THE MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 INTELLIGENT INVESTING This Plan is not capital protected. You must be prepared to lose some or all of your Initial Investment.
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. For more information, please visit our website www.morganstanleyiq.co.uk 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.
Contents Plan Glossary 2 Introduction 4 What is the FTSE 100 Index? 5 How is my Plan Return calculated? 6 Scenario analysis 8 How would the Plan have performed in the past? 9 What are the risks? 10 Is the Plan right for me? 14 How to invest 16 Frequently asked questions 17 Plan terms and conditions 21 Application forms 28 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 1
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 Gilt Backed Growth Plan 15 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: Secured Multi Asset Repackaging Trust plc ( SMART PLC ) Plan Manager: Morgan Stanley & Co International plc Relevant Parties: The Securities Issuer will buy and hold UK Government Bonds (Gilts) to cover the repayment of Initial Investment at maturity. They will also enter into an agreement with the Plan Manager in order to pay you the Plan Return described in this brochure. This agreement will be fully collateralised with UK Government Bonds and/or cash, please see page 10 for more details. As of 7th April 2014, the UK Government has a credit rating of AAA by Standard & Poor s and Aa1 by Moody s Investor Services Limited) Product Type: Structured Capital At Risk Product (SCARP) Underlying Index: FTSE 100 Index (UK Equity) Investment Term: 6 years Investment Type: Fixed Growth Plan 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 its Initial Level, the Plan will mature. You will then receive a fixed return of 7% 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, or is above its Initial Level on the Plan End Date, your Initial Investment is repaid in full. Otherwise the repayment of your Initial Investment will depend on the level of the Underlying Index throughout the Investment Term: If it has never closed at or below the Barrier, you will be repaid 100% of your Initial Investment If it has ever closed at or below the Barrier, you receive 100% of your Initial Investment less any negative performance of the Underlying Index, as measured from the Plan Start Date to the Plan End Date Barrier: 50% of the Initial Level Tax Treatment: Capital Gains 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) 2 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
IMPORTANT DATES 1 Subscription Period: 28th April 2014 to the 30th May 2014, with an early cut off for ISA transfers of 23rd May 2014. We reserve the right to close the subscription period early Plan Start Date: 13th June 2014 Kick Out Dates: 13th June 2016, 13th June 2017, 13th June 2018, 13th June 2019 Plan End Date: 15th June 2020 Maturity Date: 29th June 2020 1 In the event that any of the dates mentioned in the table above are not London business days (i.e., days when 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 GILT BACKED GROWTH PLAN 15 3
Introduction This brochure explains the features of the Morgan Stanley FTSE Gilt Backed Growth Plan 15 (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 Plan 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. 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 maximum 6 year Investment Term, but will mature early at the end of years 2, 3, 4 or 5 if the FTSE 100 Index at that time is at or above its Initial Level. In this case, you ll receive a fixed return equal to 7% 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 42% if the FTSE 100 Index closes at or above 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. There is no certainty that the Plan will mature early on any of the Kick Out Dates, therefore you must be prepared to keep your money invested for the full 6 year Investment Term. The Plan is not capital protected and is, therefore, a Structured Capital at Risk (SCARP) Product: This means that you may 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 any amount the FTSE 100 Index has fallen from the Plan Start Date to the Plan End Date. Your counterparty risk is reduced: The repayment of your Initial Investment at maturity is covered by UK Government bonds (subject to the risks above) and the Plan Return is collateralised with UK Government Bonds and/or cash. For more information on how this works, please see the Counterparty Risk section on page 10. 4 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
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 April 2014. PERFORMANCE OF THE FTSE 100 INDEX 8000 7000 6000 5000 4000 3000 2000 1000 0 JAN 84 JAN 88 JAN 92 JAN 96 JAN 00 JAN 04 JAN 08 JAN 12 YEAR FTSE 100 Source: Bloomberg / Morgan Stanley, 7th April 2014. Past performance is not a reliable indicator of future performance. MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 5
How is my Plan Return calculated? FIXED GROWTH RETURN This Plan offers you the potential for a Plan 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 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 its 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 7% 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 13th June 2016, the end of the 2nd year 13th June 2017, the end of the 3rd year 13th June 2018, the end of the 4th year 13th June 2019, the end of the 5th year 15th June 2020, the Plan End Date POTENTIAL RETURN 14% of your Initial Investment 21% of your Initial Investment 28% of your Initial Investment 35% of your Initial Investment 42% of your Initial Investment INITIAL INVESTMENT REPAYMENT What happens if the FTSE 100 Index doesn t close at or above its Initial Level on any of the Kick Out Dates (including the Plan End Date)? 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 on the following page shows what happens on each Kick Out Date, depending on the closing level of the FTSE 100 Index on those dates. 6 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
Plan Start Date Initial Level is recorded 13th June 2014 Kick Out Date 1 13th June 2016 Is the closing index level greater than or equal to its Initial Level? Yes The Plan terminates early and you receive a return of 14% and the repayment of your Initial Investment in full No, the Plan continues to the next Observation Date Kick Out Date 2 13th June 2017 Is the closing index level greater than or equal to its Initial Level? Yes The Plan terminates early and you receive a return of 21% and the repayment of your Initial Investment in full No, the Plan continues to the next Observation Date Kick Out Date 3 13th June 2018 Is the closing index level greater than or equal to its Initial Level? Yes The Plan terminates early and you receive a return of 28% and the repayment of your Initial Investment in full No, the Plan continues to the next Observation Date Kick Out Date 4 13th June 2019 Is the closing index level greater than or equal to its Initial Level? Yes The Plan terminates early and you receive a return of 35% and the repayment of your Initial Investment in full No, the Plan continues to the next Observation Date Plan End Date 15th June 2020 Is the Final Level greater than or equal to its Initial Level? Yes The Plan terminates and you receive a return of 42% and the repayment of your Initial Investment in full No Has the Underlying Index always closed above 50% of the Initial Level during the 6-year term? Yes The Plan terminates. You receive no return but are repaid your Initial Investment in full No 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. MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 7
Scenario analysis How the Plan performs and the Plan Return it provides to you will depend on the performance of the FTSE 100 Index. The table below shows some example Plan Returns and repayment of Initial Investment 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/FLAT THROUGHOUT THE TERM SCENARIO 3: INDEX PERFORMANCE IS NEGATIVE TO START, BUT RECOVERS TOWARDS THE END OF THE TERM 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 at 10% -20% -25% -10% -25% Kick Out Date 1 2 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)? n/a 3-15% -55% -20% -55% n/a 0% -15% -25% -50% n/a n/a -5% -30% -40% n/a n/a 10% -40% -35% Kick Out Date 1 Kick Out Date 3 Plan End Date Plan End Date Plan End Date 1,400 2,800 4,200 0 0 10,000 10,000 10,000 10,000 6,500 11,400 12,800 14,200 10,000 6,500 2 Index Performance is calculated as the percentage change in the FTSE 100 Index from its Initial Level to its closing level on the respective Kick Out Date or the Plan End Date. 3 Index Performance on these Kick Out Dates is irrelevant, as the Plan has already matured early on an earlier Kick Out 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 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
FREQUENCY How would the Plan 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 3rd April 2008 (which gives us the last full 6-year investment term at the time the simulated past performance was run) 4. 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 77.17% of the Initial Investment, representing a capital loss of 22.83% (meaning that if you had invested 10,000, you would have got back 7,717). This worst-case capital loss was for a Plan Start Date of 21st June 1999. The graph below shows the frequency for which these historical simulations matured, by year. The Plan would have matured early on 74.99% of occasions, with the majority of these (64.54%) occurring on the first Kick Out Date in year 2. DISTRIBUTION OF PLAN MATURITIES FROM SIMULATED PAST PERFORMANCE 80% 70% 60% 64.54% 50% 40% 30% 20% 16.84% 10% 0% 1.91% 4.97% 3.57% Year 2 Year 3 Year 4 Year 5 Year 6, return paid and investment repaid Year 6, no return paid but investment repaid Year 6, no return paid and capital lost 6.25% 1.91% PLAN MATURITY Source: Bloomberg / Morgan Stanley, 7th April 2014. 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. 4 The simulated past performance is run for each Plan Start Date from Monday 5th April 1993, and each following Monday. If a simulated Plan Start Date fell on a Monday that 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. MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 9
What are the risks? COUNTERPARTY RISK The Plan is designed to provide you with the returns described in this brochure. Counterparty risk is the risk that one of the parties involved in providing your Plan becomes insolvent and therefore fails to pay the advertised returns. This would result in you losing some or all of your Initial Investment. For this Plan, we will invest your subscription proceeds in securities issued by Secured Multi Asset Repackaging Trust PLC ( SMART PLC ). This is a special purpose vehicle incorporated in Ireland. So that it can pay the advertised returns to you, SMART PLC will invest your subscription proceeds as follows: It will buy enough UK Government Bonds to provide for the repayment of your Initial Investment when the Plan matures. If the UK Government were to become insolvent, you may lose some or all of your Initial Investment this is known as counterparty risk (the risk that the issuer of securities do not meet their financial obligations to you). It will enter into a derivative contract with Morgan Stanley & Co International plc ( Morgan Stanley ) to provide the Plan Return. This derivative contract will be fully collateralised to minimise the risk that you lose some or all of the Plan Return if Morgan Stanley or SMART PLC default. This means that, on a daily basis, Morgan Stanley will put enough cash or UK Government Bonds to equal the value of the derivative contract into a segregated account as collateral. If Morgan Stanley and/or SMART PLC were to become insolvent, this collateral can only be used to provide for the payment obligations of the securities Issuer. What happens to the Plan if Morgan Stanley defaults? As explained above, Morgan Stanley will put cash and UK Government Bonds into a segregated account throughout the Investment Term for a value equal to the expected Plan Return. If Morgan Stanley were to default, the derivative agreement with SMART PLC would terminate early. Accordingly, the Plan would also terminate early. Any cash and the cash resulting from the liquidation of the UK Government Bonds (i.e., the collateral of the derivative contract and the UK Government Bonds held to provide for the repayment of Initial Investment), will be used exclusively to fulfill any payment obligations of SMART PLC under the securities. What happens to the Plan if SMART PLC defaults? If SMART PLC were to default, the derivative agreement with Morgan Stanley would terminate early and the securities that make up your Plan would terminate early. Accordingly, the Plan would also terminate early. Any cash and the cash resulting from the liquidation of the UK Government Bonds will be used exclusively to fulfill any payment obligation of SMART PLC under the securities. What happens to the Plan if the UK Government defaults? UK Government bonds are used both to provide for the repayment of your Initial Investment at maturity and as collateral for the derivative agreement between Morgan Stanley and SMART PLC. If the UK Government were to default, it is likely that the UK Government Bond would also terminate early at a very low value. You would therefore lose most, if not all, of your Initial Investment. You should be aware that there are multiple transactions and parties involved in providing you with the returns described in this brochure. As with any investment product, you should make sure you are aware of the risks 10 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
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, governments and institutions. Credit ratings are assigned by independent companies known as ratings agencies and reviewed regularly. As of the date of this publication, the UK Government has a credit rating of AAA by Standard & Poor s and Aa1 by Moody s Investor Services Limited. As of the same date, Morgan Stanley & Co. International plc 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 AAA has an extremely strong capacity to meet its financial commitments. 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. According to the most recent Moody s rating definitions, issuers rated Aa are judged to be of high quality and are subject to very low credit risk. 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. associated with an investment. Whilst we have made every effort to ensure the key risks are highlighted, due to the nature of the securities that make up your Plan, we advise you to read the prospectus for SMART PLC, which is available via our intermediary. Securities issued by SMART PLC are not covered by the Financial Services Compensation Scheme (FSCS). Therefore, if SMART PLC became insolvent, you would not be covered by the FSCS. INVESTMENT RISK The Plan returns specified in this brochure are dependent on the performance of the Underlying Index. The past performance of the index is not necessarily a guide to its performance in the future 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 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. 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. The Plan is not capital protected and is, therefore, a Structured Capital At Risk Product (SCARP). The repayment of your Initial Investment depends on the performance of the Underlying Index over the Investment MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 11
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 is my Plan Return calculated? section of this brochure. If the conditions are not met, you might not receive a return and you may be at risk of losing some or all of your Initial Investment. The Plan Return is pre-defined. If the Underlying Index were to perform strongly over the Investment Term, the Plan Return you receive may be less than you would have received from an investment linked directly to the positive performance of the index. The Plan Return and the repayment of the Initial Investment are calculated based on the closing levels of the Underlying Index on the Plan Start Date, the Kick Out 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 returns available under the Plan will not be known until the Plan Start Date. The level of the Underlying 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. 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. 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. 12 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
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 such 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 index level 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. 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 and/or seek independent tax advice if you require any advice on your tax position. CONFLICT OF INTERESTS The Plan Manager and the Securities Issuer 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 investment of the Plan, or when, following a request by an investor to redeem part or all of its investment in the Plan, the Securities Issuer 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 GILT BACKED GROWTH PLAN 15 13
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. 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 Investment Term and have access to other savings or investments if needed for emergencies. You accept that you will not have Financial Services Compensation Scheme ( FSCS ) protection if the Securities Issuer defaults; however, you understand how the Plan uses UK Government Bonds to provide for the repayment of Initial Investment and collateral arrangements to help protect your Plan Return if the Securities Issuer does default. You understand and accept the risks associated with an investment in the Plan. You accept that your Plan Returns 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 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 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 Underlying Index, and do not expect that the Underlying Index will close at or below 50% of the Initial Level on any date during the Investment Term. 14 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
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 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 the payments due under the Plan. You do not understand the collateral arrangements that are in place for this Plan. 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 cannot accept that your Plan returns 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 do not understand or accept that any returns are fixed, and may be less than the actual performance of the Underlying 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 Underlying Index close at or below 50% of the Initial Level on any date during the Investment Term. 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 GILT BACKED GROWTH PLAN 15 15
How to invest There are a number of different ways to subscribe to the Plan: Direct Investment. ISA Investment for the 2014/15 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 5. If you are investing via a 2014/15 ISA, there are certain restrictions: The maximum subscription amount is 11,880. 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 www.morganstanleyiq.co.uk INVESTMENT DEADLINES The deadline for submitting applications is 30th May 2014, except for ISA transfers where the deadline is the 23rd May 2014. 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. 5 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. 16 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
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 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. There are no ongoing charges in relation to this Plan. What is the Intermediary 6 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 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. 6 By Intermediary we mean either an independent financial adviser or an execution-only broker. MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 17
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 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. 18 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15
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 16 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 your 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. MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 19
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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 mean 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 122467. 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 mean principles, rules and guidance issued by the FCA from time to time. FSMA means the Financial Services and Markets Act 2000. 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. Intermediary Charge means the amount of fees that you agree with your intermediary for the advice or execution-only service, as applicable, that they provide to you. 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 165935 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 mean 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 by the Plan Manager from the Securities Issuer in order to provide the Plan Return and protect the Initial Investment. 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 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 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 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 MORGAN STANLEY FTSE GILT BACKED GROWTH PLAN 15 21