Defensive Kick Out Plan 13. This Plan is not capital protected. You must be prepared to lose some or all of your Initial Investment.

Transcription

1 THE MORGAN STANLEY FTSE Defensive Kick Out Plan 13 intelligent investing This Plan is not capital protected. You must be prepared to lose some or all of your Initial Investment.

2 The Plan Manager for the Morgan Stanley FTSE Defensive Kick Out Plan 13 is Morgan Stanley & Co. International plc, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Morgan Stanley & Co. International plc is part of Morgan Stanley, a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. Through our structured investments platform, we leverage Morgan Stanley s world-renowned institutional expertise to bring you competitive, innovative and well thought-out investment opportunities. For more information, please visit our website

3 Contents Definitions 2 Introduction 4 What is the FTSE 100 Index? 5 How is my Plan return calculated? 6 Scenario analysis 8 How would the FTSE Defensive Kick Out Plan 13 have performed in the past? 9 What are the risks? 10 Structured Capital at Risk Products - what are they? 14 Is the FTSE Defensive Kick Out Plan 13 right for me? 16 How to invest 18 Frequently asked questions 19 Plan terms and conditions 23 Application forms 30 1

4 Definitions This brochure contains a number of capitalised words or phrases, which are defined below. Plan: The Morgan Stanley FTSE Defensive Kick Out Plan 13 Initial Investment: The amount of money that you subscribe into the Plan (less any fees that we pay to an intermediary on your behalf, if applicable) Securities 1 Issuer (also, the Counterparty ): Morgan Stanley B.V. (Morgan Stanley acts as Guarantor on the Securities. As of 23rd August 2013, Morgan Stanley has a credit rating of A- by Standard & Poor s and Baa1 by Moody s Investor Services Limited) Underlying Index: FTSE 100 Index (UK Equity) Potential Fixed Return: If, on any of the Kick Out Dates or the Plan End Date, the closing level of the Underlying Index is at or above 95% of the Initial Level, the Plan will mature. You will receive a fixed return of 8.75% multiplied by the number of years that have passed since the Plan Start Date Repayment of Initial Investment at maturity: If the Plan matures early on any of the Kick Out Dates, the Initial Investment is repaid in full. Equally, if the Underlying Index closes at or above 95% of the Initial Level on the Plan End Date, the Initial Investment is repaid in full Otherwise, if the Underlying Index has never closed at or below the Barrier, investors receive the return of 100% of their Initial Investment If the Underlying Index has closed at or below the Barrier, investors receive 100% less any negative performance of the Underlying Index from the Plan Start Date to the Plan End Date Barrier: 50% of the Initial Level Investment Term: 6 years Initial Level: The official closing level of the Index on the Plan Start Date Final Level: The official closing level of the Index on the Plan End Date 2 1 Please contact your intermediary for more information on the Securities, or for a copy of the prospectus relating to the Securities.

5 IMPORTANT DATES 2 Subscription Period: 9th September 2013 to 21st October 2013, with an early cut off for ISA transfers of 14th October We reserve the right to close the subscription period early Plan Start Date: 11th November 2013 Kick Out Dates: 11th November 2015, 11th November 2016, 13th November 2017, 12th November 2018, 11th November 2019 Plan End Date: 11th November 2019 Maturity Date: 25th November in the event that any of the dates mentioned in the table above are not London Business Days, or days on which the relevant stock exchanges are not functioning normally, the relevant date will be moved to the first such day immediately following the date in question. 3

6 Introduction This brochure explains the features of the Morgan Stanley FTSE Defensive Kick Out Plan 13 (the Plan ). You should read and understand this document in full. It will tell you what type of product you are investing in and what Potential Fixed Return and repayment of your Initial Investment you can expect to receive, as well as the risks of investing and some guidance on whether the Plan is right for you. This document is not intended to replace advice, and we strongly recommend that you speak with an independent financial adviser before deciding to invest. Plan Summary The Plan has a maximum 6 year Investment Term, but will mature early at the end of years 2, 3, 4 or 5 as long as the FTSE 100 Index at that time is at or above 95% of its Initial Level. In this case, you ll receive a fixed return equal to 8.75% for each year that s passed since the Plan Start Date (not compounded), regardless of the actual performance of the FTSE 100 Index from its Initial Level. You ll also be repaid your Initial Investment in full. If the Plan runs for the full 6 years, you ll receive a fixed return of 52.50% if the FTSE 100 Index closes at or above 95% of its Initial Level on the Plan End Date. Otherwise, you ll receive no return. Your Initial Investment will be repaid to you in full, provided that the FTSE 100 Index has closed above 50% of its Initial Level on every day during the Investment Term. The Plan is not capital protected and is, therefore, a Structured Capital at Risk ( SCARP ) Product: This means that you will lose some or all of your Initial Investment if the Plan runs for the full 6 years and the FTSE 100 Index closes at or below 50% of its Initial Level on any day during the term. In this case, the repayment of your investment will be reduced by the amount the FTSE 100 Index has fallen from the Plan Start Date to the Plan End Date. You are exposed to credit risk on Morgan Stanley: Your Initial Investment is used to purchase securities issued by Morgan Stanley B.V., a member of the Morgan Stanley group of companies, and guaranteed by Morgan Stanley. This means that Morgan Stanley will make all payments due under the securities if Morgan Stanley B.V. cannot do so. For more information on what credit risk means, please see the risk section on page 10. As of 23rd August 2013, Morgan Stanley has a credit rating of A- by Standard & Poor's and Baa1 by Moody's Investor Services Limited. Securities issued by Morgan Stanley B.V. and Morgan Stanley are not covered by the Financial Services Compensations Scheme. 4

7 INDEX LEVEL What is the FTSE 100 Index? The FTSE 100 Index was created by the Financial Times and the London Stock Exchange in January 1984 and is a widely used benchmark for the UK stock market. The Index measures the capital growth of the shares of the 100 largest companies by market capitalisation, listed on the London Stock Exchange. Therefore the FTSE 100 Index level does not include any dividend income. The below chart shows the historical performance of the FTSE 100 Index, from January 1984 to August Performance of the ftse 100 index JAN 84 JAN 88 JAN 92 JAN 96 JAN 00 JAN 04 JAN 08 JAN 12 YEAR FTSE 100 Source: Bloomberg / Morgan Stanley, 23rd August Past performance is not a reliable indicator of future performance. 5

8 How is my Plan return calculated? Our Defensive Kick Out Plan 13 offers you the potential for a fixed return on various Kick Out Dates throughout the 6 year term. On each of the Kick Out Dates, the level of the FTSE 100 Index is compared to its level on the Plan Start Date (the Initial Level ). What happens if the FTSE 100 Index closes at or above 95% of its Initial Level on any of the Kick Out Dates? If the closing level of the FTSE 100 Index on the Kick Out Date is at or above 95% of the Initial Level, you will receive a fixed return plus the repayment of your Initial Investment, and the Plan will terminate at this point. The below table outlines the potential return for each Kick Out Date. Your fixed return will be equal to 8.75% times the number of years the Plan has been live up until that Kick Out Date. Note: if the Plan kicks out, you cannot remain invested in order to obtain further returns at later Kick Out Dates kick out dates Date Potential Return 11th November 2015, the end of the 2nd year 17.50% 11th November 2016, the end of the 3rd year 26.25% 13th November 2017, the end of the 4th year 35.00% 12th November 2018, the end of the 5th year 43.75% 11th November 2019, the Plan End Date 52.50% What happens if the FTSE 100 Index doesn t close at or above 95% of its Initial Level on any of the Kick Out Dates? If the FTSE 100 Index has closed above 50% of the Initial Level on each business day throughout the 6 year term you will be repaid your Initial Investment at maturity. However, if it closes at or below 50% of the Initial Level on any date during the 6 year term, you may lose some or all of your Initial Investment. In this case, the repayment of your investment will be reduced by the amount the FTSE 100 Index has fallen from the Plan Start Date to the Plan End Date. For example, if the closing level of the FTSE 100 Index on the Plan End Date is 60% below the Initial Level, the repayment of your Initial Investment would be reduced by 60%. The diagram opposite shows what happens on each Kick Out Date, depending on the closing level of the FTSE 100 Index on those dates. 6

9 Plan Start Date 11th Nov 2013 Initial Level is recorded Kick Out Date 1 11th Nov 2015 Is the closing index level greater than or equal to 95% of the Initial Level? Yes The Plan terminates early and you receive a fixed return of 17.50% and the repayment of your investment in full No, the Plan continues to the next Observation Date Kick Out Date 2 11th Nov 2016 Is the closing index level greater than or equal to 95% of the Initial Level? Yes The Plan terminates early and you receive a fixed return of 26.25% and the repayment of your investment in full No, the Plan continues to the next Observation Date Kick Out Date 3 13th Nov 2017 Is the closing index level greater than or equal to 95% of the Initial Level? Yes The Plan terminates early and you receive a fixed return of 35.00% and the repayment of your investment in full No, the Plan continues to the next Observation Date Kick Out Date 4 12th Nov 2018 Is the closing index level greater than or equal to 95% of the Initial Level? Yes The Plan terminates early and you receive a fixed return of 43.75% and the repayment of your investment in full No, the Plan continues to the next Observation Date Plan End Date 11th Nov 2019 Is the Final Level greater than or equal to 95% of the Initial Level? Yes The Plan terminates and you receive a fixed return of 52.50% and the repayment of your investment in full No Has the Index always closed above 50% of the Initial Level during the 6-year term? No Yes The Plan terminates. You receive no return but are repaid your investment in full Capital is at risk: you receive no return and the repayment of your investment will be reduced by 1% for each 1% that the Final Level is below the Initial Level The performance shown is an example for illustrative purposes only and does not represent a forecast of expected performance; the scenarios shown do not have an equal likelihood of occurrence. 7

10 Scenario analysis How the Plan performs, and the Fixed Growth Return it provides to you, will depend on the performance of the FTSE 100 Index.The table below shows some examples of the Fixed Growth Return, repayment of Initial Investment and Plan Returns in a range of scenarios for the FTSE 100 Index. Examples are based on an Initial Investment of 10,000. Scenario 1: Index performance is positive throughout the term Scenario 2: Index performance is slightly negative throughout the term Scenario 3: Index performance is negative to start, but recovers towards the end of the tem Scenario 4: Index performance is negative throughout the term (by less than 50%) Scenario 5: Index performance is negative throughout the term (by more than 50%) Index Performance 10% -20% -25% -10% -25% at Kick Out Date 1 3 Index Performance at Kick Out Date 2 Index Performance at Kick Out Date 3 Index Performance at Kick Out Date 4 Index Performance at Plan End Date When does the Plan mature? What is the fixed return? What is the repayment of Initial Investment What is the total repayment (fixed return + repayment of Initial Investment)? 15% -15% -55% -20% -55% 20% -3% -10% -25% -50% 28% -8% 5% -35% -45% 40% -20% -5% -40% -40% Kick Out Date 1 Kick Out Date 3 Kick Out Date 4 Plan End Date Plan End Date 1,750 3,500 4, ,000 10,000 10,000 10,000 6,000 11,750 13,500 14,375 10,000 6,000 3 Index Performance is calculated as the percentage change in the FTSE 100 Index from its closing level on the Plan Start Date to its closing level on the respective Kick Out Date or the Plan End Date. The performance shown is an example for illustrative purposes only and does not represent a forecast of expected performance; the scenarios shown do not have an equal likelihood of occurrence, and do not represent an exhaustive list of all possible Plan scenarios. 8

11 FREQUENCY How would the FTSE Defensive Kick Out Plan 13 have performed in the past? Morgan Stanley has used historical price information for the FTSE 100 Index to calculate what return the Plan would have generated if it had been launched in the past. This is often referred to as simulated past performance. This simulated past performance is run for each possible weekly Plan Start Date for 15 years up to the 15th August 2007 (which gives us the last full 6-year investment term at the time the simulated past performance was run). Across all the historical simulations, investors would have been repaid their Initial Investment in full in 98.09% of cases. In those cases where capital was lost, the worst capital repayment was 77.07% of the Initial Investment, representing a capital loss of 22.93% (meaning that if you had invested 10,000, you would have got back 7,707). This worst case capital loss was for a Plan Start Date of 19th June The graph below shows the frequency for which these historical simulations matured, by year. The Plan would have matured early on 81.76% of occasions, with the majority of these (70.66%) occurring on the first Kick Out Date in year 2. Distribution of Plan maturities from simulated past performance 80% 70% 70.66% 60% 50% 40% 30% 20% 10% 0% 1.53% 5.87% 3.70% 7.53% 8.80% 1.91% Year 2 Year 3 Year 4 Year 5 Year 6, return paid & investment repaid Year 6, no return paid but investment repaid Year 6, no return paid & capital loss PLAN MATURITY Source: Morgan Stanley, 23rd August The figures above refer to simulated past performance. Past performance is not a reliable indicator of future performance and should not be relied upon to make investment decisions. 9

12 What are the risks? COUNTERPARTY RISK The Plan is designed to provide you with the returns described in this brochure. In order to achieve this, we will invest your subscription proceeds in securities issued by Morgan Stanley B.V., a member of the Morgan Stanley group of companies, and guaranteed by the parent company (Morgan Stanley). These securities are a type of corporate bond, which is essentially a loan to Morgan Stanley B.V. that Morgan Stanley B.V. promises to repay you at maturity. Morgan Stanley acts as Guarantor on these securities, which means that Morgan Stanley will make the payments under the securities if Morgan Stanley B.V. is unable to fulfill its payment obligations. You may lose all or part of your investment if Morgan Stanley goes into liquidation and defaults on paying your Fixed Growth Return and the repayment of Initial Investment. The risk that Morgan Stanley goes into liquidation is called counterparty or credit risk. Securities issued by Morgan Stanley BV and Morgan Stanley are not covered by the Financial Services Compensation Scheme (FSCS). Therefore if the Issuer and/or the Guarantor become insolvent you would not be covered by the FSCS. How do I assess the counterparty/credit risk associated with this Plan? Credit ratings can be a useful way to compare the default risk associated with different companies. Credit ratings are assigned by independent companies known as ratings agencies and reviewed regularly. As of the 23rd August 2013, Morgan Stanley has a credit rating of A- by Standard & Poor s and Baa1 by Moody s Investor Services Limited. According to the Standard & Poor s rating definitions as of June 2013, a company rated A has a strong capacity to meet its financial commitments but could be more susceptible to adverse economic conditions than companies in higher-rated categories. The highest possible credit rating is AAA. Standard & Poor s credit ratings between AAA and BBB and Moody s Investor Services credit ratings between Aaa and Baa3 are considered to be investment grade. 10

13 investment risks The Potential Fixed Growth Return and the repayment of your Initial Investment are dependent on the performance of the FTSE 100 Index. The past performance of the index is not necessarily a guide to its performance in the future and there is no certainty that the future performance of the index will be positive. This Plan is not capital protected and you should be prepared to lose some or all of your Initial Investment. There may occasionally be circumstances that interfere with the calculation of the FTSE 100 Index. For example, the calculation of the index may be delayed or prevented if some of the shares that comprise the index are suspended from trading on the London Stock Exchange. In such cases, the restated Index level will be used. This may affect the Plan return or repayment of your Initial Investment. product risks The Plan is not capital protected and is, therefore, a Structured Capital At Risk product (please see page 14 for more information on what this means). If there is no early maturity on one of the Kick Out Dates, the repayment of your Initial Investment depends on the performance of the FTSE 100 Index over the Investment Term and you could lose some or all of the money you invest. The Plan returns are pre-defined. If the FTSE 100 Index were to perform strongly over the Investment Term, the fixed returns you receive may be less than you would have received from an investment linked directly to the positive performance of the index. The Plan returns are calculated based on the closing levels of the FTSE 100 Index on the Plan Start Date, the Kick Out Dates and Plan End Date only. Large changes in the value of the FTSE 100 index on the specified dates these values are recorded will affect the performance of your Plan, potentially adversely. The Initial Level of the FTSE 100 Index used to calculate the returns available under the Plan will not be known until the Plan Start Date. The level of the FTSE 100 Index on the day you place your subscription is not relevant to the calculation of your returns, and may be significantly different to the level on the Plan Start Date, which is the level the calculation of your returns is based on. 11

14 Plan returns do not include any returns from dividend income or participation in certain corporate actions, such as rights issues, as would be the case if you invested directly in the shares underlying the FTSE 100 Index. Accordingly, the return on the Plan may, in some cases, be less than the return from a direct investment in these shares. Also, unlike direct investments in the shares, you are not able to hold the Plan beyond its stated maturity date in the expectation of a recovery in the price of the shares. INFLATION AND INTEREST RATE RISK The repayment of your Initial Investment and any additional returns will be based on the rates described in this brochure, regardless of any changes in inflation or interest rates. Inflation risk arises as there will be no adjustments to the fixed return available should interest rates or inflation rates change. Inflation may reduce what you could buy in the future, in terms of purchasing power. term RISK There is no certainty that the Plan will mature early on one of the Kick Out Dates, therefore you must be prepared to keep your money invested for the full Investment Term. The investment environment may change significantly over the term of the product whilst your money is still invested in the Plan, meaning that you might miss out on other investment opportunities that are offered to you at a later date. cancellation RISK You have the right to cancel your Plan within 14 days of subscribing without losing any of your Initial Investment, as long as the 14th day is before the Plan Start Date. Details will be sent to you once we receive your completed application. However, if you exercise your cancellation rights after the Plan Start Date, the amount you receive back may be less than your Initial Investment if the value of the securities that make up your Plan have changed. It is also worth noting that if we have facilitated a payment for advice or execution to your intermediary on your behalf and you subsequently decide to cancel your Plan, you will need to discuss any refund of that fee directly with your intermediary. 12

15 early withdrawal RISK It may be possible to sell your entire investment from the Plan before maturity. However, the proceeds you receive will depend on many market factors, including, but not limited to, the index level, interest rates and the credit quality of the Issuer/Guarantor. Consequently, if you sell prior to maturity, you may receive less than your Initial Investment. We usually offer the option to sell your Plan back to us every 2 weeks. If you have invested via an ISA and subsequently decide to withdraw, it may not be possible to invest in another ISA of the same type for the same tax year if your 14 days cancellation period has expired. If you have invested via an ISA transfer, any favourable tax treatment associated with that ISA holding will be irrevocably lost unless you are able to find another ISA manager to transfer your investment to. isa transfer RISK Your existing ISA must be transferred in cash, which means that, if you hold a Stocks and Shares ISA, your existing ISA Manager will need to sell your investment holdings. It is up to you to check whether you forfeit any interest due on that ISA if you transfer, or if you will be charged an exit or transfer fee by your existing manager. There is also the potential for a loss if markets rise while your transfer is being completed. Please also note that there is an earlier deadline for ISA transfers. If your existing ISA manager does not transfer your ISA to us in time, we will not be able to open your Plan, and your original ISA will be reinstated. tax RISKs The tax treatment of the Plan described in this brochure is based on tax legislation and practice as of the date of publication, as interpreted in good faith by Morgan Stanley. Any changes to taxation that directly or indirectly impact how your Plan is taxed could come into force at any time in the future. Such changes could render the information provided as out-of-date and could have a significant effect on the tax treatment of your investment, which may adversely impact your returns. Moreover, these changes could be applied retrospectively. You should contact your financial adviser if you require any advice on your tax position. 13

16 Structured Capital at Risk Products - what are they? This Plan is categorised as a Structured Capital at Risk Product (SCARP). SCARPs aim to deliver a pre-defined return and the repayment of your Initial Investment after a set time period, provided that certain conditions are met. These conditions are linked to the performance of another financial asset, such as the FTSE 100 Index. If the conditions are not met, you may be at risk of losing all or some of your Initial Investment. More specifically, if the financial asset underlying the SCARP falls in value to below a pre-determined level commonly referred to as the "barrier", then the repayment of your Initial Investment will be reduced. The amount by which it is reduced will be equal to the negative performance of that financial asset. For this Plan, the performance of the financial asset versus the barrier is measured every business day from the Plan Start Date to the Plan End Date. If the barrier is breached on any date, you risk being repaid less than your Initial Investment at Maturity. How much you lose depends on how the financial asset performs over the entire term - the impact on your Initial Investment is simply the negative performance of the financial asset over the full term (i.e., its performance from the Plan Start Date to the Plan End Date). What are the risks? You risk losing money if the financial asset falls in value below the barrier. You must leave your money invested for the full stated term in order to receive the advertised returns. Otherwise, regardless of whether the barrier has been breached or not, you may get back less than you invested. You must make sure you understand when your investment is at risk. Please make sure you have read and understood all the contents of this brochure, including details of how your return is calculated and the risks of making such an investment, before investing in a SCARP and ask your financial adviser to explain anything that is unclear. 14

17 Who might SCARPs be appropriate for? SCARPs are not suitable for everyone. Below is a list of who they might be suitable for. This is not an exhaustive list and we do recommend that you take advice from a qualified financial adviser before making a decision to invest in a SCARP such as the one outlined in this brochure, to ensure it is suitable for your own individual circumstances. SCARPs may be appropriate for: Investors who have read and understood the product literature in full, and taken advice from a qualified financial adviser. Investors who have access to other savings to cover them for emergencies during the stated term, as with all investments. Investors who are willing to put their investment at risk. SCARPs may not be appropriate for: Investors who have not read or understood the product literature, and/or have not taken investment advice. Investors who may need to close their investment early to get access to emergency funds. Investors who do not want to risk losing their investment. 15

18 Is the FTSE Defensive Kick Out Plan 13 right for me? It is important that you understand the features of any investment product before you decide whether to invest in it. The considerations set out below might help you to decide whether this Plan meets your investment needs. Please note that Morgan Stanley & Co. International plc does not provide investment advice. If you are in any doubt as to whether the Plan is suitable for you, you should consult your financial adviser. The Plan may be appropriate for you if: You have received financial advice. You understand how the Plan works. You understand and accept the risks associated with an investment in the Plan. You accept that your Plan returns could be zero and that your Initial Investment may not be repaid in full. You are able to leave your money invested for the full 6 year term and have access to other savings or investments if needed for emergencies. You accept that you won t know the Initial Level of the FTSE 100 Index until the Plan Start Date, which is after your investment is made. You are looking for returns that are linked to the performance of the FTSE 100 Index, but understand any returns are fixed and may be less than the actual index performance. You understand that the value of the FTSE 100 Index does not include reinvestment of dividends and therefore performance of the FTSE 100 Index will not equal the value of the performance of the constituent shares. You are looking for an investment product that will provide a return at maturity only, rather than an investment product that is designed to provide a regular income through the life of the product. You want to protect your investment against negative performance of the FTSE 100 Index, and do not expect that the FTSE 100 Index will close at or below 50% of the Initial Level on any date during the 6 year term. You accept that if Morgan Stanley default, you will not have Financial Services Compensation Scheme ( FSCS ) protection. 16

19 The Plan is probably not appropriate for you if: You have not received financial advice. You do not understand how the Plan works. You do not understand and/or accept the risks associated with an investment in the Plan. You cannot accept that your Plan returns might be zero and that your Initial Investment may not be repaid in full. You are not able to leave your money invested for the full 6 year term and/or do not have access to other savings or investments if needed for emergencies. You are uncomfortable with not knowing the Initial Level of the FTSE 100 Index until the Plan Start Date, which is after your investment is made. You do not understand or accept that any returns are fixed, and may be less than the actual performance of the FTSE 100 Index. You are not comfortable that you will not receive dividend payments, or any other corporate actions, as you would if you invested directly in the shares that make up the FTSE 100 Index. You are looking for a regular income on your investment. You are not prepared to risk losing some or all of your investment should the FTSE 100 Index close at or below 50% of the Initial Level on any date during the 6 year term. You want Financial Services Compensation Scheme (FSCS) protection if Morgan Stanley defaults and is unable to make payments due under the Plan. 17

20 How to invest There are a number of different ways to subscribe to the Plan: Direct Investment. ISA Investment for the 2013/14 tax year. Transfer of existing ISA Investment. Self Invested Personal Pensions (SIPPs), Small Self Administered Schemes (SSASs) and investments from charities, companies and trustees. Subscription is only available by way of lump sum investment. The minimum subscription is 3,000, regardless of which investment option you choose 3. If you are investing via a 2013/14 ISA, there are certain restrictions: The maximum subscription amount is 11,520. You cannot subscribe to another Stocks & Shares ISA in the same year that you subscribe to this ISA. Application forms for Direct Investments, ISA Investments and ISA Transfers are available at the back of this brochure. Application forms for SIPP, SSAS or charity, company and trustee investments are available to download via Investment Deadlines The deadline for submitting applications is 21st October 2013, except for ISA transfers where the deadline is the 14th October This is to allow sufficient time for funds to be received from your existing ISA Manager. We reserve the right to close the subscription period early, if the Plan is oversubscribed. We also reserve the right to cancel the launch of the Plan before the Plan Start Date for any reason, including insufficient applications being received or a significant deterioration in the credit rating of the Guarantor, Morgan Stanley. In this case, we will return your investment within 14 days of the cancellation and you will incur no charge There may be instances where we will accept a subscription for less than 3,000 (for instance, in the case of ISA transfers). Please speak with your intermediary if you think this will apply to your subscription.

21 Frequently asked questions Who is eligible to invest in the FTSE Defensive Kick Out Plan 13? Please see the application forms for conditions of who can apply. You need to be UK resident aged 18 or over to qualify for an ISA investment. However, investments can be made on behalf of a person under the age of 18 through the Direct Investment option. What charges/expenses will I incur? This will depend on whether you have received investment advice in relation to the Plan. If you have received investment advice or a personal recommendation, you will pay an initial product charge and a separate intermediary charge. There are no further initial or ongoing charges to pay. What is the initial product charge? The initial product charge covers product related costs such as management, marketing and administration fees and does not include any intermediary charges. The product charge is expected to be around 3% of your original investment, which is accounted for within the terms of the product. The returns of the Plan are shown net of the product charge in all our communications to you. What is the intermediary 4 charge/how is my intermediary compensated? If you have received investment advice or a personal recommendation, you will usually pay an intermediary charge to the intermediary through whom your application is made. The amount payable will be agreed by you with your intermediary and may depend on the amount you choose to invest. The intermediary charge will be charged separately from (and in addition to) the amount that you invest in the Plan. You may pay this intermediary charge directly to your intermediary. Alternatively, depending on the agreement that you have in place with your intermediary, Morgan Stanley may facilitate the payment (i.e., you can pay the intermediary charge to us and we will then pay the intermediary on your behalf). Where we are facilitating the payment of an intermediary charge to an intermediary on your behalf, we will not pay the intermediary charge to your intermediary prior to receiving funds from you, and, generally, we will pay the intermediary charge to the intermediary within one week of receiving such funds. You will need to instruct us of the amount of this intermediary charge on your application form. If you have not received investment advice or a personal recommendation we are unable to facilitate a payment to your intermediary. 4 By Intermediary we mean either a Independent Financial Adviser or an Execution-Only Broker. 19

22 Can I change my mind once I have subscribed? Yes. You have the right to cancel your Plan within 14 days of the date the Plan is opened or the date you receive your cancellation notice from us, whichever is later You can exercise this right to cancel by writing to Morgan Stanley & Co. International plc, BNY Mellon House, Ingrave Road, Brentwood, Essex CM15 8TG. If I change my mind, will my intermediary charge be refunded? You will need to discuss any rebate of the intermediary charge with your intermediary, as either you or we will have already paid your intermediary charge to them. Can I withdraw/transfer before the maturity date? Partial withdrawals are not permitted. However you can withdraw / transfer your entire investment amount and close your Plan early. In this case, repayment of your Initial Investment is not guaranteed and you may get back less than you invested. You may only terminate or transfer the Plan by giving us written notice. Your investment will be sold at the next practicable dealing day following receipt of your request (usually the 15th and 27th of each month) and payment will be made within seven working days. If you have invested via an ISA and subsequently decide to withdraw, it may not be possible to invest in another ISA of the same type for the same tax year if your cancellation period has expired. If you have invested via an ISA transfer, any favourable tax treatment associated with that ISA holding will be irrevocably lost unless you are able to find another plan manager to transfer your investment to. Will you keep me updated during the investment term? You will receive an initial statement detailing your investment shortly after your application is processed and a semi-annual statement and valuation as of the 28th February and 31st August each year until the Plan Maturity Date. What happens when the Plan matures? We will contact you around six weeks before the Plan Maturity Date outlining the options available to you. Please ensure you write to us if your address or bank details change. 20

23 How is my investment taxed? How your investment is taxed depends on your individual circumstances and whether you invest via an ISA or directly into the Plan: Investing via an ISA: ISAs allow UK residents to invest up to the annual ISA limit (please see page 18 for details), without incurring either Capital Gains or Income Tax. Investing directly into the Plan: all returns in excess of the Initial Investment (either on a sale of the Plan or at maturity) are likely to be subject to Capital Gains Tax, allowing you to use your annual Capital Gains Tax exemption. Payments from the Plan will be made gross of tax and it is your responsibility to declare this gain on your tax return. The above information is based on tax legislation and practice as of the date of publication, as interpreted in good faith by Morgan Stanley. What happens to my investment if I die? Upon death, where your investment is held under an ISA, the ISA status of your investment will be lost. Your assets will be transferred to a Direct Investment, which forms part of your estate for Inheritance Tax purposes. Once suitable documentation is received, the investments will be transferred to your personal representatives within seven working days. Your account can then be terminated early in accordance with its terms or held to maturity, at the discretion of your personal representative. 21

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25 Plan terms and conditions The following Terms and Conditions are issued by Morgan Stanley & Co. International plc. The Terms and Conditions, of which the Application Form is a part (each as amended from time to time), will govern your investment with the Plan Manager. Please read these Terms and Conditions carefully. If there is anything that you do not understand, please speak to your financial adviser. 1. Definitions 1.1 In these terms the following words have the following meanings: Applicable Regulations means all legislation (including FSMA), statutory instruments and the FCA Rules insofar as they relate to the performance of the various obligations under these Terms and Conditions. Application Form means the form that must be completed to enable your Plan to be opened and which constitutes part of the Terms and Conditions. BNY Mellon means Bank of New York Mellon of 1 Canada Square, London E14 5AL. Authorised by the Prudential Regulation Authority and regulated by the FCA and the Prudential Regulation Authority with registration number Brochure means the Plan Information, the Terms and Conditions and the Application Form. Cash ISA means a Cash Individual Savings Account. Direct Investment means an investment in the Plan outside of a Stocks and Shares ISA. FCA means the Financial Conduct Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS. FCA Rules means principles, rules and guidance issued by the FCA from time to time. FSMA means the Financial Services and Markets Act Initial Investment means any subscription money invested by you in the Plan. MSI plc means Morgan Stanley & Co. International plc. Plan means a Stocks and Shares ISA or Direct Investment as held under these Terms & Conditions. Plan Information means the section of the Brochure which is not the Terms and Conditions and the Application Form. Plan Manager means Morgan Stanley & Co. International plc, 25 Cabot Square, London E14 4QA. Authorised by the Prudential Regulation Authority and regulated by the FCA and the Prudential Regulation Authority with registration number or such other entity as MSI plc may appoint to manage the plan. Plan Start Date means as specified in the Key Terms section of the Plan Information. Regulations means the Individual Savings Account Regulations 1998 as amended from time to time. Securities mean the medium term notes or other securities with similar characteristics to be acquired or entered into by the Plan Manager in order to provide the Plan returns. Stocks and Shares ISA means a Stocks and Shares Individual Savings Account. We, us and our mean Plan Manager. You and your mean an investor who applies to open an ISA or Direct Investment or an investor who applies to transfer their Cash ISA or Stocks and Shares ISA subject to these Terms & Conditions. 2. Commencement 2.1 these Terms and Conditions will come into effect when we receive a copy of the Application Form signed by you. 3. Services to be provided 3.1 You appoint us to provide services as: (i) ISA Plan Manager in connection with Securities held within an ISA; and/or (ii) Plan Manager in connection with Direct Investments. 4. Investments 4.1 under these Terms and Conditions, we provide services in relation to Securities only. 5. Your Plan 5.1 to open a Plan, you must submit to the Plan Manager a fully completed Application Form. In the case of a Stocks and Shares ISA investment for 2013/14 and/or a Direct Investment, you must also provide the initial subscription amount in cash such that it clears in our account before the Plan Start Date. In the case of a Cash ISA or Stocks and Shares ISA transfer, we will manage your Plan upon receipt of the proceeds of your previous Plan from your previous Plan Manager. The Application Form is part of these Terms and Conditions and if the terms differ, those contained in the Application Form will prevail. 5.2 subject to the Regulations we may provisionally open a Stocks and Shares ISA Plan where the information which you have supplied is insufficient. In respect of a Stocks and Shares IS A, where we open a Plan on a provisional basis you must supply the missing information within 30 days of the application, otherwise the Plan must be voided in accordance with Inland Revenue requirements. 5.3 You may open more than one Plan, subject to completion of an Application Form for each Plan. 5.4 the Plan Manager reserves the right to reject an application for any reason. 5.5 As we have no discretion over the management of the Plan, you will have full responsibility for instructing us as to the amount of any investments or cash which shall constitute the Plan. 6. Client categorisation 6.1 We will categorise you as a retail client for the purposes of the FCA rules unless we specify otherwise in correspondence to you and you will benefit from the regulatory protections afforded by the Applicable Regulations. 7. Execution of orders 7.1 in performing our duties under these Terms and Conditions, we shall take all reasonable steps to obtain the best possible result for you in effecting all sales, purchases and other transactions in Securities. A summary of our order execution policy is provided with these Terms and Conditions and further details are available on request. Please note that the summary of our order execution policy is not intended to have any contractual effect. 7.2 By signing the Application Form and agreeing to our Terms and Conditions: you consent to our execution policy; and you consent to your orders being executed by us outside of a regulated market or multilateral trading facility. 7.3 if you give us a specific instruction in relation to the execution of an order or in relation to a specific aspect of the order, this may prevent us from taking the steps that we have designed and implemented in our execution policy to obtain the best possible result for the execution of that order or in respect of the elements covered by that instruction. We will follow your instruction and this will discharge our execution obligations in 23

26 relation to the order or the specific aspect of the order to which your instruction relates. 8. Instructions 8.1 Your instructions must be given to us in writing. 8.2 if we have any material difficulty in promptly carrying out your instructions relating to the purchase and sale of Securities, we shall inform you as soon as reasonably practicable upon becoming aware of such difficulty. 8.3 You hereby instruct us not to make public limit orders in respect of Securities admitted to trading on a regulated market which are not immediately executed under prevailing market conditions, where we consider it appropriate not to do so. 9. No Advice 9.1 We will buy or sell Securities on an execution-only basis without exercising any discretion or providing any investment advice to you. In the provision of this service we are not required to assess the suitability of buying and selling Securities and you will therefore not benefit from the protection of the FCA rules on assessing suitability. 10. Cancellation 10.1 You will have the right to cancel your Plan within 14 days of the date your Plan is opened. You can exercise this right to cancel by writing to Morgan Stanley & Co. International plc, BNY Mellon House, Ingrave Road, Brentwood, Essex CM15 8TG. If you fail to exercise your right to cancel within those 14 days, you will not be able to do so thereafter and you will be bound by these Terms and Conditions if you exercise your right to cancel your Plan, you will not incur any additional charges provided that the cancellation is effective before the Plan Start Date. Provided that all Anti-Money Laundering verification on your application has been completed, we will pay to you no later than 30 days after the date on which we received notice of cancellation from you, any amounts which you have paid to us or for our benefit in connection with your Plan or the Securities (including amounts paid by you to our agents). If all Anti-Money Laundering checks have not been completed in a timely manner due to outstanding documentation and/ or information, this may delay any payment due to You cancelling Your investment By exercising your right to cancel you will withdraw from these Terms and Conditions and your Plan will be terminated if you exercise your right to cancel, but we do not receive your notice to cancel until on or after the Plan Start Date when the investment in the Securities has been made, and the value of the Securities has fallen in that time, an amount equivalent to the fall in value of the Securities will be deducted from the amount of your subscription repaid to you if you exercise your right to cancel the purchase of the Plan following a Cash ISA or Stocks and Shares ISA transfer, unless you are able to find another Plan Manager to transfer your investment to the proceeds will be paid direct to you and you will irrevocably lose any favourable tax treatment associated with a Cash ISA or Stocks and Shares ISA holding the cancellation rights in this clause are in addition to your right to terminate under clause 21 of the Terms and Conditions. The cancellation rights in this clause are confined to the beginning of our relationship and are separate from the termination arrangements in clause 21 of the Terms and Conditions which will operate thereafter MSI plc reserves the right to cancel the launch of the Plan before the Plan Start Date, for any reason, including for reasons due to (i) insufficient Application Forms being received before such date, (ii) the credit rating of the issuer of the Securities having significantly deteriorated prior to the Plan Start Date, or (iii) significant volatility impacting the Securities or the financial markets so that the economic terms of the Plan cannot be maintained. If MSI plc exercises its right to cancel the Plan, you will incur no charge and your Initial Investment will be returned in full to you within 14 days of the cancellation. 11. Subscriptions 11.1 subscriptions to the Plan may only be made with your own cash or by transfer of cash from an existing Cash ISA or Stocks and Shares ISA. If your total subscription amount in cash has not cleared in our account before the Plan Start Date we reserve the right to cancel your Plan application, and, if we do have to cancel your application on that basis, we accept no liability for any resulting loss, of any kind, sustained by you by such cancellation. Regardless of the legally binding nature of these Terms and Conditions, the information provided in the Brochure is valid for the subscription period only, which ends before the Plan Start Date transfers of existing Cash IS A or Stocks and Shares ISAs will normally be arranged with the existing Cash ISA or Stocks and Shares ISA manager. Once the Cash ISA or Stocks and Shares ISA has been transferred, your new Stocks and Shares ISA Plan will be subject to the Terms & Conditions set out here. Please note that the value of your assets may change during such transfer. 12. Treatment of Cash held within your Plan 12.1 cash will be held by us in client bank accounts with approved banks in the UK in accordance with the Client Money Rules of the FCA Within a Stocks and Shares ISA, cash can only be held on a temporary basis pending an investment and if held in cash over a prolonged period there is a risk that the Inland Revenue may void your Stocks and Shares ISA. 13. Permitted Investments 13.1 the Plan manager will arrange to purchase Securities issued by Morgan Stanley B.V., a member of the Morgan Stanley Group of companies. Morgan Stanley is the Guarantor of the securities. Morgan Stanley has a credit rating of A- or better at the time of publication (as measured by Standard & Poor s or the equivalent rating by Moody s Investor Services Limited) in the event of Morgan Stanley being unable to meet its financial obligations, you may not receive the advertised returns and you could lose all, or part, of your original investment the Plan Manager may without previously consulting you aggregate any transaction for an investor with one or more transactions for other investors, but it will do so only if it reasonably considers that it is unlikely that the aggregation of transactions will work overall to your disadvantage. However, you should note that the aggregation of transactions may, on some occasions, result in you receiving a less favourable price than if each transaction had been carried out separately. The Plan Manager will take all reasonable steps to ensure that any aggregated transaction is carried out on the best terms generally available in the market at that time for transactions of a similar type and size You have a right to inspect copies of contract notes, vouchers and entries in the Plan Manager s book, or computerised records relating to transactions carried out for your account. These records will be kept for at least six years. 14. Plan Returns 14.1 Your Plan s returns, including how they will be taxed, will be in accordance with the relevant details in the Plan Information We will contact you around six weeks before the Plan Maturity Date, or any of the Kick Out Dates if it looks likely that the Plan will mature early, outlining the options available to you in order to confirm what you want us to do with the cash proceeds of your Plan. If we do not receive instructions from you and your Plan is a Stocks and Shares ISA, we will hold your cash proceeds in an account selected by us until we receive your instructions, however at any time we may at our discretion attempt to remit the proceeds to you. If your Plan is not a Stocks and Shares ISA, we will attempt to remit proceeds to you within seven days of the Maturity Date. It is therefore important that you notify us if Your address or bank details change. The cash proceeds of your Plan will not earn interest or generate any growth after the Maturity Date. 15. Investment Risks 15.1 Your investment is subject to a number of risks including those stated in the risk factors and generally in the Plan Information. In particular, in certain circumstances, you may not receive the full return and you could lose all, or part, of your original investment. Before you invest in the Plan, you should ensure that you fully understand the nature of your investment, the risks involved and your own personal circumstances. If you are in any doubt about an investment in the Plan, you should take advice from an appropriately qualified financial adviser. 16. How Investments are held 16.1 securities will be held in safe custody by us or to our order in the name of BNY Mellon London Branch, or such other nominee approved by us, and will be beneficially owned by you. We accept full responsibility for any loss that might arise directly as a result of any default by any 24