MORGAN STANLEY — Capital/Financing Update 2010

May 14, 2010

The information in this pricing supplement is not complete and may be changed. We may not deliver these securities until a final pricing supplement is delivered. This pricing supplement and the accompanying prospectus and prospect us supplement do not constitute an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, Preliminary Pric ing Supplement dated May 14 , 20 10

| PROSPECTUS
Dated December 23, 2008 | Pricing
Supplement No. 392 to |
| --- | --- |
| PROSPECTUS
SUPPLEMENT | Registration
Statement No. 333-156423 |
| Dated
December 23, 2008 | Dated
May ,
2010 |
| | Rule
424(b)(2) |

$

GLOBAL MEDIUM-TERM NOTES, SERIES F

Senior Notes

Buffered Performance Securities

Based on the iShares ® MSCI Emerging Markets Index Fund due May 24, 2012

Unlike ordinary debt securities, the Buffered Performance Securities Based on the iShares ® MSCI Emerging Markets Index Fund due May 24, 2012, which we refer to as the securities, do not pay interest and provide for a minimum payment of only $2.50 per security at maturity. At maturity, you will receive for each security that you hold an amount in cash based on the closing price of the shares of the iShares ® MSCI Emerging Markets Index Fund, which we refer to as the underlying shares, on the valuation date. The securities offer exposure to the positive performance of the underlying shares on a 1 to 1 basis, subject to the maximum payment at maturity. You are fully exposed on a 1 to 1 basis to the first 5% decline in the value of the underlying shares, but if the underlying shares decline by more than 5% but no more than 30% from the initial share price, you avoid any further loss of the principal amount due to the effect of a buffer. However, if the underlying shares decline by more than 30% from the initial share price, you will receive for each security at maturity an amount that is less than the stated principal amount by an amount proportionate to the percentage decline in the value of the underlying shares from the initial share price, plus $2.50. As a result, you are fully exposed, without any buffer, to the first 5% decline in the underlying shares and if the final share price declines by more than 30% from the initial share price, you could lose up to 75% of your principal. The securities are senior unsecured obligations of Morgan Stanley, and all payments on the securities are subject to the credit risk of Morgan Stanley.

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

• We will not pay interest on the securities.

• At maturity, for each security that you hold, you will receive an amount in cash equal to:

º $10 plus the upside payment, if the final share price is greater than the initial share price. This amount will be subject to a maximum payment at maturity of $12.30 to $12.70 per security (123% to 127% of the stated principal amount). The actual maximum payment at maturity will be determined on the day we price the securities for initial sale to the public, which we refer to as the pricing date.

º The upside payment will equal $10 times the share percent increase.

º $10 times the share performance factor, if the final share price is less than or equal to the initial share price but greater than or equal to 95% of the initial share price, which means that the final share price has decreased from the initial share price by an amount less than or equal to 5%. This amount will be less than or equal to the stated principal amount of $10 but greater than or equal to $9.50 per security.

º $9.50, if the final share price is less than 95% of the initial share price but greater than or equal to 70% of the initial share price, which means that the final share price has decreased from the initial share price by an amount greater than 5% but less than or equal to 30%.

º The sum of (i) $10 times the share performance factor and (ii) $2.50, if the final share price is less than 70% of the initial share price, which means that the final share price has decreased from the initial share price by an amount greater than 30%. This amount will be less than, and possibly significantly less than, the $10 stated principal amount of the securities. However, under no circumstances will the payment due at maturity be less than $2.50 per security.

• The share performance factor is a fraction, the numerator of which will be the final share price and the denominator of which will be the initial share price.

• The share percent increase is a fraction, the numerator of which will be the final share price minus the initial share price and the denominator of which will be the initial share price.

• The initial share price will be the closing price of one underlying share on the pricing date.

• The final share price will be the closing price of one underlying share on the valuation date times the adjustment factor on such date.

• The adjustment factor will be initially set at 1.0 and is subject to change upon certain corporate events affecting the underlying shares.

• The valuation date will be May 21, 2012, subject to postponement for non-trading days or certain market disruption events.

• Investing in the securities is not equivalent to investing in the underlying shares or the stocks composing the MSCI Emerging Markets Index.

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

• The CUSIP number for the securities is 61759G752. The ISIN for the securities is US61759G7521.

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

The securities are riskier than ordinary debt securities. See “Risk Factors” beginning on PS-10.

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 SECURITY

| | Price
to Public | Agent’s Commissions (1) | Proceeds
to Issuer |
| --- | --- | --- | --- |
| Per
security | $10 | $0.16875 | $9.83125 |
| Total | $ | $ | $ |

(1) For additional information see “Description of Securities––Supplemental Information Concerning Plan of Distribution; Conflicts of Interest” in this pricing supplement.

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

The securities 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 securities and on the distribution of this pricing supplement and the accompanying prospectus supplement and prospectus relating to the securities, see the section of this pricing supplement called “Description of Securities––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 securities 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 securities have not been and will not be registered with the Comissão de Valores Mobiliários (The Brazilian Securities Commission). The securities 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 securities 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 securities 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 securities to the public in Hong Kong as the securities have not been authorized by the Securities and Futures Commission of Hong Kong and, accordingly, no advertisement, invitation or document relating to the securities, 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 securities 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 securities 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 securities nor make the securities the subject of an invitation for subscription or purchase, nor will they circulate or distribute the 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 securities, 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 securities 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 securities we are offering to you 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 securities offered are medium-term debt securities of Morgan Stanley. The payment on the securities at maturity is based on the closing price of the shares of the iShares ® MSCI Emerging Markets Index Fund, which we refer to as the underlying shares, on the valuation date. The iShares ® MSCI Emerging Markets Index Fund is an exchange-traded fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index. The securities do not pay interest. All payments on the securities are subject to the credit risk of Morgan Stanley.

“iShares ® ” is a registered trademark of BlackRock Institutional Trust Company. The iShares ® MSCI Emerging Markets Index Fund and the MSCI Emerging Markets Index are described under “Description of Securities––The Shares” in this pricing supplement.

| Each
security costs $10 | We,
Morgan Stanley, are offering Buffered Performance Securities Based on the
iShares ® MSCI Emerging Markets Index Fund due May 24, 2012, which we refer to as
the securities. The stated principal amount and original issue
price of each security is $10. |
| --- | --- |
| | The
original issue price of the securities includes the agent’s commissions
paid with respect to the securities and the cost of hedging our
obligations under the securities. The cost of hedging includes
the projected profit that our subsidiaries may realize in consideration
for assuming the risks inherent in managing the hedging
transactions. These secondary market prices are also likely to
be reduced by the costs of unwinding the related hedging
transactions. The fact that the original issue price of the
securities includes these commissions and hedging costs is expected to
adversely affect the secondary market prices of the
securities. 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
Securities—Use of Proceeds and Hedging.” |
| The
securities do not guarantee the repayment at maturity of 100% of the
principal; no interest | Unlike
ordinary debt securities, the securities do not pay interest and provide
for a minimum payment of only $2.50 per security at
maturity. The securities offer exposure to the positive
performance of the underlying shares on a 1 to 1 basis, subject to the
maximum payment at maturity. You are fully exposed on a 1 to 1
basis to the first 5% decline in the value of the underlying shares, but
if the underlying shares decline by more than 5% but no more than 30% from
the initial share price, you avoid any further loss of the principal
amount due to the effect of a buffer and receive 95% of the stated
principal amount. However, if the underlying shares decline by more than 30% from the initial share price, you will receive for each security at
maturity an amount that is less than the stated principal amount by an
amount proportionate to the percentage decline in the value of the
underlying shares from the initial share price, plus $2.50. As a result, you are fully
exposed, without any buffer, to the first 5% decline in the underlying
shares and if the final share price declines by more than 30% from the
initial share price, you could lose up to 75% of your
principal. |

PS-3

| Payment
at maturity based on the performance of the underlying
shares |
| --- |
| • If the final share price is
greater than the initial share price, you will receive a payment at
maturity equal to: |
| $10 + the
upside payment, |
| subject
to a maximum payment at maturity of $12.30 to $12.70 per security, or 123%
to 127% of the stated principal amount (to be determined on the pricing
date), |
| where, |
| upside
payment = $10 x share
percent increase |
| and |
| share
percent increase
= The fraction, the
numerator of which will be the final share price minus the initial share
price and the denominator of which will be the initial share price. The
share percent increase is described by the following formula: |
| • If the final share price is
equal to the initial share price or has decreased by an amount less than
or equal to 5% from the initial share price, you will receive a
payment at maturity equal to $10 times the share performance factor. This amount will be less than
or equal to the $10 stated principal amount but greater than or equal to
$9.50 per security. |
| • If the final share price has
decreased by an amount greater than 5% but less than or equal to 30% from
the initial share price, you will receive a payment at maturity
equal to $9.50 per security. |
| • If the final share price has
decreased by an amount greater than 30% from the initial share
price, you will receive a payment at maturity equal
to: |
| ($10 x the
share performance
factor) + $2.50 |
| where, |
| share
performance
factor = The
fraction, the numerator of which will be the final share price and the
denominator of which will be the initial share price. The share
performance factor is described by the following formula: |
| This amount will be less, and
possibly significantly less, than the $10 stated principal amount of the
securities. However, under no circumstances will the
payment due at maturity be less than $2.50 per
security. |
| All
payments on the securities are subject to the credit risk of Morgan
Stanley. |

PS-4

| | The
initial share price will be the closing price of one underlying share on
the pricing date. |
| --- | --- |
| | The
final share price will be the closing price of one underlying share on the
valuation date times the adjustment
factor on such date. |
| | The
adjustment factor will be initially set at 1.0 and is subject to change
upon certain corporate events affecting the underlying
shares. |
| | On
PS-7, we have provided a graph titled “Hypothetical Payouts on the
Securities at Maturity,” which illustrates the performance of the
securities at maturity assuming a range of hypothetical percentage changes
in the price of the underlying shares. The graph does not show
every situation that may occur. |
| | You
can review the historical performance of the underlying shares during the
period from January 1, 2005 through May 12, 2010 in this pricing
supplement under “Description of Securities—Historical
Information.” You cannot predict the future performance of the
underlying shares based on their historical
performance. |
| | Investing
in the securities is not equivalent to investing in the underlying shares
or the stocks composing the MSCI Emerging Markets
Index. |
| The
securities have limited appreciation potential | The
appreciation potential of the securities is limited to 123% to 127% of the
stated principal amount. Even if the share percent increase is
greater than 23% to 27%, you will only receive the maximum payment at
maturity of $12.30 to $12.70 (123% to 127% of the stated principal amount)
for each security you hold. The actual maximum payment at
maturity will be determined on the pricing date. See “Hypothetical Payouts
on the Securities at Maturity” on PS-7. |
| Investment
in the securities involves risks associated with emerging markets equity
securities as well as exposure to currency exchange risk | The
stocks included in the MSCI Emerging Markets Index and that are generally
tracked by the underlying shares have been issued by companies in various
emerging markets countries. There are risks associated with
investing in emerging markets equity securities and the value of such
securities will affect the value of your
investment. Furthermore, because the price of the underlying
shares is related to the U.S. dollar value of stocks underlying the MSCI
Emerging Markets Index, holders of the securities will be exposed to
currency exchange rate risk with respect to each of the currencies in
which such component securities trade, and fluctuations in the exchange
rate of such currencies relative to the U.S. dollar will affect the value
of your investment. Exposure to this currency exchange risk
will depend on the extent to which such currencies strengthen or weaken
against the U.S. dollar. |
| You
may revoke your offer to purchase the securities prior to our
acceptance | We
are using this pricing supplement to solicit from you an offer to purchase
the securities. You may revoke your offer to purchase the
securities at any time prior to the time at which we accept such offer by
notifying the relevant agent. We reserve the right to change
the terms of, or reject any offer to purchase, the securities prior to
their issuance. In the event of any material changes to the
terms of the securities, we will notify you. |
| MS
& Co. will be the Calculation Agent | We
have appointed our affiliate, Morgan Stanley & Co. Incorporated or its
successors, 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.), the trustee for our
senior notes. As calculation agent, MS & Co. will determine
the initial share price and the final share price, the adjustment factor
and whether a market disruption event has occurred and will calculate the
share percent increase and/or the share performance factor and the payment
to you at maturity, and, under certain circumstances, will determine the
closing price of the underlying
shares. |

PS-5

| MS
& Co. will be the agent; conflicts of interest | The
agent for the offering of the securities, 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 securities of an affiliate and related conflicts of
interest. MS & Co. or any of our other affiliates may not
make sales in this offering to any discretionary account. See
“Description of Securities––Supplemental Information Concerning Plan of
Distribution; Conflicts of Interest” on PS-39. |
| --- | --- |
| Where
you can find more information on the securities | The
securities are senior unsecured 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 and prospectus 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” and
in the section of the prospectus called “Description of Debt
Securities.” |
| | Because
this is a summary, it does not contain all of the information that may be
important to you. For a detailed description of the terms of
the securities, you should read the “Description of Securities” section in
this pricing supplement. You should also read about some of the
risks involved in investing in securities in the section called “Risk
Factors.” The tax treatment of investments in equity-linked
securities such as these may differ from that of investments in ordinary
debt securities or common stock. See the section of this
pricing supplement called “Description of Securities—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 securities. |
| How
to reach us | You
may contact your local Morgan Stanley Smith Barney branch office or call
us at (866) 477-4776. |

PS-6

HYPOTHETICAL PAYOUTS ON THE SECURITIES AT MATURITY

The following graph illustrates the payment at maturity on the securities for a range of hypothetical percentage changes in the price of the underlying shares. The Buffer Zone illustrates the buffer effect in the event of a decline in the final share price by an amount greater than 5% but less than or equal to 30% from the initial share price. The graph is based on the following terms:

| • Stated
Principal Amount per Security: | $10 |
| --- | --- |
| • Hypothetical
Maximum Payment at Maturity: | $12.50
(125% of the stated principal amount) |
| • Minimum
Payment at Maturity: | $2.50 |

· Where the final share price is greater than the initial share price, the payment at maturity on the securities reflected in the graph above is equal to $10 plus the upside payment, subject to the maximum payment at maturity.

· Where the final share price is equal to the initial share price or has decreased by an amount less than or equal to 5% from the initial share price, the payment at maturity on the securities reflected in the graph above is equal to $10 times the share performance factor. This amount will be less than or equal to the $10 stated principal amount but greater than or equal to $9.50 per security. As a result, investors are fully exposed, without any buffer, to the first 5% decline in the underlying shares.

· Where the final share price has decreased by an amount greater than 5% but less than or equal to 30% from the initial share price, the payment at maturity on the securities reflected in the graph above is equal to $9.50 per security, representing a 5% loss of the principal amount.

· Where the final share price has decreased by an amount greater than 30% from the initial share price, the payment at maturity on the securities reflected in the graph above is equal to the sum of (i) $10 times the share performance factor and (ii) $2.50, and is consequently an amount less than the $10 stated principal amount of each security. As reflected in the graph above, under no circumstances will the payment due at maturity be less than $2.50 per security.

PS-7

Below are five examples illustrating how to calculate the payment at maturity based on the hypothetical values set forth below. Each of these examples assumes a hypothetical maximum payment at maturity equal to $12.50 per security (125% of the stated principal amount) and that the securities are held to maturity.

Example 1 : The final share price is greater than the initial share price.

| Hypothetical
initial share price: | 40 |
| --- | --- |
| Hypothetical
final share price: | 42 |
| Hypothetical
maximum payment at maturity: | $12.50 |

In this example,

The payment at maturity per security would be $10.50, or the stated principal amount of $10 plus the upside payment of $0.50.

Example 2 : The final share price is substantially greater than the initial share price such that the payment at maturity is limited by the maximum payment at maturity.

| Hypothetical
initial share price: | 40 |
| --- | --- |
| Hypothetical
final share price: | 54 |
| Hypothetical
maximum payment at maturity: | $12.50 |

In this example,

Even though the final share price increased by 35% from the initial share price, the payment at maturity would be limited to the maximum payment at maturity of $12.50 per security.

Example 3 : The final share price is equal to the initial share price or has decreased by an amount less than or equal to 5% from the initial share price.

| Hypothetical
initial share price: | 40 |
| --- | --- |
| Hypothetical
final share price: | 39 |

In this example,

PS-8

Since the final share price has declined by 2.5% (an amount less than or equal to 5%) from the initial share price, the payment at maturity per security would be the $10 stated principal amount times the share performance factor of 97.5%, or $9.75. As a result, investors are fully exposed, without any buffer, to the first 5% decline in the underlying shares.

Example 4 : The final share price has decreased by an amount greater than 5% but less than or equal to 30% from the initial share price.

| Hypothetical
initial share price: | 40 |
| --- | --- |
| Hypothetical
final share price: | 30 |

In this example, the final share price has declined by 25% (an amount greater than 5% but less than or equal to 30%) from the initial share price and, therefore, the payment at maturity would be $9.50 per security, representing a 5% loss of principal.

Example 5 : The final share price has decreased by an amount greater than 30% from the initial share price.

| Hypothetical
initial share price: | 40 |
| --- | --- |
| Hypothetical
final share price: | 26 |

In this example,

Since the final share price has declined by 35% (an amount greater than 30%) from the initial share price, the payment at maturity per security would be the sum of (i) $10 times the share performance factor and (ii) $2.50, or $9.00. If the final share price declines by more than 30%, you could lose up to 75% of your principal.

Please review the table of the historical values of the underlying shares for each calendar quarter in the period from January 1, 2005 through May 12, 2010 and related graph in this pricing supplement under “Description of Securities—Historical Information.” You cannot predict the future performance of the underlying shares based on their historical performance.

PS-9

RISK FACTORS

The securities are not secured debt, are riskier than ordinary debt securities and, unlike ordinary debt securities, the securities do not pay interest, expose you to the first 5% decline in the underlying shares and provide for a minimum payment of only 25% of principal at maturity, subject to the credit risk of Morgan Stanley. This section describes the most significant risks relating to the securities. You should carefully consider whether the securities are suited to your particular circumstances before you decide to purchase them.

| Unlike
ordinary debt securities, the securities do not pay interest or guarantee
the repayment of 100% of your principal | The
terms of the securities differ from those of ordinary debt securities in
that we do not pay you interest on the securities and we provide for a
minimum payment of only 25% of principal at maturity. The
securities fully expose you, without any buffer, on a 1 to 1 basis to the
first 5% decline in the value of the underlying shares. If the
underlying shares decline by more than 5% but no more than 30% from
the initial share price, you avoid any further loss of the principal
amount due to the effect of a buffer and receive 95% of the stated
principal amount. If the underlying shares decline by more than 30% from the
initial share price, you will receive for each security at maturity an
amount that is less than the stated principal amount by an amount
proportionate to the percentage decline in the value of the underlying
shares from the initial share price, plus $2.50. As a result, you are fully
exposed, without any buffer, to the first 5% decline in the underlying
shares and if the final share price declines by more than 30% from the
initial share price, you could lose up to 75% of your
principal. |
| --- | --- |
| The
securities have limited appreciation potential | The
appreciation potential of the securities is limited to 123% to 127% of the
stated principal amount. Even if the share percent increase is
greater than 23% to 27%, you will only receive the maximum payment at
maturity of $12.30 to $12.70 (123% to 127% of the stated principal amount)
for each security you hold. The actual maximum payment at
maturity will be determined on the pricing date. See “Hypothetical Payouts
on the Securities at Maturity” on PS-7. |
| The
securities will not be listed and secondary trading may be
limited | The
securities will not be listed on any securities
exchange. Therefore, there may be little or no secondary market
for the securities. Morgan Stanley & Co. Incorporated,
which we refer to as MS & Co., may, but is not obligated to, make a
market in the securities. Even if there is a secondary market,
it may not provide enough liquidity to allow you to trade or sell the
securities easily. Because we do not expect that other
broker-dealers will participate significantly in the secondary market for
the securities, the price at which you may be able to trade your
securities 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 securities, it is likely that there would be no
secondary market for the securities. Accordingly, you should be
willing to hold your securities to maturity. |
| Market
price of the securities may be influenced by many unpredictable
factors | Several
factors, many of which are beyond our control, will influence the value of
the securities in the secondary market and the price at which MS & Co.
may be willing to purchase or sell the securities in the secondary market,
including: • the
trading price, volatility (frequency and magnitude of changes in value)
and dividends of the underlying shares and of the stocks composing the
MSCI Emerging Markets Index, |
| | • interest
and yield rates in the market, |
| | • geopolitical
conditions and economic, financial, political, regulatory or judicial
events that affect the underlying shares or the equities markets generally
and which may affect the final share price of the underlying
shares, |

PS-10

| | • the
time remaining until the securities mature, |
| --- | --- |
| | • the
exchange rates of the U.S. dollar relative to the currencies in which the
stocks underlying the MSCI Emerging Markets Index trade, |
| | • the
occurrence of certain corporate events affecting the underlying shares
that may or may not require an adjustment to the adjustment factor,
and |
| | • any
actual or anticipated changes in our credit ratings or credit
spreads. |
| | Some
or all of these factors will influence the price that you will receive if
you sell your securities prior to maturity. For example, you
may have to sell your securities at a substantial discount from the stated
principal amount if the price of the underlying shares at the time of sale
is at or below the initial share price or if market interest rate
rises. You cannot predict the future performance of the
underlying shares based on their historical performance. The
final share price may be less than the initial share price so that you
will receive at maturity an amount that is less than the $10 stated
principal amount of each security. There can be no assurance
that the final share price will increase so that you will receive at
maturity an amount that is greater than the $10 stated principal amount
for each security you hold. |
| The
securities 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 securities | You
are dependent on Morgan Stanley’s ability to pay all amounts due on the
securities at maturity, and, therefore, you are subject to the credit risk
of Morgan Stanley. If Morgan Stanley defaults on its
obligations under the securities, your investment would be at risk and you
could lose some or all of your investment. As a result, the
market value of the securities prior to maturity will be affected by
changes in the market's view of Morgan Stanley’s creditworthiness. Any
actual or anticipated decline in Morgan Stanley’s credit ratings or
increase in the credit spreads charged by the market for taking Morgan
Stanley credit risk is likely to adversely affect the market value of the
securities. |
| Investing
in the securities is not equivalent to investing in the underlying
shares | Investing
in the securities is not equivalent to investing in the underlying shares,
the MSCI Emerging Markets Index or the stocks that constitute the MSCI
Emerging Markets Index. Investors in the securities will not
have voting rights or rights to receive dividends or other distributions
or any other rights with respect to the underlying shares or the stocks
that constitute the MSCI Emerging Markets Index. |
| The
price of the underlying shares is subject to currency exchange
risk | Because
the price of the underlying shares is related to the U.S. dollar value of
stocks underlying the MSCI Emerging Markets Index, holders of the
securities will be exposed to currency exchange rate risk with respect to
each of the currencies in which such component securities
trade. Exchange rate movements for a particular currency are
volatile and are the result of numerous factors including the supply of,
and the demand for, those currencies, as well as relevant government
policy, intervention or actions, but are also influenced significantly
from time to time by political or economic developments, and by
macroeconomic factors and speculative actions related to the relevant
region. An investor’s net exposure will depend on the extent to
which the currencies of the component securities strengthen or weaken
against the U.S. dollar and the relative weight of each
currency. If, taking into account such weighting, the dollar
strengthens against the currencies of the component securities represented
in the MSCI Emerging Markets Index, the price of the underlying shares
will be adversely affected and the payment at maturity on the securities
may be reduced. Of
particular importance to potential currency exchange risk
are: • existing
and expected rates of inflation; |

PS-11

| | • existing
and expected interest rate levels; • the
balance of payments; and • the
extent of governmental surpluses or deficits in the countries represented
in the MSCI Emerging Markets Index and the United States. All
of these factors are in turn sensitive to the monetary, fiscal and trade
policies pursued by the governments of various countries represented in
the MSCI Emerging Markets Index and the United States and other countries
important to international trade and finance. |
| --- | --- |
| There
are risks associated with investments in securities linked to the value of
emerging markets equity securities | The
stocks included in the MSCI Emerging Markets Index and that are tracked by
the underlying shares have been issued by companies in various emerging
markets countries. Investments in securities linked to the value of
foreign equity securities involve risks associated with the securities
markets in those countries, including risks of volatility in those
markets, governmental intervention in those markets and
cross-shareholdings in companies in certain countries. Also, there is
generally less publicly available information about foreign companies than
about U.S. companies that are subject to the reporting requirements of the
United States Securities and Exchange Commission, and foreign companies
are subject to accounting, auditing and financial reporting standards and
requirements different from those applicable to U.S. reporting companies.
The prices of securities in foreign markets may be affected by political,
economic, financial and social factors in those countries, or global
regions, including changes in government, economic and fiscal policies and
currency exchange laws. Local securities markets may trade a small number
of securities and may be unable to respond effectively to increases in
trading volume, potentially making prompt liquidation of holdings
difficult or impossible at times. Moreover, the economies in such
countries may differ unfavorably from the economy in the United States in
such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payment
positions. In addition, countries with emerging markets may
have relatively unstable governments, may present the risks of
nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and may have less protection
of property rights than more developed countries. The economies of
countries with emerging markets may be based on only a few industries, may
be highly vulnerable to changes in local or global trade conditions, and
may suffer from extreme and volatile debt burdens or inflation
rates. |
| Adjustments
to the underlying shares or to the MSCI Emerging Markets Index could
adversely affect the value of the securities | The
investment adviser to the iShares ® MSCI Emerging Markets Index Fund, BlackRock Fund Advisors (the “Investment
Adviser”), seeks investment results that correspond generally to the price
and yield performance, before fees and expenses, of the MSCI Emerging
Markets Index. Pursuant to its investment strategy or
otherwise, the Investment Advisor may add, delete or substitute the stocks
composing the iShares ® MSCI Emerging Markets Index Fund. Any of these actions could adversely
affect the price of the underlying shares and, consequently, the value of
the securities. MSCI Inc. (“MSCI”) is responsible for
calculating and maintaining the MSCI Emerging Markets
Index. MSCI may add, delete or substitute the stocks
constituting the MSCI Emerging Markets Index or make other methodological
changes that could change the value of the index. MSCI may
discontinue or suspend calculation or publication of the index at any
time. Any of these actions could adversely affect the value of
the MSCI Emerging Markets Index and, consequently, the value of the
securities. |

PS-12

| The
underlying shares and the MSCI Emerging Markets Index are
different | The
performance of the underlying shares may not exactly replicate the
performance of the MSCI Emerging Markets Index because the iShares ® MSCI Emerging Markets Index Fund will reflect transaction costs and fees
that are not included in the calculation of the MSCI Emerging Markets
Index. It is also possible that the iShares ® MSCI Emerging Markets Index Fund may not fully replicate, or may in
certain circumstances diverge significantly from, the performance of the
MSCI Emerging Markets Index due to the temporary unavailability of certain
securities in the secondary market, the performance of any derivative
instruments contained in the iShares ® MSCI Emerging Markets Index Fund, differences in trading hours between the
iShares ® MSCI Emerging Markets Index Fund and the MSCI Emerging Markets Index or
due to other circumstances. The Investment Adviser generally
invests at least 90% of the assets of the iShares ® MSCI Emerging Markets Index Fund in securities of the MSCI Emerging
Markets Index and in depositary receipts representing securities of the
MSCI Emerging Markets Index. The Investment Adviser may invest
the remainder of such assets in other securities, including securities not
included in the MSCI Emerging Markets Index, futures contracts, options on
futures contracts, other types of options and swaps related to the MSCI
Emerging Markets Index, as well as cash and cash equivalents, including
shares of money market funds affiliated with the Investment
Adviser. |
| --- | --- |
| The
inclusion of commissions and projected profit from hedging in the original
issue price is likely to adversely affect secondary market
prices | Assuming
no change in market conditions or any other relevant factors, the price,
if any, at which MS & Co. is willing to purchase the securities at any
time in secondary market transactions will likely be significantly lower
than the original issue price, since secondary market prices are likely to
exclude commissions paid with respect to the securities and the cost of
hedging our obligations under the securities that are included in the
original issue price. The cost of hedging includes the
projected profit that our subsidiaries may realize in consideration for
assuming the risks inherent in managing the hedging
transactions. These secondary market prices are also likely to
be reduced by the costs of unwinding the related hedging
transactions. Our subsidiaries may realize a profit from the
expected hedging activity even if investors do not receive a favorable
investment return under the terms of the securities or in any secondary
market transaction. In addition, any secondary market prices
may differ from values determined by pricing models used by MS & Co.,
as a result of dealer discounts, mark-ups or other transaction
costs. |
| The
antidilution adjustments the calculation agent is required to make to the
underlying shares do not cover every event that could affect the
underlying shares | MS
& Co., as calculation agent, will adjust the adjustment factor for the
underlying shares for certain corporate events affecting the underlying
shares, such as stock splits and stock dividends, and for certain other
corporate actions involving the underlying shares. However, the
calculation agent will not make an adjustment for every corporate event or
every distribution that could affect the underlying shares. If
an event occurs that does not require the calculation agent to adjust the
adjustment factor, the market price of the securities may be adversely
affected. |
| The
calculation agent, which is a subsidiary of the issuer, will make
determinations with respect to the securities | As
calculation agent, MS & Co. will determine the initial share price and
the final share price and will calculate the amount of cash you will
receive at maturity. Determinations made by MS & Co., in
its capacity as calculation agent, including with respect to the
occurrence or non-occurrence of market disruption events and the selection
of a successor index or calculation of the final share price in the event
of a discontinuance of the MSCI Emerging Markets Index or a market
disruption event, may adversely affect the payment at
maturity. See the sections of this pricing supplement called
“Description of Securities—Market Disruption Event” and “—Discontinuance
of the Underlying Shares and/or Share Underlying Index; Alteration of
Method of Calculation.” |

PS-13

| | The
original issue price of the securities includes the agent’s commissions
and certain costs of hedging our obligations under the
securities. The subsidiaries through which we hedge our
obligations under the securities 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 our subsidiaries could potentially adversely
affect the value of the securities | One
or more of our subsidiaries expect to carry out hedging activities related
to the securities (and to other instruments linked to the underlying
shares or the MSCI Emerging Markets Index), including trading in the
underlying shares, the stocks underlying the MSCI Emerging Markets Index
as well as the underlying shares and in other instruments related to the
underlying shares or the MSCI Emerging Markets Index. Some of
our subsidiaries also trade the underlying shares and the stocks that
constitute the MSCI Emerging Markets Index and other financial instruments
related to the MSCI Emerging Markets Index on a regular basis as part of
their general broker-dealer and other businesses. Any of these
hedging or trading activities on or prior to the pricing date could
potentially increase the initial share price and, therefore, could
increase the price at which the shares of the iShares ® MSCI Emerging Markets Index Fund must close on the valuation date before
an investor receives a payment at maturity that exceeds the stated
principal amount of the securities. Additionally, such hedging
or trading activities during the term of the securities, including on the
valuation date, could adversely affect the closing price of the underlying
shares on the valuation date and, accordingly, the amount of cash you will
receive at maturity. |
| Because
the characterization of the securities for U.S. federal income tax
purposes are uncertain, the material U.S. federal income tax consequences
of an investment in the securities are unclear | Please
note that the discussions in this pricing supplement concerning the U.S.
federal income tax consequences of an investment in the securities
supersede the discussions contained in the accompanying prospectus
supplement. There is no direct legal authority as to the proper tax
treatment of the securities, and consequently significant aspects of the
tax treatment of the securities are uncertain. Our counsel has not
rendered an opinion as to the proper treatment of the securities for U.S.
federal income tax purposes. Pursuant to the terms of the securities, you
have agreed (in the absence of an administrative determination or judicial
ruling to the contrary) to treat each security as a single financial
contract that is an “open transaction” for U.S. federal income tax
purposes. Due to the absence of such authority, no assurance can be given
that the Internal Revenue Service (the “IRS”) will accept, or that a court
will uphold, the treatment described in the section of this pricing
supplement called “United States Federal Taxation.” Because the securities
are linked to shares of an exchange-traded fund, although the matter is
not clear, there is a substantial risk that an investment in the
securities will be treated as a “constructive ownership transaction.” If
this treatment applies, it is not clear to what extent any long-term
capital gain of the U.S. Holder in respect of the securities will be
recharacterized as ordinary income (which ordinary income would also be
subject to an interest charge). U.S. investors should read the
section entitled “United States Federal Taxation – Tax Consequences to
U.S. Holders – Tax Treatment of the Securities – Potential Application of
the Constructive Ownership Rule” in this pricing supplement. If
the IRS were successful in asserting an alternative treatment for the
securities, the timing and character of income on the securities might
differ significantly. For example, under one characterization, U.S.
Holders could be required to accrue original issue discount on the
securities every year at a “comparable yield” determined at the time of
issuance and recognize all income and gain in respect of the securities as
ordinary income. We do not plan to request a ruling from the IRS regarding
the tax treatment of the securities, and the IRS or a court may not agree |

PS-14

with the tax treatment described in this pricing supplement. Please read carefully the discussion under “United States Federal Taxation” in this pricing supplement concerning the U.S. federal income tax consequences of an investment in the securities. On December 7, 2007, the Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments, such as the securities. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime (as discussed above). While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. Both U.S. and Non-U.S. Holders should read carefully the discussion under “United States Federal Taxation” in this pricing supplement and consult their tax advisers regarding all aspects of the U.S. federal tax consequences of an investment in the securities as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

PS-15

DESCRIPTION OF SECURITIES

Terms not defined herein have the meanings given to such terms in the accompanying prospectus supplement. The term “Security” refers to each $10 stated principal amount of our Buffered Performance Securities Based on the iShares ® MSCI Emerging Markets Index Fund due May 24, 2012. In this pricing supplement, the terms “we,” “us” and “our” refer to Morgan Stanley.

| Aggregate
Principal Amount | $ | |
| --- | --- | --- |
| Pricing
Date | May ,
2010 | |
| Original
Issue Date (Settlement Date) | May ,
2010 | |
| Maturity
Date | May
24, 2012, subject to extension if the Valuation Date is postponed in
accordance with the definition thereof. | |
| | If
due to a Market Disruption Event or otherwise, the Valuation Date is
postponed so that it falls less than two Business Days prior to the
scheduled Maturity Date, the Maturity Date will be the second Business Day
following such Valuation Date as postponed. See “—Valuation
Date” below. | |
| Issue
Price | $10
per Security | |
| Stated
Principal Amount | $10
per Security | |
| Denominations | $10
and integral multiples thereof | |
| CUSIP
Number | 61759G752 | |
| ISIN | US61759G7521 | |
| Interest
Rate | None | |
| Specified
Currency | U.S.
dollars | |
| Underlying
Shares | Shares
of the iShares ® MSCI Emerging Markets Index Fund | |
| Share
Underlying Index | MSCI
Emerging Markets Index | |
| Initial
Share Price | ,
which is the Share Closing Price of one Underlying Share on the Pricing
Date. | |
| Final
Share Price | The
Share Closing Price of one Underlying Share on the Valuation Date times the Adjustment
Factor on such date | |
| Payment
at Maturity | At
maturity, upon delivery of the Securities to the Trustee, we will pay with
respect to each $10 Stated Principal Amount of Securities an amount in
cash equal to: | |
| | (i) | $10 plus the Upside
Payment, if the Final Share Price is greater than the
Initial Share Price. This amount will be subject to the Maximum
Payment at Maturity. |
| | (ii) | $10 times the Share
Performance Factor, if the Final Share Price is less than or equal to the Initial Share Price but greater than or equal
to 95% of the Initial Share Price, which means that the Final Share
Price has |

PS-16

| | (iii) | declined
from the Initial Share Price by an amount less than or equal to 5%. — $9.50,
if the Final Share Price is less than 95% of the
Initial Share Price but greater than or equal to 70% of the Initial Share Price, which means that the Final Share
Price has declined from the Initial Share Price by an amount greater than 5% but less than or equal to 30%. |
| --- | --- | --- |
| | (iv) | the
sum of (x) $10 times the Share
Performance Factor and (y) $2.50, if the Final Share Price is less than
70% of the Initial Share Price, which means that the Final Share Price has
declined from the Initial Share Price by more than 30%. |
| | If
the Final Share Price is less than the Initial Share Price, the Payment at
Maturity with respect to each $10 Stated Principal Amount of Securities
will be less than the Stated Principal Amount of $10. However,
under no circumstances will such Payment at Maturity be less than the
Minimum Payment at Maturity. | |
| | We
shall, or shall cause the Calculation Agent to, (i) provide written notice
to the Trustee and to The Depository Trust Company, which we refer to as
DTC, of the amount of cash to be delivered with respect to each $10 Stated
Principal Amount of Securities on or prior to 10:30 a.m. (New York City
time) on the Business Day preceding the Maturity Date and (ii) deliver the
aggregate cash amount due with respect to the Securities to the Trustee
for delivery to DTC, as holder of the Securities, on the Maturity
Date. We expect such amount of cash will be distributed to
investors on the Maturity Date in accordance with the standard rules and
procedures of DTC and its direct and indirect participants. See
“—Book Entry Note or Certificated Note” below, and see “The Depositary” in
the accompanying prospectus supplement. | |
| Maximum
Payment at Maturity | $12.30
to $12.70 per Security (123% to 127% of the Stated Principal
Amount) | |
| Minimum
Payment at Maturity | $2.50
per Security | |
| Upside
Payment | $10 times the Share
Percent Increase | |
| Share
Percent Increase | The
Share Percent Increase is the fraction, the numerator of which will be the
Final Share Price minus the Initial Share
Price and the denominator of which will be the Initial Share
Price. The Share Percent Increase is described by the following
formula: | |

| Final
Share Price – Initial Share Price |
| --- |
| Initial
Share Price |

Share Performance Factor The Share Performance Factor is a fraction, the numerator of which will be the Final Share Price and the denominator of which will be the Initial Share Price. The Share Performance Factor is described by the following formula:

PS-17

| Final
Share Price |
| --- |
| Initial
Share Price |

| Share
Closing Price | |
| --- | --- |
| (i) | if
the Underlying Shares are listed or admitted to trading on a national
securities exchange (other than The NASDAQ Stock Market LLC (“NASDAQ”)),
the last reported sale price, regular way, of the principal trading
session on such day on the principal national securities exchange
registered under the Securities Exchange Act of 1934, as amended, on which
the Underlying Shares are listed or admitted to
trading, |
| (i) | if
the Underlying Shares are securities of the NASDAQ, the official closing
price published by the NASDAQ on such day, or |
| (iii) | if
the Underlying Shares are not listed or admitted to trading on any
national securities exchange but are included in the OTC Bulletin Board
Service (the “OTC Bulletin Board”) operated by the Financial Industry
Regulatory Authority, Inc., the last reported sale price of the principal
trading session on the OTC Bulletin Board on such day. |
| If
the Underlying Shares are listed or admitted to trading on any national
securities exchange but the last reported sale price or the official
closing price published by the NASDAQ, as applicable, is not available
pursuant to the preceding sentence, then the Share Closing Price for one
Underlying Share on any Trading Day will mean the last reported sale price
of the principal trading session on the over-the-counter market as
reported on the NASDAQ or the OTC Bulletin Board on such
day. If a Market Disruption Event (as defined below) occurs
with respect to the Underlying Shares or the last reported sale price or
the official closing price published by the NASDAQ, as applicable, for the
Underlying Shares is not available pursuant to either of the two preceding
sentences, then the Share Closing Price for any Trading Day will be the
mean, as determined by the Calculation Agent, of the bid prices for the
Underlying Shares for such Trading Day obtained from as many recognized
dealers in such security, but not exceeding three, as will make such bid
prices available to the Calculation Agent. Bids of Morgan
Stanley & Co. Incorporated (“MS & Co.”) or any of its affiliates
may be included in the calculation of such mean, but only to the extent
that any such bid is the highest of the bids obtained. If no
bid prices are provided from any third party dealers, the Share 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 | |

PS-18

| | Board
Service” will include any successor service thereto. See
“—Discontinuance of the Underlying Shares and/or Share Underlying Index;
Alteration of Method of Calculation” below. |
| --- | --- |
| Adjustment
Factor | 1.0,
subject to adjustment in the event of certain corporate events affecting
the Underlying Shares. See “—Antidilution Adjustments”
below. |
| Antidilution
Adjustments | If
the Underlying Shares are subject to a stock split or reverse stock split,
then once such split has become effective, the Adjustment Factor will be
adjusted to equal the product of the prior Adjustment Factor and the
number of shares issued in such stock split or reverse stock split with
respect to one Underlying Share. |
| | No
adjustment to the Adjustment Factor pursuant to the paragraph above will
be required unless such adjustment would require a change of at least 0.1%
in the amount being adjusted as then in effect. Any number so
adjusted will be rounded to the nearest one hundred-thousandth with five
one-millionths being rounded upward. |
| Relevant
Exchange | Relevant
Exchange means the primary exchange or market of trading for any security
(or any combination thereof) then included in the Share Underlying Index
or any Successor Index. |
| Valuation
Date | May
21, 2012; provided that if a Market Disruption Event occurs on the scheduled Valuation
Date, or if such scheduled Valuation Date is not a Trading Day, the Share
Closing Price will be determined on the immediately succeeding Trading Day
on which no Market Disruption Event occurs; provided further that the
Valuation Date will be subject to postponement for no more than five
Trading Days. |
| | If
the Valuation Date is postponed for five successive Trading Days, the
Calculation Agent will determine the Share Closing Price for such
Valuation Date as the mean, as determined by the Calculation Agent, of the
bid prices for the Underlying Shares for such date obtained from as many
recognized dealers in such security, but not exceeding three, as will make
such bid prices available to the Calculation Agent. Bids of MS
& Co. or any of its affiliates may be included in the calculation of
such mean, but only to the extent that any such bid is the highest of the
bids obtained. If no bid prices are provided from any third
party dealers, the Share 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. |
| Business
Day | Business
Day means any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which banking institutions are authorized or
required by law or regulation to close in The City of New
York. |
| Trading
Day | With
respect to the Securities and the Underlying Shares, a day, as determined
by the Calculation Agent, on which trading is |

PS-19

| generally
conducted on the New York Stock Exchange, 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. — Market
Disruption Event means: | |
| --- | --- |
| (i) | the
occurrence or existence of a suspension, absence or material limitation of
trading of the Underlying Shares on the Relevant Exchange for the
Underlying Shares for more than two hours of trading or during the
one-half hour period preceding the close of the principal trading session
in such market; or a breakdown or failure in the price and trade reporting
systems of the Relevant Exchange for the Underlying Shares as a result of
which the reported trading prices for the Underlying Shares during the
last one-half hour preceding the close of the principal trading session in
such market are materially inaccurate; or the suspension, absence or
material limitation of trading on the primary market for trading in
futures or options contracts related to the Underlying Shares, if
available, during the one-half hour period preceding the close of the
principal trading session in the applicable market, in each case as
determined by the Calculation Agent in its sole
discretion; |
| (ii) | the
occurrence or existence of a suspension, absence or material limitation of
trading of stocks then constituting 20 percent or more of the value of the
Share Underlying Index on the Relevant Exchanges for such securities for
more than two hours of trading or during the one-half hour period
preceding the close of the principal trading session on such Relevant
Exchanges, in each case as determined by the Calculation Agent in its sole
discretion; or |
| (iii) | the
suspension, material limitation or absence of trading on any major U.S.
securities market for trading in futures or options contracts related to
the Share Underlying Index or the Underlying Shares for more than two
hours of trading or during the one-half hour period preceding the close of
the principal trading session on such market, in each case as determined
by the Calculation Agent in its sole discretion; and |
| (iv) | a
determination by the Calculation Agent in its sole discretion that any
event described in clauses (b)(i), (b)(ii) or (b)(iii) above materially
interfered with our ability or the ability of any of our affiliates to
unwind or adjust all or a material portion of the hedge position with
respect to the Securities. |
| For
the purpose of determining whether a Market Disruption Event exists at any
time, if trading in a security included in the Share Underlying Index, is
materially suspended or materially limited at that time, then the relevant
percentage contribution of that security to the value of the Share
Underlying Index, shall be based on a comparison of (x) the portion of the
value of such index attributable to that security relative to (y) the
overall value | |

PS-20

| | of
such index, in each case immediately before that suspension or
limitation. |
| --- | --- |
| | For
the purpose of determining whether a Market Disruption Event has
occurred: (1) a limitation on the hours or number of days of
trading will not constitute a Market Disruption Event if it results from
an announced change in the regular business hours of the Relevant Exchange
or market, (2) a decision to permanently discontinue trading in the
Underlying Shares or in the futures or options contract related to the
Share Underlying Index or the Underlying Shares will not constitute a
Market Disruption Event, (3) a suspension of trading in futures or options
contracts or exchange-traded funds on the Share Underlying Index or on the
Underlying Shares, by the primary securities market trading in such
contracts or funds by reason of (a) a price change exceeding limits set by
such securities exchange or market, (b) an imbalance of orders relating to
such contracts or (c) a disparity in bid and ask quotes relating to such
contracts or funds will constitute a suspension, absence or material
limitation of trading in futures or options contracts or exchange-traded
funds related to the Share Underlying Index, and (4) a “suspension,
absence or material limitation of trading” on any Relevant Exchange or on
the primary market on which futures or options contracts or
exchange-traded funds related to the Share Underlying Index, are traded
will not include any time when such securities market is itself closed for
trading under ordinary circumstances. Upon any permanent
discontinuance of trading in the Underlying Shares, see “—Discontinuance
of the Underlying Shares and/or Share Underlying Index; Alteration of
Method of Calculation” below. |
| Book
Entry Note or Certificated Note | Book
Entry. The Securities 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
Securities. Your beneficial interest in the Securities 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 payments or
notices to you will mean payments or notices to DTC, as the registered
holder of the Securities, for distribution to participants in accordance
with DTC’s procedures. For more information regarding DTC and
book entry notes, please read “The Depositary” in the accompanying
prospectus supplement and “Form of Securities—Global Securities—Registered
Global Securities” in the accompanying prospectus. |
| 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.) |
| 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-21

| | of
manifest error, be conclusive for all purposes and binding on you, the
Trustee and us. |
| --- | --- |
| | All
calculations with respect to the Payment at Maturity, if any, 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 Security 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 Securities will be rounded to the nearest cent, with one-half cent
rounded upward. Notwithstanding the above, upon calculating the
Share Performance Factor, such figure will not be subject to
rounding. |
| | Because
the Calculation Agent is our subsidiary, the economic interests of the
Calculation Agent and its affiliates may be adverse to your interests as
an investor in the Securities, including with respect to certain
determinations and judgments that the Calculation Agent must make in
determining the Initial Share Price, the Final Share Price, the Share
Performance Factor, the Share Percent Increase and the Payment at
Maturity, or whether a Market Disruption Event has
occurred. See “—Market Disruption Event,” “—Antidilution
Adjustments,” and “—Valuation Date.” MS & Co. is obligated to carry
out its duties and functions as Calculation Agent in good faith and using
its reasonable judgment. |
| Discontinuance
of the Underlying Shares and/or Share Underlying Index; Alteration of
Method | |
| of
Calculation | If
trading in the Underlying Shares on every applicable national securities
exchange, on the OTC Bulletin Board and in the over-the-counter market is
permanently discontinued or the iShares ® MSCI Emerging Markets Index Fund is liquidated or otherwise terminated (a
“Discontinuance or Liquidation Event”), the Share Closing Price on any
Trading Day following the Liquidation Event will be determined by the
Calculation Agent and will be deemed to equal the product of (i) the
closing value of the Share Underlying Index (or any Successor Index, as
described below) on such Trading Date (taking into account any material
changes in the method of calculating the Share Underlying Index following
such Discontinuance or Liquidation Event) times (ii) a fraction,
the numerator of which is the Share Closing Price and the denominator of
which is the closing value of the Share Underlying Index (or any Successor
Index, as described below), each determined as of the last day prior to
the occurrence of the Discontinuance or Liquidation Event on which a Share
Closing Price was available. |
| | If,
following a Discontinuance or Liquidation Event, MSCI Inc. (“MSCI”)
discontinues publication of the Share Underlying Index and MSCI or another
entity (including MS & Co.) publishes a successor or substitute index
that MS & Co., as the Calculation Agent, determines, in its sole
discretion, to be comparable to the discontinued Share Underlying Index
(such index being referred to herein as an “Successor Index”), then any
subsequent Share |

PS-22

| | Closing
Price on any Trading Day following a Discontinuance or Liquidation Event
will be determined by reference to the published value of such Successor
Index at the regular weekday close of trading on such Trading
Day. |
| --- | --- |
| | Upon
any selection by the Calculation Agent of a Successor Index, the
Calculation Agent will cause written notice thereof to be furnished to the
Trustee, to us and to DTC, as holder of the Securities, within three
Business Days of such selection. We expect that such notice
will be passed on to you, as a beneficial owner of the Securities, in
accordance with the standard rules and procedures of DTC and its direct
and indirect participants. |
| | If,
following a Discontinuance or Liquidation Event, MSCI discontinues
publication of the Share Underlying Index prior to, and such
discontinuance is continuing on, the Valuation Date or the date of
acceleration, and MS & Co., as the Calculation Agent, determines, in
its sole discretion, that no Successor Index is available at such time,
then the Calculation Agent will determine the Share Closing Price for such
date. The Share Closing Price will be computed by the
Calculation Agent in accordance with the formula for calculating the Share
Underlying Index last in effect prior to such discontinuance, using the
closing price (or, if trading in the relevant securities has been
materially suspended or materially limited, its good faith estimate of the
closing price that would have prevailed but for such suspension or
limitation) at the close of the principal trading session of the Relevant
Exchange on such date of each security most recently composing the Share
Underlying Index without any rebalancing or substitution of such
securities following such discontinuance. Notwithstanding these
alternative arrangements, discontinuance of the publication of the Share
Underlying Index may adversely affect the value of the
Securities. |
| Alternate
Exchange Calculation | |
| in
Case of an Event of Default | In
case an event of default with respect to the Securities shall have
occurred and be continuing, the amount declared due and payable per
Security upon any acceleration of the Securities (the “Acceleration
Amount”) shall be determined by the Calculation Agent and shall be an
amount in cash equal to the Payment at Maturity calculated as if the Share
Closing Price on the date of acceleration were the Share Closing Price for
the Valuation Date. |
| | If
the maturity of the Securities is accelerated because of an event of
default 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 Acceleration
Amount as promptly as possible and in no event later than two Business
Days after the date of acceleration. |
| The
Underlying Shares; Public Information | iShares,
Inc. (“iShares”) is a registered investment company that consists of
numerous separate investment portfolios, including the iShares ® MSCI Emerging Markets Index Fund. iShares consist of numerous
separate investment portfolios, including the iShares ® MSCI Emerging Markets Index Fund. The iShares ® MSCI |

PS-23

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

PS-24

| | iShares ® is a registered trademark of
BlackRock Institutional Trust Company, N.A. (“BTC”). The
Securities are not sponsored, endorsed, sold, or promoted by
BTC. BTC makes no representations or warranties to the owners
of the Securities or any member of the public regarding the advisability
of investing in the Securities. BTC has no obligation or
liability in connection with the operation, marketing, trading or sale of
the Securities. |
| --- | --- |
| The
MSCI Emerging Markets Index SM | The
MSCI Emerging Markets Index SM is calculated, published and disseminated daily by MSCI Inc.,
through numerous data vendors, on the MSCI website and a majority of them
in real time on Bloomberg Financial Markets and Reuters
Limited. |
| | The
MSCI Emerging Markets Index is a free float-adjusted market capitalization
index that is designed to measure the equity market performance of
emerging markets. As of May 2010, the MSCI Emerging Markets Index
consisted of the following 22 emerging market country indices: Brazil,
Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia,
Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland,
Russia, South Africa, Taiwan, Thailand and Turkey. Effective May 2010,
Israel will be reclassified as a developed market and will no longer be
included in the MSCI Emerging Markets Index. The MSCI Emerging
Markets Index includes components from all countries designated by MSCI as
Emerging Markets. The MSCI Emerging Markets Index was developed with a
base value of 100 as of December 31, 1987. The MSCI Emerging Markets Index
is reported by Bloomberg Financial Markets under ticker symbol
“MXEF.” |
| | MSCI
undertakes an index construction process, which involves: (i) defining the
Equity Universe; (ii) determining the Market Investable Equity Universe
for each market; (iii) determining market capitalization size segments for
each market; (iv) applying Index Continuity Rules for the MSCI Standard
Index; (v) creating style segments within each size segment within each
market; and (vi) classifying securities under the Global Industry
Classification Standard (“GICS ® ”). |
| | Defining
the Equity Universe |
| | (i)
Identifying Eligible Equity Securities: The Equity Universe initially
looks at securities listed in any of the countries in the MSCI Global
Index Series, which will be classified as either Developed Markets (“DM”)
or Emerging Markets (“EM”). All listed equity securities, or listed
securities that exhibit characteristics of equity securities, except
mutual funds, exchange-traded funds, equity derivatives, limited
partnerships, and most investment trusts, are eligible for inclusion in
the Equity Universe. Real Estate Investment Trusts (“REITs”) in some
countries and certain income trusts in Canada are also eligible for
inclusion. |
| | (ii)
Country Classification of Eligible Securities: Each company and its
securities (i.e., share classes) are classified in one and
only |

PS-25

| one
country, which allows for sorting of each company by its respective
country. |
| --- |
| Determining
the Market Investable Equity Universes |
| A
Market Investable Equity Universe for a market is derived by applying
investability screens to individual companies and securities in the Equity
Universe that are classified in that market. A market is equivalent to a
single country, except in DM Europe, where all DM countries in Europe are
aggregated into a single market for index construction purposes.
Subsequently, individual DM Europe country indices within the MSCI Europe
Index are derived from the constituents of the MSCI Europe Index under the
Global Investable Market Indices methodology. |
| The
investability screens used to determine the Investable Equity Universe in
each market are as follows: |
| (i)
Equity Universe Minimum Size Requirement: This investability screen is
applied at the company level. In order to be included in a Market
Investable Equity Universe, a company must have the required minimum full
market capitalization. A company will meet this requirement if its
cumulative free float-adjusted market capitalization is within the top 99%
of the sorted Equity Universe. |
| (ii)
Equity Universe Minimum Float-Adjusted Market Capitalization Requirement:
This investability screen is applied at the individual security level. To
be eligible for inclusion in a Market Investable Equity Universe, a
security must have a free float-adjusted market capitalization equal to or
higher than 50% of the Equity Universe Minimum Size
Requirement. |
| (iii)
DM and EM Minimum Liquidity Requirement: This investability screen is
applied at the individual security level. To be eligible for inclusion in
a Market Investable Equity Universe, a security must have adequate
liquidity. The Annualized Traded Value Ratio (“ATVR”), a measure that
offers the advantage of screening out extreme daily trading volumes and
taking into account the free float-adjusted market capitalization size of
securities, is used to measure liquidity. In the calculation of the ATVR,
the trading volumes in depository receipts associated with that security,
such as ADRs or GDRs, are also considered. A minimum liquidity level of
20% ATVR is required for inclusion of a security in a Market Investable
Equity Universe of a Developed Market, and a minimum liquidity level of
15% ATVR is required for inclusion of a security in a Market Investable
Equity Universe of an Emerging Market. |
| (iv)
Global Minimum Foreign Inclusion Factor Requirement: This investability
screen is applied at the individual security level. To be eligible for
inclusion in a Market Investable Equity Universe, a security’s Foreign
Inclusion Factor (“FIF”) must reach a certain threshold. The FIF of a
security is defined as the proportion of shares outstanding that is
available for purchase in the public equity markets by international
investors. This proportion |

PS-26

| accounts
for the available free float of and/or the foreign ownership limits
applicable to a specific security (or company). In general, a security
must have an FIF equal to or larger than 0.15 to be eligible for inclusion
in a Market Investable Equity Universe. Exceptions to this general rule
are made only in the limited cases where the exclusion of securities of a
very large company would compromise the MSCI Emerging Markets Index’s
ability to fully and fairly represent the characteristics of the
underlying market. |
| --- |
| (v)
Minimum Length of Trading Requirement: This investability screen is
applied at the individual security level. For an initial public offering
(“IPO”) to be eligible for inclusion in a Market Investable Equity
Universe, the new issue must have started trading at least four months
before the implementation of the initial construction of the index or at
least three months before the implementation of a Semi-Annual Index
Review. This requirement is applicable to small new issues in all markets.
Large IPOs are not subject to the Minimum Length of Trading Requirement
and may be included in a Market Investable Equity Universe and the
Standard Index outside of a Quarterly or Semi-Annual Index
Review. |
| Defining
Market Capitalization Size Segments for Each Market |
| Once
a Market Investable Equity Universe is defined, it is segmented into the
following size-based indices: |
| • Investable Market
Index (Large + Mid + Small) |
| •
Standard Index (Large + Mid) |
| •
Large Cap Index |
| •
Mid Cap Index |
| •
Small Cap Index |
| Creating
the Size Segment Indices in each market involves the following steps: (i)
defining the Market Coverage Target Range for each size segment; (ii)
determining the Global Minimum Size Range for each size segment; (iii)
determining the Market Size-Segment Cutoffs and associated Segment Number
of Companies; (iv) assigning companies to the size segments; and (v)
applying final size-segment investability requirements and index
continuity rules. |
| Index
Continuity Rules for the Standard Indices |
| In
order to achieve index continuity, as well as provide some basic level of
diversification within a market index, notwithstanding the effect of other
index construction rules, a minimum number of five constituents will be
maintained for a DM Standard Index and a minimum number of three
constituents will be maintained for an EM Standard Index. The
application of this requirement involves the following
steps: |

PS-27

| If
after the application of the index construction methodology, a Standard
Index contains fewer than five securities in a Developed Market or three
securities in an Emerging Market, then the largest securities by free
float-adjusted market capitalization are added to the Standard Index in
order to reach five constituents in that Developed Market or three in that
Emerging Market. At subsequent Index Reviews, if the free float-adjusted
market capitalization of a non-index constituent is at least 1.50 times
the free float-adjusted market capitalization of the smallest existing
constituent after rebalancing, the larger free float-adjusted market
capitalization security replaces the smaller one. |
| --- |
| Creating
Style Indices within Each Size Segment |
| All
securities in the investable equity universe are classified into Value or
Growth segments using the MSCI Global Value and Growth
methodology. |
| Classifying
Securities under the Global Industry Classification Standard (“GICS ® ”) |
| All
securities in the Global Investable Equity Universe are assigned to the
industry that best describes their business activities. To this end, MSCI
has designed, in conjunction with Standard & Poor’s, a Division of the
McGraw-Hill Companies, Inc., the GICS ® . The
GICS entails four levels of classification: (1) sector; (2)
industry group; (3) industries; and (4) sub-industries. Under the GICS,
each company is assigned to one sub-industry according to its principal
business activity. Therefore, a company can belong to only one industry
grouping at each of the four levels of the GICS. |
| Index
Maintenance |
| The
MSCI Global Investable Market Indices are maintained with the objective of
reflecting the evolution of the underlying equity markets and segments on
a timely basis, while seeking to achieve index continuity, continuous
investability of constituents and replicability of the indices, and index
stability and low index turnover. |
| In
particular, index maintenance involves: |
| (i)
Semi-Annual Index Reviews (“SAIRs”) in May and November of the Size
Segment and Global Value and Growth Indices which
include: |
| •
Updating the indices on the basis of a fully refreshed Equity
Universe. |
| •
Taking buffer rules into consideration for migration of
securities across size and style segments. |
| •
Updating FIFs and Number of Shares
(“NOS”). |
| The
objective of the SAIRs is to systematically reassess the various
dimensions of the Equity Universe for all markets on
a |

PS-28

| fixed
semi-annual timetable. A SAIR involves a comprehensive review of the Size
Segment and Global Value and Growth Indices. |
| --- |
| (ii)
Quarterly Index Reviews (“QIRs”) in February and August (in addition to
the SAIRs in May and November) of the Size Segment Indices aimed
at: |
| •
Including significant new eligible securities (such as IPOs that
were not eligible for earlier inclusion) in the index. |
| •
Allowing for significant moves of companies within the Size Segment
Indices, using wider buffers than in the SAIR. |
| •
Reflecting the impact of significant market events on FIFs
and updating NOS. |
| QIRs
are designed to ensure that the indices continue to be an accurate
reflection of the evolving equity marketplace. This is achieved by a
timely reflection of significant market driven changes that were not
captured in the index at the time of their actual occurrence but are
significant enough to be reflected before the next SAIR. QIRs may result
in additions or deletions due to migration to another Size Segment Index,
and changes in FIFs and in NOS. Only additions of significant new
investable companies are considered, and only for the Standard Index. The
buffer zones used to manage the migration of companies from one segment to
another are wider than those used in the SAIR. The style classification is
reviewed only for companies that are reassigned to a different size
segment. |
| (iii)
Ongoing event-related changes. Ongoing event-related changes to the
indices are the result of mergers, acquisitions, spin-offs, bankruptcies,
reorganizations and other similar corporate events. They can also result
from capital reorganizations in the form of rights issues, bonus issues,
public placements and other similar corporate actions that take place on a
continuing basis. These changes generally are reflected in the indices at
the time of the event. Significantly large IPOs are included in the
indices after the close of the company’s tenth day of
trading. |
| Announcement
Policy |
| The
results of the SAIRs are announced at least two weeks in advance of their
effective implementation dates as of the close of the last business day of
May and November. |
| The
results of the QIRs are announced at least two weeks in advance of their
effective implementation dates as of the close of the last business day of
February and August. |
| All
changes resulting from corporate events are announced prior to their
implementation in the MSCI indices. |
| The
changes are typically announced at least ten business days prior to the
changes becoming effective in the indices as an “expected” announcement,
or as an “undetermined” |

PS-29

| announcement,
when the effective dates are not known yet or when aspects of the event
are uncertain. MSCI sends “confirmed” announcements at least two business
days prior to events becoming effective in the indices, provided that all
necessary public information concerning the event is available. The full
list of all new and pending changes is delivered to clients on a daily
basis, at 5:30 p.m., US Eastern Time. |
| --- |
| In
exceptional cases, events are announced during market hours for same or
next day implementation. Announcements made by MSCI during market hours
are usually linked to late company disclosure of corporate events or
unexpected changes to previously announced corporate
events. |
| In
the case of secondary offerings representing more than 5% of a security’s
number of shares for existing constituents, these changes will be
announced prior to the end of the subscription period when possible and a
subsequent announcement confirming the details of the event (including the
date of implementation) will be made as soon as the results are
available. |
| Both
primary equity offerings and secondary offerings for U.S. securities,
representing at least 5% of the security’s number of shares, will be
confirmed through an announcement during market hours for next day or
shortly after implementation, as the completion of the events cannot be
confirmed prior to the notification of the pricing. |
| Early
deletions of constituents due to bankruptcy or other significant cases are
announced as soon as practicable prior to their implementation in the MSCI
indices. |
| For
Standard Index constituents, a more descriptive text announcement is sent
to clients for significant events that meet any of the following
criteria: |
| •
Additions and deletions of
constituents. |
| •
Changes in free float-adjusted market capitalization
equal to or larger than USD 5 billion, or with an impact of at least 1% of
the constituent’s underlying country index. |
| If
warranted, MSCI Inc. may make additional announcements for events that are
complex in nature and for which additional clarification could be
beneficial. |
| IPOs and Other Early
Inclusions . Early inclusions of large IPOs in the MSCI Standard
Index Series are announced no earlier than the first day of trading and no
later than before the opening of the third day of trading in the market
where the company has its primary listing. Early inclusions of already
listed securities following large secondary offerings of new and/or
existing shares are announced no earlier than shortly after the end of the
offer period. |

PS-30

| GICS ® .
Non-event related changes in industry classification at the sub-industry
level are announced at least two weeks prior to their implementation as of
the close of the last U.S. business day of each month. MSCI announces GICS
changes twice a month, the first announcement being made on the first U.S.
business day of the month and the second one being made at least ten U.S.
business days prior to the last U.S. business day of the month. All GICS
changes announced in a given month will be implemented as of the close of
the last U.S. business day of the month. |
| --- |
| Index
Calculation |
| Price
Index Level |
| The
MSCI indices are calculated using the Laspeyres’ concept of a weighted
arithmetic average together with the concept of
chain-linking. As a general principle, the level of the
relevant MSCI index level is obtained by applying the change in the market
performance to the previous period level for such MSCI index. Where: |

• PriceIndexLevelUSD t -1 is the Price Index level in USD at time t-1

• IndexAdjustedMarketCapUSD t is the Adjusted Market Capitalization of the index in USD at time t

• IndexInitialMarketCapUSD t is the Initial Market Capitalization of the index in USD at time t

• PriceIndexLevelLocal t -1 is the Price Index level in local currency at time t-1

• IndexAdjustedMarketCapForLocal t is the Adjusted Market Capitalization of the index in USD converted using FX rate as of t-1 and used for local currency index at time t

| Note: IndexInitialMarketCapUSD
was previously called
IndexUnadjustedMarketCapPreviousUSD |
| --- |
| Security
Index of Price in Local Currency |
| The
Security Index of Price is distributed in MSCI daily and monthly security
products. It represents the price return from period to period
by utilizing the concept of an index of performance with an arbitrary base
value. The index of price is fully adjusted for capital changes
and is expressed in local currency. |

PS-31

Where:

• SecurityPriceIndexLevel t -1 is Security Price Index level at time t-1.

• SecurityAdjustedMarketCapForLocal t is the Adjusted Market Capitalization of security s in USD converted using FX rate as of t-1.

• SecurityInitialMarketCapUSD t is the Initial Market Capitalization of security s in USD at time t.

• IndexNumberOfShares t -1 is the number of shares of security s at time t-1.

• PricePerShare t is the price per share of security s at time t.

• PricePerShare t -1 is the price per share of security s at time t-1.

• InclusionFactor t is the inclusion factor of security s at time t. The inclusion factor can be one or the combination of the following factors: Foreign Inclusion Factor, Domestic Inclusion Factor Growth Inclusion Factor, Value Inclusion Factor, Index Inclusion Factor.

• PAF t is the Price Adjustment Factor of security s at time t.

• FXrate t -1 is the FX rate of the price currency of security s vs USD at time t-1. It is the value of 1 USD in foreign currency.

• ICI t is the Internal Currency Index of price currency at time t. The ICI is different than 1 when a country changes the internal value of its currency ( e.g. from Turkish Lira to New Turkish Lira – ICI = 1,000,000).

• ICI t -1 is the Internal Currency Index of price currency at time t-1.

Index Market Capitalization

PS-32

Where:

• IndexNumberOfShares t -1 is the number of shares of Security s at time t-1.

• PricePerShare t is the price per share of Security s at time t.

• PricePerShare t -1 is the price per share of Security s at time t-1.

• InclusionFactor t is the inclusion factor of Security s at time t. The inclusion factor can be one or the combination of the following factors: Foreign Inclusion Factor, Domestic Inclusion Factor Growth Inclusion Factor, Value Inclusion Factor, Index Inclusion Factor.

• PAF t is the Price Adjustment Factor of Security s at time t.

• FXrate t is the FX rate of the price currency of Security s vs USD at time t. It is the value of 1 USD in foreign currency.

• FXrate t -1 is the FX rate of the price currency of Security s vs USD at time t-1. It is the value of 1 USD in foreign currency.

• ICI t is the Internal Currency Index of price currency at time t. The ICI is different than 1 when a country changes the internal value of its currency ( e.g. from Turkish Lira to New Turkish Lira – ICI = 1,000,000).

• ICI t-1 is the Internal Currency Index of price currency at time t-1.

| Corporate
Events |
| --- |
| Mergers and
Acquisitions. As a general principle, MSCI implements M&As as
of the close of the last trading day of the acquired entity or merging
entities (last offer day for tender offers), regardless of the status of
the securities (index constituents or non-index constituents) involved in
the event. MSCI uses market prices for implementation. This principle
applies if all necessary information is available prior to the completion
of the event and if the liquidity of the relevant constituent(s) is not
expected to be significantly diminished on the day of implementation.
Otherwise, MSCI will determine the most appropriate implementation method
and announce it prior to the changes becoming effective in the
indices. |

PS-33

| Tender Offers. In
tender offers, the acquired or merging Security is generally deleted from
the MSCI indices at the end of the initial offer period, when the offer is
likely to be successful and/or if the free float of the Security is likely
to be substantially reduced (this rule is applicable even if the offer is
extended), or once the results of the offer have been officially
communicated and the offer has been successful and the Security’s free
float has been substantially reduced, if all required information is not
available in advance or if the offer’s outcome is uncertain. The main
factors considered by MSCI when assessing the outcome of a tender offer
(not in order of importance) are: the announcement of the offer as
friendly or hostile, a comparison of the offer price to the acquired
Security’s market price, the recommendation by the acquired company’s
board of directors, the major shareholders’ stated intention whether to
tender their shares, the required level of acceptance, the existence of
pending regulatory approvals, market perception of the transaction,
official preliminary results if any, and other additional conditions for
the offer. |
| --- |
| If
a security is deleted from an index, the security will not be reinstated
immediately after its deletion even when the tender offer is subsequently
declared unsuccessful and/or the free float of the security is not
substantially reduced. It may be reconsidered for index inclusion in the
context of a quarterly index review or annual full country index review.
MSCI uses market prices for implementation. |
| Late Announcements of
Completion of Mergers and Acquisitions. When the completion of an
event is announced too late to be reflected as of the close of the last
trading day of the acquired or merging entities, implementation occurs as
of the close of the following day or as soon as practicable thereafter. In
these cases, MSCI uses a calculated price for the acquired or merging
entities. The calculated price is determined using the terms of the
transaction and the price of the acquiring or merged entity, or, if not
appropriate, using the last trading day’s market price of the acquired or
merging entities. |
| Conversions of Share
Classes. Conversions of a share class into another share class
resulting in the deletion and/or addition of one or more classes of shares
are implemented as of the close of the last trading day of the share class
to be converted. |
| Spin-Offs. On the
ex-date of a spin-off, a PAF is applied to the price of the security of
the parent company. The PAF is calculated based on the terms of the
transaction and the market price of the spun-off security. If the spun-off
entity qualifies for inclusion, it is included as of the close of its
first trading day. If appropriate, MSCI may link the price history of the
spun-off security to a security of the parent company. |
| In
cases of spin-offs of partially-owned companies, the post-event free float
of the spun-off entity is calculated using a weighted average of the
existing shares and the spun-off shares, each at their corresponding free
float. Any resulting changes to FIFs and/or DIFs are implemented as of the
close of the ex-date. |

PS-34

| When
the spun-off security does not trade on the ex-date, a “detached” security
is created to avoid a drop in the free float-adjusted market
capitalization of the parent entity, regardless of whether the spun-off
security is added or not. The detached security is included until the
spun-off security begins trading, and is deleted thereafter. Generally,
the value of the detached security is equal to the difference between the
cum price and the ex price of the parent security. |
| --- |
| Corporate Actions. Corporate actions such as splits, bonus issues and rights issues, which
affect the price of a security, require a price adjustment. In general,
the PAF is applied on the ex-date of the event to ensure that security
prices are comparable between the ex-date and the cum date. To do so, MSCI
adjusts for the value of the right and/or the value of the special assets
that are distributed. In general, corporate actions do not impact the free
float of the securities because the distribution of new shares is carried
out on a pro rata basis to all existing shareholders. Therefore, MSCI will
generally not implement any pending number of shares and/or free float
updates simultaneously with the event. |
| If
a security does not trade for any reason on the ex-date of the corporate
action, the event will be generally implemented on the day the security
resumes trading. |
| Share Placements and
Offerings. Changes in number of shares and FIF resulting from
primary equity offerings representing more than 5% of the security’s
number of shares are generally implemented as of the close of the first
trading day of the new shares, if all necessary information is available
at that time. Otherwise, the event is implemented as soon as practicable
after the relevant information is made available. A primary equity
offering involves the issuance of new shares by a company. Changes in
number of shares and FIF resulting from primary equity offerings
representing less than 5% of the security’s number of shares are deferred
to the next regularly scheduled Quarterly Index Review following the
completion of the event. For public secondary offerings of existing
constituents representing more than 5% of the security’s number of shares,
where possible, MSCI will announce these changes and reflect them shortly
after the results of the subscription are known. Secondary public
offerings that, given lack of sufficient notice, were not reflected
immediately will be reflected at the next Quarterly Index Review.
Secondary offerings involve the distribution of existing shares of current
shareholders’ in a listed company and are usually pre-announced by a
company or by a company’s shareholders and open for public subscription
during a pre-determined period. For U.S. securities, increases
in number of shares and changes in FIFs and/or DIFs resulting from primary
equity offerings and from secondary offerings representing at least 5% of
the security’s number of shares will be implemented as soon as practicable
after the offering is priced. Generally, implementation takes place as of
the close of the same day that the pricing of the shares is made public.
If this is not possible, the |

PS-35

| implementation
will take place as of the close of the following trading
day. |
| --- |
| Debt-to-Equity Swaps. In general, large debt-to-equity swaps involve the conversion of debt into
equity originally not convertible at the time of issue. In this case,
changes in numbers of shares and subsequent FIF and/or DIF changes are
implemented as of the close of the first trading day of the newly issued
shares, or shortly thereafter if all necessary information is available at
the time of the swap. In general, shares issued in debt-to-equity swaps
are assumed to be issued to strategic investors. As such, the post event
free float is calculated on a pro forma basis assuming that all these
shares are non-free float. Changes in numbers of shares and subsequent FIF
and/or DIF changes due to conversions of convertible bonds or other
convertible instruments, including periodical conversions of preferred
stocks and small debt-to-equity swaps are implemented as part of the
quarterly index review. |
| Optional
Dividends . In the case of an optional dividend, the
company offers shareholders the choice of receiving the dividend either in
cash or in shares. However, shareholders electing the cash option may
receive the dividend consideration in cash or shares, or some combination
of cash and shares. These dividends are a common practice in the U.S. For
dividend reinvestment purposes, MSCI assumes that investors elect the cash
option, therefore the dividend is reinvested in the MSCI Daily Total
Return (“DTR”) Indices and price adjustment is not necessary (if the
dividend is less than 5% of the cum market price of the underlying
security). In the event that shareholders electing the cash option receive
the dividend distribution in shares, or a combination of cash and shares,
MSCI will increase the number of shares accordingly after results have
been officially communicated, with two full business days
notice. |
| Suspensions and
Bankruptcies. MSCI will remove from the MSCI Equity Index Series as
soon as practicable companies that file for bankruptcy, companies that
file for protection from their creditors and/or are suspended and for
which a return to normal business activity and trading is unlikely in the
near future. When the primary exchange price is not available, MSCI will
delete securities at an over the counter or equivalent market price when
such a price is available and deemed relevant. If no over the counter or
equivalent price is available, the security will be deleted at the
smallest price (unit or fraction of the currency) at which a security can
trade on a given exchange. For securities that are suspended, MSCI will
carry forward the market price prior to the suspension during the
suspension period. |
| Certain MSCI Indices are
Subject to Currency Exchange Risk. Because the closing
prices of the component securities are converted into U.S. dollars for
purposes of calculating the value of certain MSCI indices, investors in
the Securities linked to such MSCI indices will be exposed to currency
exchange rate risk. Exposure to currency changes will depend on
the extent to which |

PS-36

| | the
relevant currency strengthens or weakens against the U.S.
dollar. The devaluation of the U.S. dollar against the
applicable currency will result in an increase in the value of the
relevant index. Conversely, if the U.S. dollar strengthens
against such currency, the value of such index will be adversely affected
and may reduce or eliminate any return on your
investment. Fluctuations in currency exchange rates can have a
continuing impact on the value of the indices, and any negative currency
impact on the indices may significantly decrease the value of the
Securities. The return on an index composed of the component
securities where the closing price is not converted into U.S. dollars can
be significantly different than the return on the indices which are
converted into U.S. dollars. |
| --- | --- |
| Historical
Information | The
following table sets forth the published high, low and end of quarter
closing prices for the Underlying Shares for each calendar quarter from
January 1, 2005 to May 12, 2010. The graph following the table
sets forth the historical performance of the Underlying Shares for the
same period. The Share Closing Price of the Underlying Shares
on May 12, 2010 was $40.70. The historical prices and
historical performance of the Underlying Shares should not be taken as an
indication of future performance. We cannot give you any
assurance that the Final Share Price will be greater than the Initial
Share Price so that you will receive a payment in excess of the Stated
Principal Amount of $10 for each Security. Because your return
is linked to the performance of the Underlying Shares as measured on the
Valuation Date, there is no guaranteed repayment of 100% of your
principal. The prices of the Underlying Shares may be, and have recently
been, volatile, and we can give no assurance that the volatility will
lessen. |
| | If
the Final Share Price is less than the Initial Share Price, you will lose
money on your investment. |

PS-37

Share price of the iShares ® MSCI Emerging Markets Index Fund Historical High, Low and Period End Closing Prices January 1, 2005 through May 12, 2010

| | High | Low | Period
End |
| --- | --- | --- | --- |
| 2005 | | | |
| First
Quarter | $24.64 | $21.20 | $22.53 |
| Second
Quarter | $24.36 | $21.69 | $23.86 |
| Third
Quarter | $28.33 | $23.94 | $28.29 |
| Fourth
Quarter | $29.82 | $25.04 | $29.41 |
| 2006 | | | |
| First
Quarter | $33.58 | $30.51 | $32.99 |
| Second
Quarter | $37.02 | $27.31 | $31.29 |
| Third
Quarter | $33.09 | $29.19 | $32.25 |
| Fourth
Quarter | $38.19 | $31.76 | $38.05 |
| 2007 | | | |
| First
Quarter | $39.53 | $35.09 | $38.82 |
| Second
Quarter | $44.39 | $39.14 | $43.87 |
| Third
Quarter | $50.12 | $39.49 | $49.80 |
| Fourth
Quarter | $55.71 | $47.16 | $50.09 |
| 2008 | | | |
| First
Quarter | $50.35 | $42.14 | $44.78 |
| Second
Quarter | $51.70 | $44.46 | $45.23 |
| Third
Quarter | $44.42 | $31.54 | $34.16 |
| Fourth
Quarter | $34.57 | $18.25 | $24.96 |
| 2009 | | | |
| First
Quarter | $27.09 | $19.93 | $24.80 |
| Second
Quarter | $34.63 | $25.62 | $32.22 |
| Third
Quarter | $39.27 | $30.73 | $38.90 |
| Fourth
Quarter | $42.06 | $37.56 | $41.50 |
| 2010 | | | |
| First
Quarter | $43.22 | $36.83 | $42.12 |
| Second
Quarter (through May 12, 2010) | $43.98 | $37.99 | $40.70 |

iShares MSCI EAFE Index Fund January 1, 2005 through May 12, 2010

PS-38

| Use
of Proceeds and Hedging | The
net proceeds we receive from the sale of the Securities will be used for
general corporate purposes and, in part, by us or by one or more of our
affiliates in connection with hedging our obligations under the
Securities. The original issue price of the Securities includes
the Agent’s Commissions (as shown on the cover page of this pricing
supplement) paid with respect to the Securities and the cost of hedging
our obligations under the Securities. 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,
expect to hedge our anticipated exposure in connection with the Securities
by taking positions in the Underlying Shares, in futures or options
contracts on the Underlying Shares or any component stocks of the MSCI
Emerging Markets Index 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. Such purchase activity could
potentially increase the Initial Share Price, and, therefore, increase the
price at which the Underlying Shares must close on the Valuation Date
before you will receive at maturity a payment that exceeds the Stated
Principal Amount of the Securities. In addition, through our
subsidiaries, we are likely to modify our hedge position throughout the
life of the Securities by purchasing and selling the stocks underlying the
Indices or the MSCI Emerging Markets Index, futures or options contracts
on the stocks underlying the MSCI Emerging Markets Index 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, including by selling any such securities or instruments on the
Valuation Date. We cannot give any assurance that our hedging
activities will not affect the price of the Underlying Shares and,
therefore, adversely affect the value of the Securities 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 principal amount of
Securities set forth on the cover of this pricing
supplement. The Agent proposes initially to offer the
Securities directly to the public at the public offering price set forth
on the cover page of this pricing supplement. The Agent will
pay a concession equal to $0.16875 to an introducing broker in connection
with the initial offering of the Securities. After the initial
offering of the Securities, the Agent may vary the offering price and
other selling terms from time to
time. |

PS-39

| MS
& Co. is our wholly-owned subsidiary. MS & Co. 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. MS & Co.
or any of our other affiliates may not make sales in this offering to any
discretionary account. |
| --- |
| In
order to facilitate the offering of the Securities, the Agent may engage
in transactions that stabilize, maintain or otherwise affect the price of
the Securities. Specifically, the Agent may sell more
Securities than it is obligated to purchase in connection with the
offering, creating a naked short position in the Securities, for its own
account. The Agent must close out any naked short position by
purchasing the Securities in the open market. A naked short
position is more likely to be created if the Agent is concerned that there
may be downward pressure on the price of the Securities 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, the Securities, the component stocks
of the MSCI Emerging Markets Index or the Underlying Shares in the open
market to stabilize the price of the Securities. Any of these
activities may raise or maintain the market price of the Securities above
independent market levels or prevent or retard a decline in the market
price of the Securities. 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
Securities. 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 Securities 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 Securities, or distribution of this pricing supplement or the
accompanying prospectus supplement or prospectus or any other offering
material relating to the Securities, 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 Securities 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
Securities 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 |

PS-40

| the
Securities 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 Securities. 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
Securities have not been and will not be registered with the Comissão de
Valores Mobiliários (The Brazilian Securities Commission). The
Securities 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. |
| Chile |
| The
Securities 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 Securities 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 Securities to the
public in Hong Kong as the Securities have not been authorized by the
Securities and Futures Commission of Hong Kong and, accordingly, no
advertisement, invitation or document relating to the Securities, 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
Securities 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
Securities 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 Securities nor make the Securities the subject of an invitation for
subscription or purchase, nor will they
circulate |

PS-41

| | or
distribute the 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
Securities, 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 Securities 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 | Each
fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in
the context of the Plan’s particular circumstances before authorizing an
investment in the Securities. Accordingly, among other factors,
the fiduciary should consider whether the investment would satisfy the
prudence and diversification requirements of ERISA and would be consistent
with the documents and instruments governing the Plan. |
| | In
addition, we and certain of our subsidiaries and affiliates, including MS
& Co., may each be considered a “party in interest” within the meaning
of ERISA, or a “disqualified person” within the meaning of the Internal
Revenue Code of 1986, as amended (the “Code”), with respect to many Plans,
as well as many individual retirement accounts and Keogh plans (also
“Plans”). Prohibited transactions within the meaning of ERISA
or the Code would likely arise, for example, if the Securities 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 Securities are acquired pursuant to an exemption from
the “prohibited transaction” rules. A violation of these
“prohibited transaction” rules could result in an excise tax or other
liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption. |
| | The
U.S. Department of Labor has issued five prohibited transaction class
exemptions (“PTCEs”) that may provide exemptive relief for direct or
indirect prohibited transactions resulting from the purchase or holding of
the Securities. Those |

PS-42

| 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 asset
managers). In addition, ERISA Section 408(b)(17) and Section
4975(d)(20) of the Code provide an exemption for the purchase and sale of
securities and the related lending transactions, provided that neither the
issuer of the securities nor any of its affiliates has or exercises any
discretionary authority or control or renders any investment advice with
respect to assets of any plan involved in the transaction, and provided
further that the plan pays no more than “adequate consideration” in
connection with the transaction (the so-called “service provider”
exemption). There can be no assurance that any of these class
or statutory exemptions will be available with respect to transactions
involving the Securities. |
| --- |
| Because
we may be considered a party in interest with respect to many Plans, the
Securities may not be purchased, held or disposed of by any Plan, any
entity whose underlying assets include “plan assets” by reason of any
Plan’s investment in the entity (a “plan asset entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or
disposition is eligible for exemptive relief, including relief available
under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider
exemption or such purchase, holding or disposition is otherwise not
prohibited. Any purchaser, including any fiduciary purchasing
on behalf of a Plan, transferee or holder of the Securities will be deemed
to have represented, in its corporate and its fiduciary capacity, by its
purchase and holding of the Securities that either (a) it is not a plan or
a plan asset entity and is not purchasing such Securities on behalf of or
with “plan assets” of any plan, or with any assets of a governmental,
non-U.S. or church plan that is subject to any federal, state, local or
non-U.S. law that is substantially similar to the provisions of Section
406 of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its
purchase, holding and disposition are eligible for exemptive relief or
such purchase, holding and disposition are not prohibited by ERISA or
Section 4975 of the Code or any Similar Law. |
| Due
to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing the Securities on behalf of or with “plan assets” of any Plan
consult with their counsel regarding the availability of exemptive
relief. |
| Each
purchaser and holder of the Securities has exclusive responsibility for
ensuring that its purchase, holding and disposition of the Securities do
not violate the prohibited transaction rules of ERISA or the Code or any
Similar Law. The sale of any Securities to any Plan or plan
subject to Similar Law is |

PS-43

| | 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. |
| --- | --- |
| 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 Securities
issued under this pricing supplement and is superseded by the following
discussion. |
| | The following summa ry is a general discussion of the
principal U.S. federal tax consequences of
ownership and disposition of the Securities. This discussion
applies only to initial investors in the Securities
who: |
| | · purchase
the Securities at their “issue price”; and |
| | · will
hold the Securities 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 Securities 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; |
| | · 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 any issuers of any
shares that comprise the iShares MSCI Emerging Markets Index (such shares
hereafter referred to as “Underlying Shares”), are treated as “passive
foreign investment companies” (“PFICs”) within the meaning of Section 1297
of the Code. If any of the issuers of the Underlying Shares
were so treated, certain adverse U.S. federal income tax consequences
might apply, to a U.S. Holder upon the sale, exchange or settlement of the
Securities. You should refer to information filed with the
Securities and Exchange Commission or other governmental authorities by
the issuers of the Underlying Shares and consult your tax
adviser |

PS-44

| regarding
the possible consequences to you if any issuer is or becomes a
PFIC. |
| --- |
| As
stated above, 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. As the law applicable to the U.S.
federal income taxation of instruments such as the Securities 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. |
| 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 the Securities 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 s t ate, local or foreign taxing
jurisdiction. |
| General |
| Pursuant to the terms of the
Securities, you have agreed (in the absence of an administrative
determination or judicial ruling to the contrary) to treat each Security
as a single financial contract that is an “ open transaction” for U.S. federal income tax
purposes. |
| No statutory, judicial or
administrative authority directly addresses the treatment of the
Securities or instruments that are similar to the Securities for U.S.
federal income tax purposes, and no ruling will be requested from
the Internal Revenue Service (the “ IRS” ) with respect to their proper
treatment. Significant aspects of the U.S. federal income tax consequences
of an investment in the Securities are uncertain. Our counsel has not
rendere d an opinion as to the proper
treatment of the Securities for U.S. federal income tax purposes, and
no assurance can be given that the IRS or the courts will agree with the
tax treatment described herein. Accordingly, you should consult your tax
advisers r e garding all aspects of the U.S.
federal tax consequences of an investment in the Securities (including
possible alternative treatments of the Securities) 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 of each
Security as an open transaction. |
| 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 a
Security that is, for U.S. federal income tax
purposes: |
| · a
citizen or resident of the United States; |

PS-45

| · a
corporation, or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of the
United States or 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 re sidents of the United States . |
| Tax Treatment of the
Securities |
| Assuming the characterization of
the Securities as set forth above is respected, the following U.S. federal income tax consequences
should result. |
| Tax Treatment
Prior to Maturity. A U.S.
Holder should not be
required to recognize taxable income over the term of the Securities prior
to maturity, other than pursuant to a sale or exchange as described
below. |
| Tax
Basis . A U.S.
Holder ’ s tax basis in the Securities
should equal the amount paid by the U.S. Holder to acquire the
Securities. |
| Sale, Exchange or Settlement
of the Securities. Upon a sale or exchange of the
Securities, or upon settlement of the Securities at maturity, a U.S.
Holder should recognize gain or loss equal to the difference between the
amount realized on the sale, exchange or settlement and the U.S. Holder’s
tax basis in the Securities sold, exchanged or settled. Subject
to the discussion below concerning the potential application of the
“constructive ownership” rule under Section 1260 of the Code, any gain or
loss recognized upon the sale, exchange or settlement of a Security should
be long-term capital gain or loss if the U.S. Holder has held the Security
for more than one year at such time. |
| Potential Application of the
Constructive Ownership Rule. Because the Securities are linked to
shares of an exchange-traded fund, although the matter is not clear, there
is a substantial risk that an investment in the Security will be treated
as a “constructive ownership transaction.” A “constructive
ownership transaction” includes a contract under which an investor will
receive payment equal to or credit for the future value of any equity
interest in a regulated investment company (such as shares of the iShares
MSCI Emerging Markets Index Fund) (the “Underlying ETF
Shares”)). Under the “constructive ownership” rule, if an
investment in the Securities is treated as a “constructive ownership
transaction,” all or a portion of any long-term capital gain recognized by
a U.S. Holder in respect of a Security could be recharacterized as
ordinary income (the “Recharacterized Gain”). In addition, an
interest charge would also apply to any deemed underpayment of tax in
respect of any Recharacterized Gain to the extent such gain would have
resulted in the inclusion of gross income by the U.S. Holder in taxable
years prior to the taxable year of the sale, exchange or settlement of the
Securities |

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| (assuming
such income accrued during the period the Securities were held at a
constant rate equal to the applicable federal rate as of the date of sale,
exchange or settlement of the Securities). |
| --- |
| If
an investment in the Securities is treated as a “constructive ownership
transaction,” the Recharacterized Gain will equal the excess of (i) any
long-term capital gain recognized by a U.S. Holder in respect of a
Security over (ii) the “net underlying long-term capital gain” (as defined
in Section 1260 of the Code). However, because any positive
return on the Securities at maturity will equal 100% of the price return
on the Underlying ETF Shares (or less than 100% if the price return on the
Underlying ETF Shares exceeds the Maximum Payment at Maturity on the
Securities), it is expected that any long-term capital gain recognized by
a U.S. Holder at maturity of the Securities will not exceed the net
underlying long-term capital gain. Under Section 1260 of the
Code, the amount of net underlying long-term capital gain will be treated
as zero unless otherwise “established by clear and convincing
evidence.” U.S. Holders should consult their tax advisers
regarding the potential application of the “constructive ownership” rule
to the Securities. |
| Possible Alternative Tax
Treatments of an Investment in the Securities |
| Due to the absence of authorities
that directly address the prop er tax treatment of the
Securities, no assurance can be given that the IRS will accept, or that a
court will uphold, the treatment described above. In
particular, the IRS could seek to analyze the U.S. federal income tax consequences
of owning a Security under Treasury regulations governing contingent
payment debt instruments (the “ Contingent Debt
Regulations” ). |
| If the IRS were successful in
asserting that the Contingent Debt Regulations apply to the Securities,
the timing and character of income thereon w ould be significantly
affected. Among other things, a U.S. Holder would be required
to accrue original issue discount (“ OID” ) on the Securities every year at
a “ comparable
yield” determined at
the time of their issuance. Furthermore, any gain realized
by a U.S. Holder at
maturity or upon a sale, exchange or other disposition of the Securities
would generally be treated as ordinary income, and any loss realized at maturity would
be treated as ordinary loss, to the extent of the U.S. Holder ’ s prior accruals of OID, and as capital loss
thereafter. The risk that a Security will be
recharacterized, for U.S. federal income tax purposes, as a
debt instrument rather than as an open transaction, is higher than with
other non-principal protected equity-linked secur ities. |
| Even if the Contingent Debt
Regulations do not apply to the Securities, other alternative federal
income tax characterizations of the Securities are also possible, which if
applied could also affect the timing and character of the income or loss
wit h respect to the
Securities. 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 |

PS-47

| similar
instruments, such as the Securities. The notice focuses in
particular on whether to require holders of these instruments to accrue
income over the term of their investment. It also asks for
comments on a number of related topics, including the character of income
or loss with respect to these instruments; whether short-term instruments
should be subject to any such accrual regime; the relevance of factors
such as the exchange-traded status of the instruments and the nature of
the underlying property to which the instruments are linked; and whether
these instruments are or should be subject to the “constructive ownership”
regime (as discussed
above) . While the notice requests comments
on appropriate transition rules and effective dates , any Treasury
regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an
investment in the Securities, possibly with retroactive
effect. U.S. Holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the
Securities, including possible alternative treatments and the issues
presented by 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. 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 i nformation is furnished to the
IRS. In addition, information returns will be filed with the
IRS in connection with payments on the Securities and the proceeds from a
sale, exchange or other disposition of the Securities, unless the U.S.
Holder provides p r oof of an applicable exemption
from the information reporting rules. |
| Tax Consequences 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 a Security that is, for U.S. federal income tax
purposes: |
| · an
individual who is classified as a nonresident alien; |
| · a
foreign corporation; or |
| · a
foreign trust or estate. |
| The
term “Non-U.S. Holder” does not include any of the following
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 |

PS-48

| · a
holder for whom income or gain in respect of the Securities 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
income tax consequences of an investment in a Security. |
| Tax Treatment
upon Sale , Exchange or
Settlement of the Securities |
| In
general. A ssuming the treatment of the
Securities as set forth above is respected, a Non-U.S. Holder of the
Securities will not be subject to U.S. federal income or withholding tax
in respect of amounts paid to the Non-U.S. Holder. |
| If all or any portion of a
Security were recharacterized as a debt instrument, any payment made to a
Non-U.S. Holder with respect to the Securities would not be subject
to U.S. federal
withholding tax, 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 t he beneficial
owner. |
| Certification
Requirement. The certification
requirement referred to in the preceding paragraph will be fulfilled if
the beneficial owner of a Security (or a financial institution holding the
Securities on behalf of the beneficial own er) furnishes to us an IRS Form
W-8BEN, on which the beneficial owner certifies under penalties of perjury
that it is not a U.S. person. |
| On December 7, 2007, the Treasury
Department and the IRS released a notice requesting comments on the U.S. federal inc ome tax treatment of “ prepaid forward
contracts” and
similar instruments, such as the Securities. While the notice
requests comments on appropriate transition rules and effective dates, it
is possible that any Treasury regulations or other guidance
promu l gated after consideration of these
issues might affect the withholding tax consequences of an investment in
the Securities, possibly with retroactive effect. Accordingly,
if you are a non-U.S. investor, you should consult your tax adviser
regarding the i s sues presented by the
notice. |
| 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 purposes (for example, a trust funded by such an |

PS-49

| individual and with respect to
which the individual has retained certain interests or powers), should
note that, absent an applicable treaty benefit, the Securities are likely
to be treated as U.S. situs property subject to U.S. federal estate
tax. Pr o spective 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 Securities. |
| --- |
| Backup Withholding and Information
Repor ting |
| Information returns may be filed
with the IRS in connection with the payment on the Securities at maturity
as well as in connection with the proceeds from a sale, exchange or other
disposition. 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
otherwise establishes an exemption. Compliance with
th e certification procedures
described above under “ ― Tax Treatment upon Sale , Exchange or Settlement of the
Securities ― Certification
Requirement” 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-50