424B2 1 dp50991_424b2-autocall.htm FORM 424(B)(2)
PRODUCT SUPPLEMENT
Filed Pursuant to Rule 424(b)(2)
For Auto-Callable Securities
Registration Statement No. 333-200365
(To Prospectus dated November 19, 2014)
 

GLOBAL MEDIUM-TERM NOTES, SERIES F
Senior Notes

Auto-Callable Securities
Linked to One or More Indices or Shares

 
We, Morgan Stanley, may offer from time to time auto-callable securities that are linked to one or more indices or shares.  The specific terms of any such auto-callable securities that we offer, including the name(s) of the underlying index or indices or share or shares, will be included in the applicable pricing supplement.  If the terms described in the applicable pricing supplement are inconsistent with those described in this product supplement for auto-callable securities, in any accompanying index supplement or in the accompanying prospectus, the terms described in the applicable pricing supplement will prevail.  In this product supplement for auto-callable securities, we refer to the auto-callable securities as the securities.  The securities will have the following general terms:
 
•      The securities are unsubordinated unsecured obligations of ours and do not guarantee any return of principal at maturity. All payments under the securities are subject to our credit risk.
 
•      Based upon the change in the value of the underlying index or indices or share or shares, the securities may pay an amount in cash that may be more or less than the principal amount of each security prior to or at maturity, respectively.
 
•       The securities will be held in global form by The Depository Trust Company, unless the applicable pricing supplement provides otherwise.
 
The applicable pricing supplement will describe the specific terms of the securities, including any changes to the terms specified in this product supplement.  See “Description of Auto-Callable Securities” on page S-43.
 

 Investing in the securities involves risks not associated with an investment in ordinary debt securities.  See “Risk Factors” beginning on page S-36.

 
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this product supplement, any accompanying index supplement or the accompanying prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
 
Morgan Stanley & Co. LLC, our wholly-owned subsidiary, has agreed to use reasonable efforts to solicit offers to purchase these securities as our agent.  The agent may also purchase these securities as principal at prices to be agreed upon at the time of sale.  The agent may resell any securities it purchases as principal at prevailing market prices, or at other prices, as the agent determines.
 
Morgan Stanley & Co. LLC may use this product supplement, the applicable pricing supplement, any accompanying index supplement and the accompanying prospectus in connection with offers and sales of the securities in market-making transactions.
 
These securities are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations of, or guaranteed by, a bank.
 

MORGAN STANLEY
November 19, 2014

 
 
 

 
 
For a description of certain restrictions on offers, sales and deliveries of the securities and on the distribution of this product supplement, any accompanying index supplement and the accompanying prospectus relating to the securities, see the section of this product supplement called “Plan of Distribution (Conflicts of Interest).”
 
No action has been or will be taken by us, the agent or any dealer that would permit a public offering of the securities or possession or distribution of this product supplement, any accompanying index supplement or the accompanying prospectus in any jurisdiction, other than the United States, where action for that purpose is required.  None of this product supplement, any accompanying index supplement nor the accompanying prospectus may be used for the purpose of an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
 
None of this product supplement, any accompanying index supplement or the accompanying prospectus is a prospectus for the purposes of the Prospectus Directive (as defined below) as implemented in member states of the European Economic Area.  This product supplement, any accompanying index supplement and the accompanying prospectus have been prepared on the basis that all offers of the securities described herein made to persons in the European Economic Area will be made pursuant to an exemption under the Prospectus Directive from the requirement to produce a prospectus in connection with offers of the securities.
 
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”), no offer of securities to the public has been made or will be made in that Relevant Member State except that, with effect from and including the Relevant Implementation Date, an offer of such securities may be made to the public in that Relevant Member State at any time:
 
(1)  to any legal entity which is a qualified investor as defined in the Prospectus Directive;
 
(2)  to fewer than 100, or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant agent, underwriter or dealer nominated by us for any such offer; or
 
(3)  in any other circumstances falling within Article 3(2) of the Prospectus Directive,
 
provided that no such offer of securities referred to in (1) to (3) above shall require us or any agent to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
 
For the purposes of this provision, the expression an “offer of securities to the public” in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
 
 
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The communication of this product supplement, any accompanying index supplement or the accompanying prospectus or any other documents or materials relating to the issue of the securities is not being made, and such documents and/or materials have not been approved, by an authorised person for the purposes of section 21 of the Financial Services and Markets Act 2000. Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The communication of such documents and/or materials as a financial promotion is only being made to those persons in the United Kingdom falling within the definition of investment professionals (as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Financial Promotion Order”)) or within Article 49(2)(A) to (D) of the Financial Promotion Order, or to any other persons to whom it may otherwise lawfully be made under the Financial Promotion Order (all such persons together being referred to as “relevant persons”).  In the United Kingdom the securities are only available to, and any investment or investment activity to which this product supplement, any accompanying index supplement or the accompanying prospectus relates will be engaged in only with, relevant persons.  Any person in the United Kingdom that is not a relevant person should not act or rely on this product supplement, any accompanying index supplement or the accompanying prospectus or any of its or their contents.
 
The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Law No.25 of 1948, as amended, the “FIEA”).  The securities will not be offered or sold, directly or indirectly, in Japan or to or for the account or benefit of any resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Law No. 228 of 1949, as amended)) or to others for re-offering or resale, directly or indirectly, in Japan or to or for the account or benefit of a resident of Japan, except pursuant to an exemption from the registration requirements and otherwise in compliance with the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan.
 
WARNING: The contents of this product supplement, any accompanying index supplement and the accompanying prospectus have not been reviewed by any regulatory authority in Hong Kong.  You are advised to exercise caution in relation to the offer.  If you are in any doubt about any of the contents of this product supplement, any accompanying index supplement or the accompanying prospectus, you should obtain independent professional advice.
 
 None of the securities have been offered or sold or will be offered or sold in Hong Kong, by means of any document, other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the “SFO”) and any rules made under that Ordinance or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) or which do not constitute an offer to the public within the meaning of that Ordinance.  No person has issued or may issue or had or may have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the applicable securities law of Hong Kong) other than with respect to the securities which are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under that Ordinance.
 
None of this product supplement, any accompanying index supplement and the accompanying prospectus have been registered as a prospectus under the Securities and Futures Act, Chapter 289 of Singapore, as amended (the “SFA”), by the Monetary Authority of Singapore and the securities will be offered pursuant to exemptions under the SFA.  Accordingly, none of this product supplement, any accompanying index supplement and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities may be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor as defined in Section 4A of the SFA (an “Institutional Investor”) pursuant to Section 274 of the SFA, (ii) to a relevant person as defined in Section 275(2) of the SFA (a “Relevant Person”), or to any person pursuant to an offer referred to in Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable
 
 
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exemption or provision of the SFA.  Where securities are subscribed or purchased pursuant to an offer made in reliance on Section 275 by a Relevant Person which is:
 
(a) a corporation (which is not an accredited investor as defined in Section 4A of the SFA (an “Accredited Investor”)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an Accredited Investor; or
 
(b) a trust (where the trustee is not an Accredited Investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an Accredited Investor,
 
the securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interests (howsoever described) in that trust shall not be transferred for six months after that corporation or that trust has acquired the securities pursuant to an offer made under Section 275 of the SFA except:
 
(1) to an Institutional Investor or to a Relevant Person, or to any person arising from an offer referred to in Section 275(1A) of the SFA (in the case of that corporation) or Section 276(4)(i)(B) of the SFA (in the case of that trust);
 
(2)  where no consideration is or will be given for the transfer;
 
(3)  where the transfer is by operation of law; or
 
(4) pursuant to Section 276(7) of the SFA or Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations.
 
The securities may not be offered or sold, directly or indirectly, in or from Switzerland except in circumstances that will not result in the offer of the securities being a public offering in Switzerland within the meaning of the Swiss Federal Code of Obligations (“CO”). None of this product supplement, any accompanying index supplement, the accompanying prospectus or any other offering or marketing material relating to the securities constitutes a prospectus as that term is understood pursuant to Article 652a or 1156 CO or a listing prospectus pursuant to the listing rules of SIX Swiss Exchange, and none of this product supplement, any accompanying index supplement, the accompanying prospectus or any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland. The securities are not authorized by or registered with the Swiss Financial Market Supervisory Authority as a foreign collective investment scheme. Therefore, investors do no benefit from protection under the Swiss Federal Act on Collective Investment Schemes or supervision by the Swiss Financial Market Supervisory Authority.
 
 
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TABLE OF CONTENTS
 
  Page     Page
         
Product Supplement
   
Prospectus
 
         
Summary
S-6
 
Summary
1
Estimated Value and Secondary Market
   
Risk Factors
5
Prices of the Securities
S-18
 
Where You Can Find More Information
9
Hypothetical Payouts on the Securities
S-20
 
Consolidated Ratios of Earnings to Fixed
 
Risk Factors
S-36
 
Charges and Earnings to Fixed Charges
 
Description of Auto-Callable Securities
S-43
 
and Preferred Stock Dividends
11
Use of Proceeds and Hedging
S-72
 
Morgan Stanley
12
Auto-Callable Securities Offered on a
   
Use of Proceeds
13
Global Basis
S-72
 
Description of Debt Securities
13
Benefit Plan Investor Considerations
S-72
 
Description of Units
38
United States Federal Taxation
 S-75  
Description of Warrants
43
Plan of Distribution (Conflicts of
   
Description of Purchase Contracts
45
Interest)
S-81  
Description of Capital Stock
47
     
Forms of Securities
57
     
Securities Offered on a Global Basis Through
 
     
the Depositary
60
     
United States Federal Taxation
64
     
Plan of Distribution (Conflicts of Interest)
69
     
Legal Matters
71
     
Experts
71
     
Benefit Plan Investor Considerations
71
 
 
You should rely only on the information contained or incorporated by reference in this product supplement, any accompanying index supplement, the accompanying prospectus and any applicable pricing supplement.  We have not authorized anyone else to provide you with different or additional information.  We are offering to sell these securities and seeking offers to buy these securities only in jurisdictions where offers and sales are permitted.  As used in this product supplement, the “Company,” “we,” “us,” and “our” refer to Morgan Stanley.

 
S-5

 
 
SUMMARY
 
The following summary describes the auto-callable securities linked to one or more indices or shares that we, Morgan Stanley, may offer from time to time, in general terms only. You should read the summary together with the more detailed information contained in this product supplement, in any accompanying index supplement, in the accompanying prospectus and in the applicable pricing supplement. We may also prepare free writing prospectuses that describe particular issuances of auto-callable securities. Any free writing prospectus should also be read in connection with this product supplement, any accompanying index supplement and the accompanying prospectus. For purposes of this product supplement, any references to an applicable pricing supplement may also refer to a free writing prospectus, unless the context otherwise requires.
 
We will sell these securities primarily in the United States, but may also sell them outside the United States or both in and outside the United States simultaneously. The securities we offer under this product supplement are among the securities we refer to as our Series F medium-term notes. We refer to the offering of the Series F medium-term notes as our Series F program. See “Plan of Distribution (Conflicts of Interest)” in this product supplement.
 
Auto-Callable Securities
 
General terms of the securities
 
Unlike ordinary debt securities, the securities do not guarantee any return of principal at maturity. The securities generally do not pay interest, but may do so if so specified in the applicable pricing supplement. The securities will (i) be subject to automatic redemption prior to maturity depending on the closing value of the underlying asset(s) (whether one or more indices, shares of common stock or shares of an exchange-traded fund) on any determination date, for an early redemption payment specified for the relevant determination date and (ii) if not redeemed early prior to maturity, pay an amount of cash, at maturity, that is greater than, equal to or less than the stated principal amount depending on the value of the underlying asset(s) on the final determination date and over the term of the securities. Any payment on the securities upon an early redemption or at maturity is subject to the credit risk of Morgan Stanley.
 
The securities may also be issued with a buffered payment at maturity. These securities will be subject to the same automatic redemption prior to maturity as described above, but, if not redeemed early prior to maturity, the payment at maturity will have a buffer against a specified level of negative performance of the underlying asset on the final determination date only. The payment at maturity on these securities will not depend on the value of the underlying asset over the term of the securities. If the applicable pricing supplement indicates that the securities are securities issued with a buffer amount, the provisions under “Description of Auto-Callable Securities—Payment at Maturity—for auto-callable buffered securities” will apply.
 
The examples provided in this summary below illustrate how the securities work by using an index or indices as the underlying asset(s) of the securities. We may also link the securities to shares of one or more common stocks, American depositary shares representing the ordinary shares of one or more underlying companies, or shares of one or more exchange-traded funds in addition to or in lieu of an index or indices, as more fully described in “Description of Auto-Callable Securities” below.
     
Bull Market Auto-Callable Securities
 
For securities that pay you a positive return if the underlying asset increases in value and expose you to risk of loss if the underlying asset decreases in value, which we refer to as “bull market auto-callable securities,” you will receive for each security that you hold an amount in cash depending on the value of the underlying asset(s) on
 
 
S-6

 
 
    the final determination date and over the term of the securities, determined as follows:
     
   
Bull Market Auto-Callable Securities Linked to a Single Index
     
Automatic early redemption
 
If the closing value of the underlying index on any determination date other than the final determination date is greater than the initial index value (or such other value as specified in the applicable pricing supplement), the securities will be automatically redeemed for an early redemption payment specified for the applicable determination date in the applicable pricing supplement. The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
     
Payment at maturity
 
At maturity, if the securities have not previously been automatically redeemed, you will receive for each security that you hold an amount of cash which will vary depending on the value of the underlying index on the final determination date and over the term of the securities, as described below:
     
   
•      If the final index value is greater than the initial index value: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
     
   
•      If the final index value is less than or equal to the initial index value but the index value has not declined to or below the specified trigger level at any time during the observation period: the stated principal amount
     
   
•      If the final index value is less than or equal to the initial index value and the index value has declined to or below the specified trigger level at any time during the observation period: the stated principal amount times the index performance factor
     
   
where,
     
index performance factor
=
final index value
initial index value
     
   
Because the index performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
     
   
“stated principal amount,” “initial index value,” “final index value,” “index closing value,” “index value,” “trigger level,” and “observation period,” have the following meanings:
     
 
stated principal amount
=     the stated principal amount per security, as specified in the applicable pricing supplement
     
 
initial index value
=     the index closing value on the day we price the securities for initial sale to the public, which we refer to as the pricing date
     
 
final index value
=     the index closing value on the final determination date
     
 
index closing value
=     the closing value of the underlying index or any successor index (as defined under “Description of Auto-Callable Securities—Discontinuance of Any Underlying Index; Alteration of Method of Calculation” below) published at the regular weekday close of trading on the
 
 
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relevant index business day. In certain circumstances, the index closing value will be based on the alternate calculation of the index described under “Description of Auto-Callable Securities—Discontinuance of Any Underlying Index; Alteration of Method of Calculation”
     
 
index value
=     the index value at any time on any day during the observation period will equal the value of the underlying index published at such time on such day under the applicable Bloomberg ticker symbol or any successor ticker symbol, or in the case of any successor index, the Bloomberg ticker symbol or successor ticker symbol for any such successor index
     
 
trigger level
=     the level specified in the applicable pricing supplement
     
 
observation period
=     Unless otherwise specified in the applicable pricing supplement, the observation period is the period of regular trading hours on each index business day on which there is no market disruption event with respect to the underlying index during the period from but excluding the pricing date to and including the final determination date
     
   
Bull Market Auto-Callable Securities Linked to More Than One Index
     
Automatic early redemption
 
If the index closing values of each of the underlying indices on any determination date other than the final determination date are in each case greater than the respective initial index values (or such other values as specified in the applicable pricing supplement), the securities will be automatically redeemed for an early redemption payment specified for the applicable determination date in the applicable pricing supplement. The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
     
Payment at maturity
 
At maturity, if the securities have not previously been automatically redeemed, you will receive for each security that you hold an amount of cash which will vary depending on the value of the underlying indices on the final determination date and over the term of the securities, as described below:
     
   
•      If the final index values of each of the underlying indices are in each case greater than the respective initial index values: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
     
   
•      If the final index value of any of the underlying indices is less than or equal to the relevant initial index value but the index value of no underlying index has declined to or below the relevant specified trigger level at any time during the observation period: the stated principal amount
     
   
•      If the final index value of any of the underlying indices is less than or equal to the relevant initial index value and the index value of any of the underlying indices has declined to or below the relevant specified trigger level at any time during the observation period: the stated principal amount times the index
 
 
 
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performance factor
     
   
where,
     
index performance factor
=
the least of
     
 
final index value of Index1
 
 
initial index value of Index1
 
 
and
 
 
final index value of Index2
 
 
initial index value of Index2
 
 
and
 
 
final index value of Indexn
 
 
initial index value of Indexn
 
     
   
The underlying index with the lowest index performance factor may be, but need not be, the same underlying index that declined below the trigger level during the observation period.
     
   
Because the index performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
     
   
“stated principal amount,” “trigger level,” and “observation period,” are as defined above in “—Bull Market Auto-Callable Securities—Bull Market Auto-Callable Securities Linked to a Single Index.” With respect to each of the underlying indices, “initial index value,” “final index value,” “index closing value,” and “index value” have the meanings as defined above in “—Bull Market Auto-Callable Securities—Bull Market Auto-Callable Securities Linked to a Single Index.”
     
Bear Market Auto-Callable Securities
 
We may also offer auto-callable securities that pay you a positive return if the underlying asset declines in value and expose you to risk of loss if the underlying asset increases in value, which we refer to as “bear market auto-callable securities.” As a holder of bear market auto-callable securities, you will receive for each security that you hold an amount in cash depending on the value of the underlying index or indices on the final determination date and over the term of the securities, determined as follows:
     
   
Bear Market Auto-Callable Securities Linked to a Single Index
     
Automatic early redemption
 
If the closing value of the underlying index on any determination date other than the final determination date is less than the initial index value (or such other value as specified in the applicable pricing supplement), the securities will be automatically redeemed for an early redemption payment specified for the applicable determination date in the applicable pricing supplement. The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
     
Payment at maturity
 
At maturity, if the securities have not previously been automatically redeemed, you will receive for each security that you hold an amount of cash which will vary
 
 
 
S-9

 
 
 
    depending on the value of the underlying index on the final determination date and over the term of the securities, as described below:
     
   
•      If the final index value is less than the initial index value: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
     
   
•      If the final index value is greater than or equal to the initial index value but the index value has not increased to or above the specified trigger level at any time during the observation period: the stated principal amount
     
   
•      If the final index value is greater than or equal to the initial index value and the index value has increased to or above the specified trigger level at any time during the observation period: the stated principal amount times the index performance factor
     
   
where,
     
index performance factor
=
1 –
(final index value – initial index value)
initial index value
     
   
, provided that the index performance factor may not be less than zero.
     
   
Because the index performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
     
   
“stated principal amount,” “initial index value,” “final index value,” “index closing value,” “index value,” “trigger level,” and “observation period,” are as defined above in “—Bull Market Auto-Callable Securities—Bull Market Auto-Callable Securities Linked to a Single Index.”
     
   
Bear Market Auto-Callable Securities Linked to More Than One Index
     
Automatic early redemption
 
If the index closing values of each of the underlying indices on any determination date other than the final determination date are in each case less than the respective initial index values (or such other values as specified in the applicable pricing supplement), the securities will be automatically redeemed for an early redemption payment specified for the applicable determination date in the applicable pricing supplement. The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
     
Payment at maturity
 
At maturity, if the securities have not previously been automatically redeemed, you will receive for each security that you hold an amount of cash which will vary depending on the value of the underlying indices on the final determination date and over the term of the securities, as described below:
     
   
•      If the final index values of each of the underlying indices are in each case less than the respective initial index values: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
 
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•      If the final index value of any of the underlying indices is greater than or equal to the relevant initial index value but the index value of no underlying index has increased to or above the relevant specified trigger level at any time during the observation period: the stated principal amount
     
   
•      If the final index value of any of the underlying indices is greater than or equal to the relevant initial index value and the index value of any of the underlying indices has increased to or above the relevant specified trigger level at any time during the observation period: the stated principal amount times the index performance factor
     
   
where,
     
index performance factor
=
the least of

1 –
(final index value of Index1 – initial index value of Index1)
initial index value of Index1
 
and
 
1 –
(final index value of Index2 – initial index value of Index2)
initial index value of Index2
 
and
 
1 –
(final index value of Indexn – initial index value of Indexn)
initial index value of Indexn
 
   
, provided that the index performance factor may not be less than zero.
     
   
The underlying index with the lowest index performance factor may be, but need not be, the same underlying index that increased above the trigger level during the observation period.
     
   
Because the index performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
     
   
“stated principal amount,” “trigger level,” and “observation period,” are as defined above in “—Bull Market Auto-Callable Securities—Bull Market Auto-Callable Securities Linked to a Single Index.” With respect to each of the underlying indices, “initial index value,” “final index value,” “index closing value,” and “index value” have the meanings as defined above in “—Bull Market Auto-Callable Securities—Bull Market Auto-Callable Securities Linked to a Single Index.”
     
Bull Market Auto-Callable Buffered Securities and Bear Market Auto-Callable Buffered Securities
 
We may also offer bull market auto-callable securities and bear market auto-callable securities that are issued with a buffer amount, which we refer to individually as “bull market auto-callable buffered securities” or “bear market auto-callable buffered securities,” as applicable, and collectively as “auto-callable buffered securities.” As a holder of bull market auto-callable buffered securities or bear market auto-callable buffered securities, you will receive for each security that you hold an amount in cash depending on the value of the underlying index on the final determination date as follows:
 
 
 
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Bull Market Auto-Callable Buffered Securities Linked to a Single Index
     
Automatic early redemption
 
If the closing value of the underlying index on any determination date other than the final determination date is greater than the initial index value (or such other value as specified in the applicable pricing supplement), the securities will be automatically redeemed for an early redemption payment specified for the applicable determination date in the applicable pricing supplement. The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
     
Payment at maturity
 
At maturity, if the securities have not previously been automatically redeemed, you will receive for each security that you hold an amount of cash which will vary depending on the value of the underlying index on the final determination date, as described below:
     
   
•      If the final index value is greater than the initial index value: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
     
   
•      If the final index value is less than or equal to the initial index value but has decreased by an amount less than or equal to the buffer amount from the initial index value: the stated principal amount
     
   
•      If the final index value is less than or equal to the initial index value and has decreased by an amount greater than the buffer amount from the initial index value: the stated principal amount times the index performance factor, plus the minimum payment at maturity
     
   
where,
     
index performance factor
=
  final index value  
 initial index value

   
This payment will be less than the stated principal amount; however, the payment at maturity for each stated principal amount will not be less than the minimum payment at maturity, which will be the stated principal amount times the buffer amount.
     
   
“stated principal amount,” “initial index value,” “final index value” and “index closing value” are as defined above in “—Bull Market Auto-Callable Securities Linked to a Single Index.”
 
“buffer amount” has the following meaning:
 
buffer amount = for bull market auto-callable buffered securities, the percentage specified in the applicable pricing supplement by which the final index value may decline from the initial index value before you will lose any part of the stated principal amount per security.
     
Bear Market Auto-Callable Buffered Securities Linked to a Single Index
     
Automatic early redemption
 
If the closing value of the underlying index on any determination date other than the final determination date is less than the initial index value (or such other value as specified in the applicable pricing supplement), the securities will be automatically redeemed for an early redemption payment specified for the applicable determination date in the applicable pricing supplement. The early redemption payment will be an
 
 
 
S-12

 
 
 
    amount of cash that is greater than the stated principal amount of the securities.
     
Payment at maturity
 
At maturity, if the securities have not previously been automatically redeemed, you will receive for each security that you hold an amount of cash which will vary depending on the value of the underlying index on the final determination date, as described below:
     
   
•      If the final index value is less than the initial index value: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
     
   
•      If the final index value is greater than or equal to the initial index value but the index value has increased by an amount less than or equal to the buffer amount from the initial index value: the stated principal amount
     
   
•      If the final index value is greater than or equal to the initial index value and the index value has increased by an amount greater than the buffer amount from the initial index value: the stated principal amount times the index performance factor, plus the minimum payment at maturity
     
   
where,
     
index performance factor
=
1 –
(final index value – initial index value)
initial index value
     
   
, provided that the index performance factor may not be less than zero.
     
   
This payment will be less than the stated principal amount; however, the payment at maturity for each stated principal amount will not be less than the minimum payment at maturity, which will be the stated principal amount times the buffer amount.
     
   
“stated principal amount,” “initial index value,” “final index value” and “index closing value” are as defined above in “—Bull Market Auto-Callable Securities Linked to a Single Index.”
     
    “buffer amount” has the following meaning:
     
   
buffer amount = for bear market auto-callable buffered securities, the percentage specified in the applicable pricing supplement by which the final index value may increase from the initial index value before you will lose any part of the stated principal amount per security.
     
Bull Market Auto-Callable Buffered Securities and Bear Market Auto-Callable Buffered Securities Linked to More Than One Index
     
    Bull market auto-callable securities linked to more than one index and bear market auto-callable securities linked to more than one index may also be issued as auto-callable buffered securities. The terms applicable to such auto-callable buffered securities will be as specified in the applicable pricing supplement.
 
 
 
S-13

 
 
Auto-callable securities linked to underlying assets
 
Auto-Callable Securities Linked to Underlying Shares
 
For issuances of securities linked to shares of a common stock or shares of an exchange-traded fund specified in the applicable pricing supplement, which we refer to as underlying shares, the applicable provisions described above under “—Bull Market Auto-Callable Securities” and “—Bear Market Auto-Callable Securities” will apply, except that:
     
   
·         the initial index value will be the closing price of one underlying share times the adjustment factor, each as of the pricing date, or as otherwise specified in the applicable pricing supplement, which we refer to as the initial share price;
     
   
·         the final index value will be the closing price of one underlying share times the adjustment factor, each as of the final determination date, which we refer to as the final share price;
     
   
·          the index closing value on any determination date (other than the final determination date) will be the closing price of one underlying share times the adjustment factor, each as of such determination date (other than the final determination date), which we refer to as the determination closing price;
     
   
·          the index value will be the intraday price of one underlying share times the adjustment factor on such day, which we refer to as the trading price;
     
   
·          the adjustment factor is a number which is initially 1.0 and will be subject to adjustment for certain events affecting the underlying shares as described under “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares—Some Definitions”; and
     
   
·          the observation period for any underlying share will be the period of regular trading hours on each trading day on which there is no market disruption event with respect to the underlying shares during the period from but excluding the pricing date to and including the final determination date.
     
   
See “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares” for the definition of terms and further information related to auto-callable securities linked to underlying shares. If the applicable pricing supplement indicates that the auto-callable securities are linked to both indices and shares, (i) the provisions under “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares” will apply for calculations and determinations relating to the underlying shares of one or more common stocks or exchange-traded funds and (ii) the provisions under the other sections of “Description of Auto-Callable Securities” will apply for calculations and determinations relating to the underlying index or indices.
     
   
Auto-callable securities linked to underlying shares may also be issued as auto-callable buffered securities. The terms applicable to such auto-callable buffered securities will be as specified in the applicable pricing supplement.
     
Your return on the securities is limited by the early redemption feature
 
The appreciation potential of the securities is limited by the automatic early redemption feature of the securities as it may limit the term of your investment. If the securities are redeemed, you may not be able to reinvest at comparable
 
 
S-14

 
 
and by the maximum payment at maturity   terms or returns.
 
Upon automatic early redemption or at maturity, any positive return you will receive on your investment in the securities will be a fixed amount that does not reflect the extent of the appreciation, in the case of bull market auto-callable securities, or depreciation, in the case of bear market auto-callable securities, of the underlying asset(s). Therefore, the appreciation potential of the securities is limited by the maximum payment at maturity regardless of the actual performance of the underlying asset(s).
     
Issue price of the securities includes commissions and projected profit
 
The issue price of the securities, which will be specified in the applicable pricing supplement, includes the agent’s commissions paid with respect to the securities and the cost of hedging our obligations under the securities. 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. The fact that the issue price of the securities reflects these commissions and hedging costs is expected to adversely affect the secondary market prices of the securities. See “Risk Factors—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 securities in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market prices” and “Use of Proceeds and Hedging.”
     
Postponement of maturity date
 
If the scheduled maturity date is not a business day, then the maturity date will be the next succeeding business day immediately following the scheduled maturity date. Interest on the payment of principal, premium, if any, and interest, if any, will not accrue during the period from and after the scheduled maturity date.
 
If the scheduled final determination date is not an index business day or a trading day, as applicable, or if a market disruption event occurs on that day so that the final determination date falls less than two scheduled business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the second business day following that final determination date as postponed.
     
Other terms of the securities
 
•      The securities may bear interest, if any, at either a fixed rate or a floating rate, as specified in the applicable pricing supplement and may pay such interest, if any, payable on the dates specified in the applicable pricing supplement.
     
   
•      The securities will be denominated in U.S. dollars unless we specify otherwise in the applicable pricing supplement.
     
   
•      You will not have the right to present the securities to us for repayment prior to maturity, unless the applicable pricing supplement provides otherwise.
 
 
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•      The securities may be subject to price event acceleration, if specified in the applicable pricing supplement, which would occur if the closing price of the underlying shares on any two consecutive trading days is less than the acceleration price specified in the applicable pricing supplement. The amount payable per stated principal amount in the event of price event acceleration will be specified in the applicable pricing supplement.
     
   
•      We may from time to time, without your consent, create and issue additional securities of any series with the same terms as the securities previously issued so that they may be combined with the earlier issuance.
     
   
•      The securities will not be listed on any securities exchange, unless we specify otherwise in the applicable pricing supplement.
     
   
•      The securities will be unsubordinated unsecured obligations of ours.
     
   
•      The securities may be issued at a discount to their principal amount.
     
MS & Co. will be the calculation agent
 
We have appointed our affiliate Morgan Stanley & Co. LLC, which we refer to as MS & Co., to act as calculation agent for us with respect to the auto-callable securities. As calculation agent, MS & Co. will determine the closing value of the underlying asset(s), the value of the underlying asset(s) for purposes of determining whether the trigger level has been reached, whether the closing value of the underlying asset(s) on any determination date other than the final determination date is greater than or less than the initial value, and, therefore, whether the securities will be redeemed following such determination date, whether a market disruption event has occurred, and the payment that you will receive at maturity, if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of any index closing value in the event of a discontinuance of the underlying index or any of the underlying indices and whether to make any adjustments to the adjustment factor for certain corporate events affecting the underlying shares. These potentially subjective judgments may adversely affect the payout to you at maturity, if any. All determinations made by the calculation agent will be at the sole discretion of the calculation agent and will, in the absence of manifest error, be conclusive for all purposes and binding on you, the Trustee and us.
     
MS & Co. will be the agent; Conflicts of interest
 
The agent for the offering of the auto-callable securities is expected to be MS & Co., our wholly-owned subsidiary, which 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. In accordance with FINRA Rule 5121, MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account without the prior written approval of the customer. See “Plan of Distribution (Conflicts of Interest).”
     
Forms of securities
 
The auto-callable securities will be issued in fully registered form and will be represented by a global note registered in the name of a nominee of The Depository Trust Company, as depositary, unless we indicate in the applicable pricing supplement that they will be represented by certificates issued in definitive form. We will not issue book-entry securities as certificated securities except under the
 
 
S-16

 
 
 
    circumstances described in “Forms of Securities—The Depositary” in the accompanying prospectus, under which heading you may also find information on The Depository Trust Company’s book-entry system.
     
Where you can find more information on the securities
 
Because this is a summary, it does not contain all of the information that may be important to you, including the specific requirements for the exercise of our call right. You should read the “Description of Auto-Callable Securities” section in this product supplement and the “Description of Debt Securities” section in the accompanying prospectus for a detailed description of the terms of the securities. You should also read about some of the risks involved in an investment in the securities in the section of this product supplement called “Risk Factors.” The tax and accounting treatment of investments in equity-linked securities such as the auto-callable securities may differ from that of investments in ordinary debt securities. See the section of this product supplement called “Description of Auto-Callable Securities—United States Federal Taxation.” We urge you to consult with your investment, legal, accounting and other advisers with regard to any investment in the securities.
     
How to reach us
 
Morgan Stanley Wealth Management 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.
 
S-17

 
 
ESTIMATED VALUE AND SECONDARY MARKET PRICES OF THE SECURITIES
 
Morgan Stanley’s Estimated Value of the Securities

Unless otherwise specified in the applicable pricing supplement, the original issue price for each offering of securities will include costs associated with issuing, selling, structuring and hedging the securities, which will be borne by you, and, consequently, the estimated value of the securities on the pricing date will be less than the original issue price.  Our estimate of the value of the securities as determined on the pricing date will be set forth on the cover of the applicable pricing supplement.

Determining the Estimated Value of the Securities

Unless otherwise specified in the applicable pricing supplement, in valuing the securities on the pricing date, we will take into account that the securities comprise both a debt component and a performance-based component linked to the underlying asset(s).  The estimated value of the securities will be determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying asset(s), instruments based on the underlying asset(s) and/or its components, volatility and other factors including current and expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our conventional fixed rate debt trades in the secondary market.

Determining the Economic Terms of the Securities

Unless otherwise specified in the applicable pricing supplement, in determining the economic terms for each offering of securities, such as the early redemption payment or any other economic terms, we will 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 of the economic terms for such offering of securities would be more favorable to you.

The Relationship Between the Estimated Value on the Pricing Date and the Secondary Market Price of the Securities

The price at which MS & Co. purchases the securities in the secondary market, absent changes in market conditions, including those related to the underlying asset(s), 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, unless otherwise specified in the applicable pricing supplement, because the costs associated with issuing, selling, structuring and hedging the securities will not be fully deducted upon issuance, for a predetermined period of time following the original issue date (to be specified in the applicable pricing supplement), to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying asset(s), 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 securities, and, if it once chooses to make a market, may cease doing so at any time.

 
S-18

 
 
For additional information on the estimated value and the secondary market prices of the securities, see “Risk FactorsThe 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 securities in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market prices” and “The estimated value of the securities, as set forth in the applicable pricing supplement, will be determined by reference to our pricing and valuation models, which may differ from those of other dealers, and will not represent a maximum or minimum secondary market price” below.

 
S-19

 
 
HYPOTHETICAL PAYOUTS ON THE SECURITIES
 
The following examples illustrate the payment at maturity on the securities for hypothetical issuances of securities with the following characteristics: (a) bull market auto-callable securities linked to a single stock, (b) bear market auto-callable securities linked to a single index, (c) bull market auto-callable securities linked to two indices, (d) bear market auto-callable securities linked to an index and shares of an exchange-traded fund, (e) bull market auto-callable buffered securities linked to shares of an exchange-traded fund and (f) bear market auto-callable buffered securities linked to shares of an exchange-traded fund.
 
Example A:  Bull market auto-callable securities linked to a single stock
 
The following examples illustrate the payout on the bull market auto-callable securities linked to a single stock for a range of hypothetical closing prices on each of the six hypothetical determination dates, and, to illustrate the effect of the trigger level, a hypothetical intraday price on a random observation date on which, for examples 6 – 10, we assume the lowest intraday price occurs.
 
These examples are based on the following hypothetical terms:
 
 
initial share price: $100
 
trigger level for the stock: $75, which is 75% of the initial share price
 
stated principal amount (per security): $10
 
early redemption payment:
 
º
$10.525 if early redemption occurs following the first determination date
 
º
$11.05 if early redemption occurs following the second determination date
 
º
$11.575 if early redemption occurs following the third determination date
 
º
$12.10 if early redemption occurs following the fourth determination date
 
º
$12.625 if early redemption occurs following the fifth determination date
 
payment at maturity if the final share price is greater than the initial share price on the final determination date: $13.15
 
In Examples 1 through 5, the price of the underlying shares fluctuates over the term of the securities and the underlying shares closes above the initial share price of $100 on one of the first five determination dates.  However, each example produces a different early redemption payment because the closing prices are greater than the initial share price on different determination dates.  Because the closing price is greater than the initial share price on one of the first five determination dates, the securities are automatically redeemed following the relevant determination date.  Additionally, Example 6 illustrates that the decline of the trading price of the underlying shares to or below the trigger level on a random interim date during the observation period does not affect the payout if the securities are automatically redeemed on one of the first five determination dates.
 
Determination Date
Example 1
Example 2
Example 3
Example 4
Example 5
Example 6
 
Hypothetical
Share Price
Payout
Hypothetical
Share Price
Payout
Hypothetical
Share Price
Payout
Hypothetical
Share Price
Payout
Hypothetical
Share Price
Payout
Hypothetical
Share Price
Payout
#1
$115
$10.525
  $95
 $95
  $95
 $95
 $95
#2
$113
$11.05
 $90
  $90
 $90
 $90
#3
$105
$11.575
  $85
 $85
 $85
#4
$110
$12.10
 $95
 $95
#5
$101
$12.625
$105
$12.625
Random interim date
 $70
Total Payout:
$10.525
$11.05 $11.575 $12.10  $12.625
$12.625
 
 
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Bull market auto-callable securities linked to a single stock (cont’d)
 
In each of Examples 7, 8, 9 and 10, the closing price on the first through fifth determination dates is less than or equal to the initial share price, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
 
Determination Date
Example 7
Example 8
Example 9
Example 10
 
Hypothetical
Share Price
Payout at
Maturity
Hypothetical
Share Price
Payout at
Maturity
Hypothetical
Share Price
Payout at
Maturity
Hypothetical
Share Price
Payout at
Maturity
#1
 $97
 $97
  $97
 $97
#2
 $85
 $85
  $85
 $85
#3
 $90
 $90
  $90
 $90
#4
$100
$100
$100
$100
#5
 $98
 $98
  $98
 $98
Final determination date
$140
$13.15
 $85
$10.00
  $85
$8.50
 $60
$6.00
Random interim date
 $70
 $82
  $73
 $60
Total Payout:
 
$13.15
 
$10.00
 
$8.50
 
$6.00
 
 
In Example 7, the final share price has increased 40% above the initial share price to $140, and the payment at maturity equals $13.15 per security, representing a 31.5% return on your investment.  Even though the trading price decreased below the trigger level to $70 during the observation period, the payment at maturity is unaffected because the final share price exceeds the initial share price.  In this example, the return on the investment of 31.5% is less than, and unrelated to, the simple return on the underlying shares of 40%.
In Example 8, the final share price has decreased 15% below the initial share price to $85.  But, because the trading price has not decreased to or below the trigger level at any time during the observation period, the payment at maturity equals $10.00 per security, an amount equal to the stated principal amount.
In Example 9, the final share price has also decreased 15% below the initial share price to $85.  Because the trading price of the underlying shares on the random interim date did decrease to $73, which is 27% below the initial share price and is below the trigger level, the payment at maturity equals the $10 stated principal amount times a share performance factor of 0.85, which results in a payment at maturity of $8.50 per security, representing a loss of 15% of the $10 stated principal amount.
In Example 10, the final share price has decreased to $60, which is 40% below the initial share price.  Because the price of the underlying shares has decreased below the trigger level, the payment at maturity equals the $10 stated principal amount times a share performance factor of 0.6, which results in a payment at maturity of $6.00 per security, representing a loss of 40% of the $10 stated principal amount.  In this example, the return on the securities of –40% reflects the simple return on the underlying shares of –40%.  As illustrated by example 7, example 9 and this example 10, while positive returns are fixed amounts that are unrelated to the performance of the underlying shares, losses are linked to the simple return of the underlying shares and are unlimited if the underlying shares decreases to or below the trigger level at any time during the observation period.

 
S-21

 
 
Example B:  Bear market auto-callable securities linked to a single index
 
Bear market auto-callable securities pay you a positive return if the underlying asset declines in value and expose you to risk of loss if the underlying asset increases in value.  The following examples illustrate the payout on the bear market auto-callable securities linked to a single index for a range of hypothetical index closing values on each of the six hypothetical determination dates, and, to illustrate the effect of the trigger level, a hypothetical index value on a random observation date on which, for examples 6 – 10, we assume the highest index value occurs.
 
These examples are based on the following hypothetical terms:
 
 
initial index value: 100
 
 
trigger level for the index: 120, which is 120% of the initial index value
 
 
stated principal amount (per security): $10
 
 
early redemption payment:
 
 
º
$10.525 if early redemption occurs following the first determination date
 
 
º
$11.05 if early redemption occurs following the second determination date
 
 
º
$11.575 if early redemption occurs following the third determination date
 
 
º
$12.10 if early redemption occurs following the fourth determination date
 
 
º
$12.625 if early redemption occurs following the fifth determination date
 
 
payment at maturity if the final index value is less than the initial index value on the final determination date: $13.15
 
In Examples 1 through 5, the values of the underlying index fluctuate over the term of the securities and the underlying index closes below the initial index value of 100 on one of the first five determination dates.  However, each example produces a different early redemption payment because the index closing values are less than the initial index value on different determination dates.  Because the index closing value is less than the initial index value on one of the first five determination dates, the bear market auto-callable securities are automatically redeemed following the relevant determination date.  Additionally, Example 6 illustrates that the appreciation of the underlying index to or above the trigger level on a random interim date during the observation period does not affect the payout if the securities are automatically redeemed on one of the first five determination dates.

Determination Date
Example 1
Example 2
Example 3
Example 4
Example 5
Example 6
 
Hypothetical
Index Value
Payout
Hypothetical
Index Value
Payout
Hypothetical
Index Value
Payout
Hypothetical
Index Value
Payout
Hypothetical
Index Value
Payout
Hypothetical
Index Value
Payout
#1
85
$10.525
105
105
105
105
105
#2
  87
$11.05
110
110
110
110
#3
  95
$11.575
115
115
115
#4
  90
$12.10
105
105
#5
  99
$12.625
  95
$12.625
Random interim date
130
Total Payout:
$10.525
$11.05
$11.575
$12.10
$12.625
$12.625
 
 
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Bear market auto-callable securities linked to a single index (cont’d)
 
In each of Examples 7, 8, 9 and 10, the index closing value on the first through fifth determination dates is greater than or equal to the initial index value, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
 
Determination Date
Example 7
Example 8
Example 9
Example 10
 
Hypothetical
Index Value
Payout at
Maturity
Hypothetical
Index Value
Payout at
Maturity
Hypothetical
Index Value
Payout at
Maturity
Hypothetical
Index Value
Payout at
Maturity
#1
103
103
103
103
#2
115
115
115
115
#3
110
110
110
110
#4
100
100
100
100
#5
102
102
102
102
Final determination date
  60
$13.15
115
$10.00
115
$8.50
140
$6.00
Random interim date
130
118
123
140
Total Payout:
 
$13.15
 
$10.00
 
$8.50
 
$6.00
 
 
In Example 7, on the final determination date, the index closing value has declined 40% below the initial index value to 60, and the payment at maturity equals $13.15 per security, representing a 31.5% return on your investment.  Even though the index value increased above the trigger level to 130 during the observation period, the payment at maturity is unaffected because the index closing value on the final determination date is less than the initial index value.
In Example 8, on the final determination date, the index closing value has increased 15% above the initial index value to 115.  But, because the index value has not increased to or above the trigger level at any time during the observation period, the payment at maturity equals $10.00 per security, an amount equal to the stated principal amount.
In Example 9, on the final determination date, the index closing value also has increased 15% above the initial index value to 115.  Because the index value of the underlying index on the random interim date did increase to 123, which is 23% above the initial index value and is above the trigger level, the payment at maturity equals the $10 stated principal amount times an index performance factor of 0.85, which results in a payment at maturity of $8.50 per security, representing a loss of 15% of the $10 stated principal amount.
In Example 10, on the final determination date, the index closing value has increased to 140, which is 40% above the initial index value.  Because the index value of the underlying index has increased above the trigger level, the payment at maturity equals the $10 stated principal amount times an index performance factor of 0.6, which results in a payment at maturity of $6.00 per security, representing a loss of 40% of the $10 stated principal amount.

 
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Example C:  Bull market auto-callable securities linked to two indices
 
The following examples illustrate the payout on the bull market auto-callable securities linked to two indices for a range of hypothetical index closing values of Index 1 and Index 2 on each of the three hypothetical determination dates, and, to illustrate the effect of the trigger level, a hypothetical index value of each of the indices on a random interim date during the observation period on which we assume the index value with the greatest percentage decline from its respective initial index value falls on.
 
These examples are based on the following terms:
 
 
initial index value of Index 1: 100
 
 
initial index value of Index 2: 100
 
 
trigger level for Index 1: 70, which is 70% of the initial index value of Index 1
 
 
trigger level for Index 2: 70, which is 70% of the initial index value of Index 2
 
 
stated principal amount (per security): $10
 
 
early redemption payment:
 
 
º
$11.41 if early redemption occurs following the first determination date
 
 
º
$12.82 if early redemption occurs following the second determination date
 
 
payment at maturity if the final index values of both Index 1 and Index 2 are greater than their respective initial index values: $13.93
 
In Examples 1 and 2, the values of the two indices fluctuate over the term of the securities and both indices close above their respective initial index values of 100 on one of the first two determination dates.  However, each example produces a different early redemption payment because the two index closing values exceed their respective initial index values on different determination dates.  Because both index closing values exceed their respective initial index values on one of the determination dates, the securities are automatically redeemed following the relevant determination date.  Additionally, Example 3 illustrates that the decline of the indices to or below their respective trigger levels on a random interim date during the observation period does not affect the payout if the securities are automatically redeemed on either of the first two determination dates.
 
 
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Bull market auto-callable securities linked to two indices (cont’d)

Determination Date
Example 1
Example 2
Example 3
 
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
#1
130
120
$11.41
86
110
 88
 93
#2
101
115
$12.82
104
102
$12.82
Random interim date
 65
 82
Total Payout:
   
$11.41
   
$12.82
   
$12.82
 
 
In Example 1, the index closing values of both Index 1 and Index 2 on the first determination date have increased to 130 and 120, which are 30% and 20% above their respective initial index values, and the securities are automatically redeemed for $11.41 per security, representing a 14.1% increase above the stated principal amount.  This increase is less than, and unrelated to, the simple returns on the two indices of 30% and 20%.
In Example 2, the index closing value of Index 1 on the first determination date has decreased to 86, which is below the initial index value; therefore, the securities are not automatically redeemed and remain outstanding, even though the index closing value of Index 2 has increased to 110.  On the second determination date, the index closing values of Index 1 and Index 2 have increased to 101 and 115, which are 1% and 15% above their respective initial index values, and the securities are automatically redeemed for $12.82 per security, representing a 28.2% increase above the stated principal amount.  The return of 28.2% is greater than, and unrelated to, the simple return of the indices (1% for Index 1 and 15% for Index 2).
In Example 3, the index closing values of Index 1 and Index 2 on the first determination date have decreased to 88 and 93.  Therefore, the securities are not automatically redeemed on the first determination date and remain outstanding.  On the second determination date, both index closing values have increased above their respective initial index values to 104 and 102, which are 4% and 2% above the initial index value; so the securities are automatically redeemed for $12.82 per security, representing a 28.2% increase above the stated principal amount.  The index value of Index 1 on a random interim date during the observation period has decreased to 65, which is 35% below the initial index value, and is below the trigger level.  However, the decline of the indices to or below their respective trigger levels on a random interim date during the observation period does not affect the payout if the securities are automatically redeemed on either of the first two determination dates.

 
S-25

 
 
Bull market auto-callable securities linked to two indices (cont’d)
 
In each of Examples 4, 5, 6, 7, 8 and 9, the index closing value of either Index 1 or Index 2 on the first and second determination dates is less than or equal to its initial index value, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
 
Determination Date
Example 4
Example 5
Example 6
 
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
#1
 99
120
95
110
95
110
#2
100
  92
97
  73
97
  73
Final determination date
150
140
$13.93
72
  89
$10.00
72
120
$10.00
Random interim date
 80
  68
71
  72
71
  72
Total Payout:
   
$13.93
   
$10.00
   
$10.00
 
 
In Example 4, the final index values of Index 1 and Index 2 have increased 50% and 40% above their respective initial index values to 150 and 140, and the payment at maturity equals $13.93 per security, representing a 39.3% increase above the stated principal amount.  This increase is less than, and unrelated to, the simple returns on the indices of 50% and 40%.  Even though on the random interim date the index value of Index 2 decreased below the trigger level, the payment at maturity is unaffected because both final index values exceed their respective initial index values.
In Example 5, the final index values of Index 1 and Index 2 have decreased 28% and 11% below their respective initial index values to 72 and 89.  However, because the index value of neither Index 1 nor Index 2 decreased to or below its respective trigger level at any time during the observation period, the payment at maturity equals $10 per security, an amount equal to the stated principal amount.
In Example 6, the final index value of Index 1 has decreased 28% below the initial index value to 72 and the final index value of Index 2 has increased 20% above the initial index value to 120.  Because the index value of neither Index 1 nor Index 2 decreased to or below its respective trigger level at any time during the observation period, the payment at maturity equals $10 per security, an amount equal to the stated principal amount.  Even though the final index value of one of the underlying indices increased 20% as compared to its initial index value, the securities return only the $10 principal amount because the final index value of the other index did not exceed its initial index value.

 
S-26

 
 
Bull market auto-callable securities linked to two indices (cont’d)

Determination Date
Example 7
Example 8
Example 9
 
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
Hypothetical Index
Value of Index 1
Hypothetical Index
Value of Index 2
Payout
#1
 81
 93
81
 93
81
 93
#2
 99
107
99
107
99
107
Final determination date
105
 90
$9.00
69
 94
$6.90
88
125
$8.80
Random interim date
 69
 82
62
 82
69
 82
Total Payout:
   
$9.00
   
$6.90
   
$8.80
 
 
In Example 7, the final index value of Index 1 has increased 5% above the initial index value to 105 and the final index value of Index 2 has decreased 10% below the initial index value to 90.  Because the index value of Index 1 on the random interim date decreased to 69, which is 31% below the initial index value, and is below the trigger level, the payment at maturity equals $10 principal amount times an index performance factor of 0.90 (the lesser of 1.05 for Index 1 and 0.90 for Index 2), which results in a payment at maturity of $9 per security, representing a loss of 10% of the stated principal amount.  The return on the securities reflects the decrease of Index 2 over the term of the securities, even though Index 1 was the index that decreased below the trigger level.
In Example 8, the final index values of Index 1 and Index 2 have decreased 31% and 6% below their respective initial index values to 69 and 94.  Because the index value of Index 1 on the random interim date decreased to 62, which is 38% below the initial index value, and is below the trigger level, as well as the final index value of Index 1 having decreased to 69, which is 31% below the initial index value, and is again below the trigger level, the payment at maturity equals $10 stated principal amount times an index performance factor of 0.69 (the lesser of 0.69 for Index 1 and 0.94 for Index 2), which results in a payment at maturity of $6.90 per security, representing a loss of 31% of the stated principal amount.
In Example 9, the final index value of Index 1 has decreased to 88, which is 12% below the initial index value and the final index value of Index 2 has increased to 125, which is 25% above the initial index value.  Because the index value of Index 1 on the random interim date decreased to 69, which is 31% below the initial index value, and is below the trigger level, the payment at maturity equals the $10 stated principal amount times an index performance factor of 0.88 (the lesser of 0.88 for Index 1 and 1.25 for Index 2), which results in a payment at maturity of $8.80 per security, representing a loss of 12% of the stated principal amount, even though the final index value of one of the underlying indices increased 25% as compared to its initial index value.  As illustrated by examples 4 and 8 and this example 9, while positive returns are fixed amounts that are unrelated to the performances of the underlying indices, losses are linked to the simple return of the worst performing index and are unlimited if either or both of the underlying indices decrease to or below the trigger level at any time during the observation period.

 
S-27

 
 
Example D:  Bear market auto-callable securities linked to an index and shares of an exchange-traded fund
 
The following examples illustrate the payout on the bear market auto-callable securities linked to an index and shares of an exchange-traded fund for a range of hypothetical index closing values of the underlying index and a range of hypothetical closing prices of the underlying shares on each of the three hypothetical determination dates, and, to illustrate the effect of the trigger level, a hypothetical index value and a hypothetical trading price on a random interim date during the observation period on which we assume the index value and the trading price with the greatest percentage increase from its respective initial value falls on.
 
These examples are based on the following terms:
 
 
initial index value of the underlying index: 100
 
 
initial share price of the underlying shares: $100
 
 
trigger level for the underlying index: 130, which is 130% of the initial index value of the underlying index
 
 
trigger level for the underlying shares: $130, which is 130% of the initial share price of the underlying shares
 
 
stated principal amount (per security): $10
 
 
early redemption payment:
 
 
º
$11.41 if early redemption occurs following the first determination date
 
 
 
º
$12.82 if early redemption occurs following the second determination date
 
 
payment at maturity if the final index value of the underlying index and the final share price of the underlying shares are both less than their respective initial values: $13.93
 
In Examples 1 and 2, the values of the two underlying assets fluctuate over the term of the securities and both underlying assets close below their respective initial values of 100 and $100 on one of the first two determination dates.  However, each example produces a different early redemption payment because the two underlying assets close below their respective initial values on different determination dates.  Because both underlying assets close below their respective initial values on one of the determination dates, the bear market auto-callable securities are automatically redeemed following the relevant determination date.  Additionally, Example 3 illustrates that the increase of the underlying asset(s) to or above their respective trigger levels on a random interim date during the observation period does not affect the payout if the securities are automatically redeemed on either of the first two determination dates.
 
 
S-28

 
 
Bear market auto-callable securities linked to an index and shares of an exchange-traded fund (cont’d)

Determination Date
Example 1
Example 2
Example 3
 
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
#1
70
$80
$11.41
114
$90
112
$107
#2
  99
$85
$12.82
  96
  $98
$12.82
Random interim date
135
$118
Total Payout:
   
$11.41
   
$12.82
   
$12.82
 
 
In Example 1, the index closing value of the underlying index and the closing price of the underlying shares on the first determination date have declined to 70 and $80, which are 30% and 20% below their respective initial values, and the securities are automatically redeemed for $11.41 per security, representing a 14.1% increase above the stated principal amount.
In Example 2, the index closing value of the underlying index on the first determination date has increased to 114, which is above the initial index value; therefore, the securities are not automatically redeemed and remain outstanding, even though the closing price of the underlying shares has decreased to $90.  On the second determination date, the index closing value of the underlying index and the closing price of the underlying shares have decreased to 99 and $85, which are 1% and 15% below their respective initial values, and the securities are automatically redeemed for $12.82 per security, representing a 28.2% increase above the stated principal amount.
In Example 3, the index closing value of the underlying index and the closing price of the underlying shares on the first determination date have increased to 112 and $107.  Therefore, the securities are not automatically redeemed on the first determination date and remain outstanding.  On the second determination date, both underlying assets have decreased below their respective initial values to 96 and $98, which are 4% and 2% below their respective initial values, and, therefore, the securities are automatically redeemed for $12.82 per security, representing a 28.2% increase above the stated principal amount.  The index value of the underlying index on a random interim date during the observation period has increased to 135, which is 35% above the initial index value, and is above the trigger level.  However, the increase of the underlying asset(s) to or above their respective trigger levels on a random interim date during the observation period does not affect the payout if the securities are automatically redeemed on either of the first two determination dates.

 
S-29

 
 
Bear market auto-callable securities linked to an index and shares of an exchange-traded fund (cont’d)
 
In each of Examples 4, 5, 6, 7, 8 and 9, the index closing value of the underlying index and/or the closing price of the underlying shares on the first and second determination dates are greater than or equal to their respective initial values, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
 
Determination Date
Example 4
Example 5
Example 6
 
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
#1
101
  $80
105
 $90
105
  $90
#2
100
$108
103
$127
103
$127
Final determination date
  50
  $60
$13.93
128
$111
$10.00
128
  $80
$10.00
Random interim date
120
$132
129
$128
129
$128
Total Payout:
   
$13.93
   
$10.00
   
$10.00
 
 
In Example 4, the final index value of the underlying index and the final share price of the underlying shares have decreased 50% and 40% below their respective initial values to 50 and $60, and the payment at maturity equals $13.93 per security, representing a 39.3% increase above the stated principal amount.   Even though on the random interim date the closing price of the underlying shares increased above the trigger level, the payment at maturity is unaffected because both underlying assets closed below their respective initial values on the final determination date.
In Example 5, the final index value of the underlying index and the final share price of the underlying shares have increased 28% and 11% above their respective initial index values to 128 and $111.  However, because neither the index value of the underlying index nor the trading price of the underlying shares increased to or above their respective trigger level at any time during the observation period, the payment at maturity equals $10 per security, an amount equal to the stated principal amount.
In Example 6, the final index value of the underlying index has increased 28% above the initial index value to 128 and the final share price of the underlying shares has decreased 20% below the initial share price to $80.  Because neither the index value of the underlying index nor the trading price of the underlying shares increased to or above their respective trigger level at any time during the observation period, the payment at maturity equals $10 per security, an amount equal to the stated principal amount.  Even though the final value of one of the underlying assets decreased 20% as compared to its initial value, the securities return only the $10 principal amount because the final value of the other underlying asset did not close below its initial value.

 
S-30

 
 
Bear market auto-callable securities linked to an index and shares of an exchange-traded fund (cont’d)

Determination Date
Example 7
Example 8
Example 9
 
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
Hypothetical Index
Value of the
Underlying Index
Hypothetical Share
Price of the
Underlying Shares
Payout
#1
119
$107
119
$107
119
$107
#2
101
  $93
101
  $93
101
  $93
Final determination date
  95
$110
$9.00
131
$106
$6.90
112
  $75
$8.80
Random interim date
131
$118
138
$118
131
$118
Total Payout:
   
$9.00
   
$6.90
   
$8.80
 
 
In Example 7, the final index value of the underlying index has decreased 5% below the initial index value to 95 and the final share price of the underlying shares has increased 10% above the initial share price to $110.  Because the index value of the underlying index on the random interim date increased to 131, which is 31% above the initial index value, and is above the trigger level, the payment at maturity equals $10 principal amount times an index performance factor of 0.90 (the lesser of 1.05 for the underlying index and 0.90 for the underlying shares), which results in a payment at maturity of $9.00 per security, representing a loss of 10% of the stated principal amount.  The return on the securities reflects the increase of the underlying shares over the term of the securities, even though the underlying index was the underlying asset that increased above the trigger level during the observation period.
In Example 8, the final index value of the underlying index and the final share price of the underlying shares have increased 31% and 6% above their respective initial values to 131 and $106.  Because the index value of the underlying index on the random interim date increased to 138, which is 38% above the initial index value, and is above the trigger level, as well as the final index value of the underlying index having increased to 131, which is 31% above the initial index value, and is again above the trigger level, the payment at maturity equals $10 stated principal amount times an index performance factor of 0.69 (the lesser of 0.69 for the underlying index and 0.94 for the underlying shares), which results in a payment at maturity of $6.90 per security, representing a loss of 31% of the stated principal amount.
In Example 9, the final index value of the underlying index has increased to 112, which is 12% above the initial index value and the final share price of the underlying shares has decreased to 75, which is 25% below the initial share price.  Because the index value of the underlying index on the random interim date increased to 131, which is 31% above the initial index value, and is above the trigger level, the payment at maturity equals the $10 stated principal amount times an index performance factor of 0.88 (the lesser of 0.88 for the underlying index and 1.25 for the underlying shares), which results in a payment at maturity of $8.80 per security, representing a loss of 12% of the stated principal amount, even though the final value of one of the underlying assets decreased 25% as compared to its initial value.

 
S-31

 
 
Example E:  Bull market auto-callable buffered securities linked to shares of an exchange-traded fund
 
The following examples illustrate the payout on the bull market auto-callable buffered securities linked to shares of an exchange-traded fund for a range of hypothetical determination closing prices on each of the three hypothetical determination dates.
 
These examples are based on the following hypothetical terms:
 
 
initial share price: $40
 
 
buffer amount: 4, which is 10% of the initial share price
 
 
stated principal amount (per security): $10
 
 
early redemption payment:
 
 
º
$11.82 if early redemption occurs following the first determination date
 
 
º
$12.73 if early redemption occurs following the second determination date
 
 
payment at maturity if the final share price is greater than the initial share price on the final determination date: $13.64
 
In Examples 1 and 2, the value of the underlying shares fluctuates over the term of the securities and the determination closing price of the underlying shares is greater than the initial share price of $40 on one of the first two determination dates.  However, each example produces a different early redemption payment because the determination closing prices are greater than the initial share price on different determination dates.  Because the determination closing price is greater than the initial share price on one of the first two determination dates, the securities are automatically redeemed following the relevant determination date.
 
Determination Date
Example 1
Example 2
 
Hypothetical
Closing Price
Payout
Hypothetical
Closing Price
Payout
#1
$50
$11.82
$35
#2
$45
$12.73
Total Payout:
$11.82
$12.73
 
 
S-32

 
 
Bull market auto-callable buffered securities linked to shares of an exchange-traded fund (cont’d)
 
In each of Examples 3, 4 and 5, the determination closing price on the first two determination dates is less than or equal to the initial share price, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
 
Determination Date
Example 3
Example 4
Example 5
 
Hypothetical
Closing Price
Payout at
Maturity
Hypothetical
Closing Price
Payout at
Maturity
Hypothetical
Closing Price
Payout at
Maturity
#1
$35
$34
$36
#2
$30
$40
$32
Final determination date
$60
$13.64
$38
$10.00
$28
$8.00
Total Payout:
 
$13.64
 
$10.00
 
$8.00
 
In Example 3, on the final determination date, the final share price has increased 50% above the initial share price to $60, and the payment at maturity equals $13.64 per security, representing a 36.4% return on your investment.  In this example, the return on your investment is less than the simple return of the underlying shares of 50%.
In Example 4, on the final determination date, the final share price has decreased 5% below the initial share price to $38.  However, because the final share price has decreased by an amount less than or equal to the buffer amount of 4, the payment at maturity equals $10.00 per security, an amount equal to the stated principal amount.
In Example 5, on the final determination date, the final share price has decreased to $28, which is 30% below the initial share price.  Because the determination closing price has decreased by more than the buffer amount of 4, the payment at maturity equals the $10 stated principal amount times a share performance factor of 0.7, plus $1.00, which results in a payment at maturity of $8.00 per security, representing a loss of 20% of the $10.00 stated principal amount.  In this scenario, a comparable investment linked to the simple return of the underlying shares would result in a greater loss of 30% of the stated principal amount.

 
S-33

 
 
Example F:  Bear market auto-callable buffered securities linked to shares of an exchange-traded fund
 
The following examples illustrate the payout on the bear market auto-callable buffered securities linked to shares of an exchange-traded fund for a range of hypothetical determination closing prices on each of the three hypothetical determination dates.
 
These examples are based on the following hypothetical terms:
 
 
initial share price: $40
 
 
buffer amount: 4, which is 10% of the initial share price
 
 
stated principal amount (per security): $10
 
 
early redemption payment:
 
 
º
$11.82 if early redemption occurs following the first determination date
 
 
º
$12.73 if early redemption occurs following the second determination date
 
 
payment at maturity if the final share price is greater than the initial share price on the final determination date: $13.64
 
In Examples 1 and 2, the value of the underlying shares fluctuates over the term of the securities and the determination closing price of the underlying shares is less than the initial share price of $40 on one of the first two determination dates.  However, each example produces a different early redemption payment because the determination closing prices are less than the initial share price on different determination dates.  Because the determination closing price is less than the initial share price on one of the first two determination dates, the securities are automatically redeemed following the relevant determination date.
 
Determination Date
Example 1
Example 2
 
Hypothetical
Closing Price
Payout
Hypothetical
Closing Price
Payout
#1
$30
$11.82
$45
#2
$30
$12.73
Total Payout:
$11.82
$12.73
 
 
S-34

 
 
Bear market auto-callable buffered securities linked to shares of an exchange-traded fund (cont’d)
 
In each of Examples 3, 4 and 5, the determination closing price on the first two determination dates is less than or equal to the initial share price, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
 
Determination Date
Example 3
Example 4
Example 5
 
Hypothetical
Closing Price
Payout at
Maturity
Hypothetical
Closing Price
Payout at
Maturity
Hypothetical
Closing Price
Payout at
Maturity
#1
$55
$46
$56
#2
$45
$40
$42
Final determination date
$20
$13.64
$42
$10.00
$52
$8.00
Total Payout:
 
$13.64
 
$10.00
 
$8.00
 
In Example 3, on the final determination date, the final share price has decreased 50% below the initial share price to $20, and the payment at maturity equals $13.64 per security, representing a 36.4% return on your investment.  In this example, the return on your investment is less than the 50% return you would receive on a comparable direct short potsition in the underlying shares.
In Example 4, on the final determination date, the final share price has increased 5% above the initial share price to $42.  However, because the final share price has increased by an amount less than or equal to the buffer amount of 4, the payment at maturity equals $10.00 per security, an amount equal to the stated principal amount.
In Example 5, on the final determination date, the final share price has increased to 52, which is 30% above the initial share price.  Because the final share price has increased by more than the buffer amount of 4, the payment at maturity equals the $10 stated principal amount times a share performance factor of 0.7, plus $1.00, which results in a payment at maturity of $8.00 per security, representing a loss of 20% of the $10.00 stated principal amount.  In this scenario, a comparable direct short position in the underlying shares would result in a greater loss of 30% of the stated principal amount.

 
S-35

 
 
RISK FACTORS
 
The auto-callable securities are not secured debt and are riskier than ordinary debt securities.  Unlike ordinary debt securities, the securities do not guarantee any return of principal at maturity and generally do not pay interest.  Investing in the securities is not equivalent to investing directly in the underlying index or indices or their component securities or underlying shares of a common stock or shares of an exchange-traded fund.  This section describes the most significant risks relating to the securities.  You should carefully consider whether the securities are suited to your particular circumstances before you decide to purchase them.
 
General Risks
 
Unless the context requires otherwise, in this “Risk Factors—General Risks,” references to any underlying asset may refer to any underlying index or indices and also to shares of the common stock of a specified third-party issuer or to shares of an exchange-traded fund, and references to securities that constitute any underlying index or indices may also refer to securities that underlie an exchange-traded fund, or the index tracked by an exchange-traded fund, which we refer to as a share underlying index.
 
The securities do not guarantee return of principal and generally do not pay interest
 
The terms of the securities differ from those of ordinary debt securities in that we do not guarantee to pay you the principal amount of the securities at maturity and generally do not pay you interest on the securities.  Instead, if the securities have not previously been automatically redeemed, at maturity you will receive for each stated principal amount of securities that you hold an amount in cash depending on the value of the underlying asset(s) on the final determination date, and, except for auto-callable buffered securities, over the term of the securities, as described below:
 
For bull market securities:
 
·
Only if the final value of the underlying asset(s) is greater than the initial value (or such other value as specified in the applicable pricing supplement) will you receive an amount in cash greater than the stated principal amount at maturity.  The payment will be specified in the applicable pricing supplement.
 
·
If the final value of the underlying asset(s) is less than or equal to the initial value but the value of the underlying asset(s) has not decreased to or below the specified trigger level at any time during the observation period, you will receive the stated principal amount.  The payment of only the stated principal amount at maturity will not compensate you for the effects of inflation and other factors relating to the value of money over time.  See “Hypothetical Payouts on the Securities” on S-20.
 
·
If the final value of the underlying asset(s) is less than or equal to the initial value and the value of the underlying asset(s) has decreased to or below the specified trigger level at any time during the observation period, you will receive an amount in cash that is less than the stated principal amount of each security by an amount proportionate to the decrease in the value of the underlying asset(s).  In such case, you may suffer a loss of a significant amount, or even all, of your investment in the securities.
 
For bear market securities:
 
·
Only if the final value of the underlying asset(s) is less than the initial value (or such other value as specified in the applicable pricing supplement) will you receive an amount in cash greater than the stated principal amount at maturity.  The payment will be specified in the applicable pricing supplement.
 
·
If the final value of the underlying asset(s) is greater than or equal to the initial value but the value of the underlying asset(s) has not increased to or above the specified trigger level at any time during the observation period, you will receive the stated principal amount.  The payment of only the stated principal amount at maturity will not compensate you for the effects of inflation and other factors relating to the value of money over time.  See “Hypothetical Payouts on the Securities” on S-20.
 
·
If the final value of the underlying asset(s) is greater than or equal to the initial value and the value of the underlying asset(s) has increased to or above the specified trigger level at any time during the observation
 
 
S-36

 
 
period, you will receive an amount in cash that is less than the stated principal amount of each security by an amount proportionate to the increase in the value of the underlying asset(s). In such case, you may suffer a loss of a significant amount, or even all, of your investment in the securities.
 
For auto-callable buffered securities:

Auto-callable buffered securities will be issued with a buffered payment at maturity. While the buffer amount will provide a measure of protection against the risk of loss of principal at maturity, the buffer amount will be limited to the extent specified in the applicable pricing supplement.  The payment at maturity will be less than the stated principal amount by an amount proportionate to any negative performance of the underlying asset in excess of the buffer amount.  In such case, you may suffer a loss of a significant amount of your investment in the securities.
 
Your appreciation potential is limited; securities subject to early redemption
 
Upon automatic early redemption or at maturity, any positive return you will receive on your investment in the securities will be a fixed amount that does not reflect the extent of the appreciation, in the case of bull market auto-callable securities, or depreciation, in the case of bear market auto-callable securities, of the underlying asset(s).  Therefore, the appreciation potential of the securities is limited by the maximum payment at maturity that results from the upside payment, if any, being a single fixed amount, regardless of the actual performance of the underlying asset(s).
 
The appreciation potential of the securities is also limited by the automatic early redemption feature of the securities as it may limit the term of your investment.  If the securities are redeemed, you may not be able to reinvest at comparable terms or returns.
 
The securities may not be listed on any securities exchange and secondary trading may be limited
 
Unless we specify otherwise in the applicable pricing supplement, the securities will not be listed on any securities exchange.  Therefore, there may be little or no secondary market for the securities.  Our affiliate, MS & Co., may, but is not obligated to, make a market in the securities 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 securities, 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 securities.  Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily.  Since other broker-dealers may not participate significantly in the secondary market for the securities, the price at which you may be able to trade your securities 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 securities, it is likely that there would be no secondary market for the securities.  Accordingly, you should be willing to hold your securities to maturity.
 
The market price of the securities may be influenced by many unpredictable factors
 
Several factors, many of which are beyond our control, will influence the value of the securities in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary market.  We expect that generally the value of the underlying asset(s) on any day will affect the value of the securities more than any other single factor.  However, because the payout on the securities is only directly correlated to the value of the underlying asset(s) in certain circumstances, the securities will trade differently from the underlying asset(s).  Other factors that may influence the value of the securities include:
 
the volatility of the underlying asset(s);
 
whether the value of the underlying asset(s) has been at or below the trigger level in the case of bull market auto-callable securities, or at or above the trigger level in the case of bear market auto-callable securities, at any time during the observation period;
 
the dividend rate on the underlying indices or shares;
 
 
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if the securities are linked to more than one underlying asset, the level of correlation between the underlying assets;
 
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying indices or shares or stock markets generally;
 
interest and yield rates in the market;
 
the time remaining until the next determination date(s) and the maturity of the securities;
 
the composition of, and changes in the constituent securities, of any underlying index or indices, as applicable; and
 
any actual or anticipated changes in our credit ratings or credit spreads.
 
Some or all of these factors will influence the price you will receive if you sell your securities prior to maturity.  Generally, the longer the time remaining to maturity, the more the market price of the securities will be affected by the other factors described above.  For example, you may have to sell your securities at a substantial discount from the principal amount if on that date either the value of the underlying asset(s) is at or below the initial value, in the case of bull market securities, or is at or above the initial value, in the case of bear market securities, especially if at any time during the observation period the value of any underlying asset has declined to or below the specified trigger level, in the case of bull market securities, or has increased to or above the specified trigger level, in the case of bear market securities.
 
The securities are subject to the credit risk of Morgan Stanley, and its credit ratings and credit spreads may adversely affect the market value of the securities
 
You are dependent on Morgan Stanley’s ability to pay all amounts due on the securities on each interest payment date, upon automatic redemption or at maturity, and, therefore, you are subject to the credit risk of Morgan Stanley.  If Morgan Stanley defaults on its obligations under the securities, your investment would be at risk and you could lose some or all of your investment.  As a result, the market value of the securities 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 securities.
 
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 securities in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities 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 securities 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 securities in the original issue price and the lower rate we are willing to pay as issuer make the economic terms of the securities less favorable to you than they otherwise would be.
 
However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a predetermined period of time following the original issue date (to be specified in the applicable pricing supplement), to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying asset, and to our secondary market
 
 
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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.
 
The estimated value of the securities, as set forth in the applicable pricing supplement, will be determined by reference to our pricing and valuation models, which may differ from those of other dealers, and will not represent 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 securities than those generated by others, including other dealers in the market, if they attempted to value the securities.  In addition, the estimated value on the pricing date will not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time.  The value of your securities at any time after the date of the applicable 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 of the securities may be influenced by many unpredictable factors” above.
 
The securities are not designed to be short-term trading instruments.
 
The price at which you will be able to sell your securities prior to maturity, if at all, may be at a substantial discount from the principal amount of the securities, even in cases where the underlying index or indices have appreciated since the date of the issuance of the securities.  The potential returns described in any pricing supplement assume that your securities are held to maturity unless automatically redeemed prior to maturity.
 
Adjustments to the underlying index or indices could adversely affect the value of the securities
 
The underlying index publishers are responsible for calculating and maintaining the underlying index or indices.  Underlying index publishers can add, delete or substitute the securities constituting the underlying index or indices or make other methodological changes that could change the value of the underlying index or indices.  Any of these actions could adversely affect the value of the securities.  The underlying index publishers have no obligation to consider your interests in calculating or revising the underlying index or indices.
 
The underlying index publishers may discontinue or suspend calculation or publication of the underlying index or indices 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 from that of investors in the securities insofar as, for example, MS & Co. is not precluded from considering 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, at maturity the payout on the securities will be an amount based on the closing prices at maturity of the securities underlying the discontinued index at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance with the formula for calculating the discontinued index last in effect prior to such discontinuance.
 
There are risks associated with investments in securities linked to the value of foreign equity securities or indices of foreign equity securities
 
Investments in the securities linked to the value of foreign securities or indices of foreign equity securities involve risks associated with the foreign securities market, including volatility, governmental intervention and cross-shareholdings among companies in the foreign index.  Also, there is generally less publicly available information about foreign companies than about U.S. companies that are subject to the reporting requirements of the Securities and Exchange Commission, and foreign companies are subject to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting companies.
 
The prices of securities in foreign markets may be affected by political, economic, financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws.  Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible
 
 
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at times.  Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.
 
Securities linked to certain indices or shares of an exchange-traded fund are subject to currency exchange risk
 
For certain indices or shares of an exchange-traded fund, the prices of the component securities are converted into U.S. dollars for purposes of calculating the index value or share price, as applicable.  Holders of securities linked to such indices or shares of an exchange-traded fund will be exposed to currency exchange rate risk with respect to each of the currencies represented in the relevant indices or shares of an exchange-traded fund.  An investor’s net exposure will depend on the extent to which the currencies of the securities included in the relevant index or tracked by the relevant shares of an exchange-traded fund strengthen or weaken against the U.S. dollar and the relative weight of each of those securities within the overall index or the exchange-related fund relating to the shares of an exchange-traded fund.  If, taking into account such weighting, the dollar strengthens against the component currencies, the value of the relevant index or shares of an exchange-traded fund will be adversely affected and the payment at maturity of the securities may be reduced.
 
Of particular importance to potential currency exchange risk are:
 
 
·
existing and expected rates of inflation;
 
 
·
existing and expected interest rate levels;
 
 
·
the balance of payments between countries; and
 
 
·
the extent of governmental surpluses or deficits in the countries represented in the relevant index or shares of an exchange-traded fund and the United States.
 
All of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of the countries represented in the relevant index or shares of an exchange-traded fund, the United States and other countries important to international trade and finance.
 
The economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests
 
The economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the securities.
 
As calculation agent, MS & Co. will determine the closing value of the underlying asset(s), the value of the underlying asset(s) for purposes of determining whether the trigger level has been reached, whether the closing value of the underlying asset(s) on any determination date other than the final determination date is greater than or less than the initial value, and, therefore, whether the securities will be redeemed following such determination date, whether a market disruption event has occurred, and the payment that you will receive at maturity, if any.  Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of any index closing value in the event of a discontinuance of the underlying index or any of the underlying indices and whether to make any adjustments to the adjustment factor for certain corporate events affecting the underlying shares.  These potentially subjective judgments may adversely affect the payout to you at maturity, if any.  See the definition of market disruption event under “Description of Auto-Callable Securities—General Terms of Auto-Callable Securities—Some Definitions” and “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares—Some Definitions” and the discussion under “Description of Auto-Callable Securities—Discontinuance of Any Underlying Index; Alteration of Method of Calculation” and “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares—Antidilution Adjustments.”
 
 
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The original issue price of the securities includes the agent’s commissions and certain costs of hedging our obligations under the securities.  The subsidiaries through which we hedge our obligations under the securities expect to make a profit.  Since hedging our obligations entails risk and may be influenced by market forces beyond our or our subsidiaries’ control, such hedging may result in a profit that is more or less than initially projected.
 
Investing in the securities is not equivalent to investing in any underlying index or underlying share
 
Investing in the securities is not equivalent to investing in any underlying index or its component securities or any underlying share or any share underlying index.  As an investor in the securities, you will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the securities that constitute the underlying index or with respect to the underlying shares or the securities constituting the share underlying index.
 
Hedging and trading activity by our subsidiaries could potentially affect the value of the securities
 
One or more of our subsidiaries and/or third party dealers expect to carry out hedging activities related to the securities (and possibly to other instruments linked to any underlying index or the component securities or any underlying share), including trading in the securities underlying the auto-callable securities or that constitute any underlying index as well as in other instruments related to any underlying share or to any underlying index.  Some of our other subsidiaries also trade the securities underlying the auto-callable securities or that constitute any underlying index and other financial instruments related to any underlying share or to any underlying index and the securities that constitute any 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 affect the value of any underlying share or any underlying index, and, as a result, could increase the level at or above above which, in the case of bull market securities, or decrease the level at or below which, in the case of bear market securities, such underlying share or underlying index must close so that you do not suffer a loss on your initial investment in the securities.  Additionally, such hedging or trading activities during the term of the securities could potentially affect the value of any underlying share or of any underlying index on the determination dates, and, accordingly, whether we redeem the securities and the amount of cash you will receive at maturity, if any.
 
Adjustments to the shares of an exchange-traded fund or to the share underlying index could adversely affect the value of the securities
 
The index publisher of a share underlying index is responsible for calculating and maintaining such index.  Such index publisher can add, delete or substitute the securities underlying the share underlying index or make other methodological changes that could change the value of the share underlying index.  Pursuant to its investment strategy or otherwise, the investment adviser of the exchange-traded fund relating to the underlying shares may add, delete or substitute the securities composing such exchange-traded fund.  Any of these actions could adversely affect the price of the underlying shares, and, consequently, the value of the securities.
 
The shares of an exchange-traded fund and the share underlying index are different
 
The performance of the underlying shares may not exactly replicate the performance of the share underlying index because the exchange-traded fund relating to the underlying shares will reflect transaction costs and fees that are not included in the calculation of the share underlying index.  It is also possible that such exchange-traded fund may not fully replicate or may in certain circumstances diverge significantly from the performance of the share underlying index due to the temporary unavailability of certain securities in the secondary market, the performance of any derivative instruments contained in such fund, differences in trading hours between such exchange-traded fund and the share underlying index or due to other circumstances.  Additionally, the investment adviser of such exchange-traded fund may have authorization to invest up to a certain percentage of such exchange-traded fund’s assets in shares of other exchange-traded funds that seek to track the performance of equity securities of countries or industries similar to the constituent countries or industries of the share underlying index.
 
The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the underlying shares
 
 
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MS & Co., as calculation agent, will adjust the amount payable at maturity for certain events affecting the underlying shares such as stock splits.  Stock dividends or mergers may also affect any underlying shares of common stock.  However, the calculation agent will not make an adjustment for every event that could affect the underlying shares.  For example, the calculation agent is not required to make any adjustments if the issuer of common stock or anyone else makes a partial tender or partial exchange offer for the underlying shares of common stock, nor will adjustments be made following the final determination date.  If an event occurs that does not require the calculation agent to adjust the amount payable at maturity, the market price of the securities may be materially and adversely affected.
 
The U.S. federal income tax consequences of an investment in the securities are uncertain
 
Except as otherwise provided in the applicable pricing supplement, under current law, each security should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.  However, the U.S. federal income tax consequences of an investment in the securities are uncertain.  If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the tax treatment described in this product supplement.  We do not plan to request a ruling from the IRS regarding the tax treatment of the securities, and the IRS or a court may not agree with the tax treatment described in the section entitled “United States Federal Taxation” in this product supplement.
 
For securities linked to an equity interest in one of a specified list of entities, there is a substantial risk that an investment in the securities will be treated as a “constructive ownership transaction.”  If this treatment applies, all or a portion of any long-term capital gain recognized by a U.S. investor in respect of the securities could be recharacterized as ordinary income (in which case an interest charge would be imposed).  U.S. investors should read the section entitled “United States Federal Taxation—Tax Consequences to U.S. Holders—Possible Application of Section 1260 of the Code” in this product supplement.
 
In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.  The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment.  It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule (as discussed above).  While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect.
 
Please read carefully the section of this product supplement called “United States Federal Taxation” concerning the U.S. federal income tax consequences of an investment in the securities.  Both U.S. and non-U.S. investors should consult their tax advisers regarding all aspects of the U.S. federal tax consequences of an investment in the securities, including possible alternative treatments, the issues presented by the notice and any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
 
 
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DESCRIPTION OF AUTO-CALLABLE SECURITIES
 
Investors should carefully read the general terms and provisions of our debt securities in “Description of Debt Securities” in the accompanying prospectus.  This section supplements that description.  The applicable pricing supplement will specify the particular terms for each issuance of securities, and may supplement, modify or replace any of the information in this section and in “Description of Debt Securities” in the accompanying prospectus.  References in this product supplement to a security shall refer to the stated principal amount specified as the denomination for that issuance of securities in the applicable pricing supplement.
 
The following terms used in this section are defined in the indicated sections of the accompanying prospectus:
 
 
Senior Debt Indenture (“Description of Debt Securities—Indentures”)
 
senior indebtedness (“Description of Debt Securities—Subordination Provisions”)
 
General Terms of the Securities
 
We will issue the securities as part of our Series F medium-term notes under the Senior Debt Indenture.  The Series F medium-term notes issued under the Senior Debt Indenture, together with our senior Series G and Series H global medium-term notes, referred to below under “Plan of Distribution (Conflicts of Interest),” will constitute a single series under the Senior Debt Indenture, together with any other obligations we issue in the future under the Senior Debt Indenture that we designate as being part of that series.  The Senior Debt Indenture does not limit the amount of additional indebtedness that we may incur.  We may, without your consent, create and issue additional securities with the same terms as previous issuances of securities, so that the additional securities will be considered as part of the same issuance as the earlier securities.
 
Ranking.  Securities issued under the Senior Debt Indenture will rank on par with all of our other senior indebtedness and with all of our other unsecured and unsubordinated indebtedness, subject to statutory exceptions in the event of liquidation upon insolvency.
 
Terms Specified in Pricing Supplements.  A pricing supplement will specify the following terms of any issuance of securities to the extent applicable:
 
the issue price (price to public);
 
the stated principal amount per security;
 
the aggregate principal amount;
 
the denominations or minimum denominations;
 
whether the securities are bull market auto-callable securities or bear market auto-callable securities;
 
whether the securities are auto-callable buffered securities;
 
the original issue date;
 
the stated maturity date and any terms related to any extension of the maturity date not otherwise set forth in this product supplement;
 
the underlying asset(s);
 
the value of the underlying asset(s) on the pricing date;
 
the determination dates and the early redemption payments applicable to each of the determination dates prior to the final determination date;
 
 
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the trigger level;
 
the observation period;
 
the rate per year at which the securities will bear interest, if any, or the method of calculating that rate and the dates on which interest will be payable;
 
whether the securities may be redeemed, in whole or in part, at our option or repaid at your option, prior to the stated maturity date, and the terms of any redemption or repayment;
 
whether price event acceleration applies to the securities, and if so, the acceleration price and the amount payable upon price event acceleration;
 
if any securities are not denominated and payable in U.S. dollars, the currency or currencies in which the principal, premium, if any, and interest, if any, will be paid, which we refer to as the “specified currency,” along with any other terms relating to the non-U.S. dollar denomination;
 
whether the securities will be listed on any securities exchange;
 
whether the securities will be issued in book-entry or certificated form;
 
if the securities are in book-entry form, whether the securities will be offered on a global basis to investors through Euroclear and Clearstream, Luxembourg as well as through the Depositary (each as defined below); and
 
any other terms on which we will issue the securities.
 
Some Definitions.  We have defined some of the terms that we use frequently in this product supplement below:
 
“buffer amount” means the following with respect to an issuance of auto-callable buffered securities:
 
 
for bull market auto-callable buffered securities, the percentage specified in the applicable pricing supplement by which the final index value may decline from the initial index value before you will lose any part of the stated principal amount per security; or
 
 
for bear market auto-callable buffered securities, the percentage specified in the applicable pricing supplement by which the final index value may increase from the initial index value before you will lose any part of the stated principal amount per security.
 
business day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York.
 
Clearstream, Luxembourg” means Clearstream Banking, société anonyme.
 
Depositary” or “DTC” means The Depository Trust Company, New York, New York.
 
determination dates” mean the dates specified in the applicable pricing supplement, subject to postponement in the event of certain market disruption events and as described under “—Postponement of Determination Dates” and “—Auto-Callable Securities Linked to Underlying Shares—Postponement of Determination Dates.”  The final index value will be determined on the last determination date, which we refer to as the “final determination date.”
 
early redemption payment” means the amount of cash specified for each determination date in the applicable pricing supplement, which will be paid on the securities upon an early redemption of the securities.
 
Euroclear operator” means Euroclear Bank S.A./N.V., as operator of the Euroclear System.
 
 
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final index value” with respect to an issuance of securities will be the index closing value of an underlying index on the final determination date, unless otherwise specified in the applicable pricing supplement.
 
index business day” means, with respect to an underlying index, a day, as determined by the Calculation Agent, on which trading is generally conducted on each of the relevant exchange(s) for such underlying index, other than a day on which trading on such exchange(s) is scheduled to close prior to the time of the posting of its regular final weekday closing price.
 
index closing value” means, on any index business day for an underlying index, the closing value of the underlying index or any successor index (as defined under “—Discontinuance of Any Underlying Index; Alteration of Method of Calculation” below) published at the regular weekday close of trading on that index business day.  In certain circumstances, the index closing value will be based on the alternate calculation of the underlying index as described under “—Discontinuance of Any Underlying Index; Alteration of Method of Calculation.”
 
index value” at any time on any day during the observation period will equal the value of an underlying index published at such time on such day under the applicable Bloomberg ticker symbol or any successor ticker symbol, or in the case of any successor index, the Bloomberg ticker symbol or successor ticker symbol for any such successor index.
 
initial index value” with respect to an issuance of securities will be the index closing value of an underlying index on the pricing date, as specified in the applicable pricing supplement.
 
interest payment date” for any securities means a date on which, under the terms of the securities, regularly scheduled interest, if any, is payable.
 
issue price” means the amount per security specified in the applicable pricing supplement and will equal the principal amount of each security, unless otherwise specified.
 
market disruption event” means, with respect to an underlying index:
 
(i) the occurrence or existence of any of:
 
(a) a suspension, absence or material limitation of trading of securities then constituting 20 percent or more of the value of the underlying index (or the successor index) on the relevant exchanges for such securities for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such relevant exchange, or
 
(b) a breakdown or failure in the price and trade reporting systems of any relevant exchange as a result of which the reported trading prices for securities then constituting 20 percent or more of the value of the underlying index (or the successor index) during the last one-half hour preceding the close of the principal trading session on such relevant exchange are materially inaccurate, or
 
(c) the suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options contracts or exchange-traded funds related to the underlying index (or the successor index) for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such market,
 
  in each case, as determined by the Calculation Agent in its sole discretion; and
 
(ii)  a determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with respect to the securities.
 
For the purpose of determining whether a market disruption event exists at any time, if trading in a security included in the underlying index is materially suspended or materially limited at that time, then the relevant percentage contribution of that security to the value of the underlying index shall be based on a comparison of (x)
 
 
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the portion of the value of the underlying index attributable to that security relative to (y) the overall value of the underlying index, in each case immediately before that suspension or limitation.
 
For the purpose of determining whether a market disruption event has occurred:  (1) a limitation on the hours or number of days of trading will not constitute a market disruption event if it results from an announced change in the regular business hours of the relevant exchange or market, (2) a decision to permanently discontinue trading in the relevant futures or options contract or exchange-traded fund will not constitute a market disruption event, (3) a suspension of trading in futures or options contracts or exchange-traded funds on an underlying index by the primary securities market trading in such contracts or funds by reason of (a) a price change exceeding limits set by such securities exchange or market, (b) an imbalance of orders relating to such contracts or funds, or (c) a disparity in bid and ask quotes relating to such contracts or funds will constitute a suspension, absence or material limitation of trading in futures or options contracts or exchange-traded funds related to the underlying index and (4) a “suspension, absence or material limitation of trading” on any relevant exchange or on the primary market on which futures or options contracts or exchange-traded funds related to the underlying index are traded will not include any time when such securities market is itself closed for trading under ordinary circumstances.
 
maturity date” means the date specified in the applicable pricing supplement, subject to extension if the final determination date is postponed.  If the final 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 final determination date as postponed.
 
minimum payment at maturity” means, in respect of auto-callable buffered securities, the stated principal amount times the buffer amount, unless otherwise specified in the applicable pricing supplement.
 
observation period” means, unless otherwise specified in the applicable pricing supplement, the period of regular trading hours on each index business day on which there is no market disruption event with respect to the underlying index or indices during the period from but excluding the pricing date to and including the final determination date.
 
original issue date” means the date specified in the applicable pricing supplement on which a particular issuance of securities will be issued.
 
payment at maturity” means the payment due at maturity with respect to each security, as described under “—Payment at Maturity” and “—Auto-Callable Securities Linked to Underlying Shares—Payment at Maturity” below.
 
price source” means the display page , or any successor page, specified in the applicable pricing supplement (e.g., Bloomberg or Reuters), which will be used by the Calculation Agent to determine the index closing value of an underlying index.  If such service or any successor service no longer displays the index closing value of such underlying index, then the Calculation Agent shall designate an alternate source of such index closing value, which shall be the publisher of such index, unless the Calculation Agent, in its sole discretion, determines that an alternate service has become the market standard for transactions related to such index.
 
pricing date” means the day when we price the securities for initial sale to the public.
 
record date” for any interest payment date, if applicable, shall be:
 
(A) for any definitive registered note, the date 15 calendar days prior to that interest payment date, whether or not that date is a business day; provided, however, that any interest payable at maturity shall be payable to the person to whom the payment at maturity shall be payable; and
 
(B) for any global registered note, the date one business day prior to such interest payment date; provided, however, that any interest payable at maturity shall be payable to the person to whom the payment at maturity shall be payable.
 
 
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relevant exchange” means, with respect to any underlying index, the primary exchange(s) or market(s) of trading for (i) any security then included in such underlying index, or any successor index, and (ii) any futures or options contracts related to such underlying index or to any security then included in such underlying index.
 
stated principal amount” for an issuance of securities shall be the principal amount per security, as specified in the applicable pricing supplement.
 
trading day” means a day, as determined by the Calculation Agent, on which trading is generally conducted on the New York Stock Exchange, The NASDAQ Stock Market LLC (“NASDAQ”), the Chicago Mercantile Exchange and the Chicago Board of Options Exchange and in the over-the-counter market for equity securities in the United States.
 
trigger level” means the level specified in the applicable pricing supplement.
 
underlying indexor “underlying indices” means the index or indices specified in the applicable pricing supplement, the performance of which underlies the securities.
 
underlying index publisher” means the publisher of the applicable underlying index.
 
References in this product supplement to “U.S. dollar” or “U.S.$” or “$” are to the currency of the United States of America.
 
In this “Description of Auto-Callable Securities,” references to an underlying index will include the index or indices specified in the applicable pricing supplement and any successor index or indices, unless the context requires otherwise.
 
Other terms of the auto-callable securities are described in the following paragraphs.
 
Payment Pursuant to Automatic Early Redemption
 
On any determination date other than the final determination date, the securities will be subject to automatic early redemption, as described below.
 
 
for bull market securities,
 
 
º
for securities linked to a single index: If the closing value of the underlying index on any determination date other than the final determination date is greater than the initial index value (or such other value as specified in the applicable pricing supplement), the securities will be automatically redeemed on the third business day following the relevant determination date for an early redemption payment specified for the relevant determination date in the applicable pricing supplement.  The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
 
 
º
for securities linked to more than one index: If the index closing values of each of the underlying indices on any determination date other than the final determination date are in each case greater than the respective initial index values (or such other values as specified in the applicable pricing supplement), the securities will be automatically redeemed on the third business day following the relevant determination date for an early redemption payment specified for the relevant determination date in the applicable pricing supplement.  The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
 
 
for bear market securities,
 
 
º
for securities linked to a single index: If the closing value of the underlying index on any determination date other than the final determination date is less than the initial index value (or such other value as specified in the applicable pricing supplement), the securities will be automatically redeemed on the third business day following the relevant determination date for an early redemption
 
 
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payment specified for the relevant determination date in the applicable pricing supplement. The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
 
 
º
for securities linked to more than one index: If the index closing values of each of the underlying indices on any determination date other than the final determination date are in each case less than the respective initial index values (or such other values as specified in the applicable pricing supplement), the securities will be automatically redeemed on the third business day following the relevant determination date for an early redemption payment specified for the relevant determination date in the applicable pricing supplement.  The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
 
Payment at Maturity
 
At maturity, if the securities have not previously been automatically redeemed, upon delivery of the securities to the Trustee, we will pay with respect to each security an amount of cash which will vary depending on the value of the underlying index or indices on the final determination date and over the term of the securities, as described below.
 
 
for bull market securities,
 
 
º
for securities linked to a single index
 
 
Ø
If the final index value is greater than the initial index value: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final index value is less than or equal to the initial index value but the index value has not declined to or below the specified trigger level at any time during the observation period: the stated principal amount
 
 
Ø
If the final index value is less than or equal to the initial index value and the index value has declined to or below the specified trigger level at any time during the observation period: the stated principal amount times the index performance factor
 
where,
 
index performance factor
=
  final index value 
 initial index value

Because the index performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
 
 
º
for securities linked to more than one index
 
 
Ø
If the final index values of each of the underlying indices are in each case greater than the respective initial index values: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final index value of any of the underlying indices is less than or equal to the relevant initial index value but the index value of no underlying index has declined to or below the relevant specified trigger level at any time during the observation period: the stated principal amount
 
 
Ø
If the final index value of any of the underlying indices is less than or equal to the relevant initial index value and the index value of any of the underlying indices has declined to or below the relevant specified trigger level at any time during the observation period: the stated principal amount times the index performance factor
 
 
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where,

index performance factor
=
the least of

 
final index value of Index1
 
 
initial index value of Index1
 
 
 
and
 
 
 
final index value of Index2
 
 
initial index value of Index2
 
 
 
and
 
 
 
final index value of Indexn
 
 
initial index value of Indexn
 

The underlying index with the lowest index performance factor may be, but need not be, the same underlying index that declined below the trigger level during the observation period.
 
Because the index performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
 
 
for bear market securities,
 
 
º
for securities linked to a single index
 
 
Ø
If the final index value is less than the initial index value: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final index value is greater than or equal to the initial index value but the index value has not increased to or above the specified trigger level at any time during the observation period: the stated principal amount
 
 
Ø
If the final index value is greater than or equal to the initial index value and the index value has increased to or above the specified trigger level at any time during the observation period: the stated principal amount times the index performance factor
 
where,

index performance factor
=
1 –
(final index value – initial index value)
initial index value

, provided that the index performance factor may not be less than zero.
 
Because the index performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
 
 
º
for securities linked to more than one index
 
 
Ø
If the final index values of each of the underlying indices are in each case less than the respective initial index values: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final index value of any of the underlying indices is greater than or equal to the relevant initial index value but the index value of no underlying index has increased to or above the relevant specified trigger level at any time during the observation period: the stated principal amount
 
 
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Ø
If the final index value of any of the underlying indices is greater than or equal to the relevant initial index value and the index value of any of the underlying indices has increased to or above the relevant specified trigger level at any time during the observation period: the stated principal amount times the index performance factor
 
where,

index performance factor
=
the least of

1 –
(final index value of Index1 – initial index value of Index1)
initial index value of Index1
 
and
 
1 –
(final index value of Index2 – initial index value of Index2)
initial index value of Index2
 
and
 
1 –
(final index value of Indexn – initial index value of Indexn)
initial index value of Indexn

, provided that the index performance factor may not be less than zero.
 
The underlying index with the lowest index performance factor may be, but need not be, the same underlying index that increased above the trigger level during the observation period.
 
Because the index performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
 
 
for auto-callable buffered securities,
 
 
º
for bull market auto-callable buffered securities linked to a single index
 
 
Ø
If the final index value is greater than the initial index value: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final index value is less than or equal to the initial index value but has decreased by an amount less than or equal to the buffer amount from the initial index value: the stated principal amount
 
 
Ø
If the final index value is less than or equal to the initial index value and has decreased by an amount greater than the buffer amount from the initial index value: the stated principal amount times the index performance factor, plus the minimum payment at maturity
 
where,
 
index performance factor
=
  final index value  
 initial index value

This payment will be less than the stated principal amount; however, the payment at maturity for each stated principal amount will not be less than the minimum payment at maturity, which will be the stated principal amount times the buffer amount.
 
 
º
for bear market auto-callable buffered securities linked to a single index
 
 
Ø
If the final index value is less than the initial index value: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
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Ø
If the final index value is greater than or equal to the initial index value but the index value has increased by an amount less than or equal to the buffer amount from the initial index value: the stated principal amount
 
 
Ø
If the final index value is greater than or equal to the initial index value and the index value has increased by an amount greater than the buffer amount from the initial index value: the stated principal amount times the index performance factor, plus the minimum payment at maturity
 
where,

index performance factor
=
1 –
(final index value – initial index value)
initial index value

, provided that the index performance factor may not be less than zero.
 
This payment will be less than the stated principal amount; however, the payment at maturity for each stated principal amount will not be less than the minimum payment at maturity, which will be the stated principal amount times the buffer amount.
 
Postponement of Determination Dates
 
In the calculation of the index closing value(s) on each of the determination dates, including the final index value(s), the Calculation Agent will take into account market disruption events and non-index business days as follows:
 
For issuances of securities linked to a single index:  If any scheduled determination date is not an index business day or if there is a market disruption event on such date, such determination date shall be the next succeeding index business day on which there is no market disruption event; provided that if a market disruption event has occurred on each of the five consecutive index business days immediately succeeding such scheduled determination date, then (i) such fifth succeeding index business day will be deemed to be the relevant determination date notwithstanding the occurrence of a market disruption event on such date and (ii) with respect to any such fifth index business day on which a market disruption event occurs, the Calculation Agent will determine the index closing value of the underlying index on such fifth index business day in accordance with the formula for and method of calculating such underlying index last in effect prior to the commencement of the market disruption event, without rebalancing or substitution, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) on such index business day of each security most recently constituting the underlying index.
 
For issuances of securities linked to more than one index:  If any scheduled determination date is not an index business day or if there is a market disruption event on such date with respect to any underlying index, such determination date with respect to that underlying index shall be the next succeeding index business day with respect to that underlying index on which there is no market disruption event with respect to that underlying index; provided that if a market disruption event with respect to that underlying index has occurred on each of the five consecutive index business days with respect to that underlying index immediately succeeding such scheduled determination date, then (i) such fifth succeeding index business day will be deemed to be the relevant determination date for that disrupted underlying index, notwithstanding the occurrence of a market disruption event with respect to that underlying index on such date and (ii) with respect to any such fifth index business day on which a market disruption event occurs with respect to that underlying index, the Calculation Agent will determine the index closing value of that underlying index on such fifth index business day in accordance with the formula for and method of calculating that underlying index last in effect prior to the commencement of the market disruption event, without rebalancing or substitution, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) on such index business day of each security most recently constituting that disrupted underlying index.
 
 
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Alternate Exchange Calculation in Case of an Event of Default
 
If an event of default (as defined in the accompanying prospectus) with respect to any issuance of securities shall have occurred and be continuing, the amount declared due and payable upon any acceleration of such securities (the “Acceleration Amount”) will be an amount, determined by the Calculation Agent in its sole discretion, that is equal to the cost of having a qualified financial institution, of the kind and selected as described below, expressly assume all our payment and other obligations with respect to the securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations providing substantially equivalent economic value to you with respect to the securities.  That cost will equal:
 
the lowest amount that a qualified financial institution would charge to effect this assumption or undertaking, plus
 
the reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the securities in preparing any documentation necessary for this assumption or undertaking.
 
During the default quotation period for the securities, which we describe below, the holders of the securities and/or we may request a qualified financial institution to provide a quotation of the amount it would charge to effect this assumption or undertaking.  If either party obtains a quotation, it must notify the other party in writing of the quotation.  The amount referred to in the first bullet point above will equal the lowest—or, if there is only one, the only—quotation obtained, and as to which notice is so given, during the default quotation period.  With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds, to the assumption or undertaking by the qualified financial institution providing the quotation and notify the other party in writing of those grounds within two business days after the last day of the default quotation period, in which case that quotation will be disregarded in determining the Acceleration Amount.
 
Notwithstanding the foregoing, if a voluntary or involuntary liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to Morgan Stanley, then depending on applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount.
 
If the maturity of the securities is accelerated because of an event of default as described above, we shall, or shall cause the Calculation Agent to, provide written notice to the Trustee at its New York office, on which notice the Trustee may conclusively rely, and to the Depositary of the Acceleration Amount due with respect to the securities as promptly as possible and in no event later than two business days after the date of such acceleration.
 
Default Quotation Period
 
The default quotation period is the period beginning on the day the Acceleration Amount first becomes due and ending on the third business day after that day, unless:
 
no quotation of the kind referred to above is obtained, or
 
every quotation of that kind obtained is objected to within five business days after the due date as described above.
 
If either of these two events occurs, the default quotation period will continue until the third business day after the first business day on which prompt notice of a quotation is given as described above.  If that quotation is objected to as described above within five business days after that first business day, however, the default quotation period will continue as described in the prior sentence and this sentence.
 
In any event, if the default quotation period and the subsequent two business day objection period have not ended before the final determination date, then the Acceleration Amount will equal the principal amount of the securities.
 
Qualified Financial Institutions
 
 
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For the purpose of determining the Acceleration Amount at any time, a qualified financial institution must be a financial institution organized under the laws of any jurisdiction in the United States or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date of issue and rated either:
 
A-2 or higher by Standard & Poor’s Ratings Services or any successor, or any other comparable rating then used by that rating agency, or
 
P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating agency.
 
Discontinuance of Any Underlying Index; Alteration of Method of Calculation
 
If the underlying index publisher discontinues publication of an underlying index and such underlying index publisher or another entity (including MS & Co.) publishes a successor or substitute index that MS & Co., as the Calculation Agent, determines, in its sole discretion, to be comparable to the discontinued underlying index (such index being referred to herein as a “successor index”), then any subsequent index closing value will be determined by reference to the published value of such successor index at the regular weekday close of trading on any index business day that the index closing value is to be determined, and any subsequent index value will be determined by reference to such successor index.
 
Upon any selection by the Calculation Agent of a successor index, the Calculation Agent will cause written notice thereof to be furnished to the Trustee, to us and to the Depositary, as holder of the securities, within three business days of such selection.  We expect that such notice will be made available to you, as a beneficial owner of the securities, in accordance with the standard rules and procedures of the Depositary and its direct and indirect participants.
 
If the underlying index publisher discontinues publication of an underlying index prior to, and such discontinuance is continuing on, any determination date or any index business day (on which determination need be made as to whether the index value has reached the trigger level) and MS & Co., as the Calculation Agent, determines, in its sole discretion, that no successor index is available at such time, then the Calculation Agent will determine the index closing value for such date.  Following any such determination, the Calculation Agent will not compute the index value on any index business day on an intra-day basis and will instead rely on the index closing value as computed by the Calculation Agent for the purpose of determining whether the index value decreases to or below the trigger level or rises to or above the trigger level, as applicable.  The index closing value will be computed by the Calculation Agent in accordance with the formula for and method of calculating such underlying index last in effect prior to such discontinuance, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) at the close of the principal trading session of the relevant exchange on such date of each security most recently constituting such underlying index without any rebalancing or substitution of such securities following such discontinuance.  Notwithstanding these alternative arrangements, discontinuance of the publication of such underlying index may adversely affect the value of the securities.
 
If at any time the method of calculating an underlying index or successor index, or the value thereof, is changed in a material respect, or if such underlying index or successor index is in any other way modified so that such underlying index does not, in the opinion of MS & Co., as the Calculation Agent, fairly represent the value of such underlying index or such successor index had such changes or modifications not been made, then, from and after such time, the Calculation Agent will, at the close of business in New York City on each date or during such day on which the index closing value or the index value, respectively, is to be determined, make such calculations and adjustments as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock index comparable to such underlying index or successor index, as the case may be, as if such changes or modifications had not been made, and the Calculation Agent will calculate the index closing values and index values with reference to such underlying index or successor index, as adjusted.  Accordingly, if the method of calculating such underlying index or successor index is modified so that the value of such index is a fraction of what it would have been if it had not been modified (e.g., due to a split in the index), then the Calculation Agent will adjust such index in order to arrive at a value of such underlying index or successor index as if it had not been modified (e.g., as if such split had not occurred).
 
 
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Auto-Callable Securities Linked to Underlying Shares
 
This section describes the terms and provisions specific to the securities linked, in whole or in part, to shares of a common stock, American depositary shares representing the ordinary shares of an underlying company or shares of an exchange-traded fund specified in the applicable pricing supplement, which we refer to as underlying shares.
 
Some Definitions.  For purposes of the securities linked, in whole or in part, to underlying shares, the following definitions shall apply in addition to or in substitution of, as applicable, the definitions provided under “Description of Auto-Callable Securities—General Terms of the Securities—Some Definitions.”
 
adjustment factor” means a number which is initially 1.0 and will be subject to adjustment for certain events affecting the underlying shares.  See “—Antidilution Adjustments” below.
 
closing price” for the underlying shares (or one unit of any other security for which a closing price must be determined) on any trading day means, subject to the provisions set out under “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares—Discontinuance of the Underlying Shares of an Exchange-Traded Fund and/or Share Underlying Index; Alteration of Method of Calculation” below:
 
 
(i)
if the underlying shares (or any such other security) are listed on a national securities exchange (other than the NASDAQ), the last reported sale price, regular way, of the principal trading session on such day on the principal national securities exchange registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on which the underlying shares (or any such other security) are listed,
 
 
(ii)
if the underlying shares (or any such other security) are securities of the NASDAQ, the official closing price published by the NASDAQ on such day, or
 
 
(iii)
if the underlying shares (or any such other security) are not listed on any national securities exchange but are included in the OTC Bulletin Board Service (the “OTC Bulletin Board”) operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”), the last reported sale price of the principal trading session on the OTC Bulletin Board on such day.
 
If the underlying shares (or any such other security) are listed on any national securities exchange but the last reported sale price or the official closing price published by the NASDAQ, as applicable, is not available pursuant to the preceding sentence, then the closing price for one underlying share (or one unit of any such other security) on any trading day will mean the last reported sale price of the principal trading session on the over-the-counter market as reported on the NASDAQ or the OTC Bulletin Board on such day.  If a market disruption event (as defined below) occurs with respect to the underlying shares (or any such other security) or the last reported sale price or the official closing price published by the NASDAQ, as applicable, for the underlying shares (or any such other security) is not available pursuant to either of the two preceding sentences, then the closing price for any trading day will be the mean, as determined by the Calculation Agent, of the bid prices for the underlying shares (or any such other security) for such trading day obtained from as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the Calculation Agent.  Bids of Morgan Stanley & Co. LLC and its successors or any of its affiliates may be included in the calculation of such mean, but only to the extent that any such bid is the highest of the bids obtained.  If no bid prices are provided from any third party dealers, the closing price will be determined by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account any information that it deems relevant.
 
The term “OTC Bulletin Board Service” will include any successor service thereto, or, if applicable, the OTC Reporting Facility operated by FINRA.
 
See “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares—Discontinuance of the Underlying Shares of an Exchange-Traded Fund and/or Share Underlying Index; Alteration of Method of Calculation” below.
 
determination closing price” means the closing price of one underlying share times the adjustment factor, each as determined by the Calculation Agent on any determination date prior to the final determination date.
 
 
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final share price” means the closing price of one underlying share times the adjustment factor, each as determined by the Calculation Agent on the final determination date.
 
initial share price” means the closing price of one underlying share times the adjustment factor, each as determined by the Calculation Agent on the pricing date, or as otherwise specified in the applicable pricing supplement.
 
intraday price” for the underlying shares (or one unit of any other security for which an intraday price must be determined) at any time during any trading day (including at the close) means, subject to the provisions set out under “Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares—Discontinuance of the Underlying Shares of an Exchange-Traded Fund and/or Share Underlying Index; Alteration of Method of Calculation” below:
 
 
(i)
if the underlying shares (or any such other security) are listed on a national securities exchange (other than the NASDAQ), the most recently reported sale price, regular way, at such time during the principal trading session on such day on the principal national securities exchange registered under the Exchange Act on which the underlying shares (or any such other security) are listed,
 
 
(ii)
if the underlying shares (or any such other security) are securities of the NASDAQ, the most recently reported sale price, regular way, at such time during the principal trading session on such day quoted by the NASDAQ, or
 
(iii)  if the underlying shares (or any such other security) are not listed on any national securities exchange but are included in the OTC Bulletin Board, the most recently reported sale price at such time during the principal trading session on the OTC Bulletin Board on such day.  The term “OTC Bulletin Board Service” will include any successor service thereto, or, if applicable, the OTC Reporting Facility operated by FINRA.
 
market disruption event” means,
 
(A)  with respect to underlying shares of a common stock or American depositary shares:
 
 
(i)
the occurrence or existence of any of:
 
(a) a suspension, absence or material limitation of trading of the underlying shares or the ordinary shares represented by such underlying shares on the primary market for the underlying shares or the ordinary shares represented by such underlying shares for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session in such market, or
 
(b) a breakdown or failure in the price and trade reporting systems of the primary market for the underlying shares or the ordinary shares represented by such underlying shares as a result of which the reported trading prices for the underlying shares or the ordinary shares represented by such underlying shares during the last one-half hour preceding the close of the principal trading session in such market are materially inaccurate, or
 
(c) the suspension, absence or material limitation of trading on the primary market for trading in options contracts related to the underlying shares or the ordinary shares represented by such underlying shares, if available, during the one-half hour period preceding the close of the principal trading session in the applicable market, in each case as determined by the Calculation Agent in its sole discretion,
 
in each case, as determined by the Calculation Agent in its sole discretion; and
 
 
(ii)
a determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with respect to the securities linked to underlying shares.
 
For the purpose of determining whether a market disruption event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a market disruption event if it results from an announced change in the
 
 
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regular business hours of the primary market, (2) a decision to permanently discontinue trading in the relevant options contract will not constitute a market disruption event, (3) a suspension of trading in options contracts on the underlying shares or the ordinary shares represented by such underlying shares by the primary securities market trading in such contracts by reason of (a) a price change exceeding limits set by such securities exchange or market, (b) an imbalance of orders relating to such contracts or (c) a disparity in bid and ask quotes relating to such contracts will constitute a suspension, absence or material limitation of trading in options contracts related to the underlying shares or the ordinary shares represented by such underlying shares and (4) a suspension, absence or material limitation of trading on the primary securities market on which options contracts related to the underlying shares or the ordinary shares represented by such underlying shares are traded will not include any time when such securities market is itself closed for trading under ordinary circumstances.
 
(B) with respect to underlying shares of an exchange-traded fund:
 
 
(i)
the occurrence or existence of any of:
 
(a) a suspension, absence or material limitation of trading of the underlying shares on the primary market for the underlying shares for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session in such market; or a breakdown or failure in the price and trade reporting systems of the primary market for the underlying shares as a result of which the reported trading prices for the underlying shares during the last one-half hour preceding the close of the principal trading session in such market are materially inaccurate; or the suspension, absence or material limitation of trading on the primary market for trading in futures or options contracts related to the underlying shares, if available, during the one-half hour period preceding the close of the principal trading session in the applicable market, in each case as determined by the Calculation Agent in its sole discretion, or
 
(b) the occurrence or existence of a suspension, absence or material limitation of trading of securities then constituting 20 percent or more of the value of the share underlying index on the relevant exchanges for such securities for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such relevant exchanges, in each case as determined by the Calculation Agent in its sole discretion, or
 
(c) the suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options contracts related to the share underlying index or the underlying shares for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such market, in each case as determined by the Calculation Agent in its sole discretion,
 
in each case, as determined by the Calculation Agent in its sole discretion; and
 
 
(ii)
a determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with respect to the securities linked to underlying shares.
 
For the purpose of determining whether a market disruption event exists at any time, if trading in a security included in the share underlying index is materially suspended or materially limited at that time, then the relevant percentage contribution of that security to the level of the share underlying index shall be based on a comparison of (x) the portion of the level of the share underlying index attributable to that security relative to (y) the overall level of the share underlying index, in each case immediately before that suspension or limitation.
 
For the purpose of determining whether a market disruption event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a market disruption event if it results from an announced change in the regular business hours of the relevant exchange or market, (2) a decision to permanently discontinue trading in the relevant futures or options contract will not constitute a market disruption event, (3) a suspension of trading in futures or options contracts on the share underlying index or the underlying shares by the primary securities market trading in such contracts by reason of (a) a price change exceeding limits set by such securities exchange or market, (b) an imbalance of orders relating to such contracts or (c) a disparity in bid and ask quotes relating to such contracts will constitute a suspension, absence or material limitation of trading in futures or options contracts related to the
 
 
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share underlying index or the underlying shares and (4) a “suspension, absence or material limitation of trading” on any relevant exchange or on the primary market on which futures or options contracts related to the share underlying index or the underlying shares are traded will not include any time when such securities market is itself closed for trading under ordinary circumstances.  Upon any permanent discontinuance of trading in the underlying shares, see “––Discontinuance of the Underlying Shares of an Exchange-Traded Fund and/or Share Underlying Index; Alteration of Method of Calculation” below.
 
observation period” means, unless otherwise specified in the applicable pricing supplement, the period of regular trading hours on each trading day on which there is no market disruption event with respect to the underlying shares during the period from but excluding the pricing date to and including the final determination date.
 
relevant exchange” means the primary exchange or market of trading for any security (or any combination thereof) then included in the share underlying index or any successor index.
 
share underlying index” means the index which the relevant exchange-traded fund generally seeks to track.
 
trading price” means the intraday price of one underlying share times the adjustment factor, each as determined by the Calculation Agent at any time on any day.
 
underlying share” means the share of the common stock or of the exchange-traded fund specified in the applicable pricing supplement, the performance of which underlies the securities linked to underlying shares.
 
Other terms of the securities linked to underlying shares are described in the following paragraphs.
 
Payment Pursuant to Automatic Early Redemption
 
On any determination date other than the final determination date, the securities linked to underlying shares will be subject to automatic early redemption, as described below.
 
 
for bull market securities linked to underlying shares,
 
 
º
for securities linked to a single underlying share: If the determination closing price of the underlying share on any determination date other than the final determination date is greater than the initial share price (or such other value as specified in the applicable pricing supplement), the securities will be automatically redeemed on the fifth business day following the relevant determination date for an early redemption payment specified for the relevant determination date in the applicable pricing supplement.  The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
 
 
º
for securities linked to more than one underlying share: If the determination closing prices of each of the underlying shares on any determination date other than the final determination date are greater than the respective initial share prices (or such other values as specified in the applicable pricing supplement), the securities will be automatically redeemed on the fifth business day following the relevant determination date for an early redemption payment specified for the relevant determination date in the applicable pricing supplement.  The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
 
 
for bear market securities linked to underlying shares,
 
 
º
for securities linked to a single underlying share: If the determination closing price of the underlying share on any determination date other than the final determination date is less than the initial share price (or such other value as specified in the applicable pricing supplement), the securities will be automatically redeemed on the fifth business day following the relevant determination date for an early redemption payment specified for the relevant determination date in the applicable pricing supplement.  The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
 
 
S-57

 
 
 
º
for securities linked to more than one underlying share: If the determination closing prices of each of the underlying indices on any determination date other than the final determination date are less than the respective initial share prices (or such other values as specified in the applicable pricing supplement), the securities will be automatically redeemed on the fifth business day following the relevant determination date for an early redemption payment specified for the relevant determination date in the applicable pricing supplement.  The early redemption payment will be an amount of cash that is greater than the stated principal amount of the securities.
 
Payment at Maturity
 
At maturity, if the securities linked to underlying shares have not previously been automatically redeemed, upon delivery of the securities to the Trustee, we will pay with respect to each security an amount of cash which will vary depending on the value of the underlying shares on the final determination date and over the term of the securities, as described below.
 
 
for bull market securities linked to underlying shares,
 
 
º
for securities linked to a single underlying share:
 
 
Ø
If the final share price is greater than the initial share price: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final share price is less than or equal to the initial share price but the trading price has not declined to or below the specified trigger level at any time during the observation period: the stated principal amount
 
 
Ø
If the final share price is less than or equal to the initial share price and the trading price has declined to or below the specified trigger level at any time during the observation period: the stated principal amount times the share performance factor
 
where,
 
share performance factor
=
  final share price 
 initial share price

Because the share performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
 
 
º
for securities linked to more than one underlying share:
 
 
Ø
If the final share prices of each of the underlying shares are in each case greater than the respective initial share prices: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final share price of any of the underlying shares is less than or equal to the relevant initial share price but the trading price of no underlying share has declined to or below the relevant specified trigger level at any time during the observation period: the stated principal amount
 
 
Ø
If the final share price of any of the underlying shares is less than or equal to the relevant initial share price and the trading price of any of the underlying shares has declined to or below the relevant specified trigger level at any time during the observation period: the stated principal amount times the share performance factor
 
where,

share performance factor
=
the least of

 
final share price of Share1
 
 
initial share price of Share1
 
 
 
S-58

 
 
     
 
and
 
     
 
final share price of Share2
 
 
initial share price of Share2
 
     
 
and
 
     
 
final share price of Sharen
 
 
initial share price of Sharen
 

The underlying share with the lowest share performance factor may be, but need not be, the same underlying index that declined below the trigger level during the observation period.
 
Because the share performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
 
 
for bear market securities linked to underlying shares,
 
 
º
for securities linked to a single underlying share:
 
 
Ø
If the final share price is less than the initial share price: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final share price is greater than or equal to the initial share price but the trading price has not increased to or above the specified trigger level at any time during the observation period: the stated principal amount
 
 
Ø
If the final share price is greater than or equal to the initial share price and the trading price has increased to or above the specified trigger level at any time during the observation period: the stated principal amount times the share performance factor
 
where,

share performance factor
=
1 –
(final share price – initial share price)
initial share price

, provided that the share performance factor may not be less than zero.
 
Because the share performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
 
 
º
for securities linked to more than one underlying share:
 
 
Ø
If the final share prices of each of the underlying shares are in each case less than the respective initial share prices: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the final share price of any of the underlying shares is greater than or equal to the relevant initial share price but the trading price of no underlying share has increased to or above the relevant specified trigger level at any time during the observation period: the stated principal amount
 
 
Ø
If the final share price of any of the underlying shares is greater than or equal to the relevant initial share price and the trading price of any of the underlying shares has increased to or above the relevant specified trigger level at any time during the observation period: the stated principal amount times the share performance factor
 
 
S-59

 
 
where,

share performance factor
=
the least of

1 –
(final share price of Share1 – initial share price of Share1)
initial share price of Share1
 
and
 
1 –
(final share price of Share2 – initial share price of Share2)
initial share price of Share2
 
and
1 –
(final share price of Sharen – initial share price of Sharen)
initial share price of Sharen

, provided that the share performance factor may not be less than zero.
 
The underlying share with the lowest share performance factor may be, but need not be, the same underlying share that increased above the trigger level during the observation period.
 
Because the share performance factor will be less than or equal to 1.0, this amount will be less than or equal to the stated principal amount per security and could be zero.
 
 
for auto-callable buffered securities linked to underlying shares
 
Auto-callable securities linked to underlying shares may also be issued as auto-callable buffered securities.  The terms applicable to such auto-callable buffered securities will be as specified in the applicable pricing supplement.
 
Postponement of Determination Dates
 
In the calculation of the determination closing prices and the final share price, the Calculation Agent will take into account market disruption events and non-trading days as follows:
 
For issuances of securities linked to a single underlying share:  If any scheduled determination date is not a trading day or if there is a market disruption event on such date, such determination date shall be the next succeeding trading day on which there is no market disruption event; provided that if a market disruption event has occurred on each of the five consecutive trading days immediately succeeding such scheduled determination date, then (i) such fifth succeeding trading day will be deemed to be the relevant determination date notwithstanding the occurrence of a market disruption event on such date and (ii) with respect to any such fifth trading day on which a market disruption event occurs, the Calculation Agent will determine the determination closing price or the final share price, as applicable, of the underlying share on such fifth trading day based on the mean of the bid prices for the underlying share for such date obtained from as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the Calculation Agent.  Bids of MS & Co. or any of its affiliates may be included in the calculation of such mean, but only to the extent that any such bid is the highest of the bids obtained.  If no bid prices are provided from any third party dealers, the determination closing price or the final share price, as applicable, will be determined by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account any information that it deems relevant.
 
For issuances of securities linked to more than one underlying share:  If any scheduled determination date is not a trading day or if there is a market disruption event on such date with respect to any underlying share, such determination date solely with respect to that underlying share shall be the next succeeding trading day on which there is no market disruption event with respect to that underlying share; provided that if a market disruption event with respect to that underlying share has occurred on each of the five consecutive trading days immediately succeeding such scheduled determination date, then (i) such fifth
 
 
S-60

 
 
succeeding trading day will be deemed to be the relevant determination date for that disrupted underlying share, notwithstanding the occurrence of a market disruption event with respect to that underlying share on such date and (ii) with respect to any such fifth trading day on which a market disruption event occurs with respect to that underlying share, the Calculation Agent will determine the determination closing price or the final share price, as applicable, of that underlying share on such fifth trading day based on the mean of the bid prices for that underlying share for such date obtained from as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the Calculation Agent.  Bids of MS & Co. or any of its affiliates may be included in the calculation of such mean, but only to the extent that any such bid is the highest of the bids obtained.  If no bid prices are provided from any third party dealers, the determination closing price or the final share price, as applicable, will be determined by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account any information that it deems relevant.
 
Antidilution Adjustments
 
 
in case underlying shares are shares of an exchange-traded fund,
 
If the underlying shares are subject to a stock split or reverse stock split, then once such split has become effective, the adjustment factor will be adjusted to equal the product of the prior adjustment factor and the number of shares issued in such stock split or reverse stock split with respect to one underlying share.  No adjustment to the adjustment factor will be required unless such adjustment would require a change of at least 0.1% in the adjustment factor then in effect.  Any number so adjusted will be rounded to the nearest one hundred-thousandth, with five one-millionths being rounded upward.
 
 
in case underlying shares are shares of common stock or American depositary shares
 
1. If the underlying shares (or any ordinary shares represented by such underlying shares (the “underlying ordinary shares”)) are subject to a stock split or reverse stock split, then once such split has become effective, the adjustment factor will be adjusted to equal the product of the prior adjustment factor and the number of shares issued in such stock split or reverse stock split with respect to one underlying share or the underlying ordinary shares; provided, however, that, with respect to the underlying shares that are American depositary shares, if (and to the extent that) the underlying company or the depositary for such underlying shares has adjusted the number of underlying ordinary shares represented by each underlying share so that the price of the underlying shares would not be affected by such stock split or reverse stock split, no adjustment will be made to the adjustment factor.
 
2. If the underlying shares (or the underlying ordinary shares) are subject (i) to a stock dividend (issuance of additional underlying shares or underlying ordinary shares) that is given ratably to all holders of underlying shares or (ii) to a distribution of the underlying shares or underlying ordinary shares as a result of the triggering of any provision of the corporate charter of the underlying company, then once the dividend has become effective and the underlying shares is trading ex-dividend, the adjustment factor will be adjusted so that the new adjustment factor shall equal the prior adjustment factor plus the product of (i) the number of shares issued with respect to one underlying share and (ii) the prior adjustment factor; provided, however, that, with respect to the underlying shares that are American depositary shares, if (and to the extent that) the underlying company or the depositary for such underlying shares has adjusted the number of underlying ordinary shares represented by each underlying share so that the price of the underlying shares would not be affected by such stock dividend or stock distribution, no adjustment will be made to the adjustment factor.
 
3. If the underlying company issues rights or warrants to all holders of the underlying shares (or the underlying ordinary shares) to subscribe for or purchase the underlying shares (or the underlying ordinary shares) at an exercise price per share less than the closing price of the underlying shares (or the underlying ordinary shares) on both (i) the date the exercise price of such rights or warrants is determined and (ii) the expiration date of such rights or warrants, and if the expiration date of such rights or warrants precedes the maturity of the securities, then the adjustment factor will be (x) in the case of the underlying shares that are shares of the common stock, adjusted to equal the product of the prior adjustment factor and a fraction, the numerator of which shall be the number of underlying shares outstanding immediately prior to the issuance of such rights or
 
 
S-61

 
 
warrants plus the number of additional underlying shares offered for subscription or purchase pursuant to such rights or warrants and the denominator of which shall be the number of shares of the underlying shares outstanding immediately prior to the issuance of such rights or warrants plus the number of additional underlying shares which the aggregate offering price of the total number of underlying shares so offered for subscription or purchase pursuant to such rights or warrants would purchase at the closing price on the expiration date of such rights or warrants, which shall be determined by multiplying such total number of shares offered by the exercise price of such rights or warrants and dividing the product so obtained by such closing price and (y) in the case of the underlying shares that are American depositary shares, proportionally adjusted; provided, however, that, if (and to the extent that) the underlying company or the depositary for such underlying shares has adjusted the number of underlying ordinary shares represented by each underlying share so that the price of the underlying shares would not be affected by such rights or warrants, no adjustment will be made to the adjustment factor.
 
4. There will be no required adjustments to the adjustment factor to reflect cash dividends or other distributions paid with respect to the underlying shares (or the underlying ordinary shares) other than distributions described in paragraph 2, paragraph 3 and clauses (i), (iv) and (v) of paragraph 5 below and Extraordinary Dividends as described below.  For underlying shares that are American depositary shares, cash dividends or other distributions paid on the underlying ordinary shares shall not be considered Extraordinary Dividends unless the net amount of such cash dividends or other distributions, when passed through to the holder of such underlying shares, would constitute Extraordinary Dividends as described below.  A cash dividend or other distribution with respect to the underlying shares will be deemed to be an “Extraordinary Dividend” if such cash dividend or distribution exceeds the immediately preceding non-Extraordinary Dividend for the underlying shares by an amount equal to at least 10% of the closing price of the underlying shares (as adjusted for any subsequent corporate event requiring an adjustment hereunder, such as a stock split or reverse stock split) on the trading day preceding the ex-dividend date (that is, the day on and after which transactions in the underlying shares on the primary U.S. organized securities exchange or trading system on which the underlying shares are traded no longer carry the right to receive that cash dividend or that cash distribution) for the payment of such Extraordinary Dividend.  If an Extraordinary Dividend occurs with respect to the underlying shares, the adjustment factor with respect to the underlying shares will be adjusted on the ex-dividend date with respect to such Extraordinary Dividend so that the new adjustment factor will equal the product of (i) the then current adjustment factor and (ii) a fraction, the numerator of which is the closing price on the trading day preceding the ex-dividend date, and the denominator of which is the amount by which the closing price on the trading day preceding the ex-dividend date exceeds the Extraordinary Dividend Amount.  The “Extraordinary Dividend Amount” with respect to an Extraordinary Dividend for the underlying shares will equal (i) in the case of cash dividends or other distributions that constitute regular dividends, the amount per share of such Extraordinary Dividend minus the amount per share of the immediately preceding non-Extraordinary Dividend for the underlying shares or (ii) in the case of cash dividends or other distributions that do not constitute regular dividends, the amount per share of such Extraordinary Dividend.  To the extent an Extraordinary Dividend is not paid in cash, the value of the non-cash component will be determined by the Calculation Agent, whose determination shall be conclusive.  A distribution on the underlying shares described in clause (i), (iv) or (v) of paragraph 5 below that also constitutes an Extraordinary Dividend shall cause an adjustment to the adjustment factor pursuant only to clause (i), (iv) or (v) of paragraph 5, as applicable.
 
5. If (i) there occurs any reclassification or change of the underlying shares (or the underlying ordinary shares), including, without limitation, as a result of the issuance of any tracking stock by the underlying company, (ii) the underlying company or any surviving entity or subsequent surviving entity of the underlying company (the “successor corporation”) has been subject to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory exchange of securities of the underlying company or any successor corporation with another corporation occurs (other than pursuant to clause (ii) above), (iv) the underlying company is liquidated, (v) the underlying company issues to all of its shareholders equity securities of an issuer other than the underlying company (other than in a transaction described in clause (ii), (iii) or (iv) above) (a “Spin-Off Event”) or (vi) a tender or exchange offer or going-private transaction is consummated for all the outstanding shares of the underlying shares (or the underlying ordinary shares) (any such event in clauses (i) through (vi), a “Reorganization Event”), the method of determining whether an early redemption has occurred and the amount payable upon an early redemption date or at maturity for each security will be as follows:
 
 
S-62

 
 
For bull market auto-callable securities linked to underlying shares of a single underlying company:
 
 
o
Upon any determination date following the effective date of a Reorganization Event and prior to the final determination date: If the Exchange Property Value (as defined below) is greater than the initial share price, the securities will be automatically redeemed for the early redemption payment on the early redemption date; or
 
 
o
Upon the final determination date, if the securities have not been previously automatically redeemed: You will receive for each stated principal amount of securities that you hold a payment at maturity equal to:
 
 
Ø
If the Exchange Property Value on the final determination date is greater than the initial share price: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the Exchange Property Value on the final determination date is less than or equal to the initial share price but (x) the trading price has not decreased to or below the trigger level at any time during the period of regular trading hours on each trading day during the period from but excluding the pricing date to but excluding the effective date of the Reorganization Event and (y) the Exchange Property Value at any time on any trading day from and including the effective date of the Reorganization Event to and including the final determination date has not decreased to or below the trigger level: the stated principal amount
 
 
Ø
If the Exchange Property Value on the final determination date is less than or equal to the initial share price and (x) the trading price has decreased to or below the trigger level at any time during the period of regular trading hours on each trading day during the period from but excluding the pricing date to but excluding the effective date of the Reorganization Event or (y) the Exchange Property Value at any time on any trading day from and including the effective date of the Reorganization Event to and including the final determination date has decreased to or below the trigger level: the stated principal amount of each security times the amount equal to the Exchange Property Value divided by the initial share price
 
For bull market auto-callable buffered securities linked to underlying shares of a single underlying company:
 
 
o
Upon any determination date following the effective date of a Reorganization Event and prior to the final determination date: If the Exchange Property Value is greater than the initial share price, the securities will be automatically redeemed for the early redemption payment on the early redemption date; or
 
 
o
Upon the final determination date, if the securities have not been previously automatically redeemed: You will receive for each stated principal amount of securities that you hold a payment at maturity equal to:
 
 
Ø
If the Exchange Property Value on the final determination date is greater than the initial share price: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount
 
 
Ø
If the Exchange Property Value on the final determination date is less than or equal to the initial share price but has decreased by an amount less than or equal to the buffer amount from the initial index value: the stated principal amount
 
 
Ø
If the Exchange Property Value on the final determination date is less than or equal to the initial share price and has decreased by an amount greater than the buffer amount from the initial index value: the stated principal amount of each security times the amount equal to the (Exchange Property Value divided by the initial share price), plus the minimum payment at maturity
 
For bear market auto-callable securities linked to underlying shares of a single underlying company:
 
 
o
Upon any determination date following the effective date of a Reorganization Event and prior to the final determination date: If the Exchange Property Value is less than the initial share price, the securities will be automatically redeemed for the early redemption payment on the early redemption date; or
 
 
S-63

 
 
 
o
Upon the final determination date, if the securities have not been previously automatically redeemed: You will receive for each stated principal amount of securities that you hold a payment at maturity equal to:
 
 
Ø
If the Exchange Property Value on the final determination date is less than the initial share price: a fixed amount of cash specified in the applicable pricing supplement, which is greater than the stated principal amount