MORGAN STANLEY — Capital/Financing Update 2010

Mar 8, 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 prospectus supplement do not constitute an offer to sell these securities and we are not soli c iting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to c ompletion, Preliminary P ricing Supplement dated March 8 , 20 10

| PROSPECTUS
dated December 23, 2008 | Pricing
Supplement No. 336 to |
| --- | --- |
| PROSPECTUS
SUPPLEMENT dated December 23, 2008 | Registration
Statement No. 333-156423 |
| | Dated
March , 2010 |
| | Rule
424(b)(2) |

$

GLOBAL MEDIUM-TERM NOTES, SERIES F

Senior Notes

Principal Protected Notes due March 15, 2016

Based on the Performance of a Basket Composed of the S&P 500 ® Index

and the iShares ® MSCI EAFE Index Fund

Unlike ordinary debt securities, the Principal Protected Notes due March 15, 2016 Based on the Performance of a Basket Composed of the S&P 500 ® Index and the iShares ® MSCI EAFE Index Fund (the “notes”) do not pay interest. Instead, the notes will pay at maturity the principal amount of $1,000 plus a supplemental redemption amount, if any, based on the performance of a weighted basket composed of the S&P 500 ® Index (75%), which we refer to as the basket index, and the iShares ® MSCI EAFE Index Fund (25%), which we refer to as the basket ETF, each of which we refer to as a basket component. The performance of the basket will be measured from the date we price the notes for initial sale to the public, which we refer to as the pricing date, using a final average value or price for each basket component as calculated over thirteen determination dates, one for each month during the final thirteen months prior to maturity, as described below. If the basket appreciates, the notes will pay a supplemental redemption amount representing 102% of any such appreciation. The notes are senior unsecured obligations of Morgan Stanley and all payments on the notes, including the repayment of principal, are subject to the credit risk of Morgan Stanley.

• The principal amount and original issue price of each note is $1,000. We will not pay interest on the notes.

• At maturity, you will receive, for each $1,000 principal amount of notes that you hold an amount in cash equal to the principal amount plus a supplemental redemption amount, if any, determined as follows:

º $1,000 times (i) the basket performance times (ii) 102%, which we refer to as the participation rate.

In no event will the payment at maturity be less than $1,000.

• The basket performance will equal the sum of the weighted performance values for each of the basket components.

• The performance value for each basket component will be the final average index value or final average share price, as applicable, for such basket component less its initial index value or initial share price, as applicable, divided by such initial index value or initial share price, as applicable.

º A basket component’s initial index value or initial share price, as applicable, will equal, in the case of the basket index, the index closing value of the basket index on the pricing date and, in the case of the basket ETF, the share closing price of the basket ETF on the pricing date.

º The final average index value for the basket index will be the arithmetic average of the index closing values on each of the following thirteen days (which we refer to as the determination dates): March 9, 2015, April 8, 2015, May 8, 2015, June 8, 2015, July 8, 2015, August 10, 2015, September 8, 2015, October 8, 2015, November 9, 2015, December 8, 2015, January 8, 2016, February 8, 2016 and March 8, 2016 (which we refer to as the determination dates). The final average share price for the basket ETF will be the arithmetic average of the share closing prices for the basket ETF, times the adjustment factor, on each determination date. The determination dates will be subject to adjustment for non-index business days or non-trading days, as applicable, and certain market disruption events affecting the basket index or basket ETF, as applicable.

º The adjustment factor for the Basket ETF will initially be set at 1.0 and is subject to change upon certain corporate events affecting the basket ETF.

• Investing in the notes is not equivalent to investing directly in the basket components or any of the securities that underlie the basket components.

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

• The minimum purchase amount is $1,000 or 1 note, and integral multiples of $1,000 thereafter.

• The CUSIP number for the notes is 617482LA0 and the ISIN for the notes is US617482LA03.

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

The notes 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 $1,000 PER NOTE

| | Price
to Public | Agent’s
Commissions (1) | Proceeds
to Issuer |
| --- | --- | --- | --- |
| Per
note | $1,000 | $35 | $965 |
| Total | $ | $ | $ |

(1) Selected dealers, including Morgan Stanley Smith Barney LLC (an affiliate of the Agent), and their financial advisors will collectively receive from the Agent, Morgan Stanley & Co. Incorporated, a fixed sales commission of $35 for each note they sell. See “Description of Notes—Supplemental Information Concerning Plan of Distribution; Conflicts of Interest” in this pricing supplement. For additional information, see “Plan of Distribution” in the accompanying prospectus supplement.

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

The notes 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 notes and on the distribution of this pricing supplement and the accompanying prospectus supplement and prospectus relating to the notes, see the section of this pricing supplement called “Description of Notes—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 notes 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 notes have not been and will not be registered with the Comissão de Valores Mobiliários (The Brazilian Securities Commission). The notes 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 notes 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 notes 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 notes to the public in Hong Kong as the notes have not been authorized by the Securities and Futures Commission of Hong Kong and, accordingly, no advertisement, invitation or document relating to the notes, 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 notes 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 notes 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 notes nor make the notes the subject of an invitation for subscription or purchase, nor will they circulate or distribute this pricing supplement or the accompanying prospectus supplement or prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes, 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 notes 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 notes 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 notes offered are medium-term debt securities of Morgan Stanley. The return on the notes is linked to the performance of a basket weighted 75% to the S&P 500 ® Index (the “basket index”) and 25% to the shares of the iShares ® MSCI EAFE Index Fund (the “basket ETF”), each of which we refer to as a basket component. These notes combine features of a debt investment and an investment in U.S. and developed market equities by offering at maturity 100% principal protection of the original issue price with the opportunity for 102% participation in the appreciation of the weighted basket, if any. The performance of the basket will be measured from the pricing date using a final average value or price for each basket component as calculated over the thirteen determination dates, one for each month during the final thirteen months prior to maturity, as described below. The notes offered are designed for investors who are willing to forgo market floating interest rates on the notes in exchange for a payment at maturity based on the performance of the weighted basket. All payments on the notes, including the repayment of principal, are subject to the credit risk of Morgan Stanley.

“iShares ® ” is a registered trademark of BlackRock Institutional Trust Company, N.A. “Standard & Poor’s ® ,” “S&P ® ,” “S&P 500 ® ,” “Standard & Poor’s 500” and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Morgan Stanley.

| Each
note costs $1,000 | We,
Morgan Stanley, are offering the Principal Protected Notes due March 15,
2016 Based on the Performance of a Basket Composed of the S&P 500 ® Index and the iShares ® MSCI EAFE Index Fund, which we refer to as the notes. The
principal amount and original issue price of each note is
$1,000. |
| --- | --- |
| | The
original issue price of the notes includes the agent’s commissions paid
with respect to the notes as well as the cost of hedging our obligations
under the notes. The cost of hedging includes the projected
profit that our subsidiaries may realize in consideration for assuming the
risks inherent in managing the hedging transactions. The
secondary market price, if any, at which Morgan Stanley & Co.
Incorporated, which we refer to as MS & Co. is willing to purchase the
notes, is expected to be affected adversely by the inclusion of these
commissions and hedging costs in the original issue price. In
addition, the secondary market price may be lower due to the costs of
unwinding the related hedging transactions at the time of the secondary
market transaction. 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
Notes—Use of Proceeds and Hedging.” |
| The
basket | The
following table sets forth the basket components along with the initial
basket component value (as defined below), the relevant Bloomberg ticker
symbol and the weighting of each basket
component: |

| Basket
Component | Bloomberg
Ticker Symbol | Weighting |
| --- | --- | --- |
| S&P
500 ® Index (the
“basket index”) | SPX | 75% |
| iShares ® MSCI EAFE Index Fund (the
“basket ETF”) | EFA | 25% |

Payment at maturity Unlike ordinary debt securities, the notes do not pay interest. Instead, for each note that you hold, you will receive at maturity the principal amount of $1,000 plus a supplemental redemption amount, if any, based on the sum of the weighted performances of the basket components. The performance of the basket will be measured from the pricing date using a final average value or price for each basket component as calculated over the thirteen determination dates, one for each month

PS-3

| |
| --- |
| 100%
Principal Protection |
| At
maturity, we will pay you at least $1,000 plus the supplemental redemption
amount, if any. |
| Payment
at Maturity |
| The
payment at maturity will be calculated as follows: |
| Payment
at maturity = $1,000 + supplemental
redemption amount |
| Beginning
on PS-8, we have provided examples of hypothetical payouts on the
notes. |
| Supplemental
Redemption Amount |
| The
supplemental redemption amount at maturity, if any, will
equal: |
| · $1,000 times (i) the basket
performance times (ii) 102%, which
we refer to as the participation rate. In
no event will the supplemental redemption amount be less than
$0. |
| where, |

basket performance = the sum of the basket index performance value and the basket ETF performance value

where,

and where,

With respect to the basket index :

| initial
index value | = | the
closing value of the basket index on the day we price the notes for
initial sale to the public, which we refer to as the pricing
date |
| --- | --- | --- |
| final
average index value | = | the
arithmetic average of the closing values of the basket index on each of
the determination dates with respect to the basket
index |
| With respect to the
basket ETF : | | |
| initial
share price | = | the
closing price of one share of the basket ETF on the pricing
date |
| final
average share price | = | the
arithmetic average of the closing prices of one share of the basket ETF on
each of the determination dates with respect to the basket ETF, times the |

PS-4

| | | adjustment
factor on each such date The
“adjustment factor” will be initially set at 1.0 and is subject to change
upon certain corporate events affecting the shares of the basket
ETF. |
| --- | --- | --- |
| With respect to the
basket components : | | |
| determination
dates | = | With
respect to the basket index and the basket ETF, each of the following days
is a determination date: March 9, 2015, April 8, 2015, May 8, 2015, June
8, 2015, July 8, 2015, August 10, 2015, September 8, 2015, October 8,
2015, November 9, 2015, December 8, 2015, January 8, 2016, February 8,
2016 and March 8, 2016. The
determination dates will be subject to adjustment for non-index business
days or non-trading days, as applicable, and certain market disruption
events affecting the basket index or basket ETF, as
applicable. |

| The
initial index value of the basket index and the initial share price of the
basket ETF are together referred to as the “initial basket component
values.” The
final average index value of the basket index and the final average share
price of the basket ETF are together referred to as the “final average
basket component values.” |
| --- |
| A
basket component’s performance value may be positive or
negative. The basket performance is the sum of the performance
values for each of the basket index and the basket ETF. If the
basket performance is less than, or equal to, zero, the supplemental
redemption amount will be zero. In that case, you will receive
at maturity only the principal amount of $1,000 for each note that you
hold and you will not receive any supplemental redemption
amount. If
the basket performance is positive, your return on the notes will be equal
to 102% of the basket performance. One
basket component’s positive performance value may be wholly or partially
offset by the other basket component’s negative performance value, such
that the basket performance as a whole may be less than or equal to zero,
resulting in a supplemental redemption amount of $0 even though one of the
basket components has a positive performance value. Furthermore,
the two basket components do not have the same basket component
weightings. Therefore, the same percentage change over the term
of the notes in both the basket components would have different effects on
the basket performance because decreases in the value of the basket index
(which is weighted at 75%) could moderate or wholly offset increases in
the value of the basket ETF (which is weighted at 25%). |
| On
PS-8, we have provided a section entitled “Hypothetical Payouts on the
Notes at Maturity,” which illustrates the payout on the notes over a range
of hypothetical basket performances. The examples do not show
every situation that can occur. |
| Please
review the historical performance of each of the basket components and
also the graph of the historical performance of the basket as a whole for
the period from January 1, 2005 through March 5, 2010 in this pricing
supplement under “Description of Notes—Historical Information” and
“—Historical Graph.” The |

PS-5

graph showing the historical performance of the basket illustrates the effect of any offset between the basket components during such period. You cannot predict the future performance of either of the basket components or of the basket as a whole, or whether the positive performance of either basket component will be offset by a lesser positive performance or negative performance of the other basket component, based on their historical performance.

Investment in the notes involves risks associated with foreign equity securities as well as exposure to the currency exchange risk of the currencies of the component countries of the basket ETF relative to the U.S. dollar The stocks included in the MSCI EAFE Index and that are generally tracked by the basket ETF have been issued by companies in various foreign countries, and the value of such securities will affect the value of your investment. Because the price of the shares of the basket ETF is related to the U.S. dollar value of stocks underlying the MSCI EAFE Index, holders of the notes 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 notes prior to our
acceptance | We
are using this pricing supplement to solicit from you an offer to purchase
the notes. You may revoke your offer to purchase the notes 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 notes prior to their
issuance. In the event of any material changes to the terms of
the notes, we will notify you. |
| --- | --- |
| MS
& Co. will be the calculation agent | We
have appointed our affiliate MS & Co., to act as calculation agent for
The Bank of New York Mellon, a New York banking corporation (as successor
to JPMorgan Chase Bank, N.A.), the trustee for our senior
notes. As calculation agent, MS & Co. will determine the
initial basket component values, the final average basket component
values, the basket component performance values and the basket
performance, and will calculate the supplemental redemption amount, if
any, and the payment you will receive at maturity. |
| MS
& Co. will be the agent; conflicts of interest | The
agent for the offering of the notes, 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 notes 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 Notes—Supplemental Information Concerning Plan of
Distribution; Conflicts of Interest” on PS-48. |
| The
notes will be treated as contingent payment debt instruments for U.S.
federal income tax purposes | The
notes will be treated as “contingent payment debt instruments” for U.S.
federal income tax purposes, as described in the section of this pricing
supplement called “Description of Notes — United States Federal Income
Taxation.” Under this treatment, if you are a U.S. taxable
investor, you generally will be subject to annual income tax based on the
comparable yield (as set forth in this pricing supplement) of the notes
even though no stated interest will be paid on the notes. In
addition, any gain recognized by U.S. taxable investors on the sale or
exchange, or at maturity, of the notes generally will be treated as
ordinary income. Please read the section of this pricing
supplement called “Description of Notes — United States Federal Income
Taxation” and the sections called “United States Federal Taxation — Tax
Consequences to U.S. Holders — Notes — Optionally Exchangeable Notes,”
“United States Federal Taxation — Tax Consequences to U.S. Holders —
Backup Withholding and Information Reporting” and “United States Federal
Taxation — Tax Consequences to U.S. Holders — Disclosure Requirements” in
the |

PS-6

| | accompanying
prospectus supplement. If
you are a non-U.S. investor, please read the section of this pricing
supplement called “Description of Notes — United States Federal Income
Taxation — Tax Consequences to Non-U.S. Holders.” You should consult your tax
advisers regarding all aspects of the U.S. federal tax consequences of an
investment in the notes as well as any tax consequences arising under the
laws of any state, local or foreign taxing
jurisdiction . |
| --- | --- |
| Where
you can find more information on the notes | The
notes are unsecured senior notes issued as part of our Series F
medium-term note program. You can find a general description of
our Series F medium-term note program in the accompanying prospectus
supplement dated December 23, 2008 and in the prospectus dated December
23, 2008. We describe the basic features of this type of note
in the sections of the prospectus supplement called “Description of
Notes—General Terms of Notes” and in the section of the prospectus called
“Description of Debt Securities—Description of Floating Rate Debt
Securities.” |
| | Because
this is a summary, it does not contain all the information that may be
important to you. For a detailed description of the terms of
the notes, you should read the “Description of Notes” section in this
pricing supplement. You should also read about some of the
risks involved in investing in notes in the section called “Risk
Factors.” The tax treatment of investments in equity-linked
notes such as these differs from that of investments in ordinary debt
securities. See the section of this pricing supplement called
“Description of Notes—United States Federal Income
Taxation.” You should consult with your investment, legal, tax,
accounting and other advisors with regard to any proposed or actual
investment in the notes. |
| How
to reach us | You
may contact your local Morgan Stanley Smith Barney branch office or our
principal executive offices at 1585 Broadway, New York, New York 10036
(telephone number (212) 761-4000). |

PS-7

HYPOTHETICAL PAYOUTS ON THE NOTES AT MATURITY

For each note that you hold at maturity, you will receive the stated p rincipal amount of $1,000 plus a supplemental redemption amount, if any, equal to $1,000 times the basket performance times the participation rate, provided that the supplemental redemption amount will not be less than zero.

Below are two full examples of how to calculate the basket performance and the supplemental redemption amount. The following examples and the table are based on hypothetical data and are provided for illustrative purposes only. The examples do not show every situation that can occur.

Example 1 : The basket performance is positive.

| Basket
Component | Basket
Weighting | Hypothetical
Initial Basket
Component Value | Hypothetical Final
Average Basket Component Value | Appreciation
/ Depreciation |
| --- | --- | --- | --- | --- |
| Basket
Index | 75% | 1,150.00 | 1,288.00 | +
12% |
| Basket
ETF | 25% | $60.00 | $67.20 | +
12% |

Basket Performance = Sum of Performance Values

| Basket
Index Performance
Value = | [(Final
Average Index Value – Initial Index Value) / Initial Index Value] x 75%, plus |
| --- | --- |
| Basket
ETF Performance Value = | [(Final
Average Share Price – Initial Share Price) / Initial Share Price] x
25% |

So, using the hypothetical initial basket component values and final average basket component values above,

the basket performance is calculated as follows:

| Basket
Index Performance
Value = | [(1,288.00
– 1,150.00) / 1,150.00] x 75% = 9%, plus |
| --- | --- |
| Basket
ETF Performance Value = | [(67.20
– 60.00) / 60.00] x 25% = 3% |

| Basket
performance | = | 12% |
| --- | --- | --- |
| Supplemental
redemption amount | = | $1,000
x basket performance x participation rate |
| | = | $1,000
x 12% x 102% = $122.40 |
| Payment
at maturity | = | $1,000
+ $122.40 = $1,122.40 |

Because the basket performance is greater than zero, investors will receive at maturity a supplemental redemption amount in addition to the principal amount of the notes.

Example 2 : The basket performance is negative.

| Basket
Component | Basket
Weighting | Hypothetical
Initial Basket
Component Value | Hypothetical Final
Average Basket Component Value | Appreciation
/ Depreciation |
| --- | --- | --- | --- | --- |
| Basket
Index | 75% | 1,150.00 | 1,092.50 | –
5% |
| Basket
ETF | 25% | $60.00 | $66.00 | +
10% |

Basket Performance = Sum of Performance Values

| Basket
Index Performance Value = | [(Final
Average Index Value – Initial Index Value) / Initial Index Value] x 75%, plus |
| --- | --- |
| Basket
ETF Performance Value = | [(Final
Average Share Price – Initial Share Price) / Initial Share Price] x
25% |

So, using the hypothetical initial basket component values and final average basket component values above,

the basket performance is calculated as follows:

PS-8

| Basket
Index Performance Value = | [(1,092.50
– 1,150.00) / 1,150.00] x 75% = – 3.75%, plus |
| --- | --- |
| Basket
ETF Performance Value = | [(66.00
– 60.00) / 60.00] x 25% = 2.5% |

| Basket
performance | = | –
1.25% |
| --- | --- | --- |
| Supplemental
redemption amount | = | $0 |
| Payment
at maturity | = | $1,000 |

Because the basket performance is less than zero, the supplemental redemption amount will be $0 and the payment at maturity per note will be only the $1,000 principal amount.

In the above example, the less heavily weighted basket component has a positive performance value. However, the positive performance value is wholly offset by the negative performance value of the more heavily weighted basket component, resulting in a negative basket performance and, as a result, a supplemental redemption amount of $0.

PS-9

RISK FACTORS

The notes are not secured debt, are riskier than ordinary debt securities and, unlike ordinary debt securities, the notes do not pay interest. In addition, investing in the notes is not equivalent to investing directly in the basket components. This section describes the most significant risks relating to the notes. You should carefully consider whether the notes are suited to your particular circumstances before you decide to purchase them.

| Unlike
ordinary debt securities, the notes do not pay interest | The
terms of the notes differ from those of ordinary debt securities in that
we will not pay interest on the notes. Because the supplemental
redemption amount may be zero, the return on an investment in the notes
may be zero and, therefore, less than the amount that would be paid on an
ordinary debt security. Moreover, if the basket does not
appreciate sufficiently over the term of the notes, the overall return on
the notes may be less than the amount that would be paid on a conventional
debt security of the issuer of comparable maturity. The notes
have been designed for investors who are willing to forgo market floating
interest rates in exchange for a supplemental redemption amount, if any,
based on the performance of a weighted basket of U.S. and developed market
equities. |
| --- | --- |
| You
may receive only the principal amount at maturity | If
the basket performance is equal to or less than zero, no supplemental
redemption amount will be paid and you will receive only the stated
principal amount of $1,000 for each note you hold at
maturity. The return of only the principal amount at maturity
will not compensate you for the effects of inflation and other factors
relating to the value of money over time. |
| Market
price will be influenced by many unpredictable factors | Several
factors, many of which are beyond our control, will influence the value of
the notes in the secondary market and the price at which MS & Co. may
be willing to purchase or sell the notes in the secondary
market. We expect that generally the values of the basket
components on any day will affect the value of the notes more than any
other single factor. However, because the payout on the notes
is not directly correlated to the values of the basket components, the
notes will trade differently from the basket components. Other
factors that may influence the value of the notes include: • the
volatility (frequency and magnitude of changes in value) of each of the
basket components, • interest
and yield rates in the market, • geopolitical
conditions and economic, financial, political, regulatory or judicial
events that affect the basket components or securities markets generally
and which may affect the final average basket component
values, • the
exchange rates of the U.S. dollar relative to each of the currencies in
which the securities underlying the basket ETF trade, • dividend
rates on the basket ETF and the securities underlying each of the basket
components, •
the occurrence of certain events affecting the basket ETF that may or may
not require an adjustment to the adjustment factor, • the
time remaining until the notes mature, • the
availability of comparable instruments, 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 notes prior to maturity. For example, you may
have to sell your notes at a substantial discount from the stated
principal amount of $1,000 per note if the values of each of the basket
components at the time of sale are at or below the
respective |

PS-10

| | initial
basket component values or if market interest rates rise. You
cannot predict the future performance of either of the basket components
based on their historical performance. The basket performance
may be negative so that you will receive at maturity only the $1,000
stated principal amount of each note. There can be no assurance
that the basket performance will be positive such that you will receive at
maturity an amount in excess of the stated principal amount of the
notes. See “Description of Notes—Historical Information” and
“—Historical Graph” beginning on PS-26. |
| --- | --- |
| The
notes 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 notes | The
term “principal protected” means that, under the terms of the notes,
Morgan Stanley is obligated to return to you the stated principal amount
at maturity, even if the basket declines in value. However, as
with an ordinary debt security, you are dependent on Morgan Stanley’s
ability to pay all amounts due on the notes at maturity and therefore you
are subject to the credit risk of Morgan Stanley. The notes are
not guaranteed by any other entity. If Morgan Stanley defaults
on its obligations under the notes, your investment would be at risk and
you could lose some or all of your investment. As a result, the
market value of the notes 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
notes. |
| Changes
in the value of one basket component may offset changes in the value of
the other basket component; the basket components are not equally
weighted | Movements
in the values of the basket components may not correlate with each
other. At a time when the value of one basket component
increases, the value of the other basket component may not increase as
much, or may decrease. Therefore, in calculating the basket
performance, increases in the value of one basket component may be
moderated, or wholly offset, by lesser increases or decreases in the value
of the other basket component. Furthermore, the basket
components do not have the same basket weighting. The basket
index is weighted at 75% of the basket and the basket ETF is weighted at
25% of the basket. Therefore, the same percentage change over
the term of the notes in the basket components would have different
effects on the basket performance. A decrease in the value of
the more heavily weighted basket component could moderate or wholly offset
an increase in the value of the less heavily weighted basket
component. For example, because the weighting of the basket
index is significantly greater than the weighting of the basket ETF, a 5%
decrease in the value of the basket index will more than offset a 5%
increase in the value of the basket ETF which has a lower
weighting. If
the basket performance is less than or equal to zero, you will receive at
maturity an amount that is equal to the amount of your original investment
in the notes, which will not compensate you for the effects of inflation
and other factors relating to the value of money over time. You
can review the historical performance of each of the basket components and
also a graph of the historical performance of the basket as a whole for
the period from January 1, 2005 through March 5, 2010 in this pricing
supplement under “Description of Notes—Historical Information” and
“—Historical Graph” beginning on PS-26. You
cannot predict the future performance of the basket components or of the
basket as a whole, or whether an increase in the value of one basket
component will be offset by a lesser increase or decrease in the value of
the other basket component, based on the historical performance of the
basket components. |
| The
value of a basket component on one determination date may | The
notes may not pay more than the stated principal amount at maturity even
when the values of one or both basket components are higher than their
initial values on any one determination date, as such higher values may be
partially or entirely offset |

PS-11

| offset
the value on another determination date | by
lower values on other determination dates. Consequently, it is
possible that you will receive at maturity only the $1,000 stated
principal amount for each note you hold even if the basket’s performance
has increased as measured on one or more of the determination
dates. |
| --- | --- |
| The
notes will not be listed on any securities exchange and secondary trading
may be limited | The
notes will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the notes. MS
& Co. may, but is not obligated to, make a market in the
notes. Even if there is a secondary market, it may not provide
enough liquidity to allow you to trade or sell the notes
easily. Because we do not expect that other broker-dealers will
participate significantly in the secondary market for the notes, the price
at which you may be able to trade your notes 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 notes, it is likely that there would be no secondary market
for the notes. Accordingly, you should be willing to hold your
notes to maturity. |
| There
are risks associated with investments in securities linked to the value of
foreign equity securities | The
shares of the basket ETF track the performance of the MSCI EAFE Index,
which is linked to the value of foreign equity securities. 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 issued 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. |
| The
notes are subject to currency exchange rate risk | Because
the price of the shares of the basket ETF is related to the U.S. dollar
value of stocks underlying the MSCI EAFE Index, holders of the notes will
be exposed to currency exchange rate risk with respect to each of the
currencies in which such component securities trade. Exchange
rate movements for a particular currency are volatile and are the result
of numerous factors specific to that country including the supply of, and
the demand for, those currencies, as well as government policy,
intervention or actions, but are also influenced significantly from time
to time by political or economic developments, and by macroeconomic
factors and speculative actions related to each region. An
investor’s net exposure will depend on the extent to which the currencies
of the component countries strengthen or weaken against the U.S. dollar
and the relative weight of each currency. If, taking into
account such weighting, the dollar strengthens against the currencies of
the component securities represented in the MSCI EAFE Index, the price of
the shares of the basket ETF will be adversely affected and the payment at
maturity on the notes may be reduced. Of
particular importance to potential currency exchange risk
are: • existing
and expected rates of inflation; • existing
and expected interest rate levels; |

PS-12

| | • the
balance of payments; and • the
extent of governmental surpluses or deficits in the component countries
and the United States of America. All
of these factors are in turn sensitive to the monetary, fiscal and trade
policies pursued by the governments of various component countries and the
United States and other countries important to international trade and
finance. |
| --- | --- |
| 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 notes 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 notes and the cost of hedging
our obligations under the notes that will be 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 may be lower than the costs of unwinding the related hedging
transactions at the time of the secondary market
transaction. The issuer’s 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 notes 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. |
| Hedging
and trading activity by our subsidiaries could potentially affect the
value of the notes | One
or more of our subsidiaries expect to carry out hedging activities related
to the notes (and to the basket components and other instruments linked to
the basket components), including trading in the basket components and in
other instruments, securities, contracts and/or indices related to the
basket components. Some of our other subsidiaries also trade
the basket components and other instruments, securities, contracts and/or
indices linked to the basket components on a regular basis as part of
their general broker-dealer and other businesses. Any of these
hedging or trading activities on or prior to the pricing date could affect
the initial basket component values and, therefore, could increase the
values which the basket components must reach on the determination dates
before an investor would receive a payment at maturity that exceeds the
original issue price of the notes. Additionally, such hedging
or trading activities during the term of the notes, including on the
determination dates, could adversely affect the values of the basket
components on the determination dates and, accordingly, the amount of cash
an investor will receive at maturity. |
| The
calculation agent, which is a subsidiary of the issuer, will make
determinations with respect to the notes | As
calculation agent, MS & Co. will determine the initial basket
component values, the final average basket component values, the basket
component performance values, the basket performance, whether any changes
to the adjustment factor for the basket ETF are required and whether any
market disruption event has occurred, 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
calculation of the performance value of either basket component in the
event of a market disruption event, may adversely affect the payout to you
at maturity. See the sections of this pricing supplement called
“Description of Notes—Market Disruption Events,” “—Discontinuance of the
Basket ETF and/or the ETF Underlying Index; Alteration of Method of
Calculation” and “—Discontinuance of the Basket Index; Alteration of
Method of Calculation” below. |
| Adjustments
to the basket index could adversely affect the value of
the | Standard
& Poor’s, a Division of The McGraw-Hill Companies, Inc. , which we refer to
as S&P, is responsible for calculating and maintaining the
basket index. S&P can add, delete or substitute the stocks
underlying the basket index or make
other |

PS-13

| notes | methodological
changes that could change the value of the basket
index. S&P may
discontinue or suspend calculation or dissemination of the basket
index. Any of these actions could adversely affect the value of
the notes. If
S&P discontinues
or suspends calculation or publication of the basket index at any time, MS
& Co., as the calculation agent, will have the sole discretion to
substitute a successor index that is comparable to the discontinued basket
index. MS & Co. could have an economic interest that is
different than that of investors in the notes insofar as, for example, MS
& Co. is not precluded from considering indices that are calculated
and published by MS & Co. or any of its affiliates. If MS
& Co. determines that there is no appropriate successor index on any
determination date, the value of the basket index for that day and any
subsequent determination date will be based on the closing prices of the
stocks underlying the basket index at the time of such discontinuance,
without rebalancing or substitution, computed by MS & Co., as
calculation agent, in accordance with the formula for calculating the
basket index last in effect prior to such
discontinuance. |
| --- | --- |
| The
basket ETF and the index tracked by the basket ETF are
different | The
performance of the basket ETF may not exactly replicate the performance of
the MSCI EAFE Index because the basket ETF will reflect transaction costs
and fees that are not included in the calculation of the MSCI EAFE
Index. It is also possible that the basket ETF may not fully
replicate, or may in certain circumstances diverge significantly from, the
performance of the MSCI EAFE Index due to the temporary unavailability of
certain securities in the secondary market, the performance of any
derivative instruments contained in the basket ETF, differences in trading
hours between the basket ETF and the MSCI EAFE Index or due to other
circumstances. The basket ETF generally invests at least 90% of
its assets in the securities of the MSCI EAFE Index and in depositary
receipts representing securities of such index. The basket ETF
may invest the remainder of its assets in other securities, including
securities not included in the MSCI EAFE Index, futures contracts, options
on futures contracts, other types of options and swaps related to the MSCI
EAFE Index, as well as cash and cash equivalents, including shares of
money market funds affiliated with the investment adviser to the basket
ETF. |
| The
antidilution adjustments the calculation agent is required to make do not
cover every event that can affect the basket ETF | MS
& Co., as calculation agent, will adjust the adjustment factor for the
basket ETF for certain events affecting the basket ETF, such as stock
splits and stock dividends. However, the calculation agent will
not make an adjustment for every event or every distribution that could
affect the basket ETF. If an event occurs that does not require
the calculation agent to adjust the adjustment factor, the market price of
the notes may be materially and adversely affected. The
determination by the calculation agent to adjust, or not to adjust, an
adjustment factor may materially and adversely affect the market price of
the notes. |
| Adjustments
to the basket ETF or the index tracked by the basket ETF could adversely
affect the value of the notes | The
investment adviser to the basket ETF, 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
EAFE Index. Pursuant to its investment strategy or otherwise,
the Investment Advisor may add, delete or substitute the stocks composing
the basket ETF. Any of these actions could adversely affect the
price of the shares of the basket ETF and, consequently, the value of the
notes. MSCI Inc. (“MSCI”) is responsible for calculating and
maintaining the MSCI EAFE Index. MSCI may add, delete or
substitute the stocks constituting the MSCI EAFE Index or make other
methodological changes that could change the value of the MSCI EAFE
Index. MSCI may also discontinue or suspend calculation or
publication of the MSCI EAFE Index at any time. Any of these
actions could adversely affect the value of the MSCI EAFE Index and,
consequently, the value of the notes. |
| Investing
in the notes is | As
a holder of the notes, you will not have rights that holders of the
basket |

PS-14

not equivalent to investing in the basket components components may have. Investing in the notes is not equivalent to investing in the basket index or its component stocks or the basket ETF or its component stocks. As an investor in the notes, you will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the shares of the basket ETF or the stocks that underlie the basket components. The notes will provide less opportunity for appreciation than an investment in a similar security that is directly linked to the appreciation of the basket and is not subject to a maximum payment at maturity.

PS-15

DESCRIPTION OF NOTES

Terms not defined herein have the meanings given to such terms in the accompanying prospectus supplement. The term “Notes” refers to each $1,000 principal amount of any of our Principal Protected Notes due March 15, 2016 Based on the Performance of a Basket Composed of the S&P 500 ® Index and the iShares ® MSCI EAFE Index Fund. In this pricing supplement, the terms “we,” “us” and “our” refer to Morgan Stanley.

| Aggregate
Principal Amount | $ |
| --- | --- |
| Original
Issue Date (Settlement Date) | March
15, 2010 (5 Business Days after the Pricing Date) |
| Maturity
Date | March
15, 2016, subject to extension if the final Determination Date is
postponed for either Basket Component in accordance with the definition
thereof. If the final Determination Date is postponed for
either Basket Component 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 final Determination Date as
postponed. |
| Pricing
Date | March
8, 2010 |
| Interest
Rate | None |
| Specified
Currency | U.S.
dollars |
| CUSIP
Number | 617482LA0 |
| ISIN
Number | US617482LA03 |
| Minimum
Purchase Amount | $1,000
and integral multiples of $1,000 in excess thereof. |
| Original
Issue Price | $1,000
(100%) |
| Stated
Principal Amount | $1,000 |
| Basket | The
following table sets forth the Basket Components along with the Initial
Basket Component Value, the Bloomberg ticker symbol and the weighting of
each Basket Component: |

| Basket
Component | Bloomberg
Ticker Symbol | Weighting |
| --- | --- | --- |
| S&P
500 ® Index (the
“Basket Index”) | SPX | 75% |
| iShares ® MSCI EAFE Index Fund (the
“Basket ETF”) | EFA | 25% |

| ETF
Underlying Index | MSCI
EAFE Index ® |
| --- | --- |
| Determination
Dates | With
respect to the Basket Index and the Basket ETF separately, each of the
following days is a Determination Date: March 9, 2015, April 8, 2015, May
8, 2015, June 8, 2015, July 8, 2015, August 10, 2015, September 8, 2015,
October 8, 2015, November 9, 2015, December 8, 2015, January 8, 2016,
February 8, 2016 and March 8, 2016; provided that if any
scheduled Determination Date is not an Index Business Day or a Trading
Day, as applicable, with respect to a Basket Component or if a Market |

PS-16

| | Disruption
Event occurs on any scheduled Determination Date with respect to a Basket
Component, the Index Closing Value or Share Closing Price, as applicable,
solely with respect to such affected Basket Component for such scheduled
Determination Date will be determined on the immediately succeeding Index
Business Day or Trading Day, as applicable, on which no Market Disruption
Event occurs with respect to such affected Basket Component; provided further that the Index
Closing Value or Share Closing Price, as applicable, for the affected
Basket Component will not be determined on a date later than the fifth
scheduled Index Business Day or Trading Day after the scheduled
Determination Date. If such fifth scheduled Index Business Day
or Trading Day, as applicable, is not an Index Business Day or Trading
Day, as applicable, or if a Market Disruption Event occurs with respect to
the affected Basket Component on such day, no value will be taken solely
for the affected Basket Component for such affected scheduled
Determination Date. |
| --- | --- |
| | We
refer to the final date on which the last remaining Index Closing Value
and/or Share Closing Price is determined as the “final Determination Date”
and the Basket Performance shall be determined on such
date. |
| Payment
at Maturity | At
maturity, upon delivery of the Notes to the Trustee, we will pay with
respect to each Stated Principal Amount of the Notes an amount in cash
equal to $1,000 plus the Supplemental
Redemption Amount, if any, as determined by the Calculation
Agent. |
| | We
shall, or shall cause the Calculation Agent to (i) provide written notice
to the Trustee and to The Depository Trust Company (“DTC”), on which
notice the Trustee and DTC may conclusively rely, of the amount of cash to
be delivered with respect to each Stated Principal Amount of the Notes, 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 Notes to the Trustee for delivery to DTC, as holder of the
Notes, 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 “The Depositary” in the accompanying prospectus
supplement. |
| Supplemental
Redemption Amount | The
Supplemental Redemption Amount will be determined by the Calculation Agent
and will equal: |
| | $1,000 times the Basket
Performance times the Participation
Rate |
| | In
no event will the Supplemental Redemption Amount be less than
$0. |

PS-17

| Basket
Performance | The
Basket Performance is the sum of the Basket Index Performance Value and
the Basket ETF Performance Value, as determined by the Calculation Agent
on the final Determination Date. |
| --- | --- |
| Basket
Index Performance Value | The
Basket Index Performance Value will be determined by the Calculation Agent
in accordance with the following
formula: |

| (Final
Average Index Value – Initial Index Value) |
| --- |
| Initial
Index Value |

Basket ETF Performance Value The Basket ETF Performance Value will be determined by the Calculation Agent in accordance with the following formula:

| (Final
Average Share Price – Initial Share Price) |
| --- |
| Initial
Share Price |

| Participation
Rate | 102% |
| --- | --- |
| Initial
Index Value | The
Initial Index Value will be the Index Closing Value of the Basket Index on
the Pricing Date as specified under “—Basket—Initial Basket Component
Value” above. |
| Final
Average Index Value | The
Final Average Index Value will be the arithmetic average of the Index
Closing Values of the Basket Index on each of the Determination Dates with
respect to the Basket Index. See “—Determination Dates”
above. |
| Index
Closing Value | The
Index Closing Value with respect to any Index Business Day will equal the
closing value of the Basket Index published at the regular weekday close
of trading on such day, published by the Index Publisher, or any Successor
Index (as defined under “—Discontinuance of the Basket Index; Alteration
of Method of Calculation”). In certain circumstances, an Index
Closing Value will be based on the alternate calculation of the Basket
Index described under “—Discontinuance of the Basket Index; Alteration of
Method of Calculation.” |
| Initial
Share Price | The
Initial Share Price will be the Share Closing Price of the Basket ETF on
the Pricing Date as specified under “—Basket—Initial Basket Component
Value” above. |
| Final
Average Share Price | The
Final Average Share Price will be the arithmetic average of the Share
Closing Prices of the Basket ETF on each of the Determination Dates with
respect to the Basket ETF times the Adjustment
Factor on each such date. See “—Determination Dates”
above. |
| Share
Closing Price | Subject
to the provisions set out under “—Discontinuance of the Basket ETF and/or
the ETF Underlying Index; Alteration of Method of Calculation” and
“—Antidilution Adjustments” below, the Share Closing Price for one share
of the Basket ETF on any Trading Day
means: |

PS-18

| | (i)
if the Basket ETF is 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 (the
“Exchange Act”), on which the Basket ETF (or any such other security) are
listed or admitted to trading, |
| --- | --- |
| | (ii)
if the shares of the Basket ETF are securities of the NASDAQ, the official
closing price published by the NASDAQ on such day, or |
| | (iii)
if the Basket ETF is 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 Basket
ETF is 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 share of the Basket ETF 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. The term “OTC Bulletin
Board Service” will include any successor service thereto. See
“—Discontinuance of the Basket ETF and/or the ETF Underlying Index;
Alteration of Method of Calculation” and “—Antidilution Adjustments”
below. |
| Adjustment
Factor | 1.0,
subject to adjustment in the event of certain events affecting the Basket
ETF. See “—Antidilution Adjustments” below. |
| Antidilution
Adjustments | If
the Basket ETF is 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 share of the Basket ETF. |
| | 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. |
| Trading
Day | Trading
Day means a day, as determined by the Calculation Agent, on which trading
is generally conducted on the New York Stock Exchange (“NYSE”), the
NASDAQ, the Chicago Mercantile Exchange and the Chicago Board of Options
Exchange and in the over-the-counter market for equity securities in the
United States. |
| Index
Business Day | Index
Business Day means a day, for the Basket Index, as determined by the
Calculation Agent, on which trading is |

PS-19

| | generally
conducted on each of the Relevant Exchange(s) for the Basket Index, other
than a day on which trading on such exchange(s) is scheduled to close
prior to the time of the posting of its regular final weekday closing
price. |
| --- | --- |
| Business
Day | 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. |
| Index
Publisher | With
respect to the S&P 500 ® Index, Standard & Poor’s, a Division of The McGraw-Hill Companies,
Inc. |
| Relevant
Exchange | Relevant
Exchange means: (a) with respect to the Basket Index or its Successor
Index, the primary exchange(s) or market(s) of trading for (i) any
security then included in such index and (ii) any futures or options
contracts related to such index or to any security then included in such
index and (b) with respect to the Basket ETF, the primary exchange or
market of trading for any security (or any combination thereof) then
included in the ETF Underlying Index or the ETF Successor Index (as
defined under “—Discontinuance of the Basket ETF and/or the ETF Underlying
Index; Alteration of Method of Calculation”). |
| Market
Disruption Event | Market
Disruption Event means: |
| | (A)
with respect to the Basket Index, |
| | (i)
the occurrence or existence of a suspension, absence or material
limitation of trading of securities then constituting 20 percent or more
of the value of the Basket Index (or the Successor Index) on the Relevant
Exchange(s) 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 Exchange(s); or a breakdown or failure in
the price and trade reporting systems of any Relevant Exchange as a result
of which the reported trading prices for securities then constituting 20
percent or more of the value of the Basket Index (or the Successor Index)
during the last one-half hour preceding the close of the principal trading
session on such Relevant Exchange(s) are materially inaccurate; or the
suspension, material limitation or absence of trading on any major U.S.
securities market for trading in futures or options contracts or
exchange-traded funds related to the Basket Index (or the Successor Index)
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 |
| | (ii)
a determination by the Calculation Agent in its sole discretion that any
event described in clause (i) 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
Notes. |

PS-20

| For
the purpose of determining whether a Market Disruption Event exists at any
time, if trading in a security included in the Basket Index is materially
suspended or materially limited at that time, then the relevant percentage
contribution of that security to the value of the Basket Index shall be
based on a comparison of (x) the portion of the value of the Basket Index
attributable to that security relative to (y) the overall value of the
Basket Index, in each case immediately before that suspension or
limitation. |
| --- |
| For
the purpose of determining whether a Market Disruption Event exists at any
time: (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 relevant futures
or options contract or exchange-traded fund will not constitute a Market
Disruption Event, (3) a suspension of trading in futures or options
contracts or exchange-traded funds on the Basket Index 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 funds 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
Basket 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
Basket Index are traded will not include any time when such securities
market is itself closed for trading under ordinary
circumstances. |
| (B)
with respect to the Basket ETF, |
| (i)
the occurrence or existence of a suspension, absence or material
limitation of trading of shares of the Basket ETF on the primary market
for such 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 primary market for the Basket ETF as a result of which the reported
trading prices for shares of the Basket ETF 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 Basket ETF, 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; or |

PS-21

| (ii)
the occurrence or existence of a suspension, absence or material
limitation of trading of securities then constituting 20 percent or more
of the value of the ETF Underlying Index on the Relevant Exchange(s) 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 Exchange(s), 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 ETF Underlying Index or the Basket ETF 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 clause (i), (ii) or (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
Notes. |
| For
the purpose of determining whether a Market Disruption Event exists at any
time, if trading in a security included in the ETF Underlying Index is
materially suspended or materially limited at that time, then the relevant
percentage contribution of that security to the value of the ETF
Underlying Index shall be based on a comparison of (x) the portion of the
value of the ETF Underlying Index attributable to that security relative
to (y) the overall value of the ETF Underlying 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 futures or
options contract related to the ETF Underlying Index or the Basket ETF
will not constitute a Market Disruption Event, (3) a suspension of trading
in futures or options contracts on the ETF Underlying Index or the Basket
ETF by the primary securities market trading in such contracts 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 will constitute
a suspension, absence or material limitation of trading in futures or
options contracts related to the ETF |

PS-22

| | Underlying
Index or the Basket ETF 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 related to the ETF Underlying Index
or the Basket ETF is traded will not include any time when such securities
market is itself closed for trading under ordinary
circumstances. |
| --- | --- |
| Discontinuance
of the Basket Index; | |
| Alteration
of Method of Calculation | If
the Index Publisher discontinues publication of the Basket Index and the
Index Publisher 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
Basket Index (such index being referred to herein as the “Successor
Index”), then any subsequent Index Closing Value will be determined by
reference to the published value of such Successor Index at the regular
weekday close of trading on any Index Business Day that the Index Closing
Value is to be determined. |
| | Upon
any selection by the Calculation Agent of the 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 Notes, within three Business
Days of such selection. We expect that such notice will be made
available to you, as a beneficial owner of the Notes, in accordance with
the standard rules and procedures of DTC and its direct and indirect
participants. |
| | If
the Index Publisher discontinues publication of the Basket Index or the
Successor Index prior to, and such discontinuance is continuing on, any
Determination 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 Index Closing Value for each such remaining Determination Date(s) or
such date of acceleration. The Index Closing Value of the
Basket Index or the Successor Index will be computed by the Calculation
Agent in accordance with the formula for and method of calculating such
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 any such
Determination Date(s) or such date of acceleration of each security most
recently constituting such index without any rebalancing or substitution
of such securities following such
discontinuance. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Basket Index may adversely affect
the value of the Notes. |
| | If
at any time, the method of calculating the Basket Index or the Successor
Index, or the value thereof, is changed in a material respect, or if the
Basket Index or the Successor Index is in any other way modified so that
such index does not, in the opinion of MS & Co., as the Calculation
Agent, fairly represent the value of such index had such changes or
modifications not been made, then, from and after such time, the
Calculation Agent will, at the close of business in New York City on each
date on which the |

PS-23

| | Index
Closing Value is to be determined, make such calculations and adjustments
as, in the good faith judgment of the Calculation Agent, may be necessary
in order to arrive at a value of a stock index comparable to the Basket
Index or the Successor Index, as the case may be, as if such changes or
modifications had not been made, and the Calculation Agent will calculate
the Final Average Index Value for any remaining Determination Date(s)
following such change or modification with reference to the Basket Index
or the Successor Index, as adjusted. Accordingly, if the method
of calculating the Basket Index or the Successor Index is modified so that
the value of such index is a fraction of what it would have been if it had
not been modified (e.g., due to a split in the index), then the
Calculation Agent will adjust such index in order to arrive at a value of
the Basket Index or the Successor Index as if it had not been modified
(e.g., as if such split had not occurred). |
| --- | --- |
| Discontinuance
of the Basket ETF and/or the ETF
Underlying Index; Alteration of Method | |
| of
Calculation | If
the Basket ETF is liquidated or otherwise terminated (a “Liquidation
Event”), the Share Closing Price of the Basket ETF on any Determination
Date or the date of acceleration 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 ETF Underlying Index (or the ETF
Successor Index) on such date (taking into account any material changes in
the method of calculating the ETF Underlying Index or ETF Successor Index
following such Liquidation Event) times (ii) a fraction,
the numerator of which is the Share Closing Price of the Basket ETF and
the denominator of which is the closing value of the ETF Underlying Index
(or the ETF Successor Index), each determined as of the last day prior to
the occurrence of the Liquidation Event on which a Share Closing Price of
the Basket ETF was available. |
| | If,
following a Liquidation Event, the index publisher of the ETF Underlying
Index discontinues publication of such index and such index publisher 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 ETF
Underlying Index (the “ETF Successor Index”), then any subsequent Share
Closing Price on any Trading Day will be determined by reference to the
published value of such ETF Successor Index at the regular weekday close
of trading on such Trading Day. |
| | Upon
any selection by the Calculation Agent of an ETF 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 Notes, within three Business
Days of such selection. We expect that such notice will be made
available to you, as a beneficial owner of the Notes, in accordance with
the standard rules and procedures of DTC and its direct and indirect
participants. |

PS-24

| | If,
following a Liquidation Event, the index publisher of the ETF Underlying
Index discontinues publication of the such index prior to, and such
discontinuance is continuing on, any Determination Date or on 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 each
such remaining Determination Date(s) or such date of
acceleration. The Share Closing Price will be computed by the
Calculation Agent in accordance with the formula for calculating the ETF
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 ETF
Underlying Index without any rebalancing or substitution of such
securities following such discontinuance. Notwithstanding these
alternative arrangements, discontinuance of the publication of the ETF
Underlying Index may adversely affect the value of the
Notes. |
| --- | --- |
| Book
Entry Note or Certificated Note | Book
Entry. The Notes 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
Notes. Your beneficial interest in the Notes 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 Notes, 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 “Forms 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. and its successors |
| Alternate
Exchange Calculation | |
| in
Case of an Event of Default | In
case an event of default with respect to the Notes shall have occurred and
be continuing, the amount declared due and payable for each Stated
Principal Amount upon any acceleration of the Notes (the “Acceleration
Amount”) will be determined by the Calculation Agent and will be an amount
in cash equal to the Payment at Maturity calculated as though the Index
Closing Value or Share Closing Price, as applicable, of the Basket
Components on the date of acceleration (times the Adjustment Factor on
such |

PS-25

| | date
in the case of the Basket ETF), were the Index Closing Value or Share
Closing Price for such Basket Component for each of the remaining
Determination Date(s) scheduled to occur on or after such date of
acceleration. |
| --- | --- |
| | If
the maturity of the Notes 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 and the aggregate cash amount due with respect to the Notes as
promptly as possible and in no event later than two Business Days after
the date of acceleration. |
| Calculation
Agent | MS
& Co. and its successors. |
| | All
determinations made by the Calculation Agent will be at the sole
discretion of the Calculation Agent and will, in the absence 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 will be made by the
Calculation Agent and will be rounded to the nearest one billionth, with
five ten-billionths rounded upward (e.g., .9876543215 would be rounded to
.987654322); all dollar amounts related to determination of the amount of
cash payable per Note 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 Notes will be rounded to the nearest cent, with one-half cent rounded
upward. |
| | Because
the Calculation Agent is our affiliate, the economic interests of the
Calculation Agent and its affiliates may be adverse to your interests as
an investor in the Notes, including with respect to certain determinations
and judgments that the Calculation Agent must make in determining the
Initial Index Value and the Final Average Index Value of the Basket Index,
the Initial Share Price and the Final Average Share Price of the Basket
ETF, the Basket Performance and the Supplemental Redemption Amount, if
any, or whether a Market Disruption Event has occurred or any Antidilution
Adjustment is required. See “—Market Disruption Event” and
“—Antidilution Adjustments” above. MS & Co. is obligated to
carry out its duties and functions as Calculation Agent in good faith and
using its reasonable judgment. |
| Historical
Graph | The
following graph sets forth the historical performance of the Basket
(assuming that each of the Basket Components is weighted as described in
“—Basket” above) for the period from January 1, 2005 through March 5, 2010
and illustrates the effect of the offset and/or correlation among the
Basket Components during such period. The graph does not
attempt to show your expected return on an investment in the
Notes. The historical performance of the |

PS-26

Basket should not be taken as an indication of its future performance.

| | Historical
Performance of the Basket January
1, 2005 through March 5, 2010 |
| --- | --- |
| | ● |
| Historical
Information | The
following tables set forth the published high, low and end of quarter
closing values for each of the Basket Components for each calendar quarter
in the period from January 1, 2005 through March 5, 2010. The
graphs following each Basket Component’s table set forth the historical
performance of each respective Basket Component for the same
period. On March 5, 2010, the Index Closing Value for the
Basket Index was 1,122.97 and the Share Closing Price for the Basket ETF
was $53.91. We obtained the information in the tables and
graphs from Bloomberg Financial Markets, without independent verification.
The historical performance of the Basket Components should not be taken as
an indication of their future performance. We cannot give you
any assurance that the Basket Performance will be greater than zero so
that you will receive a Payment at Maturity in excess of the Stated
Principal Amount of the Notes. The Basket Components may be,
and have been, extremely volatile, and we can give you no assurance that
the volatility will
lessen. |

PS-27

| The
S&P 500 ® Index Historical
High, Low and Period End Closing Values January
1, 2005 through March 5, 2010 — S&P
500 ® Index | High | Low | Period
End |
| --- | --- | --- | --- |
| 2005 | | | |
| First
Quarter | 1,225.31 | 1,163.75 | 1,180.59 |
| Second
Quarter | 1,216.96 | 1,137.50 | 1,191.33 |
| Third
Quarter | 1,245.04 | 1,194.44 | 1,228.81 |
| Fourth
Quarter | 1,272.74 | 1,176.84 | 1,248.29 |
| 2006 | | | |
| First
Quarter | 1,307.25 | 1,254.78 | 1,294.83 |
| Second
Quarter | 1,325.76 | 1,223.69 | 1,270.20 |
| Third
Quarter | 1,339.15 | 1,234.49 | 1,335.85 |
| Fourth
Quarter | 1,427.09 | 1,331.32 | 1,418.30 |
| 2007 | | | |
| First
Quarter | 1,459.68 | 1,374.12 | 1,420.86 |
| Second
Quarter | 1,539.18 | 1,424.55 | 1,503.35 |
| Third
Quarter | 1,553.08 | 1,406.70 | 1,526.75 |
| Fourth
Quarter | 1,565.15 | 1,407.22 | 1,468.36 |
| 2008 | | | |
| First
Quarter | 1,447.16 | 1,273.37 | 1,322.70 |
| Second
Quarter | 1,426.63 | 1,278.38 | 1,280.00 |
| Third
Quarter | 1,305.32 | 1,106.39 | 1,166.36 |
| Fourth
Quarter | 1,161.06 | 752.44 | 903.25 |
| 2009 | | | |
| First
Quarter | 934.70 | 676.53 | 797.87 |
| Second
Quarter | 946.21 | 811.08 | 919.32 |
| Third
Quarter | 1,071.66 | 879.13 | 1,057.08 |
| Fourth
Quarter | 1,127.78 | 1,025.21 | 1,115.10 |
| 2010 | | | |
| First
Quarter (through March 5, 2010) | 1,150.23 | 1,056.74 | 1,122.97 |
| S&P
500 ® Index Daily
Closing Values January
1, 2005 through March 5, 2010 | | | |
| ● | | | |

PS-28

| The
iShares ® MSCI EAFE Index Fund Historical
High, Low and Period End Closing Prices January
1, 2005 through March 5, 2010 — iShares ® MSCI EAFE Index
Fund | High | Low | Period
End |
| --- | --- | --- | --- |
| 2005 | | | |
| First
Quarter | 55.25 | 51.26 | 52.96 |
| Second
Quarter | 53.83 | 51.28 | 52.39 |
| Third
Quarter | 58.48 | 51.95 | 58.10 |
| Fourth
Quarter | 60.94 | 54.72 | 59.43 |
| 2006 | | | |
| First
Quarter | 65.38 | 60.33 | 64.92 |
| Second
Quarter | 70.58 | 59.46 | 65.39 |
| Third
Quarter | 68.36 | 61.70 | 67.75 |
| Fourth
Quarter | 74.33 | 67.94 | 73.22 |
| 2007 | | | |
| First
Quarter | 76.72 | 70.90 | 76.26 |
| Second
Quarter | 81.78 | 76.50 | 80.77 |
| Third
Quarter | 83.62 | 73.94 | 82.59 |
| Fourth
Quarter | 86.10 | 78.24 | 78.50 |
| 2008 | | | |
| First
Quarter | 78.35 | 68.34 | 71.90 |
| Second
Quarter | 78.52 | 68.08 | 68.67 |
| Third
Quarter | 68.00 | 53.08 | 56.30 |
| Fourth
Quarter | 55.88 | 35.73 | 44.86 |
| 2009 | | | |
| First
Quarter | 45.44 | 31.70 | 37.59 |
| Second
Quarter | 49.04 | 38.57 | 45.81 |
| Third
Quarter | 55.81 | 44.01 | 54.68 |
| Fourth
Quarter | 57.28 | 52.66 | 55.30 |
| 2010 | | | |
| First
Quarter (through March 5, 2010) | 57.96 | 50.45 | 53.91 |
| iShares ® MSCI EAFE Index Fund Daily
Closing Prices January
1, 2005 through March 5, 2010 | | | |
| ● | | | |

PS-29

The S&P 500 ® Index The S&P 500 ® Index was developed by Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc., which we refer to as S&P, and is calculated, maintained and published by S&P. The S&P 500 ® Index is intended to provide a performance benchmark for the U.S. equity markets. The calculation of the value of the S&P 500 ® Index (discussed below in further detail) is based on the relative value of the aggregate Market Value (as defined below) of the common stocks of 500 companies (the “S&P 500 ® Component Stocks”) as of a particular time as compared to the aggregate average Market Value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. The “Market Value” of any S&P 500 ® Component Stock is the product of the market price per share and the number of the then outstanding shares of such S&P 500 ® Component Stock. The 500 companies are not the 500 largest companies listed on the NYSE and not all 500 companies are listed on such exchange. S&P chooses companies for inclusion in the S&P 500 ® Index with an aim of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population of the U.S. equity market. S&P may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500 ® Index to achieve the objectives stated above. Relevant criteria employed by S&P include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the company’s common stock is widely-held and the Market Value and trading activity of the common stock of that company. The S&P 500 ® Index and S&P’s other U.S. indices moved to a float adjustment methodology in 2005 so that the indices reflect only those shares that are generally available to investors in the market rather than all of a company’s outstanding shares. Float adjustment excludes shares that are closely held by other publicly traded companies, venture capital firms, private equity firms, strategic partners or leveraged buyout groups; government entities; or other control groups, such as a company’s own current or former officers, board members, founders, employee stock ownership plans or other investment vehicles controlled by the company or such other persons. The S&P 500 ® Index is calculated using a base-weighted aggregate methodology: the level of the S&P 500 ® Index reflects the total Market Value of all 500 S&P 500 ® Component Stocks relative to the S&P 500 ® Index’s base period of 1941-43 (the “Base Period”). An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time. The actual total Market Value of the S&P 500 ® Component Stocks during the Base Period has been set equal to an indexed

PS-30

value of 10. This is often indicated by the notation 1941-43=10. In practice, the daily calculation of the S&P 500 ® Index is computed by dividing the total Market Value of the S&P 500 Component Stocks by a number called the “S&P 500 Index Divisor.” By itself, the S&P 500 Index Divisor is an arbitrary number. However, in the context of the calculation of the S&P 500 ® Index, it is the only link to the original base period value of the S&P 500 ® Index. The S&P 500 ® Index Divisor keeps the S&P 500 ® Index comparable over time and is the manipulation point for all adjustments to the S&P 500 ® Index (“S&P 500 Index Maintenance”). S&P 500 ® Index Maintenance includes monitoring and completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends and stock price adjustments due to company restructurings or spinoffs. To prevent the value of the S&P 500 ® Index from changing due to corporate actions, all corporate actions which affect the total Market Value of the S&P 500 ® Index require a S&P 500 ® Index Divisor adjustment. By adjusting the S&P 500 ® Index Divisor for the change in total Market Value, the value of the S&P 500 ® Index remains constant. This helps maintain the value of the S&P 500 ® Index as an accurate barometer of stock market performance and ensures that the movement of the S&P 500 ® Index does not reflect the corporate actions of individual companies in the S&P 500 ® Index. All S&P 500 ® Index Divisor adjustments are made after the close of trading and after the calculation of the closing value of the S&P 500 ® Index. Some corporate actions, such as stock splits and stock dividends, require simple changes in the common shares outstanding and the stock prices of the companies in the S&P 500 ® Index and do not require S&P 500 ® Index Divisor adjustments. The table below summarizes the types of S&P 500 ® Index maintenance adjustments and indicates whether or not a S&P 500 ® Index Divisor adjustment is required:

| Type
of Corporate Action | Adjustment
Factor | Divisor
Adjustment Required |
| --- | --- | --- |
| Stock
split (e.g.,
2-for-1) | Shares
Outstanding multiplied by 2; Stock Price divided by
2 | No |
| Share
issuance (i.e.,
change ≥ 5%) | Shares
Outstanding plus newly issued Shares | Yes |
| Share
repurchase (i.e.,
change ≥ 5%) | Shares
Outstanding minus Repurchased Shares | Yes |
| Special
cash dividends | Share
Price minus Special Dividend | Yes |
| Company
Change | Add
new company Market Value minus old company Market Value | Yes |
| Rights
Offering | Price
of parent company minus | Yes |

PS-31

| Price of
Rights Right
Ratio — Price
of parent company minus |
| --- |
| Price of Spinoff
Co. Share
Exchange Ratio |

Stock splits and stock dividends do not affect the S&P 500 ® Index Divisor of the S&P 500 ® Index, because following a split or dividend both the stock price and number of shares outstanding are adjusted by S&P so that there is no change in the Market Value of the S&P 500 ® Component Stock. All stock split and dividend adjustments are made after the close of trading on the day before the ex-date. Each of the corporate events exemplified in the table requiring an adjustment to the S&P 500 ® Index Divisor has the effect of altering the Market Value of the S&P 500 ® Component Stock and consequently of altering the aggregate Market Value of the S&P 500 Component Stocks (the “Post-Event Aggregate Market Value”). In order that the level of the S&P 500 ® Index (the “Pre-Event Index Value”) not be affected by the altered Market Value (whether increase or decrease) of the affected S&P 500 ® Component Stock, a new S&P 500 ® Index Divisor (“New S&P 500 ® Divisor”) is derived as follows:

| Post-Event
Aggregate Market Value |
| --- |
| New
S&P 500 ® Divisor |

| New
S&P 500 ® Divisor |
| --- |
| Pre-Event
Index Value |

A large part of the S&P 500 ® Index maintenance process involves tracking the changes in the number of shares outstanding of each of the S&P 500 ® Index companies. Four times a year, on a Friday close to the end of each calendar quarter, the share totals of companies in the S&P 500 ® Index are updated as required by any changes in the number of shares outstanding. After the totals are updated, the S&P 500 ® Index Divisor is adjusted to compensate for the net change in the total Market Value of the S&P 500 ® Index. In addition, any changes over 5% in the current common shares outstanding for the S&P 500 ® Index companies are carefully reviewed on a weekly basis, and when appropriate, an immediate adjustment is made to the S&P 500 ® Index Divisor. “Standard & Poor’s ® ,” “S&P ® ,” “S&P 500 ® ,” “Standard & Poor’s 500” and “500” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Morgan Stanley. S&P and Morgan Stanley have entered into a non-exclusive license agreement providing for the license to Morgan Stanley, and certain of its affiliated or subsidiary companies, in exchange for a fee, of the right to use the S&P 500 ® Index, which is owned and published by S&P, in connection with securities, including the Notes.

PS-32

| | The
Notes are not sponsored, endorsed, sold or promoted by
S&P. S&P makes no representation or warranty, express
or implied, to the owners of the Notes or any member of the public
regarding the advisability of investing in securities generally or in the
Notes particularly or the ability of the S&P 500 ® Index to track general stock market performance. S&P’s only
relationship to us is the licensing of certain trademarks and trade names
of S&P and of the S&P 500 ® Index, which is determined, composed and calculated by S&P without
regard to us or the Notes. S&P has no obligation to take
our needs or the needs of the owners of the Notes into consideration in
determining, composing or calculating the S&P 500 ® Index. S&P is not responsible for and has not participated
in the determination of the timing of, prices at, or quantities of the
Notes to be issued or in the determination or calculation of the equation
by which the Notes are to be converted into cash. S&P has
no obligation or liability in connection with the administration,
marketing or trading of the Notes. S&P
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 ® INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS
OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500 ® INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED
UNDER THE LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER
USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING,
IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. |
| --- | --- |
| The
iShares ® MSCI EAFE Index | |
| Fund; Public
Information | The
iShares ® MSCI EAFE 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 EAFE Index ® . Shares
of the fund trade on the NYSE under the ticker symbol “EFA.” The
iShares ® MSCI EAFE Index Fund is managed by iShares Trust (the “iShares”), a
registered investment company that consists of numerous separate
investment portfolios, including the iShares ® MSCI EAFE Index Fund. This fund seeks investment results
that correspond generally to the price and yield performance, before fees
and expenses, of the MSCI EAFE Index ® . Information
provided to or filed with the Commission by iShares pursuant to the
Securities Act of 1933 and the
Investment |

PS-33

Company Act of 1940 can be located by reference to Commission file numbers 333-92935 and 811-09729, 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 Notes offered hereby and does not relate to the Basket ETF. 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 Notes, 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 shares of the Basket ETF (and therefore the price of shares of the Basket ETF at the time we price the Notes) 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 Notes and therefore the trading prices of the Notes. Neither we nor any of our affiliates makes any representation to you as to the performance of the Basket ETF. 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 Basket ETF. The statements in the preceding two sentences are not intended to affect the rights of investors in the Notes under the securities laws. As a prospective purchaser of the Notes, 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 Basket ETF. iShares ® is a registered mark of BlackRock Institutional Trust Company, N.A. (“BTC”). The Notes are not sponsored, endorsed, sold, or promoted by BTC. BTC makes no representations or warranties to the owners of the Notes or any member of the public regarding the advisability of investing in the Notes. BTC has no obligation or liability in connection with the operation, marketing, trading or sale of the Notes.

PS-34

| The
MSCI EAFE Index ® |
| --- |
| The
MSCI EAFE Index ® 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 EAFE Index ® is
a free float-adjusted market capitalization index that is designed to
measure the equity market performance of developed markets, excluding the
United States and Canada. As of December 2009, the MSCI EAFE
Index consisted of the following 21 developed market country indices:
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and the United
Kingdom. The MSCI EAFE Index includes components from Australia
and New Zealand and all countries in Europe and Asia that are designated
by MSCI as Developed Markets. The MSCI EAFE Index was developed
with a base value of 100 as of December 31, 1969. The MSCI EAFE
Index is reported by Bloomberg Financial Markets under ticker symbol
“MXEA.” |
| 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 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 |

PS-35

| 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 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 |

PS-36

| where the exclusion
of securities of a very large company would compromise the MSCI EAFE
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: |
| 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 |

PS-37

| 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 S&P’s, 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 fixed semi-annual
timetable. A SAIR involves a comprehensive review of the Size Segment and
Global Value and Growth Indices. | |

PS-38

(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” announcement, when the effective dates are not
known yet or when aspects of the event are uncertain. MSCI sends
“confirmed” |

PS-39

| 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. |
| GICS ® .
Non-event related changes in industry classification at the sub-industry
level are announced at least two weeks prior to their |

PS-40

| 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. |

PriceIndexLevelUSD t = PriceIndexLevelUSD t -1 × IndexAdjustedMarketCapUSD t IndexInitialMarketCapUSD t

PriceIndexLevelLocal t = PriceIndexLevelLocal t -1 × IndexAdjustedMarketCapForLocal t IndexInitialMarketCapUSD t

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 |
| --- |
| SecurityIndex
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-41

SecurityPriceIndexLevel 1 = SecurityPriceIndexLevel t -1 × SecurityAdjustedMarketCapForLocal t SecurityInitialMarketCapUSD t

SecurityAdjustedMarketCapForLocal t =

IndexNumberOfShares t -1 × PricePerShare t × InclusionFactor t x PAF t	ICI t
FXrate t -1	ICI t -1

SecurityInitialMarketCapUSD t
FXrate t -1

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

IndexAdjustedMarketCapUSD t =

å s ε I,t
FXrate t

PS-42

IndexAdjustedMarketCapForLocal t =

å s ε I,t	ICI t
FXrate t-1	ICI t-1

IndexInitialMarketCapUSD t =

å s ε I,t
FXratet-1

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-43

| appropriate
implementation method and announce it prior to the changes becoming
effective in the indices. |
| --- |
| 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. |

PS-44

| 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. |
| --- |
| 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 |

PS-45

| 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 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 |

PS-46

| 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 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. |

| Use
of Proceeds and Hedging |
| --- |
| On
or prior to the Pricing Date, we, through our subsidiaries or others,
expect to hedge our anticipated exposure in connection with the Notes by
taking positions in the Basket Components, in futures or options contracts
on the Basket Components or any component securities underlying the ETF
Underlying Index or the Basket 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 values of the Basket Components on
the Pricing Date, and, therefore, increase the values which the Basket
Components must reach on the Determination Dates before you would receive
at maturity a payment that exceeds the Stated Principal Amount of the
Notes. In addition, through our subsidiaries, we are likely to
modify our hedge position |

PS-47

| | throughout
the life of the Notes by purchasing and selling the Basket Components
and/or the securities underlying the ETF Underlying Index or the Basket
Index or futures or options contracts on the Basket Components listed on
major securities or commodities markets or positions in any other
available securities or instruments that we may wish to use in connection
with such hedging activities, including by buying any such securities or
instruments on the Pricing Date and/or selling such securities or
instruments on the Determination Dates. We cannot give any
assurance that our hedging activities will not affect the values of the
Basket Components and, therefore, adversely affect the value of the Notes
or the payment you will receive at maturity. |
| --- | --- |
| Supplemental
Information Concerning Plan
of Distribution; | |
| Conflicts
of Interest | Under
the terms and subject to the conditions contained in the U.S. distribution
agreement referred to in the prospectus supplement under “Plan of
Distribution,” the Agent, acting as principal for its own account, has
agreed to purchase, and we have agreed to sell, the aggregate principal
amount of Notes set forth on the cover of this pricing
supplement. The Agent proposes initially to offer the Notes
directly to the public at the public offering price set forth on the cover
page of this pricing supplement. The Agent may distribute the
Notes through Morgan Stanley Smith Barney LLC (“MSSB”), as selected
dealer, or other dealers, which may include Morgan Stanley & Co.
International plc (“MSIP”) and Bank Morgan Stanley AG. MSSB, MSIP
and Bank Morgan Stanley AG are affiliates of Morgan
Stanley. Selected dealers, including MSSB, and their financial
advisors will collectively receive from the Agent, a fixed sales
commission of $35 for each Note they sell. After the initial
offering of the Notes, the Agent may vary the offering price and other
selling terms from time to time. |
| | 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. |
| | We
expect to deliver the Notes against payment therefor in New York, New York
on March 15, 2010, which is the fifth scheduled Business Day following the
date of this pricing supplement and of the pricing of the
Notes. Under Rule 15c6-1 of the Exchange Act, trades in the
secondary market generally are required to settle in three Business Days,
unless the parties to any such trade expressly agree
otherwise. Accordingly, purchasers who wish to trade the Notes
more than three Business Days prior to the Original Issue Date will be
required to specify alternative settlement arrangements to prevent a
failed settlement. |

PS-48

| In
order to facilitate the offering of the Notes, the Agent may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. 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 Notes, for its own account. The Agent
must close out any naked short position by purchasing the Notes 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 Notes 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 Notes, the Basket Components or the securities underlying
the Basket Index or the ETF Underlying Index in the open market to
stabilize the price of the Notes. Any of these activities may
raise or maintain the market price of the Notes above independent market
levels or prevent or retard a decline in the market price of the
Notes. 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 Notes. 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 Notes 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 Notes, or distribution of this pricing supplement or the accompanying
prospectus supplement or prospectus or any other offering material
relating to the Notes, 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 Notes 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 Notes or possesses or
distributes this pricing supplement and the accompanying prospectus
supplement and prospectus and (ii) will obtain any consent, approval or
permission required by it for the purchase, offer or sale by it of the
Notes 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 Notes. 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. |

PS-49

| Brazil |
| --- |
| The
Notes have not been and will not be registered with the Comissão de
Valores Mobiliários (The Brazilian Securities Commission). The
Notes 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
Notes 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 Notes 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 Notes to the public in
Hong Kong as the Notes have not been authorized by the Securities and
Futures Commission of Hong Kong and, accordingly, no advertisement,
invitation or document relating to the Notes, 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 Notes 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
Notes 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 Notes nor make the Notes 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 Notes, whether directly or
indirectly, to persons in Singapore other
than: |

PS-50

| | (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 Notes 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”), which we refer to as a “plan,” should consider the fiduciary
standards of ERISA in the context of the plan’s particular circumstances
before authorizing an investment in the Notes. 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 “parties in interest” within the meaning
of ERISA, or “disqualified persons” within the meaning of the Internal
Revenue Code of 1986, as amended (the “Code”), with respect to many plans,
as well as many individual retirement accounts and Keogh plans (also
“plans”). ERISA Section 406 and Code Section 4975 generally
prohibit transactions between plans and parties in interest or
disqualified persons. Prohibited transactions within the
meaning of ERISA or the Code would likely arise, for example, if the Notes
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 Notes 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 Notes. Those class exemptions are PTCE 96-23 (for certain transactions
determined by in-house asset managers), PTCE 95-60 (for certain
transactions involving insurance company general accounts), PTCE 91-38
(for |

PS-51

| certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain
transactions involving insurance company separate accounts) and PTCE 84-14
(for certain transactions determined by independent qualified
professional asset managers). In addition, ERISA Section
408(b)(17) and Section 4975(d)(20) of the Code may provide an exemption
for the purchase and sale of securities and the related lending
transactions, provided that neither the issuer of the securities nor any
of its affiliates has or exercises any discretionary authority or control
or renders any investment advice with respect to the assets of the plan
involved in the transaction, and provided further that the plan pays no
more, and receives no less, than “adequate consideration” in connection
with the transaction (the so-called “service provider”
exemption). There can be no assurance that any of these class
or statutory exemptions will be available with respect to transactions
involving the Notes. |
| --- |
| Because
we may be considered a party in interest with respect to many plans, the
Notes 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 Notes will be deemed to
have represented, in its corporate and its fiduciary capacity, by its
purchase and holding of the Notes that either (a) it is not a plan or a
plan asset entity and is not purchasing such Notes 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 Notes 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 Notes has exclusive responsibility for
ensuring that its purchase, holding and disposition of the Notes does not
violate the prohibited transaction rules of ERISA or the Code or any
Similar Law. The sale of any Notes to any plan or plan subject
to Similar Law is in no respect a
representation by us or any of our affiliates or representatives that such
an investment meets all relevant legal requirements with |

PS-52

| | respect to
investments by plans generally or any particular plan, or that such an
investment is appropriate for plans generally or any particular
plan. |
| --- | --- |
| | However,
individual retirement accounts, individual retirement annuities and Keogh
plans, as well as employee benefit plans that permit participants to
direct the investment of their accounts, will not be permitted to purchase
or hold the securities if the account, plan or annuity is for the benefit
of an employee of Citigroup Global Markets Inc., MSSB or a family member
and the employee receives any compensation (such as, for example, an
addition to bonus) based on the purchase of securities by the account,
plan or annuity. |
| | Client
accounts over which Citigroup Inc., Morgan Stanley, MSSB or any of their
respective subsidiaries have investment discretion are not permitted to
purchase the securities, either directly or indirectly. |
| United
States Federal Income | |
| Taxation | The
Notes will be treated as “contingent payment debt instruments” for U.S.
federal income tax purposes. |
| | Tax
Consequences to U.S. Holders |
| | Please
read the discussions in the sections called “United States Federal
Taxation – Tax Consequences to U.S. Holders – Notes – Optionally
Exchangeable Notes,” “United States Federal Taxation – Tax Consequences to
U.S. Holders – Backup Withholding and Information Reporting” and “United
States Federal Taxation – Tax Consequences to U.S. Holders – Disclosure
Requirements” of the accompanying prospectus supplement. The
sections in the accompanying prospectus supplement referred to above are
hereafter referred to as the “Tax Disclosure Sections.” |
| | In
summary, U.S. Holders generally will, regardless of their method of
accounting for U.S. federal income tax purposes, be required to accrue
original issue discount (“OID”) as interest income on the Notes on a
constant yield basis in each year that they hold the Notes, even though no
stated interest will be paid on the Notes. As a result, U.S.
Holders will be required to pay taxes annually on the amount of accrued
OID, as discussed in the accompanying prospectus supplement. In
addition, any gain recognized by U.S. Holders on the sale or exchange, or
at maturity, of the Notes generally will be treated as ordinary
income. |
| | The
rate of accrual of OID on the Notes is the “comparable yield” as described
in the Tax Disclosure Sections of the accompanying prospectus
supplement. If the Notes were priced on March 5, 2010, the
comparable yield would be an annual rate of 4.5708% compounded
semi-annually. Based on the comparable yield set forth above,
the “projected payment schedule” for a Note (assuming an issue price of
$1,000) consists of a projected amount equal to $1,311.6490 due at
maturity. However, the comparable yield and the projected
payment schedule for the Notes will be |

PS-53

| determined on the
pricing date and may be significantly higher or lower than the
comparable yield and the projected payment schedule set forth
above. The comparable yield and the projected payment schedule
for the Notes will be provided in the final pricing
supplement. |
| --- |
| Based
on the comparable yield set forth above, the following table states the
amount of OID (without taking into account any adjustments to reflect the
difference, if any, between the actual and the projected amount of any
contingent payments on the Notes) that will be deemed to have accrued with
respect to a Note for each accrual period (assuming a day count convention
of 30 days per month and 360 days per
year): |

| ACCRUAL P ERIOD | OID DEEMED TO ACCRUE DURING
ACCRUAL PERIOD (PER NOTE) | TOTAL OID DEEMED TO HAVE ACCRUED
FROM ORIGINAL ISSUE DATE (PER NOTE) AS OF END OF ACCRUAL
PERIOD |
| --- | --- | --- |
| Original
Issue Date through June 30, 2010 | $13.3315 | $13.3315 |
| July
1, 2010 through December 31, 2010 | $23.1587 | $36.4902 |
| January
1, 2011 through June 30, 2011 | $23.6879 | $60.1781 |
| July
1, 2011 through December 31, 2011 | $24.2293 | $84.4074 |
| January
1, 2012 through June 30, 2012 | $24.7830 | $109.1904 |
| July
1, 2012 through December 31, 2012 | $25.3494 | $134.5398 |
| January
1, 2013 through June 30, 2013 | $25.9288 | $160.4686 |
| July
1, 2013 through December 31, 2013 | $26.5213 | $186.9899 |
| January
1, 2014 through June 30, 2014 | $27.1275 | $214.1174 |
| July
1, 2014 through December 31, 2014 | $27.7474 | $241.8648 |
| January
1, 2015 through June 30, 2015 | $28.3816 | $270.2464 |
| July
1, 2015 through December 31, 2015 | $29.0302 | $299.2766 |
| January
1, 2016 through the Maturity Date | $12.3724 | $311.6490 |

The comparable yield and the projected payment schedule are not provided for any purpose other than the determination of U.S. Holders’ OID accruals and adjustments in respect of the Notes, and we make no representation regarding the actual amounts of payments that will be made on a Note.

PS-54

| Tax
Consequences to Non-U.S. Holders |
| --- |
| If
you are a non-U.S. investor, please read the discussion under “United
States Federal Taxation — Tax Consequences to
Non-U.S. Holders” in the accompanying prospectus supplement concerning the
U.S. federal income and withholding tax consequences of an investment in
the Notes. Non-U.S. investors should also note that the
discussion in the accompanying prospectus supplement does not address the
tax consequences to non-U.S. investors for whom income or gain in respect
of the Notes is effectively connected with the conduct of a trade or
business in the United States. Such non-U.S. investors should
consult their tax advisers regarding the potential tax consequences of an
investment in the Notes. |

PS-55