July 2011
Preliminary Terms No. 868
Registration Statement No. 333-156423
Dated June 30, 2011
Filed pursuant to Rule 433
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SUMMARY TERMS
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Issuer:
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Morgan Stanley
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Issuer rating:*
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S&P: A (negative outlook)
Although these notes have not yet received an individual rating, we will apply for such a rating to S&P. Until it is received, we can give you no assurance as to the individual rating for the notes.
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Issue price:
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$1,000 per note (see “Commission and Issue Price” below)
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Stated principal amount:
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$1,000 per note
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Aggregate principal amount:
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$
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Pricing date:
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July 25, 2011
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Original issue date:
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July 28, 2011 (3 business days after the pricing date)
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Maturity date:
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July 28, 2017
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Interest:
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None
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Underlying index:
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S&P 500® Index
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Payment at maturity:
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The payment due at maturity per $1,000 stated principal amount will equal:
$1,000 + supplemental redemption amount, subject to the minimum payment at maturity and the maximum payment at maturity.
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Supplemental redemption amount:
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(i) $1,000 times (ii) the index percent change times (iii) the participation rate, provided that the supplemental redemption amount will not be less than $60 or greater than $600 to $700 (to be determined on the pricing date).
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Participation rate:
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100%
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Minimum payment at maturity:
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$1,060 per note (106% of the stated principal amount)
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Maximum payment at maturity:
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$1,600 to $1,700 per note (160% to 170% of the stated principal amount). The actual maximum payment at maturity will be determined on the pricing date.
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Index percent change:
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(final index value – initial index value) / initial index value
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Initial index value:
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The index closing value on the pricing date
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Final index value:
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The index closing value on the determination date
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Determination date:
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July 25, 2017, subject to postponement for non-index business days and certain market disruption events
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CUSIP:
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617482WK6
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ISIN:
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US617482WK65
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Listing:
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The notes will not be listed on any securities exchange.
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), a wholly-owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
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Commissions and Issue Price:
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Price to Public(1)
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Agent’s Commissions(2)
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Proceeds to Issuer
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Per note
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$1,000
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$
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$
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Total
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$
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$
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$
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(1)
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The price to public for investors purchasing the notes in fee-based advisory accounts will be $970 per note.
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(2)
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Selected dealers and their financial advisors will collectively receive from the Agent, MS & Co., a fixed sales commission of $ for each note they sell; provided that dealers selling to investors purchasing the notes in fee-based advisory accounts will receive a sales commission of $ per note. See “Supplemental information regarding plan of distribution; conflicts of interest.” For additional information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus supplement for equity-linked notes.
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¡
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an opportunity to gain exposure to the S&P 500® Index
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¡
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the repayment of principal at maturity, plus a minimum return of 6%
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¡
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100% participation in any appreciation of the underlying index over the term of the notes, subject to a maximum payment at maturity of $1,600 to $1,700 per note (160% to 170% of the stated principal amount). The actual maximum payment at maturity will be determined on the pricing date.
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¡
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no exposure to any decline of the underlying index
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Maturity:
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6 years
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Participation rate:
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100%
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Interest:
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None
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Bloomberg Ticker Symbol:
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SPX
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Current Index Value:
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1,296.67
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52 Weeks Ago:
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1,074.57
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52 Week High (on 4/29/2011):
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1,363.61
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52 Week Low (on 7/2/2010):
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1,022.58
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S&P 500® Index Historical Performance
Daily Closing Values
January 1, 2006 to June 28, 2011
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July 2011
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Page 2
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Repayment of Principal
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The notes offer investors 1 to 1 upside exposure to the performance of the underlying index up to the maximum payment at maturity, while providing for the repayment of principal in full at maturity.
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Minimum Payment at Maturity
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At maturity, the notes will pay no less than $1,060 (106% of the stated principal amount).
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Best Case Scenario
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The underlying index increases in value significantly and, at maturity, the notes pay the maximum payment at maturity of $1,600 to $1,700 (160% to 170% of the stated principal amount). The actual maximum payment at maturity will be determined on the pricing date.
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Worst Case Scenario
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The underlying index declines or appreciates by less than or equal to 6% and, at maturity, the notes pay the minimum payment at maturity of $1,060.
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¡
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The notes do not pay interest and may not pay more than the minimum payment at maturity.
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¡
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The return on the notes (the effective yield to maturity) may be less than the amount that would be paid on an ordinary debt security.
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¡
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The appreciation potential of the notes is limited to the maximum payment at maturity.
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¡
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The market price of the notes may be influenced by many unpredictable factors. Prior to maturity, the notes may, depending on market conditions (primarily movements in the underlying index and interest rates), trade below the original issue price and you may receive less, and possibly significantly less, than the stated principal amount per note if you try to sell your notes prior to maturity.
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¡
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The notes are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings or credit spreads may adversely affect the market value of the notes.
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¡
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The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices.
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¡
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Adjustments to the underlying index could adversely affect the price of the notes.
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¡
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You have no shareholder rights.
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¡
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Investing in the notes is not equivalent to investing in the underlying index.
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¡
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The notes will not be listed on any securities exchange and secondary trading may be limited.
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¡
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The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the notes.
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¡
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Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the notes.
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July 2011
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Page 3
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Expected Key Dates
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Pricing Date
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Original Issue Date (Settlement Date)
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Maturity Date
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July 25, 2011
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July 28, 2011
(3 business days after the pricing date)
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July 28, 2017, subject to postponement as described below
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Key Terms
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Issuer:
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Morgan Stanley
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Issue price:
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$1,000 per note
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Stated principal amount:
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$1,000 per note
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Denominations:
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$1,000 per note and integral multiples thereof
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Aggregate principal amount:
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$
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Interest:
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None
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Bull or bear notes:
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Bull notes
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Underlying index:
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S&P 500® Index
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Underlying index publisher:
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Standard & Poor’s Financial Services LLC
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Payment at maturity:
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The payment due at maturity per $1,000 stated principal amount will equal:
$1,000 + supplemental redemption amount, subject to the minimum payment at maturity and the maximum payment at maturity.
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Supplemental redemption amount:
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(i) $1,000 times (ii) the index percent change times (iii) the participation rate, provided that the supplemental redemption amount will not be less than $60 or greater than $600 to $700 (to be determined on the pricing date).
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Participation rate:
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100%
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Minimum payment at maturity:
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$1,060 per note (106% of the stated principal amount)
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Maximum payment at maturity:
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$1,600 to $1,700 per note (160% to 170% of the stated principal amount). The actual maximum payment at maturity will be determined on the pricing date.
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Index percent change:
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(final index value – initial index value) / initial index value
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Initial index value:
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The index closing value on the pricing date as published by the underlying index publisher
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Final index value:
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The index closing value on the determination date as published by the underlying index publisher
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Determination date:
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July 25, 2017, subject to postponement for non-index business days and certain market disruption events
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Call right:
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The notes are not callable prior to the maturity date.
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Postponement of maturity date:
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If the determination date is postponed so that it falls less than two business days prior to the scheduled maturity date, the maturity date will be the second business day following the determination date as postponed.
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Risk factors:
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Please see “Risk Factors” beginning on page 10.
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July 2011
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Page 4
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General Information
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Listing:
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The notes will not be listed on any securities exchange.
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CUSIP:
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617482WK6
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ISIN:
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US617482WK65
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Minimum ticketing size:
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$1,000 / 1 note
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Tax considerations:
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The notes will be treated as “contingent payment debt instruments” for U.S. federal income tax purposes, as described in the section of the accompanying prospectus supplement called “United States Federal Taxation — Tax Consequences to U.S. Holders.” Under this treatment, if you are a U.S. taxable investor, you generally will be subject to annual income tax based on the “comparable yield” (as defined in the accompanying prospectus supplement) of the notes, even though no interest is payable on the notes. In addition, any gain recognized by U.S. taxable investors on the sale or exchange, or at maturity, of the notes generally will be treated as ordinary income. If the notes were priced on June 28, 2011, the “comparable yield” for the notes would be a rate of 4.4608% per annum, compounded semi-annually; however, the comparable yield will be determined on the pricing date and may be significantly higher or lower than the comparable yield set forth above. Based on the comparable yield set forth above, the “projected payment schedule” for a note (assuming an issue price of $1,000) consists of a single projected amount equal to $1,303.1323 due at maturity. The comparable yield and the projected payment schedule for the notes will be updated in the final pricing supplement. You should read the discussion under “United States Federal Taxation” in the accompanying prospectus supplement concerning the U.S. federal income tax consequences of an investment in the notes.
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The following table states the amount of original issue discount (“OID”) (without taking into account any adjustment to reflect the difference, if any, between the actual and the projected amount of the contingent payment on a note) that will be deemed to have accrued with respect to a note for each accrual period (assuming a day count convention of 30 days per month and 360 days per year), based upon the comparable yield set forth above.
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ACCRUAL PERIOD
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OID DEEMED TO ACCRUE DURING ACCRUAL PERIOD (PER NOTE)
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TOTAL OID DEEMED TO HAVE ACCRUED FROM ORIGINAL ISSUE DATE (PER NOTE) AS OF END OF ACCRUAL PERIOD
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Original Issue Date through December 31, 2011
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$18.8345
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$18.8345
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January 1, 2012 through June 30, 2012
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$22.7241
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$41.5586
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July 1, 2012 through December 31, 2012
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$23.2309
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$64.7895
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January 1, 2013 through June 30, 2013
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$23.7491
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$88.5386
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July 1, 2013 through December 31, 2013
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$24.2788
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$112.8174
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January 1, 2014 through June 30, 2014
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$24.8203
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$137.6377
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July 1, 2014 through December 31, 2014
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$25.3739
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$163.0116
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January 1, 2015 through June 30, 2015
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$25.9398
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$188.9514
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July 1, 2015 through December 31, 2015
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$26.5184
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$215.4698
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January 1, 2016 through June 30, 2016
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$27.1098
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$242.5796
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July 1, 2016 through December 31, 2016
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$27.7145
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$270.2941
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January 1, 2017 through June 30, 2017
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$28.3326
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$298.6267
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July 1, 2017 through the Maturity Date
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$4.5056
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$303.1323
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The comparable yield and the projected payment schedule are not provided for any purpose other than the determination of U.S. Holders’ accruals of OID and adjustments thereto in respect of the notes for U.S. federal income tax purposes, and we make no representation regarding the actual amount of the payment that will be made on a note.
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If you are a non-U.S. investor, please also read the section of the accompanying prospectus supplement called “United States Federal Taxation — Tax Consequences to Non-U.S. Holders.”
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You should consult your tax adviser regarding all aspects of the U.S. federal income tax consequences of an investment in the notes as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
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Trustee:
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The Bank of New York Mellon (as successor Trustee to JPMorgan Chase Bank, N.A.)
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Use of proceeds and hedging:
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The net proceeds we receive from the sale of the notes will be used for general corporate purposes and, in part, in connection with hedging our obligations under the notes through one or more of our subsidiaries.
On or prior to the pricing date, we, through our subsidiaries or others, expect to hedge our anticipated exposure in connection with the notes by taking positions in the stocks constituting the underlying index, in futures or options contracts on the underlying index or its component stocks, or in any other
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July 2011
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Page 5
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available securities or instruments that we may wish to use in connection with such hedging. Such purchase activity could increase the value of the underlying index on the pricing date, and therefore, the value at which the underlying index must close on the determination date before you would receive at maturity a payment that exceeds the minimum payment at maturity. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying prospectus supplement. | ||||
Benefit plan investor considerations:
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Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing an investment in the notes. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan.
In addition, we and certain of our subsidiaries and affiliates, including MS & Co., may be considered a “party in interest” within the meaning of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code would likely arise, for example, if the notes are acquired by or with the assets of a Plan with respect to which MS & Co. or any of its affiliates is a service provider or other party in interest, unless the notes are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting from the purchase or holding of the notes. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code may provide an exemption for the purchase and sale of securities and the related lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called “service provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available with respect to transactions involving the notes.
Because we may be considered a party in interest with respect to many Plans, the notes may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or holder of the notes will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the notes that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such notes on behalf of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition are eligible for exemptive relief or such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other persons considering purchasing the notes on behalf of or with “plan assets” of any Plan consult with their counsel regarding the availability of exemptive relief.
Each purchaser and holder of the notes has exclusive responsibility for ensuring that its purchase, holding and disposition of the notes do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any notes to any Plan or plan subject to Similar Law is in no
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July 2011
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Page 6
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respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular plan.
However, individual retirement accounts, individual retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts, will not be permitted to purchase or hold the notes if the account, plan or annuity is for the benefit of an employee of Citigroup Global Markets Inc., Morgan Stanley or Morgan Stanley Smith Barney LLC (“MSSB”) or a family member and the employee receives any compensation (such as, for example, an addition to bonus) based on the purchase of the notes by the account, plan or annuity.
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Additional considerations:
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Client accounts over which Citigroup Inc., Morgan Stanley, MSSB or any of their respective subsidiaries have investment discretion are not permitted to purchase the notes, either directly or indirectly.
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Calculation agent:
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MS & Co.
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Supplemental information regarding plan of distribution; conflicts of interest:
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Selected dealers, which may include our affiliates, and their financial advisors will collectively receive from the agent a fixed sales commission of $ for each note they sell; provided that dealers selling to investors purchasing the notes in fee-based advisory accounts will receive a sales commission of $ per note.
MS & Co. is our wholly-owned subsidiary. MS & Co. will conduct this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying prospectus supplement.
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Contact:
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Morgan Stanley clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
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July 2011
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Page 7
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Index percent change
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Final index value
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Stated principal amount
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Supplemental redemption amount
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Payment at maturity
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Return on $1,000 note
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100%
|
2,600
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$1,000
|
$650
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$1,650
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65%
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90%
|
2,470
|
$1,000
|
$650
|
$1,650
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65%
|
80%
|
2,340
|
$1,000
|
$650
|
$1,650
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65%
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70%
|
2,210
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$1,000
|
$650
|
$1,650
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65%
|
65%
|
2,145
|
$1,000
|
$650
|
$1,650
|
65%
|
60%
|
2,080
|
$1,000
|
$600
|
$1,600
|
60%
|
50%
|
1,950
|
$1,000
|
$500
|
$1,500
|
50%
|
40%
|
1,820
|
$1,000
|
$400
|
$1,400
|
40%
|
30%
|
1,690
|
$1,000
|
$300
|
$1,300
|
30%
|
20%
|
1,560
|
$1,000
|
$200
|
$1,200
|
20%
|
10%
|
1,430
|
$1,000
|
$100
|
$1,100
|
10%
|
7%
|
1,391
|
$1,000
|
$70
|
$1,070
|
7%
|
6%
|
1,378
|
$1,000
|
$60
|
$1,060
|
6%
|
0%
|
1,300
|
$1,000
|
$60
|
$1,060
|
6%
|
–10%
|
1,170
|
$1,000
|
$60
|
$1,060
|
6%
|
–20%
|
1,040
|
$1,000
|
$60
|
$1,060
|
6%
|
–30%
|
910
|
$1,000
|
$60
|
$1,060
|
6%
|
–40%
|
780
|
$1,000
|
$60
|
$1,060
|
6%
|
–50%
|
650
|
$1,000
|
$60
|
$1,060
|
6%
|
–60%
|
520
|
$1,000
|
$60
|
$1,060
|
6%
|
–70%
|
390
|
$1,000
|
$60
|
$1,060
|
6%
|
–80%
|
260
|
$1,000
|
$60
|
$1,060
|
6%
|
–90%
|
130
|
$1,000
|
$60
|
$1,060
|
6%
|
–100%
|
0
|
$1,000
|
$60
|
$1,060
|
6%
|
July 2011
|
Page 8
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supplemental
redemption amount
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=
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$1,000 ×
|
participation rate
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×
|
(final index value – initial index value)
|
initial index value
|
where,
|
|||
participation rate
|
=
|
100%
|
|
initial index value
|
=
|
The index closing value on the pricing date
|
|
final index value
|
=
|
The index closing value on the determination date
|
July 2011
|
Page 9
|
¡
|
The notes do not pay interest and may not pay more than the minimum payment at maturity. If the index percent change is less than or equal to 6%, you will receive only the minimum payment at maturity of $1,060 for each note you hold at maturity. As the notes do not pay any interest, if the underlying index does not appreciate sufficiently over the term of the notes, the overall return on the notes (the effective yield to maturity) may be less than the amount that would be paid on a conventional debt security of the issuer of comparable maturity. The notes have been designed for investors who are willing to forgo market floating interest rates in exchange for a supplemental redemption amount based on the performance of the underlying index.
|
¡
|
The appreciation potential of the notes is limited by the maximum payment at maturity. The appreciation potential of the notes is limited by a maximum payment at maturity of $1,600 to $1,700 per note, or 160% to 170% of the stated principal amount. The actual maximum payment at maturity will be determined on the pricing date. Because the payment at maturity will be limited to 160% to 170% of the stated principal amount for the notes, any increase in the final index value over the initial index value by more than 60% to 70% will not further increase the return on the notes.
|
¡
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Market price of the notes will be influenced by many unpredictable factors. Several factors will influence the value of the notes in the secondary market and the price at which MS & Co. may be willing to purchase or sell the notes in the secondary market, including the value of the underlying index at any time and, in particular, on the determination date, the volatility (frequency and magnitude of changes in value) of the underlying index, dividend rate on the stocks underlying the index, interest and yield rates in the market, time remaining until the notes mature, geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying index or equities markets generally and which may affect the final index value of the underlying index and any actual or anticipated changes in our credit ratings or credit spreads. The value of the underlying index may be, and has recently been, volatile, and we can give you no assurance that the volatility will lessen. See “Historical Information” on page 13. You may receive less, and possibly significantly less, than the stated principal amount per note if you try to sell your notes prior to maturity.
|
¡
|
The notes are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings or credit spreads may adversely affect the market value of the notes. You are dependent on Morgan Stanley’s ability to pay all amounts due on the notes at maturity and therefore you are subject to the credit risk of Morgan Stanley. The notes are not guaranteed by any other entity. If Morgan Stanley defaults on its obligations under the notes, your investment would be at risk and you could lose some or all of your investment. As a result, the market value of the notes prior to maturity will be affected by changes in the market’s view of Morgan Stanley’s creditworthiness. Any actual or anticipated decline in Morgan Stanley’s credit ratings or increase in the credit spreads charged by the market for taking Morgan Stanley credit risk is likely to adversely affect the market value of the notes.
|
¡
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The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices. Assuming no change in market conditions or any other relevant factors, the price, if any, at which MS & Co. is willing to purchase the notes at any time in secondary market transactions will likely be significantly lower than the original issue price, since secondary market prices are likely to exclude commissions paid with respect to the notes and the cost of hedging our obligations under the notes that are included in the original issue price. The cost of hedging includes the projected profit that our subsidiaries may realize in consideration for assuming the risks inherent in managing the hedging transactions. These secondary market prices are also likely to be reduced by the cost of unwinding the related hedging transactions. Our subsidiaries may realize a profit
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July 2011
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Page 10
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¡
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Adjustments to the underlying index could adversely affect the value of the notes. The publisher of the underlying index can add, delete or substitute the stocks underlying the index, and can make other methodological changes required by certain events relating to the underlying stocks, such as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change the value of the underlying index. Any of these actions could adversely affect the value of the notes. The publisher of the underlying index may also discontinue or suspend calculation or publication of the underlying index at any time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable to the discontinued index. MS & Co. could have an economic interest that is different than that of investors in the notes insofar as, for example, MS & Co. is permitted to consider indices that are calculated and published by MS & Co. or any of its affiliates. If MS & Co. determines that there is no appropriate successor index on such determination date, the index closing value on the determination date will be an amount based on the stocks underlying the discontinued index at the time of such discontinuance, without rebalancing or substitution, computed by MS & Co, as calculation agent, in accordance with the formula for calculating the index closing value last in effect prior to discontinuance of the index.
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¡
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You have no shareholder rights. As an investor in the notes, you will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the stocks that underlie the index.
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¡
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Investing in the notes is not equivalent to investing in the underlying index. Investing in the notes is not equivalent to investing in the underlying index or its component stocks. See “Hypothetical Payout on the Notes” above.
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¡
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The notes will not be listed on any securities exchange and secondary trading may be limited. The notes will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the notes. MS & Co. may, but is not obligated to, make a market in the notes. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Because we do not expect that other broker-dealers will participate significantly in the secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were not to make a market in the notes, it is likely that there would be no secondary market for the notes. Accordingly, you should be willing to hold your notes to maturity.
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¡
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The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the notes. As calculation agent, MS & Co. will determine the initial index value and the final index value, and will calculate the amount of cash you will receive at maturity. Determinations made by MS & Co. in its capacity as calculation agent, including with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of the index closing value in the event of a discontinuance of the underlying index or a market disruption event, may adversely affect the payout to you at maturity.
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¡
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Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the notes. One or more of our subsidiaries expect to carry out hedging activities related to the notes (and to other instruments linked to the underlying index or its component stocks), including trading in the component stocks of the underlying index and in other instruments related to the underlying index. Some of our subsidiaries also trade the component stocks of the underlying index and other financial instruments related to the underlying index on a regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial index value and, therefore, could increase the value at which the underlying index must close on the determination date before an investor receives a payment at maturity that exceeds the minimum payment at maturity. Additionally, such hedging or trading activities during the term of the notes,
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July 2011
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Page 11
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July 2011
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Page 12
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S&P 500® Index
|
High
|
Low
|
Period End
|
2006
|
|||
First Quarter
|
1,307.25
|
1,254.78
|
1,294.83
|
Second Quarter
|
1,325.76
|
1,223.69
|
1,270.20
|
Third Quarter
|
1,339.15
|
1,234.49
|
1,335.85
|
Fourth Quarter
|
1,427.09
|
1,331.32
|
1,418.30
|
2007
|
|||
First Quarter
|
1,459.68
|
1,374.12
|
1,420.86
|
Second Quarter
|
1,539.18
|
1,424.55
|
1,503.35
|
Third Quarter
|
1,553.08
|
1,406.70
|
1,526.75
|
Fourth Quarter
|
1,565.15
|
1,407.22
|
1,468.36
|
2008
|
|||
First Quarter
|
1,447.16
|
1,273.37
|
1,322.70
|
Second Quarter
|
1,426.63
|
1,278.38
|
1,280.00
|
Third Quarter
|
1,305.32
|
1,106.39
|
1,166.36
|
Fourth Quarter
|
1,161.06
|
752.44
|
903.25
|
2009
|
|||
First Quarter
|
934.70
|
676.53
|
797.87
|
Second Quarter
|
946.21
|
811.08
|
919.32
|
Third Quarter
|
1,071.66
|
879.13
|
1,057.08
|
Fourth Quarter
|
1,127.78
|
1,025.21
|
1,115.10
|
2010
|
|||
First Quarter
|
1,174.17
|
1,056.74
|
1,169.43
|
Second Quarter
|
1,217.28
|
1,030.71
|
1,030.71
|
Third Quarter
|
1,148.67
|
1,022.58
|
1,141.20
|
Fourth Quarter
|
1,259.78
|
1,137.03
|
1,257.64
|
2011
|
|||
First Quarter
|
1,343.01
|
1,256.88
|
1,325.83
|
Second Quarter (through June 28, 2011)
|
1,363.61
|
1,265.42
|
1,296.67
|
July 2011
|
Page 13
|
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