shares of other common
stock of the Underlying Equity Issuer, |
| | then,
in each of these cases, the Equity Ratio will be multiplied by an
antidilution adjustment equal to a fraction, the numerator of which will
be the number of shares of common stock outstanding immediately after the
event, plus, in the case of a reclassification referred to in (4) above,
the number of shares of other common stock of the Underlying Equity
Issuer, and the denominator of which will be the number of shares of
common stock outstanding immediately before the
event. |

PS-18

| If
the Underlying Equity Issuer, after the Pricing Date, issues, or declares
a record date in respect of an issuance of, rights or warrants to all
holders of its common stock entitling them to subscribe for or purchase
shares of its common stock at a price per share less than the Then−Current
Market Price of the common stock, other than rights to purchase common
stock pursuant to a plan for the reinvestment of dividends or interest,
then, in each case, the Equity Ratio will be multiplied by an antidilution
adjustment equal to a fraction, the numerator of which will be the number
of shares of common stock outstanding immediately before the adjustment is
effected by reason of the issuance of such rights or warrants, plus the
number of additional shares of common stock offered for subscription or
purchase pursuant to the rights or warrants, and the denominator of which
will be the number of shares of common stock outstanding immediately
before the adjustment is effected by reason of the issuance of the rights
or warrants, plus the number of additional shares of common stock which
the aggregate offering price of the total number of shares of common stock
offered for subscription or purchase pursuant to the rights or warrants
would purchase at the Then−Current Market Price of the common stock, which
will be determined by multiplying the total number of shares so offered
for subscription or purchase by the exercise price of the rights or
warrants and dividing the product obtained by the Then−Current Market
Price. To the extent that, after the expiration of the rights or warrants,
the shares of common stock offered thereby have not been delivered, the
Equity Ratio will be further adjusted to equal the Equity Ratio which
would have been in effect had the adjustment for the issuance of the
rights or warrants been made upon the basis of delivery of only the number
of shares of common stock actually delivered. The Initial Equity Price and
the Downside Threshold Price will also be adjusted in that case in the
manner described below. |
| --- |
| If
the Underlying Equity Issuer, after the Pricing Date, (a) declares or pays
a dividend or makes a distribution to all holders of the common stock of
(i) any class of its capital stock, (ii) the capital stock of one or more
of its subsidiaries, or (iii) evidences of its indebtedness or other
non−cash assets, in each case excluding any dividends or distributions
referred to in the above paragraph and excluding any issuance or
distribution to all holders of its common stock, in the form of Marketable
Securities, of capital stock of one or more of its subsidiaries, or (b)
issues to all holders of its common stock rights or warrants to subscribe
for or purchase any of its or one or more of its subsidiaries’ securities,
other than rights or warrants referred to in the above paragraph, then, in
each of these cases, the Equity Ratio will be multiplied by an
antidilution adjustment equal to a fraction, the numerator of which will
be the Then−Current Market Price of one share of common stock, and the
denominator of which will be the Then−Current Market Price of one share of
common stock, less the fair market value as of the time the adjustment is
effected of the portion of the capital shares, assets, evidences of
indebtedness, rights or warrants so distributed or issued applicable to
one share of the common stock. The Initial Equity Price and the Downside |

PS-19

| Threshold
Price will also be adjusted in that case in the manner described below. If
any capital stock declared or paid as a dividend or otherwise distributed
or issued to all holders of the Underlying Equity consists, in whole or in
part, of Marketable Securities, then the fair market value of such
Marketable Securities will be determined by the Calculation Agent by
reference to the Trading Price of such capital stock. The fair market
value of any other distribution or issuance referred to in this paragraph
will be determined by a nationally recognized independent investment
banking firm retained for this purpose by the Calculation Agent, whose
determination will be final. |
| --- |
| Notwithstanding
the foregoing, in the event that, with respect to any dividend or
distribution to which the above paragraph would otherwise apply, the
denominator in the fraction referred to in the above formula is less than
$1.00 or is a negative number, then the Calculation Agent may, at its
option, elect to have the adjustment provided by the above paragraph not
be made and in lieu of this adjustment, the Closing Price of the
Underlying Equity on any Trading Day thereafter up to and including the
Valuation Date will be deemed to be equal to the fair market value of the
capital stock, evidences of indebtedness, assets, rights or warrants
(determined, as of the date this dividend or distribution is made, by a
nationally recognized independent investment banking firm retained for
this purpose by Calculation Agent, whose determination will be final) so
distributed or issued applicable to one share of the Underlying Equity
and, if the Closing Price of the Underlying Equity on any Trading Day
thereafter, up to and including the Valuation Date, is less than or equal
to the Downside Threshold Price, each holder of the ELKS will have the
right to receive at maturity cash in an amount per ELKS equal to the
Equity Ratio multiplied by such fair market value. |
| If
the Underlying Equity Issuer, after the Pricing Date, declares a record
date in respect of a distribution of cash, other than any Permitted
Dividends described below, any cash distributed in consideration of
fractional shares of the common stock and any cash distributed in a
Reorganization Event referred to below, by dividend or otherwise, to all
holders of its common stock, or makes an Excess Purchase Payment, then the
Equity Ratio will be multiplied by an antidilution adjustment equal to a
fraction, the numerator of which will be the Then−Current Market Price of
the common stock, and the denominator of which will be the Then−Current
Market Price of the common stock on the record date less the amount of the
distribution applicable to one share of common stock which would not be a
Permitted Dividend, or, in the case of an Excess Purchase Payment, less
the aggregate amount of the Excess Purchase Payment for which adjustment
is being made at the time divided by the number of shares of common stock
outstanding on the record date. The Initial Equity Price and the Downside
Threshold Price will also be adjusted in that case in the manner described
below. |

PS-20

| For
the purposes of these adjustments: |
| --- |
| A
“Permitted Dividend” is (1) any cash dividend in respect of the Underlying
Equity, other than a cash dividend that exceeds the immediately preceding
cash dividend, and then only to the extent that the per share amount of
this dividend results in an annualized dividend yield on the common stock
in excess of 10%, and (2) any cash dividend or distribution made in the
form of a fixed cash equivalent value for which the holders of the
Underlying Equity have the option to receive either a number of shares of
its common stock or a fixed amount of cash. |
| An
“Excess Purchase Payment” is the excess, if any, of (x) the cash and the
value (as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Calculation Agent, whose
determination will be final) of all other consideration paid by the
Underlying Equity Issuer with respect to one share of common stock
acquired in a tender offer or exchange offer by the Underlying Equity
Issuer, over (y) the Then−Current Market Price of the common
stock. |
| Notwithstanding
the foregoing, in the event that, with respect to any dividend,
distribution or Excess Purchase Payment to which the sixth paragraph in
this section would otherwise apply, the denominator in the fraction
referred to in the formula in that paragraph is less than $1.00 or is a
negative number, then the Calculation Agent may, at its option, elect to
have the adjustment provided by the sixth paragraph in this section not be
made and in lieu of this adjustment, the Closing Price of the Underlying
Equity on any Trading Day thereafter up to and including the Valuation
Date will be deemed to be equal to the sum of the amount of cash and the
fair market value of other consideration (determined, as of the date this
dividend or distribution is made, by a nationally recognized independent
investment banking firm retained for this purpose by the Calculation
Agent, whose determination will be final) so distributed or applied to the
acquisition of the common stock in the tender offer or exchange offer
applicable to one share of the Underlying Equity and, if the Closing Price
of the Underlying Equity on any Trading Day thereafter, up to and
including the Valuation Date, is less than or equal to the Downside
Threshold Price, each holder of the ELKS will have the right to receive at
maturity cash in an amount per ELKS equal to the Equity Ratio multiplied
by such sum. |
| If
any adjustment is made to the Equity Ratio as set forth above, an
adjustment will also be made to the Initial Equity Price and the Downside
Threshold Price. The required adjustment will be made by dividing the
Initial Equity Price and the Downside Threshold Price by the relevant
antidilution adjustment. |
| If
the Underlying Equity Issuer, after the Pricing Date, issues or makes a
distribution to all holders of its common stock of the capital stock of
one or more of its subsidiaries, in each case in the form of Marketable
Securities (as defined below), and if the Closing Price of the Underlying
Equity on any Trading Day after the Pricing Date up to and including the
Valuation Date is less |

PS-21

| than
or equal to the Downside Threshold Price, then, in each of these cases,
each holder of the ELKS will receive at maturity for each ELKS a
combination of the Underlying Equity equal to the Equity Ratio and a
number of shares of such Underlying Equity Issuer subsidiaries’ capital
stock equal to the Equity Ratio times the number of shares of such
subsidiaries’ capital stock distributed per share of Underlying Equity
(or, if we so elect, the cash value of such consideration, determined as
of the Valuation Date). Following the record date for an event described
in this paragraph, the “Closing Price” will equal the Closing Price of the
Underlying Equity, plus the Closing Price of such subsidiaries’ capital
stock times the number of shares of such subsidiaries’ capital stock
distributed per share of Underlying Equity. In the event a distribution
pursuant to this paragraph occurs, following the record date for such
distribution, the adjustments described in “—Antidilution Adjustments”
will also apply to such subsidiaries’ capital stock if any of the events
described in “—Antidilution Adjustments” occurs with respect to such
capital stock. |
| --- |
| Each
antidilution adjustment will be effected as
follows: |

| • | in
the case of any dividend, distribution or issuance, at the opening of
business on the Business Day next following the record date for
determination of holders of the Underlying Equity entitled to receive this
dividend, distribution or issuance or, if the announcement of this
dividend, distribution, or issuance is after this record date, at the time
this dividend, distribution or issuance was announced by the Underlying
Equity Issuer, |
| --- | --- |
| • | in
the case of any subdivision, split, combination or reclassification, on
the effective date of the transaction, |
| • | in
the case of any Excess Purchase Payment for which the Underlying Equity
Issuer announces, at or prior to the time it commences the relevant share
repurchase, the repurchase price per share for shares proposed to be
repurchased, on the date of the announcement, and |
| • | in
the case of any other Excess Purchase Payment, on the date that the
holders of the repurchased shares become entitled to payment in respect
thereof. |

No adjustment in the Equity Ratio will be required unless the adjustment would require an increase or decrease of at least one percent therein, provided, however, that any adjustments which by reason of this sentence are not required to be made will be carried forward (on a percentage basis) and taken into account in any subsequent adjustment. If any announcement or declaration of a record date in respect of a dividend, distribution, issuance or repurchase requiring an adjustment as described herein is subsequently canceled by the Underlying Equity Issuer, or this dividend, distribution, issuance or repurchase fails to receive requisite approvals or fails to occur for any other reason, then, upon the cancellation, failure of approval or failure to occur, the Equity Ratio, the Initial Equity Price and the Downside Threshold

PS-22

| Price
will be further adjusted to the Equity Ratio, the Initial Equity Price and
the Downside Threshold Price which would then have been in effect had
adjustment for the event not been made. If a Reorganization Event
described below occurs after the occurrence of one or more events
requiring an adjustment as described herein, the antidilution adjustments
previously applied to the Equity Ratio will not be rescinded but will be
applied to the Reorganization Event as provided for below. |
| --- |
| The
“Ex−Date” relating to any dividend, distribution or issuance is the first
date on which the shares of common stock trade in the regular way on their
principal market without the right to receive this dividend, distribution
or issuance. |
| In
the event of any of the following “Reorganization
Events”: |

| • | any
consolidation or merger of the Underlying Equity Issuer, or any surviving
entity or subsequent surviving entity of the Underlying Equity Issuer,
with or into another entity, other than a merger or consolidation in which
the Underlying Equity Issuer is the continuing corporation and in which
the common stock outstanding immediately before the merger or
consolidation are not exchanged for cash, securities or other property of
the Underlying Equity Issuer or another issuer, |
| --- | --- |
| • | any
sale, transfer, lease or conveyance to another corporation of the property
of the Underlying Equity Issuer or any successor as an entirety or
substantially as an entirety, |
| • | any
statutory exchange of securities of the Underlying Equity Issuer or any
successor of the Underlying Equity Issuer with another issuer, other than
in connection with a merger or acquisition, or |
| • | any
liquidation, dissolution or winding up of the Underlying Equity Issuer or
any successor of the Underlying Equity Issuer, the Closing Price of the
Underlying Equity on any Trading Day thereafter up to and including the
Valuation Date will be deemed to be equal to the Transaction
Value. |

The “Transaction Value” will equal the sum of (1), (2) and (3), below:

| (1) for
any cash received in a Reorganization Event, the amount of cash received
per share of common stock, |
| --- |
| (2) for
any property other than cash or Marketable Securities received in a
Reorganization Event, an amount equal to the fair market value on the date
the Reorganization Event is consummated of that property received per
share of common stock, as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Calculation Agent, whose determination will be final,
and |

PS-23

(3) for any Marketable Securities received in a Reorganization Event, an amount equal to the Closing Price per share of common stock of these Marketable Securities on the applicable Trading Day multiplied by the number of these Marketable Securities received for each share of common stock.

| “Marketable
Securities” are any perpetual equity securities or debt securities with a
stated maturity after the maturity date, in each case that are listed on a
U.S. national securities exchange. The number of shares of any equity
securities constituting Marketable Securities included in the calculation
of Transaction Value pursuant to clause (3) above will be adjusted if any
event occurs with respect to the Marketable Securities or the issuer of
the Marketable Securities between the time of the Reorganization Event and
maturity of the ELKS that would have required an adjustment as described
above, had it occurred with respect to the Underlying Equity or the
Underlying Equity Issuer. Adjustment for these subsequent events will be
as nearly equivalent as practicable to the adjustments described
above. |
| --- |
| If
the Underlying Equity has been subject to a Reorganization Event and the
Closing Price of the Underlying Equity on any Trading Day thereafter, up
to and including the Valuation Date, is less than or equal to the Downside
Threshold Price, then each holder of the ELKS will have the right to
receive per $10 Stated Principal Amount of ELKS (i) cash in an amount
equal to the Equity Ratio multiplied by the sum of clauses (1) and (2) in
the definition of “Transaction Value” above and (ii) the number of
Marketable Securities received for each share of Underlying Equity in the
Reorganization Event multiplied by the Equity Ratio (or, if we so elect,
the cash value of such consideration, determined as of the Valuation
Date). |
| For
the purpose of adjustments described herein, each non−U.S. dollar value
(whether a value of cash, property, securities or otherwise) shall be
expressed in U.S. dollars as converted from the relevant currency using
the 12:00 noon buying rate in New York certified by the New York Federal
Reserve Bank for customs purposes on the date of valuation, or if this
rate is unavailable, such rate as the Calculation Agent may
determine. |
| The
Calculation Agent will be responsible for the calculation and effectuation
of any adjustment described herein and will furnish the Trustee with
notice of any such adjustment, upon which notice the Trustee may
conclusively rely. |

Market Disruption Event Market Disruption Event means the occurrence or existence of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by any exchange or market or otherwise), or the unavailability, through a recognized system of public dissemination of transaction information, of accurate price, volume or related information in respect of:

PS-24

| (1) the
Underlying Equity (or any other security for which a Closing Price must be
determined), or |
| --- |
| (2) any
options contracts or futures contracts relating to the Underlying Equity
(or other relevant security), or any options on such futures contracts, on
any exchange or market, |

| | if,
in each case, in the determination of the Calculation Agent, any such
suspension, limitation or unavailability is material. |
| --- | --- |
| Alternate
Exchange | |
| Calculation
in Case of an Event of Default | In
case an Event of Default (as defined in the accompanying prospectus) with
respect to any ELKS shall have occurred and be continuing, the amount in
cash declared due and payable upon any acceleration of the ELKS (an “Event
of Default Acceleration”) shall be determined by the Calculation Agent and
shall be an amount payable in cash, if any, equal to the Payment at
Maturity, for each ELKS, calculated as if the date of such acceleration
were the Valuation Date. See “—Payment at Maturity”
above. |
| | If
the maturity of the ELKS is accelerated because of an Event of Default
Acceleration as described above, we shall, or shall cause the Calculation
Agent to, provide written notice to the Trustee at its New York office, on
which notice the Trustee may conclusively rely, and to DTC of the cash
amount due, if any, with respect to the ELKS as promptly as possible and
in no event later than two Business Days after the date of
acceleration. |
| The
Underlying Equity; Public | |
| Information | Amazon.com,
Inc. offers electronic retail services to consumer customers, seller
customers and developer customers. The Underlying Equity is
registered under the Exchange Act. Companies with securities
registered under the Exchange Act are required to file periodically
certain financial and other information specified by the Securities and
Exchange Commission (the “Commission”). Information provided to or filed
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1580, 100 F Street, N.E.,
Washington, D.C. 20549, and copies of such material can be obtained from
the Public Reference Section of the Commission, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. In addition,
information provided to or filed with the Commission electronically can be
accessed through a website maintained by the Commission. The
address of the Commission’s website is
http://www.sec.gov. Information provided to or filed with the
Commission by the Underlying Equity Issuer pursuant to the Exchange Act
can be located by reference to Commission file number
000-22513. In addition, information regarding the Underlying
Equity Issuer 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. |

This pricing supplement relates only to the ELKS and does not relate to the Underlying Equity or other securities of the Underlying Equity Issuer. We have derived all disclosures

PS-25

| contained
in this pricing supplement regarding the Underlying Equity Issuer from the
publicly available documents described in the preceding
paragraph. In connection with the offering of the ELKS, neither
we nor the Agent has participated in the preparation of such documents or
made any due diligence inquiry with respect to the Underlying Equity
Issuer. Neither we nor the Agent makes any representation that
such publicly available documents or any other publicly available
information regarding the Underlying Equity Issuer 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 price of the
Underlying Equity (and therefore the price of the Underlying Equity at the
time we priced the ELKS for initial sale to the public) have been publicly
disclosed. Subsequent disclosure of any such events or the
disclosure of or failure to disclose material future events concerning the
Underlying Equity Issuer could affect the value received at maturity with
respect to the ELKS and therefore the trading prices of the
ELKS. |
| --- |
| Neither
we nor any of our affiliates makes any representation to you as to the
performance of the Underlying Equity. |
| We
and/or our affiliates may presently or from time to time engage in
business with the Underlying Equity Issuer, including extending loans to,
or making equity investments in, the Underlying Equity Issuer or providing
advisory services to the Underlying Equity Issuer, such as merger and
acquisition advisory services. In the course of such business,
we and/or our affiliates may acquire non-public information with respect
to the Underlying Equity Issuer, 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 Equity Issuer, and the reports may or may not
recommend that investors buy or hold the Underlying Equity. The
statements in the preceding two sentences are not intended to affect the
rights of investors in the ELKS under the securities laws. As a
prospective purchaser of ELKS, you should undertake an independent
investigation of the Underlying Equity Issuer as in your judgment is
appropriate to make an informed decision with respect to an investment in
the Underlying Equity. |

| Historical
Information |
| --- |
| The
historical prices of the Underlying Equity should not be taken as an
indication of future performance, and no assurance can be given as to the
Closing Price of the Underlying Equity on any |

PS-26

| future
date. The Closing Price of the Underlying Equity may decrease
below the Downside Threshold Price on any Trading Day during the term of
the ELKS and the Closing Price of the Underlying Equity may be lower than
the Initial Equity Price at maturity, so that at maturity you will receive
an amount of the Underlying Equity or cash worth significantly less than
the Stated Principal Amount of the ELKS. To the extent that you receive a
payment at maturity worth less than the $10 Original Issue Price of the
ELKS, and such shortfall is not offset by the Coupon paid on the ELKS, you
will lose money on your investment. |
| --- |
| We
obtained the Closing Prices and other information below from Bloomberg
Financial Markets, without independent
verification. |

	High	Low	Dividends*
(CUSIP
023135106)
2005
First
Quarter	$44.58	$32.88	-
Second
Quarter	$36.64	$31.72	-
Third
Quarter	$46.51	$32.91	-
Fourth
Quarter	$49.50	$38.95	-
2006
First
Quarter	$47.87	$35.25	-
Second
Quarter	$38.68	$31.61	-
Third
Quarter	$38.61	$26.07	-
Fourth
Quarter	$42.96	$30.87	-
2007
First
Quarter	$41.51	$36.43	-
Second
Quarter	$73.65	$40.42	-
Third
Quarter	$93.48	$68.73	-
Fourth
Quarter	$100.82	$77.00	-
2008
First
Quarter	$96.25	$62.43	-
Second
Quarter	$84.51	$71.99	-
Third
Quarter	$88.09	$63.35	-
Fourth
Quarter	$69.58	$35.03	-
2009
First
Quarter	$75.58	$48.44	-
Second
Quarter	$87.56	$73.50	-
Third
Quarter	$93.87	$75.63	-
Fourth
Quarter	$142.25	$88.67	-
2010
First
Quarter (through January 11, 2010)	$134.69	$130.00	-

PS-27

Underlying Equity Historical Performance – Daily Closing Prices January 1, 200 5 to January 11, 2010

| | * As a holder of ELKS, you will
not be entitled to receive dividends, if any, that may be payable on the
Underlying Equity. We make no representation as to the
amount of dividends, if any, that the Underlying Equity Issuer will pay in
the future. |
| --- | --- |
| Use
of Proceeds and Hedging | The
net proceeds we receive from the sale of the ELKS will be used for general
corporate purposes and, in part, by us in connection with hedging our
obligations under the ELKS through one or more of our
subsidiaries. The Original Issue Price of the ELKS includes the
Agent’s commissions (as shown on the cover page of this pricing
supplement) paid with respect to the ELKS and the cost of hedging our
obligations under the ELKS. The cost of hedging includes the
projected profit that our subsidiaries expect to realize in consideration
for assuming the risks inherent in managing the hedging
transactions. Since hedging our obligations entails risk and
may be influenced by market forces beyond our or our subsidiaries’
control, such hedging may result in a profit that is more or less than
initially projected, or could result in a loss. See also “Use
of Proceeds” in the accompanying prospectus. |
| | On
or prior to the Pricing Date, we, through our subsidiaries or others,
hedged our anticipated exposure in connection with the ELKS by taking
positions in the Underlying Equity and in options contracts on the
Underlying Equity listed on major securities markets. Such
purchase activity could have increased the Initial Equity Price of the
Underlying Equity used to calculate the Downside Threshold Price, and,
therefore, could have increased the Downside Threshold Price relative to
the price of the Underlying Equity on the Pricing Date absent such hedging
activity. In addition, through our subsidiaries, we are likely
to modify our hedge position throughout the life of the ELKS by purchasing
and selling the Underlying Equity, options contracts on the Underlying
Equity listed on major securities markets or positions in any other
available securities or instruments that we may wish to use in connection
with such hedging activities. We cannot give any assurance that our
hedging activities will not affect the Closing Price of the Underlying
Equity and, therefore, |

PS-28

adversely affect the value of the ELKS or the payment you will receive at maturity.

| Supplemental
Information | |
| --- | --- |
| Concerning
Plan of Distribution; Conflicts of Interest | Under
the terms and subject to the conditions contained in the U.S. distribution
agreement referred to in the prospectus supplement under “Plan of
Distribution,” the Agent, acting as principal for its own account, has
agreed to purchase, and we have agreed to sell, the aggregate principal
amount of ELKS set forth on the cover of this pricing
supplement. The Agent proposes initially to offer the ELKS
directly to the public at the public offering price set forth on the cover
page of this pricing supplement plus accrued interest, if any, from the
Original Issue Date; provided that the price
will be $9.9625 per ELKS and the Agent’s commissions will be $0.1625 per
ELKS for the purchase by any single investor of greater than or equal to
$1,000,000 and less than $3,000,000 principal amount of ELKS, the price
will be $9.9438 per ELKS and the Agent’s commissions will be $0.1438 per
ELKS for the purchase by any single investor of greater than or equal to
$3,000,000 and less than $5,000,000 principal amount of ELKS and the price
will be $9.925 per ELKS and the agent’s commissions will be $0.125 per
ELKS for the purchase by any single investor of greater than or equal to
$5,000,000 principal amount of ELKS. The Agent may distribute
the Notes through Morgan Stanley Smith Barney LLC (“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. Such selected dealers, including MSSB, and their
Financial Advisors will receive from the Agent, MS & Co., a fixed
sales commission of $0.20 for each ELKS they sell; provided that,
commissions paid to such selected dealers in connection with the offering
may be reclaimed by the Agent if, within 30 days of the offering, the
Agent repurchases the ELKS distributed by such selected
dealers. After the initial offering of the ELKS, the Agent may
vary the offering price and other selling terms from time to
time. |
| | The
Agent, our wholly-owned subsidiary, will conduct this offering in
compliance with the requirements of NASD Rule 2720 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. In accordance
with NASD Rule 2720, the Agent or any of our other affiliates may not make
sales in this offering to any discretionary account without the prior
written approval of the customer. |
| | We
expect to deliver the ELKS against payment therefor in New York, New York
on January 14, 2010, which is the third scheduled Business Day following
the date of this pricing supplement and of the pricing of the
ELKS. |
| | In
order to facilitate the offering of the ELKS, the Agent may engage in
transactions that stabilize, maintain or otherwise affect |

PS-29

| the
price of the ELKS or the Underlying Equity. Specifically, the
Agent may sell more ELKS than it is obligated to purchase in connection
with the offering, creating a naked short position in the ELKS for its own
account. The Agent must close out any naked short position by
purchasing the ELKS in the open market after the offering. A
naked short position in the ELKS is more likely to be created if the Agent
is concerned that there may be downward pressure on the price of the ELKS
in the open market after pricing that could adversely affect investors who
purchase in the offering. As an additional means of
facilitating the offering, the Agent may bid for, and purchase, ELKS or
the Underlying Equity in the open market to stabilize the price of the
ELKS. Any of these activities may raise or maintain the market price of
the ELKS above independent market levels or prevent or retard a decline in
the market price of the ELKS. The Agent is not required to
engage in these activities, and may end any of these activities at any
time. An affiliate of the Agent has entered into a hedging transaction
with us in connection with this offering of the ELKS. See “—Use
of Proceeds and Hedging” above. |
| --- |
| General |
| No
action has been or will be taken by us, the Agent or any dealer that would
permit a public offering of the ELKS or possession or distribution of this
pricing supplement or the accompanying prospectus supplement or prospectus
in any jurisdiction, other than the United States, where action for that
purpose is required. No offers, sales or deliveries of the
ELKS, or distribution of this pricing supplement or the accompanying
prospectus supplement or prospectus or any other offering material
relating to the ELKS, may be made in or from any jurisdiction except in
circumstances which will result in compliance with any applicable laws and
regulations and will not impose any obligations on us, the Agent or any
dealer. |
| The
Agent has represented and agreed, and each dealer through which we may
offer the ELKS has represented and agreed, that it (i) will comply with
all applicable laws and regulations in force in each non-U.S. jurisdiction
in which it purchases, offers, sells or delivers the ELKS or possesses or
distributes this pricing supplement and the accompanying prospectus
supplement and prospectus and (ii) will obtain any consent, approval or
permission required by it for the purchase, offer or sale by it of the
ELKS under the laws and regulations in force in each non-U.S. jurisdiction
to which it is subject or in which it makes purchases, offers or sales of
the ELKS. We shall not have responsibility for the Agent’s or
any dealer’s compliance with the applicable laws and regulations or
obtaining any required consent, approval or permission. |
| Brazil |
| The
ELKS have not been and will not be registered with the Comissão de Valores
Mobiliários (The Brazilian Securities Commission). The ELKS may
not be offered or sold in the Federative Republic of Brazil except in
circumstances which do |

PS-30

| not
constitute a public offering or distribution under Brazilian laws and
regulations. |
| --- |
| Chile |
| The
ELKS have not been registered with the Superintendencia de Valores y
Seguros in Chile and may not be offered or sold publicly in
Chile. No offer, sales or deliveries of the ELKS or
distribution of this pricing supplement or the accompanying prospectus
supplement or prospectus, may be made in or from Chile except in
circumstances which will result in compliance with any applicable Chilean
laws and regulations. |
| Hong
Kong |
| No
action has been taken to permit an offering of the ELKS to the public in
Hong Kong as the ELKS have not been authorized by the Securities and
Futures Commission of Hong Kong and, accordingly, no advertisement,
invitation or document relating to the ELKS, whether in Hong Kong or
elsewhere, shall be issued, circulated or distributed which is directed
at, or the contents of which are likely to be accessed or read by, the
public in Hong Kong other than (i) with respect to the ELKS which are or
are intended to be disposed of only to persons outside Hong Kong or only
to professional investors within the meaning of the Securities and Futures
Ordinance (Cap. 571) of Hong Kong (“SFO”) and any rules made thereunder or
(ii) in circumstances that do not constitute an invitation to the public
for the purposes of the SFO. |
| Mexico |
| The
ELKS have not been registered with the National Registry of Securities
maintained by the Mexican National Banking and Securities Commission and
may not be offered or sold publicly in Mexico. This pricing
supplement and the accompanying prospectus supplement and prospectus may
not be publicly distributed in Mexico. |
| Singapore |
| The
Agent and each dealer represent and agree that they will not offer or sell
the ELKS nor make the ELKS the subject of an invitation for subscription
or purchase, nor will they circulate or distribute this pricing supplement
or the accompanying prospectus supplement or prospectus or any other
document or material in connection with the offer or sale, or invitation
for subscription or purchase, of the ELKS, whether directly or indirectly,
to persons in Singapore other than: |

| (a) an
institutional investor (as defined in section 4A of the Securities and
Futures Act (Chapter 289 of Singapore (the “SFA”)); |
| --- |
| (b) an
accredited investor (as defined in section 4A of the SFA), and in
accordance with the conditions, specified in Section 275 of the
SFA; |

PS-31

| (c) a
person who acquires the ELKS for an aggregate consideration of not less
than Singapore dollars Two Hundred Thousand (S$200,000) (or its equivalent
in a foreign currency) for each transaction, whether such amount is paid
for in cash, by exchange of shares or other assets, unless otherwise
permitted by law; or |
| --- |
| (d) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA. |

| Benefit
Plan Investor Considerations |
| --- |
| In
addition, we and certain of our subsidiaries and affiliates, including MS
& Co., may each be considered “parties in interest” within the meaning
of ERISA or “disqualified persons” within the meaning of 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 these ELKS 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 ELKS 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 those 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
these ELKS. 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 |

PS-32

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 these ELKS.

| Because
we may be considered a party in interest with respect to many plans,
unless otherwise specified in the applicable prospectus supplement, these
ELKS 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. Unless
otherwise specified in the applicable prospectus supplement, any
purchaser, including any fiduciary purchasing on behalf of a plan,
transferee or holder of these Securities will be deemed to have
represented, in its corporate and its fiduciary capacity, by its purchase
and holding thereof that either (a) it is not a plan or a plan asset
entity, is not purchasing such ELKS on behalf of or with “plan assets” of
any plan, or with any assets of a governmental 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 or 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 nonexempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing these ELKS 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 these ELKS has exclusive responsibility for
ensuring that its purchase, holding and disposition of the ELKS do not
violate the prohibited transaction rules of ERISA or the Code or any
Similar Law. The sale of any of these ELKS 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 ELKS if the account, plan |

PS-33

or annuity is for the benefit of an employee of Citigroup Global Markets Inc., Morgan Stanley or MSSB or a family member and the employee receives any compensation (such as, for example, an addition to bonus) based on the purchase of ELKS 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 ELKS, either directly or
indirectly. |
| --- | --- |
| United
States Federal Taxation | Prospective investors should
note that the discussion under the section called “United States Federal
Taxation” in the accompanying prospectus supplement does not apply to the
ELKS issued under this pricing supplement and is superseded by the
following discussion. |
| | The
following is a general discussion of the material U.S. federal tax
consequences of ownership and disposition of the ELKS. This
discussion applies only to initial investors in the ELKS
who: |

| • purchase
the ELKS at their “issue price,” which will equal the first price at which
a substantial amount of the ELKS is sold to the public (not including bond
houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers);
and |
| --- |
| • will
hold the ELKS as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the “Code”). |
| This
discussion does not describe all of the tax consequences that may be
relevant to a holder in light of the holder’s particular circumstances or
to holders subject to special rules, such as: |
| • certain
financial institutions; |
| • insurance
companies; |
| • certain
dealers and traders in securities, commodities or foreign
currencies; |
| • investors
holding the ELKS as part of a hedging transaction, “straddle,” conversion
transaction, integrated transaction or constructive sale
transaction; |
| • U.S.
Holders (as defined below) whose functional currency is not the U.S.
dollar; |
| • partnerships
or other entities classified as partnerships for U.S. federal income tax
purposes; |
| • regulated
investment companies; |
| • real
estate investment trusts; |

PS-34

| • tax-exempt
entities, including an “individual retirement account” or “Roth IRA” as
defined in Section 408 or 408A of the Code, respectively;
or |
| --- |
| • persons
subject to the alternative minimum tax. |
| In
addition, we will not attempt to ascertain whether the Underlying Equity
Issuer is treated as a “U.S. real property holding corporation” (“USRPHC”)
within the meaning of Section 897 of the Code. If the
Underlying Equity Issuer were so treated, certain adverse U.S. federal
income tax consequences might apply to a Non-U.S. Holder (as defined below) upon the
sale, exchange or other disposition of the ELKS. Non-U.S.
Holders should refer to information filed with the Securities and Exchange
Commission or another governmental authority by the Underlying Equity
Issuer and consult their tax advisers regarding the possible consequences
to them if the Underlying Equity Issuer is or becomes a
USRPHC. |
| As
the law applicable to the U.S. federal income taxation of instruments such
as the ELKS is technical and complex, the discussion below necessarily
represents only a general summary. Moreover, the effect of any
applicable state, local or foreign tax laws is not
discussed. In addition, this summary does not address the U.S.
federal income tax consequences of the ownership or disposition of the
Underlying Equity should an investor receive shares of the Underlying
Equity at maturity or upon retirement of the ELKS. Investors
should consult their tax advisers regarding the potential U.S. federal
income tax consequences of the ownership or disposition of the Underlying
Equity. |
| This
discussion is based on the Code, administrative pronouncements, judicial
decisions and final, temporary and proposed Treasury regulations, all as
of the date hereof, changes to any of which subsequent to the date of this
pricing supplement may affect the tax consequences described
herein. Persons considering the purchase of ELKS should consult
their tax advisers with regard to the application of the U.S. federal
income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction. |
| General |
| Subject to the discussion
below under “—Tax Consequences to Non-U.S. Holders,” we and every investor
in the ELKS agree (in the absence of an administrative determination or
judicial ruling to the contrary) to treat an ELKS, under current law, for
all U.S. federal income tax purposes as a unit consisting of the
following: |

(i) an option (the “Option”) written by the investor to enter into a forward contract (the “Forward Contract”), that if exercised, will require the investor to purchase the Underlying Equity (and cash in lieu of fractional shares) or the cash value of the Underlying Equity determined as of the valuation date for an amount equal to the Deposit (as defined below); and

PS-35

| (ii) a
deposit with us of a fixed amount of cash, equal to the issue price, to
secure the investor’s obligation under the Forward Contract (the
“Deposit”), which Deposit pays interest based on our cost of borrowing at
the time of issuance (the “Yield on the Deposit”). |
| --- |
| The
Option will be deemed to have been exercised only if the closing price of
the Underlying Equity has decreased to or below the Downside Threshold
Price on any trading day from, but excluding, the pricing date to and
including the valuation date. Assuming the characterization of
the ELKS as set forth is respected, a portion of the coupon on the ELKS
will be treated as Yield on the Deposit and the remainder will be
attributable to the premium on the Option (the “Option
Premium”). We
have determined that the Yield on the Deposit is 0.6380 % per annum, compounded monthly,
and that the
remainder of the coupons on the ELKS is attributable to the Option
Premium. |
| Based
on our determination of their relative fair market values, we will
allocate 100% of the issue price of the ELKS to the Deposit and none to
the Option. Our allocation of the issue price between the
Option and the Deposit will be binding on investors in the ELKS, unless an
investor timely and explicitly discloses to the Internal Revenue Service
(the “IRS”) that its allocation is different from ours. The
treatment of the ELKS described above and our allocation are not, however,
binding on the IRS or the courts. No statutory, judicial or
administrative authority directly addresses the treatment of the ELKS or
instruments similar to the ELKS for U.S. federal income tax purposes, and
no ruling is being requested from the IRS with respect to the ELKS. Our counsel has not rendered an
opinion as to the proper U.S. federal income tax characterization of the
ELKS. Significant aspects of the U.S. federal income tax
consequences of an investment in the ELKS are uncertain, and no assurance
can be given that the IRS or a court will agree with the characterization
described herein. Accordingly, you should consult your tax
advisers regarding the U.S. federal income tax consequences of an
investment in the ELKS (including alternative characterizations of the
ELKS) and with respect to any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction. Unless
otherwise stated, the following discussion is based on the treatment and
the allocation described above. |
| Tax
Consequences to U.S. Holders |
| This
section applies to you only if you are a U.S. Holder. As used
herein, the term “U.S. Holder” means a beneficial owner of an ELKS that
is, for U.S. federal income tax
purposes: |

| • a
citizen or resident of the United States; |
| --- |
| • a
corporation, or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized in or under the |

PS-36

| laws
of the United States or of any political subdivision thereof;
or |
| --- |
| • an
estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source. |
| The
term “U.S. Holder” also includes certain former citizens and residents of
the United States. |
| Tax
Treatment of the ELKS |
| Coupon Payments on the
ELKS . Under the characterization described above under
“—General,” only a portion of the coupon payments on the ELKS will be
attributable to the Yield on the Deposit. To the extent
attributable to the Yield on the Deposit, coupon payments on the ELKS will
generally be taxable to a U.S. Holder as ordinary interest income at the
time accrued or received in accordance with the U.S. Holder’s method of
accounting for U.S. federal income tax purposes. |
| The
remainder of the coupon payments will represent the Option
Premium. The Option Premium will not be taxable to a U.S.
Holder upon receipt, and will be accounted for as described
below. |
| Tax
Basis . Based on our determination set forth above, the
U.S. Holder’s tax basis in the Option will be zero, and the U.S. Holder’s
tax basis in the Deposit will be 100% of the issue
price. |
| Lapse
of the Option |
| Receipt of Principal Amount in
Cash upon Settlement of the ELKS . If a U.S. Holder
receives the principal amount of an ELKS in cash at maturity, the Option
will be deemed to have lapsed. The amount attributable to the accrued but
unpaid Yield on the Deposit for the ELKS will be taxed as described under
“—Coupon Payments on the ELKS.” A U.S. Holder will not
recognize income upon return of the Deposit, but will recognize the total
amount of the Option Premium received by the U.S. Holder over the term of
the ELKS as short-term capital gain. |
| Exercise
of the Option |
| (i) Receipt of Cash Value of
Underlying Equity as of the Valuation Date. If a U.S.
Holder receives an amount of cash that is based on the value of the
Underlying Equity as determined on the valuation date, the Option will be
deemed to have been exercised, and the holder will be deemed to have
applied the Deposit towards the cash settlement of the Forward
Contract. For these purposes, the amount received does not
include any amounts attributable to accrued but unpaid coupon payments on
the ELKS, which would be taxed as described under “—Coupon Payments on the
ELKS” above. The U.S. Holder would recognize taxable gain or
loss equal to the difference between the amount of cash received
(excluding cash attributable to the accrued but unpaid coupons on the
ELKS) and the U.S. Holder’s |

PS-37

| tax
basis in the ELKS. The U.S. Holder’s adjusted tax basis in the
ELKS would generally be equal to its adjusted tax basis in the Deposit
less the total Option Premium received over the term of the
ELKS. Such gain or loss will be treated as long-term capital
gain or loss if such U.S. Holder has held the ELKS for more than one year
from the date the Option is deemed to have been exercised, or short-term
capital gain or loss otherwise. |
| --- |
| (ii) Receipt of Underlying
Equity upon Settlement of the ELKS . If a U.S. Holder
receives Underlying Equity and accrued but unpaid coupons on the ELKS in
cash at maturity, the amount attributable to the accrued but unpaid Yield
on the Deposit for the ELKS will be taxed as described under “—Coupon
Payments on the ELKS.” In such case, the Option will also be
deemed to have been exercised, and the holder will be deemed to have
applied the Deposit towards the physical settlement of the Forward
Contract. The U.S. Holder will not recognize any income or gain
in respect of the total Option Premium received and will not recognize any
gain or loss with respect to any Underlying Equity
received. Instead, the U.S. Holder will have an aggregate basis
in the Underlying Equity received and the right to receive cash (excluding
cash in respect of any accrued coupon payments on the ELKS) upon
settlement of the ELKS equal to the Deposit less the total Option Premium
received (the “Net Purchase Price”). The allocation of the Net
Purchase Price among the Underlying Equity received and the right to
receive cash (excluding cash in respect of any accrued coupon payments on
the ELKS) should be based on the amount of cash received (excluding cash
in respect of any accrued coupon payments on the ELKS) and the relative
fair market value of the Underlying Equity received, determined as of the
date of the settlement of the ELKS. A U.S. Holder’s holding
period for any Underlying Equity received will start on the day after
receipt. With respect to any cash received upon settlement of
the ELKS, a U.S. Holder will recognize gain or loss. The amount
of such gain or loss will be equal to the difference between the amount of
such cash received and the tax basis allocable to the right to receive
cash, as discussed above. |
| Sale, Exchange or Early
Retirement of the ELKS . Upon a sale or exchange of an
ELKS prior to its maturity, or upon the retirement of an ELKS prior to
maturity upon the occurrence of an Event of Default Acceleration, a U.S.
Holder would recognize taxable gain or loss equal to the difference
between the amount realized on such sale, exchange or retirement and the
U.S. Holder’s tax basis in the ELKS so sold, exchanged or
retired. For these purposes, the amount realized does not
include any amount attributable to accrued but unpaid coupon payments on
the ELKS, which would be taxed as described under “—Coupon Payments on the
ELKS” above. Such U.S. Holder’s adjusted tax basis in the ELKS
would generally be equal to its adjusted tax basis in the Deposit less the
total Option Premium received over the term of the ELKS. Any
such gain or loss upon a sale, exchange or retirement of the ELKS prior to
maturity would generally be capital gain or loss, as the case may
be. To the extent such gain or loss is attributable to the
Deposit, such gain or loss will be treated as long-term capital gain |

PS-38

| or
loss if such U.S. Holder has held the ELKS for more than one year at such
time. |
| --- |
| If
the closing price of the Underlying Equity has not decreased to or below
the Downside Threshold Price prior to the sale, exchange or retirement of
the ELKS, any capital gain or loss, other than gain or loss attributable
to the Deposit, will be treated as short-term capital gain or
loss. If the closing price of the Underlying Equity has
decreased to or below the Downside Threshold Price prior to the sale,
exchange or retirement of the ELKS (and, therefore, the Option is deemed
to have been exercised), any gain or loss, other than gain or loss
attributable to the Deposit, will be treated as long-term capital gain or
loss if such U.S. Holder has held the ELKS for more than one year from the
date the Option is deemed to have been exercised, or short-term capital
gain or loss otherwise. |
| If
the value of the Deposit on the date of such sale, exchange or retirement
exceeds the amount realized on the sale, exchange or retirement of the
ELKS, the U.S. Holder will be treated as having (i) sold or exchanged the
Deposit for an amount equal to its value on such date and (ii) made a
payment to the purchaser of the ELKS equal to the amount of such excess,
in exchange for the purchaser’s assumption of the Option. In
such a case, the U.S. Holder will recognize gain or loss in respect of the
Option in an amount equal to the total Option Premium received over the
term of the ELKS, less the amount deemed to be paid in exchange for the
purchaser’s assumption of the Option. |
| Possible
Alternative Tax Treatments of an Investment in the ELKS |
| Due
to the absence of authorities that directly address the proper
characterization of the ELKS, no assurance can be given that the IRS will
accept, or that a court will uphold, the tax treatment described
above. In particular, the IRS could seek to analyze the U.S.
federal income tax consequences of owning an ELKS under Treasury
regulations governing contingent payment debt instruments (the “Contingent
Debt Regulations”). |
| If
the IRS were successful in asserting that the Contingent Debt Regulations
applied to the ELKS, the timing and character of income thereon would be
significantly affected. Among other things, a U.S. Holder would
be required to accrue interest income as original issue discount (“OID”)
on the ELKS every year at a “comparable yield” determined at the time of
their issuance. In addition, a U.S. Holder would recognize
income upon maturity of the ELKS to the extent that the value of the
Underlying Equity and cash (if any) received exceeded the adjusted issue
price. Furthermore, any gain realized with respect to the ELKS
upon sale, exchange or other disposition would generally be treated as
ordinary income and any loss realized would be treated as ordinary loss to
the extent of the U.S. Holder’s prior accruals of OID, and as capital loss
thereafter. |

PS-39

| Even
if the Contingent Debt Regulations do not apply to the ELKS, other
alternative U.S. federal income tax treatments of the ELKS are possible,
which, if applied, could significantly affect the timing and character of
the income or loss with respect to the ELKS. Accordingly,
prospective purchasers should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the
ELKS. |
| --- |
| 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. While it is not
entirely clear whether the ELKS would be viewed as similar to the prepaid
forward contracts described in the notice, it is possible that 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 ELKS, possibly with retroactive
effect. The notice focuses on a number of issues, the most
relevant of which for U.S. Holders of the ELKS is the character and timing
of income or loss realized with respect to these instruments (including
whether the Option Premium might instead be required to be included
currently as ordinary income). Accordingly, prospective investors
should consult their tax advisers regarding all aspects of the U.S. federal income tax consequences
of an investment in the ELKS , including th e possible implications of this
notice. |
| Backup
Withholding and Information Reporting |
| Backup
withholding may apply in respect of the amounts paid to a U.S. Holder,
unless such U.S. Holder provides proof of an applicable exemption or a
correct taxpayer identification number, or otherwise complies with
applicable requirements of the backup withholding rules. The
amounts withheld under the backup withholding rules are not an additional
tax and may be refunded, or credited against the U.S. Holder’s U.S.
federal income tax liability, provided that the required information is
furnished to the IRS. In addition, information returns will be
filed with the IRS in connection with payments on the ELKS and the
proceeds from a sale, exchange or other disposition of the ELKS, unless
the U.S. Holder provides proof of an applicable exemption from the
information reporting rules. |
| Tax
Consequence to Non-U.S. Holders |
| This
section applies to you only if you are a Non-U.S. Holder. As
used herein, the term “Non-U.S. Holder” means a beneficial owner of an
ELKS that is, for U.S. federal income tax
purposes: |

| • an
individual who is classified as a nonresident alien; |
| --- |
| • a
foreign corporation; or |
| • a
foreign estate or trust. |

PS-40

| The term “ Non-U.S. Holder” does not include any of the
followin g
holders: |
| --- |
| • a
holder who is an individual present in the United States for 183 days or
more in the taxable year of disposition and who is not otherwise a
resident of the United States for U.S. federal income tax
purposes; |
| • certain
former citizens or residents of the United States; or |
| • a
holder for whom income or gain in respect of the ELKS is effectively
connected with the conduct of a trade or business in the United
States. |
| Such holders should consult their
tax advisers regarding the U.S. federal incom e tax consequences of an
investment in ELKS . |
| General |
| As
described above, we and every holder of an ELKS agree (in the absence of
an administrative determination or judicial ruling to the contrary) to
characterize an ELKS for all U.S. federal income tax purposes as a unit
consisting of the Option and the Deposit, and the discussion herein
assumes such treatment. |
| Subject to the discussion below
concerning backup withholding and subject to the discussion
above about the possible application of Section 897 of the Code, payments with respect
to an ELKS to a Non-U.S. Holder, and gain realized on the sale, exchange
or other disposition of such ELKS will not be subject to U.S. federal
income or withholding tax in respect of amounts paid on an ELKS, provided
that: |
| • the
Non-U.S. Holder does not own, directly or by attribution, ten percent or
more of the total combined voting power of all classes of our stock
entitled to vote; |
| • the
Non-U.S. Holder is not a controlled foreign corporation related, directly
or indirectly, to us through stock ownership; |
| • the
Non-U.S. Holder is not a bank receiving interest under Section
881(c)(3)(A) of the Code; and |
| • the
certification requirement described below has been fulfilled with respect
to the beneficial owner. |
| Certification
Requirement. The certification requirement referred to
in the preceding paragraph will be fulfilled if the beneficial owner of an
ELKS (or a financial institution holding the ELKS on behalf of the
beneficial owner) furnishes to us an IRS Form W-8BEN, in which the
beneficial owner certifies under penalties of perjury that it is not a
U.S. person. |

PS-41

| Possible
Alternative Tax Treatments of an Investment in the ELKS |
| --- |
| As
described above under “—Tax Consequences to U.S. Holders—Possible
Alternative Tax Treatments of an Investment in the ELKS,” the IRS may seek
to apply a tax treatment other than the treatment described
herein. However, even if such a recharacterization were
successful, the U.S. federal income and withholding tax consequences to a
Non-U.S. Holder of ownership and disposition of an ELKS should be the same
as those described immediately above. |
| However,
among the issues addressed in the IRS notice described in “—United States
Federal Taxation—Tax Consequences to U.S. Holders” is the degree, if any,
to which income realized by Non-U.S. Holders should be subject to
withholding tax. It is possible that any Treasury
regulations or other guidance issued after consideration of this issue
could materially and adversely affect the withholding tax consequences
o f ownership and
disposition of the ELKS , possibly on a retroactive
basis. Accordingly, prospective investors should consult their
tax advisers regarding all aspects of the U.S. federal income tax consequences
of an investment in the ELKS , including the po ssible implications of
th e notice discussed above . Non-U.S. Holders
should note that we currently do not intend to withhold on any of the
payments made with respect to the ELKS to Non-U.S. Holders (subject to
compliance by such holders with the certification requirement described
above). However, in the event of a change of law or any formal
or informal guidance by the IRS, Treasury or Congress, we may decide to
withhold on payments made with respect to the ELKS to Non-U.S. Holders and
we will not be required to pay any additional amounts with respect to
amounts withheld. |
| U.S. Federal
Estate Tax |
| Individual Non-U.S. Holders and
entities the property of which is potentially includible in such an
individual ’ s gross estate for U.S. federal
estate tax purpose s
(for example, a trust funded by such an individual and with respect to
which the individual has retained certain interests or powers), should
note that, absent an applicable treaty benefit, the ELKS are likely to be treated as U.S.
situs property subject to U.S. federal estate
tax. Prospective investors that are non-U.S. individuals, or
are entities of the type described above, should consult their tax advisers regarding the U.S. federal estate tax consequences
of an
investment in the ELKS . |
| Backup
Withholding and Information Reporting |
| Information
returns may be filed with the IRS in connection with payments on the ELKS
as well as in connection with the proceeds from a sale, exchange or other
disposition of the ELKS. A Non-U.S. Holder may be subject to
backup withholding in respect of amounts paid to the Non-U.S. Holder,
unless such Non-U.S. Holder complies with certification procedures to
establish that it is not a U.S. person for U.S. federal income tax
purposes or |

PS-42

otherwise establishes an exemption. Compliance with the certification procedures described above will satisfy the certification requirements necessary to avoid the backup withholding as well. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is furnished to the IRS.

PS-43

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MORGAN STANLEY Capital/Financing Update 2010

29766_prs_2010-01-13_c13ab268-23dc-4a59-974b-718019965300.zip

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MORGAN STANLEY — Capital/Financing Update 2010

29766_prs_2010-01-13_c13ab268-23dc-4a59-974b-718019965300.zip

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MORGAN STANLEY Capital/Financing Update 2010