FWP 1 dp40982_fwp-ps1097.htm FORM FWP
 
October 2013
Preliminary Terms No. 1,097
Registration Statement No. 333-178081
Dated September 30, 2013
Filed pursuant to Rule 433
STRUCTURED INVESTMENTS
Opportunities in Commodities
 
Commodity-Linked Notes due April    , 2019
 
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
The notes offered are unsecured obligations of Morgan Stanley, will pay no interest and will have the terms described in the accompanying prospectus supplement and prospectus, as supplemented or modified by this document. At maturity, we will pay per note the stated principal amount of $1,000 plus a supplemental redemption amount, if any, based on the price of the underlying commodity on the determination date. These long-dated notes are for investors who are concerned about principal risk but seek a West Texas Intermediate light sweet crude oil-based return, and who are willing to forgo current income in exchange for 200% participation in the positive performance of West Texas Intermediate light sweet crude oil and the repayment of principal at maturity. The notes are notes issued as part of Morgan Stanley’s Series F Global Medium-Term Notes program.
 
All payments are subject to the credit risk of Morgan Stanley. If Morgan Stanley defaults on its obligations, you could lose some or all of your investment. These securities are not secured obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
 
SUMMARY TERMS
Issuer:
Morgan Stanley
Issue price:
$1,000 per note (see “Commissions and issue price” below)
Stated principal amount:
$1,000 per note
Aggregate principal amount:
$
Pricing date:
October    , 2013
Original issue date:
November    , 2013 (3 business days after the pricing date)
Maturity date:
April    , 2019
Interest:
None
Underlying commodity:
West Texas Intermediate light sweet crude oil (“WTI crude oil”)
Payment at maturity:
The payment due at maturity per $1,000 stated principal amount will equal:
$1,000 + supplemental redemption amount, if any.
In no event will the payment at maturity be less than $1,000 per note.
Supplemental redemption amount:
(i) $1,000 times (ii) the commodity percent change times (iii) the participation rate, provided that the supplemental redemption amount will not be less than $0 per note.
Participation rate:
200%
Maximum payment at maturity:
None
Commodity percent change:
(final commodity price – initial commodity price) / initial commodity price
Initial commodity price:
$         , which is the commodity price on the pricing date, subject to adjustment for non-trading days and certain market disruption events
Final commodity price:
The commodity price on the determination date
Commodity price:
For any trading day, the official settlement price per barrel of WTI crude oil on the New York Mercantile Exchange (the “NYMEX”) Division of the first nearby month futures contract, stated in U.S. dollars, as made public by the NYMEX Division on such date
Determination date:
April    , 2019, subject to adjustment for non-trading days and certain market disruption events
CUSIP / ISIN:
61762AG9 / US61762AG91
Listing:
The notes will not be listed on any securities exchange.
Agent:
Morgan Stanley & Co. LLC (“MS & Co.”), a wholly-owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
Estimated value on the pricing date:
Approximately $918.50 per note, or within $30.00 of that estimate. See “Investment Summary” on page 2.
Commissions and issue price:
Price to public(1)
Agent’s commissions(1)(2)
Proceeds to issuer(3)
Per note
$1,000
$35
$965
Total
$
$
$
(1)
The actual price to public and Agent’s commissions for a particular investor may be reduced for volume purchase discounts depending on the aggregate amount of notes purchased by that investor. The lowest price payable by an investor is $990 per note. Please see “Syndicate Information” on page 15 for further details.
(2)
Selected dealers, including Morgan Stanley Wealth Management (an affiliate of the Agent), and their financial advisors will collectively receive from the Agent, MS & Co., a fixed sales commission of $35 for each note they sell. 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.
(3)
See “Use of proceeds and hedging” on page 13.
 
The notes involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 5.
 
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these notes, or determined if this document or the accompanying prospectus supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
 
You should read this document together with the related prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional Information About the Notes” at the end of this document.
 
 
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil

Investment Summary
 
Commodity-Linked Notes
 
The Commodity-Linked Notes due April    , 2019 Based on the Performance of West Texas Intermediate Light Sweet Crude Oil (the “notes”) provide investors:
 
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an opportunity to gain exposure to the performance of WTI crude oil and provide diversification of underlying asset class exposure
 
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the repayment of principal at maturity
 
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200% participation in any appreciation of WTI crude oil over the term of the notes
 
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no exposure to any decline of the underlying commodity if the notes are held to maturity
 
At maturity, if the price of WTI crude oil has depreciated or has not appreciated at all, you will receive the stated principal amount of $1,000 per note, without any return on your investment. All payments on the notes, including the repayment of principal at maturity, are subject to the credit risk of Morgan Stanley.
 
Maturity:
Approximately 6 years
Participation rate:
200%
Maximum payment at maturity:
None
Interest:
None
 
The original issue price of each note is $1,000. This price includes costs associated with issuing, selling, structuring and hedging the notes, which are borne by you, and, consequently, the estimated value of the notes on the pricing date will be less than $1,000. We estimate that the value of each note on the pricing date will be approximately $918.50, or within $30.00 of that estimate. Our estimate of the value of the notes as determined on the pricing date will be set forth in the final pricing supplement.
 
What goes into the estimated value on the pricing date?
 
In valuing the notes on the pricing date, we take into account that the notes comprise both a debt component and a performance-based component linked to the underlying commodity. The estimated value of the notes is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying commodity, instruments based on the underlying commodity, volatility and other factors including current and expected interest rates, as well as an interest rate related to the implied interest rate at which our conventional fixed rate debt trades in the secondary market (the “secondary market credit spread”).
 
What determines the economic terms of the notes?
 
In determining the economic terms of the notes, we use an internal funding rate which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more terms of the notes, such as the participation rate, would be more favorable to you.
 
What is the relationship between the estimated value on the pricing date and the secondary market price of the notes?
 
The price at which MS & Co. purchases the notes in the secondary market, absent changes in market conditions, including those related to the underlying commodity, may vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other factors. However, because the costs associated with issuing, selling, structuring and hedging the notes are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the notes in the secondary market, absent changes in market conditions, including those related to the underlying commodity, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those higher values will also be reflected in your brokerage account statements.
 
MS & Co. may, but is not obligated to, make a market in the notes and, if it once chooses to make a market, may cease doing so at any time.
 
October 2013
Page 2
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil

Key Investment Rationale
 
Commodity-Linked Notes offer investors exposure to the performance of commodities or commodity indices and provide for the repayment of principal at maturity. They are for investors who are concerned about principal risk but seek a commodity-based return, and who are willing to forgo current income in exchange for 200% participation in the positive performance of WTI crude oil and the repayment of principal at maturity. The notes are unsecured obligations of Morgan Stanley, and all payments on the notes, including the repayment of principal, are subject to the credit risk of Morgan Stanley.
 
Leveraged Performance
The notes offer investors 2 to 1 upside exposure to the performance of the underlying commodity, while providing for the repayment of principal in full at maturity.
Upside Scenario
The price of the underlying commodity increases in value and, at maturity, the notes pay the stated principal amount of $1,000 plus 200% of the positive performance of WTI crude oil. There is no limitation on the appreciation potential.
Par Scenario
The price of the underlying commodity stays unchanged or declines and, at maturity, the notes redeem for the stated principal amount of $1,000 per note.
 
October 2013
Page 3
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil

Hypothetical Payout on the Notes
 
At maturity, for each $1,000 stated principal amount of notes that you hold, you will receive the stated principal amount of $1,000 plus a supplemental redemption amount, if any, based on the price of the underlying commodity on the determination date. The supplemental redemption amount will be calculated on the determination date as follows:
 
(i) $1,000 times (ii) the commodity percent change times (iii) the participation rate.
 
In no event will the payment at maturity be less than the stated principal amount of $1,000 per note.
 
The table below illustrates the payment at maturity for each note for a hypothetical range of commodity percent changes and does not cover the complete range of possible payouts at maturity. The table assumes a hypothetical initial commodity price of $100. If the commodity percent change is less than or equal to 0%, you will receive only the stated principal amount of $1,000 for each note you hold at maturity.
 
Commodity
percent change
Final
commodity
price
Stated principal
amount
Supplemental
redemption amount
Payment at
maturity
Return on $1,000
note
100%
$200
$1,000
$2,000
$3,000
200%
90%
$190
$1,000
$1,800
$2,800
180%
80%
$180
$1,000
$1,600
$2,600
160%
70%
$170
$1,000
$1,400
$2,400
140%
60%
$160
$1,000
$1,200
$2,200
120%
50%
$150
$1,000
$1,000
$2,000
100%
40%
$140
$1,000
$800
$1,800
80%
30%
$130
$1,000
$600
$1,600
60%
20%
$120
$1,000
$400
$1,400
40%
10%
$110
$1,000
$200
$1,200
20%
0%
$100
$1,000
$0
$1,000
0%
-10%
$90
$1,000
$0
$1,000
0%
-20%
$80
$1,000
$0
$1,000
0%
-30%
$70
$1,000
$0
$1,000
0%
-40%
$60
$1,000
$0
$1,000
0%
-50%
$50
$1,000
$0
$1,000
0%
-60%
$40
$1,000
$0
$1,000
0%
-70%
$30
$1,000
$0
$1,000
0%
-80%
$20
$1,000
$0
$1,000
0%
-90%
$10
$1,000
$0
$1,000
0%
-100%
$0
$1,000
$0
$1,000
0%
 
October 2013
Page 4
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
Risk Factors
 
The following is a non-exhaustive list of certain key risk factors for investors in the notes. For further discussion of these and other risks you should read the section entitled “Risk Factors” in the accompanying prospectus supplement and prospectus. You should also consult with your investment, legal, tax, accounting and other advisers in connection with your investment in the notes.
 
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The notes do not pay interest and may not pay more than the stated principal amount at maturity.  If the commodity percent change is less than or equal to 0%, you will receive only the stated principal amount of $1,000 for each note you hold at maturity. As the notes do not pay any interest, if the underlying commodity does not appreciate sufficiently over the approximately six-year 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, if any, based on the performance of the underlying commodity.
 
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Single commodity prices tend to be more volatile than, and may not correlate with, the prices of commodities generally.  The supplemental redemption amount, if any, is linked exclusively to the price of WTI crude oil and not to a diverse basket of commodities or a broad-based commodity index. The price of WTI crude oil may not correlate to, and may diverge significantly from, the prices of commodities generally.  Because the notes are linked to the price of a single commodity, they carry greater risk and may be more volatile than a security linked to the prices of multiple commodities or a broad-based commodity index. The price of WTI crude oil may be, and has recently been, highly volatile, and we can give you no assurance that the volatility will lessen. See “WTI Crude Oil Overview” on page 10.
 
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Investments linked to a single commodity are subject to sharp fluctuations in commodity prices, and the price of WTI crude oil may change unpredictably and affect the value of the notes in unforeseen ways. Investments, such as the notes, linked to the price of a single commodity such as WTI crude oil are subject to significant fluctuations in the price of the commodity over short periods due to a variety of factors. Demand for refined petroleum products by consumers, as well as by the agricultural, manufacturing and transportation industries, affects the price of crude oil. Crude oil’s end-use as a refined product is often as transport fuel, industrial fuel and in-home heating fuel. Potential for substitution in most areas exists, although considerations including relative cost often limit substitution levels. Because the precursors of demand for petroleum products are linked to economic activity, demand will tend to reflect economic conditions. Demand is also influenced by government regulations, such as environmental or consumption policies. In addition to general economic activity and demand, prices for crude oil are affected by political events, labor activity and, in particular, direct government intervention (such as embargos) or supply disruptions in major oil producing regions of the world. Such events tend to affect oil prices worldwide, regardless of the location of the event. Supply for crude oil may increase or decrease depending on many factors. These include production decisions by the Organization of the Petroleum Exporting Countries and other crude oil producers. In the event of sudden disruptions in the supplies of oil, such as those caused by war, natural events, accidents or acts of terrorism, prices of oil futures contracts could become extremely volatile and unpredictable. Also, sudden and dramatic changes in the futures market may occur, for example, upon a cessation of hostilities that may exist in countries producing oil, the introduction of new or previously withheld supplies into the market or the introduction of substitute products or commodities. WTI crude oil is also subject to the risk that it has demonstrated a lack of correlation with world crude oil prices due to structural differences between the U.S. market for crude oil and the international market for crude oil. As a result, the price of WTI crude oil may be more volatile than world crude oil prices generally. See “WTI Crude Oil Overview” on page 10.
 
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An investment linked to commodity futures contracts is not equivalent to an investment linked to the spot prices of physical commodities.  The notes have returns based on the change in price of futures contracts on the underlying commodity, not the change in the spot price of actual physical commodity to which such futures contracts relate. The price of a futures contract reflects the expected
 
October 2013
Page 5
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
value of the commodity upon delivery in the future, whereas the price of a physical commodity reflects the value of such commodity upon immediate delivery, which is referred to as the spot price. Several factors can result in differences between the price of a commodity futures contract and the spot price of a commodity, including the cost of storing such commodity for the length of the futures contract, interest costs related to financing the purchase of such commodity and expectations of supply and demand for such commodity. While the changes in the price of a futures contract are usually correlated with the changes in the spot price, such correlation is not exact. In some cases, the performance of a commodity futures contract can deviate significantly from the spot price performance of the related underlying commodity, especially over longer periods of time. Accordingly, investments linked to the return of commodities futures contracts may underperform similar investments that reflect the spot price return on physical commodities.
 
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Differences between futures prices and the spot price of WTI crude oil may decrease the amount payable at maturity. The initial commodity price and final commodity price that are used to determine the payment at maturity on the notes are determined by reference to the settlement price of the first nearby month futures contract for WTI crude oil on the pricing date and valuation date, respectively, and will not therefore reflect the spot price of WTI crude oil on such dates. The market for futures contracts on WTI crude oil has experienced periods of backwardation, in which futures prices are lower than the spot price, and periods of contango, in which futures prices are higher than the spot price. If the contract is in backwardation on the pricing date or in contango on the valuation date, the amount payable at maturity on the notes will be less than if the initial WTI crude oil price or final WTI crude oil price, respectively, was determined with reference to the spot price.
 
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Suspension or disruptions of market trading in WTI crude oil futures contracts may adversely affect the value of the notes. The futures market for WTI crude oil is subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the markets, the participation of speculators and government regulation and intervention. In addition, the contract is listed on the NYMEX. NYMEX has limits on the amount of fluctuation in futures contract prices which may occur during a single business day. These limits are generally referred to as “daily price fluctuation limits” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “limit price.”  Once the limit price has been reached in a particular contract, no trades may be made at a different price. The current maximum daily price fluctuation for futures contracts of WTI crude oil is $10 per barrel for any particular month of delivery. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by $10 per barrel in either direction. If another halt is triggered, the market would continue to be expanded by $10 per barrel in either direction after each successive five-minute trading halt. There are no maximum price fluctuation limits during any one trading session. Fluctuation limits will have the effect of precluding trading in the contract or forcing the liquidation of contracts at disadvantageous times or prices. These circumstances could adversely affect the value of WTI crude oil futures contracts and, therefore, the value of the notes.
 
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The 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 commodity at any time and, in particular, on the determination date, the volatility (frequency and magnitude of changes in price) of the underlying commodity, the price and volatility of the futures contracts on the underlying commodity, trends of supply and demand for the underlying commodity, as well as the effects of speculation or any government actions that could affect the markets for the underlying commodity, 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 price of the underlying commodity or commodities markets generally and which may affect the final commodity price of the underlying commodity and any actual or anticipated changes in our credit ratings or credit spreads. Generally, the longer the time remaining to maturity, the more the market price of the notes will be affected by the other factors described above. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government
 
October 2013
Page 6
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
intervention. As a result, 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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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 amount payable on the notes is not linked to the price of the underlying commodity at any time other than the determination date.  The final commodity price will be based on the commodity price on the determination date, subject to adjustment for non-trading days and certain market disruption events. Even if the underlying commodity appreciates prior to the determination date but then drops by the determination date, the payment at maturity will be less, and may be significantly less, than it would have been had the payment at maturity been linked to the commodity price prior to such drop. Although the actual commodity price on the stated maturity date or at other times during the term of the notes may be higher than the final commodity price, the payment at maturity will be based solely on the commodity price on the determination date.
 
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The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the notes in the original issue price reduce the economic terms of the notes, cause the estimated value of the notes to be less than the original issue price and will adversely affect secondary market prices. Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the notes in secondary market transactions will likely be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as other factors.
 
The inclusion of the costs of issuing, selling, structuring and hedging the notes in the original issue price and the lower rate we are willing to pay as issuer make the economic terms of the notes less favorable to you than they otherwise would be.
 
However, because the costs associated with issuing, selling, structuring and hedging the notes are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the notes in the secondary market, absent changes in market conditions, including those related to the underlying commodity, and to our secondary market credit spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account statements.
 
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The estimated value of the notes is determined by reference to our pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum secondary market price.  These pricing and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher estimated value of the notes than those generated by others, including other dealers in the market, if they attempted to value the notes. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value of your notes at any time after the date of this
 
October 2013
Page 7
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
pricing supplement will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable factors” above.
 
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Investing in the notes is not equivalent to investing in the underlying commodity or in futures contracts or forward contracts on the underlying commodity.  Investing in the notes is not equivalent to investing in the underlying commodity or in futures contracts or forward contracts on the underlying commodity. By purchasing the notes, you do not purchase any entitlement to the underlying commodity or futures contracts or forward contracts on the underlying commodity. Further, by purchasing the notes, you are taking credit risk to Morgan Stanley and not to any counter-party to futures contracts or forward contracts on the underlying commodity. See “Hypothetical Payout on the Notes” above.
 
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Legal and regulatory changes could adversely affect the return on and value of your notes.  Futures contracts and options on futures contracts, including those related to the underlying commodities or the index commodities, are subject to extensive statutes, regulations, and margin requirements. The Commodity Futures Trading Commission, commonly referred to as the “CFTC,” and the exchanges on which such futures contracts trade are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily limits and the suspension of trading. Furthermore, certain exchanges have regulations that limit the amount of fluctuations in futures contract prices that may occur during a single five-minute trading period. These limits could adversely affect the market prices of relevant futures and options contracts and forward contracts. The regulation of commodity transactions in the U.S. is subject to ongoing modification by government and judicial action. In addition, various non-U.S. governments have expressed concern regarding the disruptive effects of speculative trading in the commodity markets and the need to regulate the derivative markets in general. The effect on the value of the securities of any future regulatory change is impossible to predict, but could be substantial and adverse to the interests of holders of the securities.
 
For example, the Dodd-Frank Act, which was enacted on July 21, 2010, requires the CFTC to establish limits on the amount of positions that may be held by any person in futures contracts on an underlying commodity, options on such futures contracts and swaps that are economically equivalent to such contracts. On October 18, 2011 the CFTC adopted limits that will apply to a person’s combined futures, options and swaps position in any one of 28 physical commodities and economically equivalent futures, options and swaps. The limits apply across affiliated and controlled entities and accounts and do not provide an exemption for financial hedging. These limits will be phased in generally beginning in 2012. Such rules may interfere with our ability to enter into or maintain hedge positions in instruments subject to the limits, and consequently, we may decide, or be forced, to sell a portion, possibly a substantial portion, of our hedge position in such underlying commodity or futures contracts on such underlying commodity or related contracts. Other market participants are subject to the same regulatory issues and may decide, or be required to, sell their positions in such underlying commodity or futures contracts on such underlying commodity or related contracts. While the effect of these or other regulatory developments are difficult to predict, if this broad market selling were to occur, it would likely lead to declines, possibly significant declines, in the price of such underlying commodity or futures contracts on such underlying commodity and therefore, the value of the securities.
 
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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 and, if it once chooses to make a market, may cease doing so at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on its estimate of the current value of the notes, taking into account its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able to resell 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. Since other broker-dealers may not participate significantly in the secondary market for the notes, the price at which you may be able to trade
 
October 2013
Page 8
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
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 to cease making 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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The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the notes.  As calculation agent, Morgan Stanley Capital Group Inc. (“MSCG”) will determine the initial commodity price and the final commodity price, and will calculate the amount of cash you will receive at maturity. Determinations made by MSCG in its capacity as calculation agent, including with respect to the occurrence or non-occurrence of market disruption events or calculation of the commodity price of the underlying commodity in the event of a market disruption event, may adversely affect the payout to you at maturity. In addition, MS & Co. has determined the estimated value of the notes on the pricing date.
 
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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 and/or third-party dealers expect to carry out hedging activities related to the notes (and possibly to other instruments linked to the underlying commodity), including trading in the underlying commodity or forward contracts or futures contracts on the underlying commodity. Some of our subsidiaries also trade in financial instruments related to the underlying commodity or the prices of the commodities or contracts that underlie the underlying commodity on a regular basis as part of their general commodity trading and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial commodity price and, therefore, the price at which the underlying commodity must close on the determination date before you would receive at maturity a payment that exceeds the stated principal amount of the notes. Additionally, such hedging or trading activities during the term of the notes, including on the determination date, could adversely affect the commodity price on the determination date and, accordingly, the amount of cash an investor will receive at maturity.
 
October 2013
Page 9
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
WTI Crude Oil Overview
 
Crude oil is used as a refined product primarily as transport fuel, industrial fuel and in-home heating fuel. The price of WTI crude oil to which the return on the notes is linked is based on the official settlement price per barrel of West Texas Intermediate light sweet crude oil on the NYMEX Division of the first nearby month futures contract, stated in U.S. dollars, as made public by the NYMEX Division on such date.
 
Underlying commodity information as of September 26, 2013
 
Bloomberg
Ticker Symbol*
Current Price
52 Weeks
Ago
52 Week
High
52 Week
Low
WTI crude oil (in U.S. dollars)
CL1
$103.03
$89.98
$110.53 (on 9/8/2013)
$84.44 (on 11/7/2012)
 
* The Bloomberg ticker symbol is being provided for reference purposes only. The commodity price on any trading day will be determined based on the price published by the NYMEX Division.
 
The following graph sets forth the daily fixing prices of the underlying commodity for the period from January 1, 2008 through September 26, 2013. The related table presents the published high and low fixing prices, as well as end-of-quarter fixing prices, for the underlying commodity for each quarter in the same period. The commodity price on September 26, 2013 was $103.03. We obtained the information in the table from Bloomberg Financial Markets, without independent verification. The historical performance of the underlying commodity should not be taken as an indication of its future performance.
 
WTI Crude Oil Prices
Daily Closing Prices of the First Nearby Month Futures Contract
January 1, 2008 to September 26, 2013
 
October 2013
Page 10
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
WTI Crude Oil (in U.S. dollars per barrel)
High
Low
Period End
2008
      
First Quarter
110.33
86.99
101.58
Second Quarter
140.21
100.98
140.00
Third Quarter
145.29
91.15
100.64
Fourth Quarter
98.53
33.87
44.60
2009
      
First Quarter
54.34
33.98
49.66
Second Quarter
72.68
45.88
69.89
Third Quarter
74.37
59.52
70.61
Fourth Quarter
81.37
69.51
79.36
2010
      
First Quarter
83.76
71.19
83.76
Second Quarter
86.84
68.01
75.63
Third Quarter
82.55
71.63
79.97
Fourth Quarter
91.51
79.49
91.38
2011
      
First Quarter
106.72
84.32
106.72
Second Quarter
113.93
90.61
95.42
Third Quarter
99.87
79.20
79.20
Fourth Quarter
102.59
75.67
98.83
2012
      
First Quarter
109.77
96.36
103.02
Second Quarter
106.16
77.69
84.96
Third Quarter
99.00
83.75
92.19
Fourth Quarter
92.48
84.44
91.82
2013
      
First Quarter
97.94
90.12
97.23
Second Quarter
98.44
86.68
96.56
Third Quarter (through September 26, 2013)
110.53
97.99
103.03
 
October 2013
Page 11
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil

Additional Information About the Notes
Please read this information in conjunction with the summary terms on the front cover of this document.
 
Additional Provisions:
  
Call right:
The notes are not callable prior to the maturity date
Interest:
None
Bull or bear notes:
Bull notes
Call right:
The notes are not callable prior to the maturity date.
Postponement of maturity date:
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 postponed to the second business day following the determination date as postponed.
Denominations:
$1,000 per note and integral multiples thereof
Minimum ticketing size:
$1,000 / 1 note
Tax considerations:
In the opinion of our counsel, Davis Polk & Wardwell LLP, 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 September 27, 2013, the “comparable yield” for the notes would be a rate of 2.7433% 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 $1,161.1867 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.
 
 
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.
 
ACCRUAL PERIOD
 
OID DEEMED TO
ACCRUE DURING
ACCRUAL
PERIOD (PER
NOTE)
 
TOTAL OID DEEMED
TO HAVE ACCRUED
FROM ORIGINAL
ISSUE DATE (PER
NOTE) AS OF END OF
ACCRUAL PERIOD
Original Issue Date through December 31, 2013
$4.1912
$4.1912
January 1, 2014 through June 30, 2014
$13.7740
$17.9652
July 1, 2014 through December 31, 2014
$13.9629
$31.9281
January 1, 2015 through June 30, 2015
$14.1544
$46.0825
July 1, 2015 through December 31, 2015
$14.3486
$60.4311
January 1, 2016 through June 30, 2016
$14.5454
$74.9765
July 1, 2016 through December 31, 2016
$14.7449
$89.7214
January 1, 2017 through June 30, 2017
$14.9472
$104.6686
July 1, 2017 through December 31, 2017
$15.1522
$119.8208
January 1, 2018 through June 30, 2018
$15.3600
$135.1808
July 1, 2018 through December 31, 2018
$15.5707
$150.7515
January 1, 2019 through the Maturity Date
$10.4352
$161.1867

 
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.
 
 
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.”
 
October 2013
Page 12
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
 
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. Any consequences resulting from the Medicare tax on investment income are also not discussed in this document or the accompanying prospectus supplement.
 
The discussion in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United States Federal Taxation” in the accompanying prospectus supplement, insofar as they purport to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the notes.
Trustee:
The Bank of New York Mellon
Use of proceeds and hedging:
The proceeds we receive from the sale of the notes will be used for general corporate purposes. We will receive, in aggregate, $1,000 per note issued, because, when we enter into hedging transactions in order to meet our obligations under the notes, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the notes borne by you and described on page 2 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the notes.
 
On or prior to the pricing date, we expect to hedge our anticipated exposure in connection with the notes, by entering into hedging transactions with our subsidiaries and/or third party dealers. We expect our hedging counterparties to take positions in the underlying commodity or futures contracts or forward contracts on the underlying commodity or positions in any other available instruments that they may wish to use in connection with such hedging. Such purchase activity could increase the price of the underlying commodity on the pricing date, and therefore, the price at which the underlying commodity must close on the determination date before you would receive at maturity a payment that exceeds the stated principal amount of the notes. In addition, through our subsidiaries, we are likely to modify our hedge position throughout the life of the notes, including on the determination date, by purchasing and selling the underlying commodity or futures contracts or forward contracts on the underlying commodity or positions in any other available instruments that we may wish to use in connection with such hedging activities, including by selling any such instruments on the determination date. We cannot give any assurance that our hedging activities will not affect the value of the underlying commodity and, therefore, adversely affect the value of the notes or the payment you will receive 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:
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
 
October 2013
Page 13
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
 
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 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 Morgan Stanley or Morgan Stanley Wealth Management 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.
Additional considerations:
Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the notes, either directly or indirectly.
Calculation agent:
MSCG
Supplemental information regarding plan of distribution; conflicts of interest:
The Agent may distribute the securities through Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”), as selected dealer, or other dealers, which may include Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley AG. Morgan Stanley Wealth Management, MSIP and Bank Morgan Stanley AG are affiliates of Morgan Stanley. Selected dealers, which may include our affiliates, and their financial advisors will collectively receive from the agent a fixed sales commission of $35 for each note they sell.
 
MS & Co. is our wholly-owned subsidiary and it and other subsidiaries of ours expect to make a profit by selling, structuring and, when applicable, hedging the notes. When MS & Co. prices this offering of notes, it will determine the economic terms of the notes such that for each note the estimated value on the pricing date will be no lower than the minimum level described in “Investment Summary” on page 2.
 
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.
Contact:
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.
Where you can find more information:
Morgan Stanley has filed a registration statement (including a prospectus, as supplemented by the prospectus supplement for commodity-linked notes) with the Securities and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the
 
October 2013
Page 14
 
 
 
Commodity-Linked Notes due April    , 2019
Based on the Performance of West Texas Intermediate Light Sweet Crude Oil
 
 
prospectus in that registration statement, the prospectus supplement for commodity-linked notes and any other documents relating to this offering that Morgan Stanley has filed with the SEC for more complete information about Morgan Stanley and this offering. You may get these documents without cost by visiting EDGAR on the SEC web site at.www.sec.gov. Alternatively, Morgan Stanley will arrange to send you the prospectus and the prospectus supplement for commodity-linked notes if you so request by calling toll-free 800-584-6837.
 
You may access these documents on the SEC web site at.www.sec.gov as follows:
 
 
 
Terms used in this document are defined in the prospectus supplement for commodity-linked notes or in the prospectus. As used in this document, the “Company,” “we,” “us,” and “our” refer to Morgan Stanley.
 
Syndicate Information
    
Issue price
Selling concession
Principal amount of
securities for any single investor
$1,000.00
$35.00
<$1MM
$995.00
$30.00
≥$1MM and <$3MM
$992.50
$27.50
≥$3MM and <$5MM
$990.00
$25.00
≥$5MM
 
The Agent may reclaim selling concessions allowed to dealers in connection with the offering, if, within 30 days of the offering, the Agent repurchases the securities distributed by such dealers.
 
October 2013
Page 15