THE MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 INTELLIGENT INVESTING. This Plan is not capital protected. You must be prepared to lose some

Transcription

1 THE MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 INTELLIGENT INVESTING This Plan is not capital protected. E AC C R U A L I : ME CO K UK S PA.U or all of your Initial Investment. NG N You must be prepared to lose some RA SS O C I AT I O N.C O

2 The Plan Manager for this Plan 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. Before the Plan Start Date, any subscription money received will be held by The Royal Bank of Scotland plc ( RBS ), whose registered office is 36 St Andrew Square, Edinburgh, EH2 2YBN. RBS are also authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For more information, please visit our website This document constitutes a financial promotion and is issued and approved by Morgan Stanley & Co. International plc for the purposes of section 21 of the Financial Services and Markets Act 2000 ( FSMA ). Please contact your intermediary for more information on the securities issued under the Plan, or for a copy of the prospectus relating to the securities.

3 Contents Plan Glossary 2 Introduction 4 What is the FTSE 100 Index? 5 How are my Income Payments calculated? 6 How much of my Initial Investment do I get back? 7 Scenario analysis 8 What Income Payments and repayment of Initial Investment would have been achieved in the past? 12 What are the risks? 14 Is the Plan right for me? 18 How to invest 20 Frequently asked questions 22 Plan terms and conditions 25 Application Forms 32 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 1

4 Plan Glossary This brochure contains a number of capitalised words or phrases. The table below provides you with a summary of the key terms used throughout the brochure. Capitalised terms not defined below have the respective meanings given to them in the Plan terms and conditions. KEY TERMS Plan: The Morgan Stanley FTSE Income Accumulator Plan 5 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 Issuer: Morgan Stanley B.V. (Morgan Stanley acts as Guarantor on the Securities). As of 3rd November 2014, Morgan Stanley has a credit rating of A- by Standard & Poor s and Baa2 by Moody s Investor Services Limited Counterparty: Morgan Stanley Plan Manager: Morgan Stanley & Co International plc Product Type: Structured Capital At Risk Product (SCARP) Underlying Index: FTSE 100 Index Investment Term: 6 years Investment Type: Income Income Payment: Each quarter, % times the proportion of Weekly Observation Dates in that quarter that the Underlying Index has closed within the Range Range: 5,000 to 8,000 index points Repayment of Initial Investment at maturity: If the Final Level is at or above the Barrier, you will receive the repayment of 100% of your Initial Investment. If the Final Level is below the Barrier, you receive 100% of your Initial Investment less the negative performance of the Underlying Index, as measured from the Plan Start Date to the Plan End Date Barrier: 4,000 index points Tax Treatment: Income Tax Initial Level: The official closing level of the Underlying Index on the Plan Start Date Final Level: The official closing level of the Underlying Index on the Plan End Date FSCS Compensation: The Securities issued under this Plan are not covered by the Financial Services Compensation Scheme (FSCS) Intermediary Charge: The amount of fees that you agree with your intermediary for the advice or execution-only service, as applicable, that they provide to you 2 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

5 IMPORTANT DATES 1 Subscription Period: 17th November 2014 to 31st December 2014, with an early cut off for ISA transfers of 22nd December We reserve the right to close the subscription period early Plan Start Date: 14th January 2015 Weekly Observation Dates: Each Wednesday throughout the Investment Term, from and including the Plan Start Date, to and including the Plan End Date Plan End Date: 14th January 2021 Maturity Date: 28th January In the event that any of the dates mentioned in the table above are not London business days (i.e., days on which commercial banks are open for general business in London, which typically excludes any bank holidays and weekends) 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. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 3

6 Introduction This brochure explains the features of the Morgan Stanley FTSE Income Accumulator Plan 5 (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 Income Payments 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. If you do not understand the information contained in this document at any point, please ask your financial adviser or intermediary for further information. PLAN SUMMARY The Plan has a fixed 6 year Investment Term. The Plan is expected to make Income Payments to you every three months, the level of which depends on how the FTSE 100 Index has performed over that quarter: The maximum income available is % per quarter (equivalent to a maximum of 6.75% a year). This will be paid if the FTSE 100 Index closes between 5,000 and 8,000 (the Range ) on each Weekly Observation Date during that quarter. Otherwise, the Income Payment you receive will be reduced, depending on how many weeks the FTSE 100 Index closes outside of the Range. If it closes outside of the Range on all Weekly Observation Dates, your income will equal 0% for that quarter. The Plan offers some protection from a falling market. The repayment of your Initial Investment at maturity depends on the performance of the FTSE 100 Index over the Investment Term. On the Plan End Date, as long as the FTSE 100 Index closes at or above 4,000 index points, you will receive the full repayment of your Initial Investment. The Plan is not capital protected and is, therefore, a Structured Capital at Risk Product (SCARP). This means that you will lose some or all of your Initial Investment if the closing level of the FTSE 100 Index on the Plan End Date is below 4,000 index points. In this case, the repayment of your Initial 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 the counterparty risk of Morgan Stanley: For more information on what counterparty risk means, please see the What are the risks? section in this brochure. As of the date of this publication, Morgan Stanley has a credit rating of A- by Standard & Poor s and Baa2 by Moody s Investor Services Limited. Securities issued by Morgan Stanley B.V. and guaranteed by Morgan Stanley are not covered by the Financial Services Compensations Scheme. 4 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

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 100 largest companies by market capitalisation, listed on the London Stock Exchange. Therefore the FTSE 100 Index does not include any dividend income. The below chart shows the historical performance of the FTSE 100 Index, from December 1997 to October The chart also shows the Range and Barrier for the Plan. By plotting the Range, Barrier and historical performance together, you can see how often the FTSE 100 Index has closed outside of the Range or below the Barrier since PERFORMANCE OF THE FTSE 100 INDEX DEC 97 DEC 99 DEC 01 DEC 03 DEC 05 DEC 07 DEC 09 DEC 11 DEC 13 DATE FTSE 100 RANGE FOR THE FTSE INCOME ACCUMULATOR PLAN BARRIER Source: Bloomberg / Morgan Stanley, 3rd November Past performance is not a reliable indicator of future performance. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 5

8 How are my Income Payments calculated? QUARTERLY INCOME PAYMENTS The Plan is expected to make an Income Payment to you every three months during the Investment Term (24 Income Payments in total). How much income you receive each quarter will depend on the closing level of the FTSE 100 Index on Weekly Observation Dates (every Wednesday) during the preceding quarter, and will be calculated as % of your Initial Investment, multiplied by the proportion of Weekly Observation Dates that the FTSE 100 Index closed within the Range (i.e. between 5,000 and 8,000 index points). The maximum quarterly Income Payment you can receive is % (equivalent to 6.75% a year), and you will be paid this if the FTSE 100 Index closes within the Range on all Weekly Observation Dates in a quarter. The minimum quarterly Income Payment you can receive is 0%, and you will be paid this if the FTSE 100 Index does not close within the Range on any Weekly Observation Date in a given quarter. Please note that each quarter there will be 13 Weekly Observation Dates, apart from the final quarter, in which there are 14 Weekly Observation Dates. WHEN WILL I RECEIVE MY INCOME PAYMENT? Each quarter, your Income Payment will be paid to you around 10 business days (excluding the time it might take for the payment to arrive in your bank account) after the relevant Quarter End Date. The final Income Payment (for the 24th quarter) will be paid to you together with any repayment of your Initial Investment that might be due at maturity. We will write to you if your Income Payment is zero for any quarter. There are 24 quarters in total, dates for which are detailed in the table below. QUARTERLY DATES QUARTER QUARTER START DATE QUARTER END DATE QUARTER QUARTER START DATE QUARTER END DATE 1 15th January th April January th April th April th July th April th July th July th October th July th October th October th January th October th January th January th April th January th April th April th July th April th July th July th October th July th October th October th January th October th January th January th April th January th April th April th July th April th July th July th October th July th October th October th January th October th January MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

9 How much of my Initial Investment do I get back? The repayment of your Initial Investment depends on the closing level of the FTSE 100 Index on the Plan End Date (the Final Level ). This Plan is not capital protected and you should be prepared to lose some or all of your Initial Investment: If the Final Level is at or above 4,000 index points, you will be repaid your Initial Investment in full. If the Final Level is below 4,000 index points, your Initial Investment is at risk. You will lose 1% of your Initial Investment for each 1% that the Final Level is below the Initial Level. For example, if the FTSE 100 Index has fallen by 60% from the Plan Start Date to the Plan End Date, the repayment of your Initial Investment would be reduced by 60%. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 7

10 INDEX LEVEL Scenario analysis How the Plan performs and the Income Payments it provides to you will depend on the performance of the FTSE 100 Index on the Weekly Observation Dates. The following diagrams show how Income Payments are calculated across a range of scenarios. Examples are based on an Initial Investment of 10,000. The calculation of the Income Payments will be rounded to 2 decimal places, meaning that you receive the calculated Income Payment to the nearest full pence. In each scenario, the gross Income Payments are shown (i.e. before the deduction of any Income Tax). For more information on the tax treatment of the Income Payments, please refer to page 24. SCENARIO 1 FTSE 100 Index closes above Range on some Weekly Observation Dates during the quarter Number of weeks in quarter Number of weeks FTSE closed within Range Proportion of weeks FTSE closed within Range Income Payment Quarterly income based on 10,000 investment / % FTSE 100 RANGE WEEKLY OBSERVATION 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. 8 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

11 INDEX LEVEL SCENARIO 2 FTSE 100 Index closes below Range on some Weekly Observation Dates during quarter Number of weeks in quarter Number of weeks FTSE closed within Range Proportion of weeks FTSE closed within Range Income Payment Quarterly income based on 10,000 investment / % FTSE 100 RANGE WEEKLY OBSERVATION 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. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 9

12 INDEX LEVEL SCENARIO 3 FTSE 100 Index closes within Range on all Weekly Observation Dates during quarter Number of weeks in quarter Number of weeks FTSE closed within Range Proportion of weeks FTSE closed within Range Income Payment Quarterly income based on 10,000 investment / % FTSE 100 RANGE WEEKLY OBSERVATION 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. 10 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

13 INDEX LEVEL SCENARIO 4 FTSE 100 Index closes outside Range for all Weekly Observation Dates during quarter Number of weeks in quarter Number of weeks FTSE closed within Range Proportion of weeks FTSE closed within Range Income Payment Quarterly income based on 10,000 investment / % FTSE 100 RANGE WEEKLY OBSERVATION 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. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 11

14 What Income Payments and repayment of Initial Investment would have been achieved in the past? Morgan Stanley has used historical price information for the FTSE 100 Index to calculate what Income Payments and repayment of Initial Investment the Plan would have been 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 30th October 2008 (which gives us the last full 6-year Investment Term at the time the simulated past performance was run) 2. For the purpose of the simulated past performance, the Barrier has been set at 60% of the Initial Level and the Range at -23% to +23% of the Initial Level for each simulated Plan Start Date. This is because the fixed Barrier (4,000 index points) and Range (5,000 to 8,000 index points) used for the Plan are at similar proportions in relation to the current levels of the FTSE 100 Index (around 6,550 index points). Across all the historical simulations, investors would have been repaid their Initial Investment in full in 100% of cases. The chart opposite shows the distribution of the total income paid across all the historical simulations. The maximum income achieved across the historical simulations was 38.03%, and this was achieved for a simulated Plan Start Date of 26th September The minimum income achieved was 4.61% (for a Plan Start Date of 10th March 2003). Investors would have received a total income of more than 24% (equivalent to 4% of their Initial Investment a year) in 47.64% of cases. 2 The simulated past performance is run for each Plan Start Date from Monday 1st November 1993, and each following Monday. If a simulated Plan Start Date fell on a Monday which was a non-uk business day (i.e. a bank holiday), the next possible business day would be used as the Simulated Plan Start Date. 12 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

15 FREQUENCY DISTRIBUTION OF TOTAL INCOME PAID ACROSS THE HISTORICAL SIMULATED PERFORMANCE 40% 30% 24.14% 20% 10% 12.64% 7.92% 15.20% 20.18% 10.22% 9.58% 0% 0.13% 0% - 5% 5% - 10% 10% - 15% 15% - 20% 20% - 25% 25% - 30% 30% - 35% 35% - 40% 40% - 45% Maximum possible income 0.00% TOTAL INCOME PAID Source: Bloomberg / Morgan Stanley, 31st October Total Income Payments represent the sum of all Income Payments made under the historical simulations, not compounded and gross of taxes. 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. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 13

16 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 fulfil its payment obligations. You may lose all or part of your investment if Morgan Stanley goes into liquidation and defaults on paying any outstanding Income Payments and the repayment of Initial Investment. The risk that Morgan Stanley goes into liquidation is called counterparty risk. Securities issued by Morgan Stanley B.V. and guaranteed by Morgan Stanley are not covered by the Financial Services Compensation Scheme (FSCS). Therefore if Morgan Stanley B.V. and/or Morgan Stanley become insolvent you would not be covered by the FSCS. Before the Plan Start Date, your subscription money will be held by the Royal Bank of Scotland plc ( RBS ). After the Maturity Date, any maturity proceeds will also be held by RBS until they are paid to you. If RBS become insolvent whilst holding your money, you may, subject to certain conditions, be covered by the FSCS for any losses you incur (up to the 85,000 limit). For more information on who is eligible to claim under the FSCS and in what circumstances, please visit the FSCS website at 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 date of this publication, Morgan Stanley has a credit rating of A- by Standard & Poor s and Baa2 by Moody s Investor Services Limited. RBS has a credit rating of A- by Standard & Poor s and Baa1 by Moody s Investor Services Limited. According to the most recent Standard & Poor s rating definitions, a company rated A has a strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than companies in higher-rated categories. According to the most recent Moody s rating definitions, issuers rated Baa are judged to be medium-grade and therefore subject to moderate credit risk. Securities from these issuers may possess certain speculative characteristics. The highest possible credit rating for both Standard & Poor s and Moody s 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. 14 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

17 INVESTMENT RISK The Plan returns specified in this brochure are dependent on the performance of the FTSE 100 Index. Past performance of the Underlying Index is not a reliable indicator of future performance and should not be relied upon when making investment decisions. There is no certainty that future performance of the Underlying Index will be positive. INDEX DISRUPTION RISK There may occasionally be circumstances that interfere with the calculation of the Underlying Index. For example, the calculation of the Underlying Index may be delayed or prevented if some of the shares that comprise the Underlying Index are suspended from trading on the exchange. In such cases, the restated Index Level will be used. This may affect the Plan return. PRODUCT RISKS 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 in the Underlying 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. This Plan is not capital protected and is therefore categorised as a Structured Capital At Risk Product (SCARP). The repayment of your Initial Investment depends on the performance of the Underlying Index over the Investment Term and you could lose some or all of the money you invest. SCARPs aim to deliver a pre-defined return and the repayment of your Initial Investment after a specified investment period, provided that certain conditions are met. The conditions applicable to this Plan are outlined under the How much of my Initial Investment do I get back? section of this brochure. If the conditions are not met, you might not receive an Income Payment and you may be at risk of losing all or some of your Initial Investment. The Income Payments are capped at the maximum level. If the Underlying Index were to perform strongly over the Investment Term, the Income Payment you receive may be less than you would have received from an investment linked directly to the positive performance of the Underlying Index. The Income Payments and repayment of Initial Investment are calculated based on the closing levels of the Underlying Index on the Plan Start Date, the Weekly Observation Dates and Plan End Date only. Large changes in the value of the Underlying Index on the specified dates these values are recorded will affect the performance of your Plan, potentially adversely. The Initial Level of the Underlying Index used to calculate the repayment of your Initial Investment available under the Plan will not be known until the Plan Start Date. (please note this is only relevant if the Final Level is below 4,000 index points). The Range used to determine your Income Payments has been fixed, and will not be adjusted to calculate your return. The level of the Underlying Index on the day you place your subscription is not relevant to the calculation of the repayment of your Initial Investment, and may be significantly different to the level on the Plan Start Date, which are the levels the repayment of your Initial Investment is based on. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 15

18 INFLATION AND INTEREST RATE RISK The repayment of your Initial Investment and any Income Payments due to you under the Plan 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 returns available should interest rates or inflation rates change. Inflation may reduce what you could buy in the future, in terms of purchasing power. CANCELLATION RISK You have the right to cancel your Plan within 14 days of subscribing or from receiving the cancellation form without losing any of your Initial Investment, as long as we receive your cancellation notice before the Plan Start Date. You can exercise your cancellation rights by sending a written notice to the address indicated in condition 10.1 of the Terms and Conditions. Details on how to exercise your cancellation rights will also be sent to you once we receive your completed application. However, if we receive your cancellation notice after the Plan Start Date, the amount you are entitled to receive back may be less than your Initial Investment if the value of the Securities that make up your Plan have changed. PLAN CANCELLATION RISK Before the Plan Start Date the Plan Manager can decide to cancel the launch of the Plan. This can be due to any reason, but most commonly if the Plan has not reached a sufficient number of applications or if there are extraordinary market conditions that would make it impossible for the Plan Manager to maintain the economic terms of the Plan. If the Plan Manager exercises this right, you will be returned your Initial Investment in full but you may be unable to find a comparable replacement investment product. RISK OF NON-REPAYMENT OF THE INTERMEDIARY CHARGE UPON CANCELLATION It is also worth noting that, if we have facilitated a payment of the Intermediary Charge to your intermediary on your behalf and any of the above events of cancellation occur, we will not be able to repay to you the Intermediary Charge. You should discuss directly with your intermediary to understand whether or not you are entitled to any refund of the Intermediary Charge and, if you are, you should arrange directly with your intermediary for them to repay such amount directly to you. EARLY WITHDRAWAL RISK You must be prepared to keep your money invested for the full Investment Term. 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 level of the Underlying Index or interest rates. 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. 16 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

19 ISA TRANSFER RISK Your existing ISA must be transferred in cash, which means that, if you hold a Stocks and Shares ISA or Cash 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 and/or seek independent tax advice if you require any advice on your tax position. CONFLICT OF INTERESTS The Plan Manager and the issuer of the Securities are part of the same group of companies. There can be conflicts of interests involved in the roles performed by each of these entities and the interests of the investors. For example, a conflict of interest may arise when the Plan Manager selects Securities issued by an affiliate as underlying investments of the Plan, or when, following a request by an investor to redeem part or all of their investment in the Plan, the issuer of the Securities determines the price at which it will buy back the Securities. A summary of the Morgan Stanley group policy on conflicts of interests is included in this Brochure. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 17

20 Is the Plan 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, or, if you are investing on an execution-only basis, the appropriateness of this investment has been assessed by your execution-only intermediary. You understand how the Plan works. You are able to leave your money invested for the full Investment Term and have access to other savings or investments if needed for emergencies. You accept that if Morgan Stanley B.V. and Morgan Stanley default, you will not have Financial Services Compensation Scheme ( FSCS ) protection. You understand and accept the risks associated with an investment in the Plan. You are not relying on guaranteed, regular Income Payments, since it is possible that in any quarter Income Payments could be zero. You accept that you won t know the Initial Level of the Underlying Index until the Plan Start Date, which is after your investment is made. You understand that the value of the Underlying Index does not include reinvestment of dividends and therefore performance of the Underlying Index will not equal the value of the performance of the constituent shares. You accept that your Initial Investment may not be repaid in full. You are looking for an income that is linked to the performance of the Underlying Index, but understand that the Income Payments are fixed and may be less than the actual performance of the Underlying Index. You are looking for an investment product that has the potential to provide a regular income throughout the Investment Term, rather than one that will provide a return at maturity only. You want to protect your investment against negative performance of the Underlying Index, and do not expect that, on the Plan End Date, the Underlying Index will close below 4,000 index points. 18 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

21 The Plan is probably not appropriate for you if: You have not received financial advice, nor, if you are investing on an execution-only basis, have had an appropriateness assessment of this investment for you. 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 are not able to leave your money invested for the full Investment Term and/or do not have access to other savings or investments if needed for emergencies. You want Financial Services Compensation Scheme ( FSCS ) protection if Morgan Stanley defaults and is unable to make payments due under the Plan. You do not expect the FTSE 100 Index to close within the pre-determined Range on most, if not all, of the specified dates throughout the Investment Term. 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 Underlying Index. You cannot accept that your Income Payments might be zero. You are uncomfortable with not knowing the Initial Level of the Underlying Index until the Plan Start Date, which is after your investment is made. You are looking for an investment product that will provide a return at maturity only. You are not prepared to risk losing some or all of your investment should the Underlying Index close below 4,000 index points on the Plan End Date. If you are applying for the Plan via an execution-only broker, the broker must assess appropriateness of the Plan for you before you can invest in the Plan. This will assist the broker to determine whether you have the necessary experience and knowledge in order to understand the risks involved in relation to this product. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 19

22 How to invest There are a number of different ways to subscribe to the Plan: Direct Investment. Stocks and Shares ISA investment for the 2014/15 tax year 3. Transfer of existing ISA investment (Cash or Stocks and Shares). 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 4. If you are investing via a 2014/15 ISA, there are certain restrictions: You cannot open more than one Cash ISA and one Stocks and Shares ISA in the 2014/15 tax year. The maximum total you can subscribe in 2014/15 ISAs (whether in a Cash ISA, Stocks and Shares ISA or both) is 15,000. If you have not already subscribed for a 2014/15 Stocks and Shares ISA, you can apply to open a 2014/15 Stocks and Shares ISA with Morgan Stanley as manager. If you have already subscribed to a Stocks and Shares ISA for the 2014/15 tax year where Morgan Stanley is the ISA manager, you can top up your ISA account provided your total investment into ISAs for the 2014/15 tax year does not exceed 15,000. For example, if you have already subscribed 11,880 in a Stocks and Shares ISA with Morgan Stanley you can invest up to 3,120 in this Plan within the same Morgan Stanley Stocks and Shares ISA (assuming you have not also opened a 2014/15 Cash ISA). You cannot use a Cash ISA to invest in this Plan. You can apply to transfer an existing Cash or Stocks and Shares ISA into the Plan without losing the tax efficient status of your investment. Transfers from existing 2014/15 ISAs must be made in whole, although transfers from previous years ISAs may be made in full or part. Please check with your existing ISA provider before making a transfer, as there may be restrictions or penalties on transferring your investment. 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 3 From 1st July 2014, all ISA accounts became New ISAs in the UK. To find out more about the rules governing New ISAs and how they could affect you, please visit 4 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. 20 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

23 INVESTMENT DEADLINES The deadline for submitting applications is 31st December 2014, except for ISA transfers where the deadline is 22nd December 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. In this case, we will return your investment within 14 days of the cancellation and you will incur no product charge. If we have facilitated the payment of any Intermediary Charge, we will not be able to refund you such amount and it may be that you are not entitled to any such refund from your intermediary. You should contact your intermediary directly to discuss whether you are entitled to such refund and make any arrangement for the relevant payment directly with the intermediary. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 21

24 Frequently asked questions Who is eligible to invest in the Plan? 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 is a one-off charge, retained by the Plan Manager to cover product related costs such as management and marketing fees, as well as to pay for the costs of the administration of the Plan. The initial product charge does not include any Intermediary Charges. The product charge is expected to be up to 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. There are no on-going charges in relation to this Plan. What is the Intermediary 5 Charge/How is my intermediary compensated? If you have received investment advice or a personal recommendation or if you are applying through an executiononly intermediary, 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 the Intermediary Charge directly to your intermediary. Alternatively, depending on the agreement that you have in place with your intermediary, you may request Morgan Stanley to facilitate the payment (i.e., you can pay the Intermediary Charge to us and we will then pay the intermediary on your behalf). Morgan Stanley can only facilitate the payment of Intermediary Charges relating to investment advice or personal recommendation. Where we are facilitating the payment of an Intermediary Charge to an intermediary on your behalf, we will pay it to your intermediary only upon receiving funds from you, and, generally, 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. Can I change my mind once I have subscribed? Yes. You have the right to cancel your Plan within 14 days of the date your subscription is accepted or the date you receive your cancellation form 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, provided that such form is received by us before the Plan Start Date. 5 By intermediary we mean either an independent financial adviser or an execution-only broker. 22 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

25 Can the Plan be cancelled before the Plan Start Date? Yes. Before the Plan Start Date the Plan Manager can decide to cancel the launch of the Plan. This can be due to any reason, but most commonly if the Plan has not reached a sufficient number of applications or if there are extraordinary market conditions that would make it impossible for the Plan Manager to maintain the economic terms of the Plan. If the Plan Manager exercises this right, you will be returned your Initial Investment in full, but we will not be able to facilitate any repayment of the Intermediary Charge that has been paid to your intermediary through us. If the Plan Manager cancels the Plan and you have invested via an ISA, this will not affect your ISA allowance for the current tax year. If I change my mind or if the Plan is cancelled, will you refund any Intermediary Charge you paid on my behalf? No. If you cancel your application, or if the Plan Manager cancels the Plan, we will not be able to refund you any Intermediary Charge that has been paid to your intermediary through us. Furthermore, you should discuss with your intermediary whether you are entitled to the repayment of the Intermediary Charge, as this is dependent on the terms agreed with your intermediary and you might not be entitled to any such repayment. If you are entitled to the repayment of the Intermediary Charge you will need to arrange for your intermediary to repay to you directly any such amount. 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. MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 23

26 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 the How to invest section for details), without incurring either capital gains or income tax. Investing directly into the Plan: payments from the Plan will be made gross of tax and it is your responsibility to declare this gain on your tax return. If your Plan Investment Type is Income, it is likely that income payments under the Plan are subject to Income Tax at your highest marginal rate of tax. If your Plan Investment Type is Growth or Fixed Growth, 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. Please refer to the Plan Glossary section for information on the Investment Type of this Plan. The above information is based on tax legislation and practice as of the date of publication, as interpreted in good faith by Morgan Stanley. Morgan Stanley is not qualified to give legal, tax or accounting advice to its clients and does not purport to do so in this document. Clients are urged to seek the advice of their own professional advisers about the consequences of the proposals contained herein. 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. 24 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5

27 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 the amount of money that you subscribe into the Plan, less any fees that we pay to an intermediary on your behalf, if applicable. Plan means an investment held within a Stocks and Shares ISA or a Direct Investment, in either case, 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 the Plan Manager 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 refer to the Plan Manager. You and your refer to an investor who applies to open a Stocks and Shares ISA or Direct Investment, an investor who applies to top up an existing Stocks and Shares ISA 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 2014/15 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 where the information which you have supplied is insufficient. In respect of a Stocks and Shares ISA, 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 HM Revenue & Customs 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 MORGAN STANLEY FTSE INCOME ACCUMULATOR PLAN 5 25