Risk Factors

The equity-linked partial principal at risk securities are not secured debt, generally do not pay interest and may not pay the stated principal amount at maturity. Any payment in excess of the minimum payment amount at maturity will be linked to the performance of an underlying index or a basket of indices. Investing in the securities is not equivalent to investing directly in the underlying index or indices. This section describes the material risks relating to the securities. You should carefully consider whether the securities are suited to your particular circumstances before you decide to purchase them.

Risks Relating to an Investment in the Securities

The securities do not guarantee repayment of the stated principal amount at maturity

The terms of the securities differ from those of ordinary debt securities in that the securities do not guarantee a full return of the stated principal amount at maturity. For bull securities, if the final index value or final average index value, as applicable, is less than or not sufficiently above the initial index value, the payment due per security will be less than the stated payment amount at maturity. For bear securities, if the final index value or final average index value, as applicable, is greater than or not sufficiently below the initial index value, the payment due per security will be less than the stated payment amount at maturity. The supplemental redemption amount must be at least equal to the difference between the minimum payment amount and the stated principal amount before you receive a payment at maturity which is equal to or greater than the stated principal amount.

Unlike ordinary senior securities, the securities may not pay interest

The terms of the securities differ from those of ordinary debt securities in that we generally do not pay interest on the securities. Because the supplemental redemption amount due at maturity may equal zero, the return on your investment in the securities (the effective yield to maturity) may be less than the amount that would be paid on an ordinary debt security. The return of only the minimum payment amount will result in a loss on your initial investment, and, accordingly, will not compensate you for the effects of inflation and other factors relating to the value of money over time. Where the securities do not pay interest, they have been designed for investors who are willing to forgo market floating interest rates on the securities in exchange for a supplemental amount based on the percentage increase (or, in the case of bear securities, the percentage decrease), if any, of the final index value or final average index value, as applicable, over the initial index value.

The market price of the securities will 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, including:

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. You may receive less, and possibly significantly less, than the stated principal amount per security if you try to sell your securities prior to maturity.

The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the securities

You are dependent on our ability to pay all amounts due on the securities at maturity, and, therefore, you are subject to our credit risk. If we default on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment. The securities are not guaranteed by any other entity. If we default on our 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 our creditworthiness. Any actual or anticipated decline in our credit ratings or increase in our credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the securities.

As a finance subsidiary, MSFL has no independent operations and will have no independent assets

As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets available for distributions to holders of MSFL securities if they make claims in respect of the securities in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of Morgan Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should be treated pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued securities.

Securities issued by MSFL will not have the benefit of any cross-default or cross-acceleration with other indebtedness of MSFL or Morgan Stanley; a Morgan Stanley covenant default or bankruptcy, insolvency or reorganization event does not constitute an event of default with respect to MSFL securities

The securities issued by MSFL will not have the benefit of any cross-default or cross-acceleration with other indebtedness of MSFL or Morgan Stanley. In addition, a covenant default by Morgan Stanley, as guarantor, or an event of bankruptcy, insolvency or reorganization of Morgan Stanley, as guarantor, does not constitute an event of default with respect to any securities issued by MSFL. See “Description of Debt Securities—Events of Default” in the accompanying prospectus.

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 index or indices, and to our secondary market credit spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account statements.

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 will be influenced by many unpredictable factors” above.

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.

Investing in the securities is not equivalent to investing in the underlying index or indices

Investing in the securities is not equivalent to investing in the underlying index or basket of indices or their component stocks. 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 stocks that constitute the underlying index or basket of indices.

The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities

As calculation agent, MS & Co. will determine the initial index value, the initial basket value, the multipliers, the final index value (or final average index value), the final basket value (or final average basket value), as applicable, the payment at maturity and whether a market disruption event has occurred. 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 basket index. These potentially subjective determinations may affect the payout to you at maturity. See the definition of market disruption event under “Description of Equity-Linked Partial Principal at

Risk Securities —General Terms of the Securities—Some Definitions” and the discussion under “Description of Equity-Linked Partial Principal at Risk Securities —Discontinuance of Any Underlying Index; Alteration of Method of Calculation.”

Hedging and trading activity by our affiliates could potentially adversely affect the value of the securities

One or more of our affiliates and/or third party dealers expect to carry out hedging activities related to the securities (and possibly to other instruments linked to the underlying index or basket indices or their component stocks), including trading in the component stocks of the underlying index or basket indices as well as in other instruments related to the underlying index or basket indices or their underlying stocks. As a result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the determination date approaches. Some of our affiliates also trade the component stocks of the underlying index or indices and other financial instruments related to the underlying index or indices and the component stocks 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 index setting date could potentially affect the value of the underlying index or any basket index on the pricing date, and, as a result, could increase for bull securities or decrease for bear securities the value at which the underlying index or basket indices must close on any determination date 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, including on any determination date(s), could adversely affect the value of the underlying index or basket indices on any determination date(s), and, accordingly, the amount of cash an investor will receive at maturity.

Certain aspects of the tax treatment of short-term securities are uncertain

Certain aspects of the tax treatment of short-term securities that provide for contingent payments are uncertain. You should review carefully the section called “United States Federal Taxation—Short-Term Securities” in this product supplement.

Risks Relating to the Underlying Index or Indices

Changes in the value of one or more of the basket indices may offset each other

For securities where the supplemental redemption amount is based on a basket of two or more indices, price movements in the basket indices may not correlate with each other. At a time when the value of one or more of the basket indices increases, the value of one or more of the other basket indices may not increase as much or may even decline. Therefore, in calculating the basket closing value on any determination date, increases in the value of one or more of the basket indices may be moderated, or wholly offset, by lesser increases or declines in the value of one or more of the other basket indices. You can review the historical prices of each of the basket indices in the section called “Historical Information” in the applicable pricing supplement. You cannot predict the future performance of any of the basket indices or of the basket as a whole, or whether increases in the values of any of the basket indices will be offset by decreases in the values of other basket indices, based on their historical performance.

The basket indices may not be equally weighted

For securities linked to a basket of indices, the basket indices may have different weightings in the underlying basket. In such case, the same percentage change in two of the basket indices could have different effects on the basket closing value because of the unequal weightings. For example, if the weighting of one basket index is greater than the weighting of another basket index, a 5% decrease in the value of the basket index with the greater weighting will have a greater impact on the basket closing value than a 5% increase in the value of the basket index with the lesser weighting.

Adjustments to the underlying index or indices could adversely affect the value of the securities

The index publishers can add, delete or substitute the stocks underlying the underlying index and can make other methodological changes, such as those required by certain events relating to the underlying stocks, such as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change the value of the underlying index or indices. The index publishers may discontinue or suspend calculation or dissemination of

the underlying index or indices. Any of these actions could adversely affect the value of the securities. The index publishers have no obligation to consider your interests in calculating or revising the underlying index or indices.

The index publishers may discontinue or suspend calculation or publication of the underlying index at any time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable to the discontinued underlying index or indices. MS & Co. could have an economic interest that is different than 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 payment on the securities will be an amount based on the closing prices of the stocks underlying the underlying index at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance with the formula for calculating the underlying index last in effect prior to discontinuance of the underlying index.

There are risks associated with investments in securities linked to the value of foreign equity securities

Investments in securities linked to the value 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 United States 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 issued 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. In addition, securities issued by companies in emerging markets countries pose further risks in addition to the risks associated with investing in foreign equity markets generally. Countries with emerging markets may have relatively unstable governments, may present the risks of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have less protection of property rights than more developed countries. The economies of countries with emerging markets may be based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. 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 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 are subject to currency exchange risk

Because the prices of the component securities are converted into U.S. dollars for purposes of calculating the value of the MSCI EAFE Index^®, the MSCI Emerging Markets Index^SM and certain other indices to which the securities may be linked, holders of the securities will be exposed to currency exchange rate risk with respect to each of the currencies in which such component securities trade. Exchange rate movements for a particular currency are volatile and are the result of numerous factors including the supply of, and the demand for, those currencies, as well as the relevant government policy, intervention or actions, but are also influenced significantly from time to time by political or economic developments, and by macroeconomic factors and speculative actions related to the relevant region. An investor’s net exposure will depend on the extent to which the currencies of the securities included in the relevant index strengthen or weaken against the U.S. dollar and the relative weight of each of those securities within the overall index. If, taking into account such weighting, the dollar strengthens against the currencies of the component securities, the value of the relevant index will be adversely affected and the payment at maturity of the securities may be reduced.

Of particular importance to potential currency exchange risk are:

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 and the United States and other countries important to international trade and finance.

Description of Equity-Linked Partial principal at risk Securities

Investors should carefully read the general terms and provisions of our debt securities in “Description of Debt Securities” in the 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 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:

General Terms of the Securities

Morgan Stanley Securities. Morgan Stanley will issue the securities as part of its Series I medium-term notes under the Senior Debt Indenture. The Series I medium-term notes issued under the Senior Debt Indenture, together with Morgan Stanley’s senior Series J and Series K 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 Morgan Stanley issues in the future under the Senior Debt Indenture that it designates as being part of that series. The Senior Debt Indenture does not limit the amount of additional indebtedness that Morgan Stanley may incur. Morgan Stanley 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.

MSFL Securities. MSFL will issue the securities as part of its Series A medium-term notes under the MSFL Senior Debt Indenture. The Series A medium-term notes issued under the MSFL Senior Debt Indenture will constitute a single series under the MSFL Senior Debt Indenture, together with any other obligations MSFL issues in the future under the MSFL Senior Debt Indenture that it designates as being part of that series. The MSFL Senior Debt Indenture does not limit the amount of additional indebtedness that MSFL may incur. MSFL 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. Morgan Stanley Securities. Morgan Stanley securities issued under the Senior Debt Indenture will rank on par with all of its other senior indebtedness and with all of its other unsecured and unsubordinated indebtedness, subject to statutory exceptions in the event of liquidation upon insolvency.

MSFL Securities. MSFL securities issued under the MSFL Senior Debt Indenture will rank on a parity with all of its other senior indebtedness and with all of its other unsecured and unsubordinated indebtedness, subject to statutory exceptions in the event of liquidation upon insolvency. Such securities will be fully and unconditionally guaranteed by Morgan Stanley. As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets available for distributions to holders of MSFL securities if they make claims in respect of the securities in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of Morgan Stanley. See “Structural Subordination; Morgan Stanley’s Access to Assets Held by Subsidiaries May Be Restricted” and “Status of the MSFL Securities; Relationship with Morgan Stanley Securities” in the accompanying prospectus.

Guarantee of MSFL Securities. The payments due, including any property deliverable, under any securities issued by MSFL, will be fully and unconditionally guaranteed by Morgan Stanley. If, for any reason, MSFL does not make any required payment in respect of any of the securities, Morgan Stanley will cause the payment to be made at the same address at which MSFL is obligated to make such payment. Morgan Stanley’s guarantee of the payments due on the securities issued by MSFL will be unsecured senior obligations of Morgan Stanley. See

“Description of Debt Securities—Morgan Stanley Guarantee of Debt Securities Issued by MSFL” in the accompanying prospectus.

Terms Specified in Pricing Supplements. A pricing supplement will specify the following terms of any issuance of the securities to the extent applicable:

Some Definitions. We have defined some of the terms that we use frequently in this product supplement below:

“basket” means any basket of indices that the securities may be linked to.

“basket closing value” on any date is the sum of the products of the index closing value of each of the basket indices and the applicable multiplier for each of the basket indices. The index closing values and the multipliers for each of the basket indices will be specified in the applicable final pricing supplement and will be calculated on the

basket setting date. In certain circumstances, the basket closing value will be based on the alternate calculation of the basket indices described under “—Discontinuance of Any Underlying Index; Alteration of Method of Calculation.”

“basket index” means a component index of the underlying basket of indices for any securities linked to a basket of indices.

“basket setting date” will be the pricing date, unless otherwise specified in the applicable pricing supplement. If the basket setting date specified in the applicable pricing supplement for determining the index closing value of any basket index is a date other than the pricing date, and such basket setting date is not an index business day with respect to such basket index or there is a market disruption event on such day, then the basket setting date for that basket index will be postponed to the next succeeding index business day with respect to such basket index on which there is no market disruption event.

“bear securities” means issuances of securities that are based on the decrease of the value of an index or a basket of indices.

“bull securities” means issuances of securities that are based on the increase of the value of an index or a basket of indices.

“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.

“call date” for each issuance of securities that are subject to our call right will be the scheduled trading day on or after the initial call date that is specified by us in our notice of exchange as the date on which we will deliver cash to holders of the securities called for exchange. The initial call date will be specified in the applicable pricing supplement. We may specify any scheduled trading day on or after the initial call date or the maturity date (whether or not it is a scheduled trading day) as the call date, unless otherwise specified in the applicable pricing supplement.

“call notice date” will be the scheduled trading day on which we issue our call notice, which must be at least 10 but not more than 30 calendar days prior to the call date for such securities (the “redemption notice period”), unless a different redemption notice period is specified in the applicable pricing supplement.

“call price” or “call prices” with respect to each issuance of securities that are subject to a our call right on any day during the term of such securities or a formula by which the call price(s) may be determined will be specified in the applicable pricing supplement.

“Clearstream, Luxembourg” means Clearstream Banking, société anonyme.

“Depositary” or “DTC” means The Depository Trust Company, New York, New York.

“determination date” or “determination dates” with respect to an issuance of securities will be specified in the applicable pricing supplement. If there is only one determination date, the final index value or the final basket value, as applicable, will be determined on that determination date. If there are multiple determination dates, then the final average index value or the final average basket value, as applicable, will be determined on the last determination date, which we refer to as the “final determination date.”

“Euroclear operator” means Euroclear Bank S.A./N.V., as operator of the Euroclear System.

“final average basket value” means, for securities linked to a basket of indices with multiple determination dates, the arithmetic average of the basket closing values on each of the determination dates as calculated by the Calculation Agent on the final determination date.

“final average index value” means, for securities linked to a single index with multiple determination dates, the arithmetic average of the index closing values of the underlying index on each of the determination dates as calculated by the Calculation Agent on the final determination date.

“final basket value” means the basket closing value on the determination date.

“final index value” means the index closing value of the underlying index on the determination date.

“index business day” means a day, for an underlying index or each basket index separately, as determined by the Calculation Agent, on which trading is generally conducted on each of the relevant exchange(s) for such underlying index or basket 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 the relevant underlying index or a basket index, as applicable, the closing value of the underlying index or basket index, or any successor index (as defined under “—Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation” below) published at the regular weekday close of trading on that index business day by the underlying index publisher. In certain circumstances, the index closing value will be based on the alternate calculation of the underlying index or basket index as described under “—Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation.”

“index setting date” will be the pricing date, unless otherwise specified in the applicable pricing supplement. If the index setting date specified in the applicable pricing supplement for determining the index closing value of the underlying index is a date other than the pricing date, and such index setting date is not an index business day or there is a market disruption event on such day, such index setting date will be postponed to the next succeeding index business day on which there is no market disruption event.

“initial index value” means the index closing value of the underlying index on the index setting date or such other date as may be specified in the applicable pricing supplement.

“initial basket value” means the predetermined basket value of the underlying basket on the basket setting date specified in the applicable pricing supplement.

“interest payment date” for any security means a date on which, under the terms of that security, regularly scheduled interest is payable.

“issue price” means the amount per security specified in the applicable pricing supplement and will equal the stated principal amount of each security, unless otherwise specified.

“market disruption event” means, with respect to the underlying index or any basket index:

(i)      the occurrence or existence 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 basket 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 basket index or (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 basket 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 with respect to the applicable issuance of 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 or any basket 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 or basket index shall be based on a comparison of (x) the portion of the value of the underlying index or basket index attributable to that security relative to (y) the overall value of the underlying index or basket 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 or any basket 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 or basket 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 or any basket 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 determination date or final determination date, as applicable, is postponed. If the determination date or final determination date, as applicable, is postponed so that it falls less than two business days prior to the scheduled maturity date, the maturity date will be postponed to the second business day following the determination date or final determination date, as applicable, as postponed. See “—Postponement of Determination Date(s)” below.

“multiplier” means, for securities linked to a basket of indices, the fractional value of each basket index so that each basket index will represent its applicable weighting in the predetermined initial index value. The multiplier for each basket index will remain constant for the term of the securities. The multipliers will be calculated by the Calculation Agent and will be specified in the applicable pricing supplement.

“minimum payment amount” means the dollar amount specified in the applicable pricing supplement, which will be equal to 90% to 99.9% of the stated principal amount. The minimum payment amount will determine the percentage of the principal that will be subject to repayment at maturity.

“original issue date” means the date specified in the applicable pricing supplement on which a particular issuance of securities will be issued.

“participation rate” for an issuance of securities will be 100%, unless otherwise specified in the applicable pricing supplement, and will be used to calculate the supplemental redemption amount for such issuance of securities. The participation rate indicates the extent to which you will participate in any change in the value of the underlying index or basket of indices. If the participation rate is less than 100%, you will participate in less than the full change in value. If the participation rate is greater than 100%, you will participate in the change in value of the underlying index or basket of indices on a leveraged basis.

“payment at maturity” means the payment due at maturity with respect to each security, as described under “—Payment at Maturity” below.

“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.

“relevant exchange” means, with respect to an underlying index or any basket index, the primary exchange(s) or market(s) of trading for (i) any security then included in such underlying index or basket index, or any successor index, and (ii) any futures or options contracts related to such underlying index or basket index or to any security then included in such underlying index or basket index.

“stated principal amount” for an issuance of equity-linked partial principal at risk 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 (“NYSE”), 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.

“underlying index” means the index specified in the applicable pricing supplement, the performance of which underlies the securities.

“underlying index publisher” means the publisher of the applicable underlying index or basket index.

“weighting” of a basket index in a basket of indices means the percentage of the whole basket initially assigned to such basket index. The weightings will be specified in the applicable pricing supplement.

References in this product supplement to “U.S. dollars” or “U.S.$” or “$” are to the currency of the United States of America.

In this “Description of Equity-Linked Partial Principal at Risk Securities,” references to the underlying index or a basket 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 equity-linked partial principal at risk securities are described in the following paragraphs.

Payment at Maturity

With respect to an issuance of equity-linked partial principal at risk securities linked to an index or a basket of indices, on the applicable maturity date, the payment due per security will be the minimum payment amount of such security, plus the supplemental redemption amount applicable to such security, as determined below. We refer to this payment as the “payment at maturity.”

The supplemental redemption amount may not be less than zero, even if the underlying index or basket of indices, for an issuance of bull securities, decreases in value between the date or dates on which the initial index value is determined and the date or dates on which the final index value or final average index value, as applicable, is determined, or, for an issuance of bear securities, increases in value over the same period. Consequently, at maturity, subject to our right to call the securities earlier if so provided in the applicable pricing supplement, the payment due for each equity-linked partial principal at risk security will be at least equal to the minimum payment amount of that security.

If the supplemental redemption amount is less than the difference between the minimum payment amount and the stated principal amount, the payment due at maturity of the securities will be less than the stated principal amount. Therefore, unless specified otherwise in the applicable pricing supplement, even if the underlying index or basket of indices appreciates (in the case of bull securities), depreciates (in the case of bear securities) or does not change in value over the term of the securities, investors may still receive less than the stated principal amount per security at maturity, subject to the minimum payment amount. The applicable pricing supplement, may, however, provide for an alternative calculation method for the payment at maturity whereby, if the underlying index or basket appreciates (in the case of bull securities) or depreciates (in the case of bear securities) at all, or does not change in

value over the term of the securities, the payment due at maturity will be no less than the stated principal amount per security. In such a scenario, investors will be exposed to the depreciation (in the case of bull securities) or appreciation (in the case of bear securities) of the underlying index or basket, subject to the minimum payment amount.

Supplemental Redemption Amount

The “supplemental redemption amount” at maturity for an issuance of securities will be determined on a per security basis and will be equal to (i) the stated principal amount for such securities times (ii) the applicable participation rate times (iii) the applicable index percent change or basket percent change, as applicable, each as specified in the applicable pricing supplement. Unless otherwise stated in the pricing supplement, the supplemental redemption amount per security will be calculated as follows:

OR 

, depending on whether the securities are linked to a single index or a basket of indices,

where,

The Calculation Agent will calculate the supplemental redemption amount for each issuance of securities on the determination date, or, in the case of securities with multiple determination dates, on the final determination date. With respect to each issuance of securities, we will, or will 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 applicable supplemental redemption amount and the applicable payment at maturity, on or prior to 10:30 a.m. on the business day preceding the maturity date for such issuance of securities. See “Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation” below.

Postponement of Determination Date(s)

The Calculation Agent will take into account market disruption events and non-index business days in any calculation of a final index value or final average index value, respectively, as follows:

For issuances of securities linked to a single index: If a market disruption event with respect to the underlying index occurs on any scheduled determination date, or if any such determination date is not an index business day, the index closing value for such date will be determined on the immediately succeeding index business day on which no market disruption event shall have occurred; provided that the index closing value for any scheduled determination date will not be determined on a date later than the fifth scheduled index business day after such scheduled determination date, and if such date is not an index business day or if there is a market disruption event on such date, the Calculation Agent will determine the index closing value of the underlying index on such date in accordance with the formula for calculating such index last in effect prior to the commencement of the market disruption event (or prior to the non-index business day), 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, limitation or non-index business day) on such date of each security most recently constituting the underlying index.

For issuances of securities linked to a basket of indices or to multiple underlying indices: If any scheduled determination date is not an index business day with respect to any basket index or underlying index or if a market disruption event with respect to any basket index or underlying index occurs on any scheduled determination date, the basket closing value solely with respect to such affected basket index or underlying index will be determined on the immediately succeeding index business day on which no market disruption event shall have occurred with respect to such affected basket index or underlying index, and the basket closing value shall be determined on the date on which the index closing value for each of the basket indices or underlying indices for such determination date has been determined; provided that the index closing value for any scheduled determination date will not be determined on a date later than the fifth scheduled index business day after such scheduled determination date, and if such date is not an index business day, or if there is a market disruption event with respect to the affected basket index or underlying index on such date, the Calculation Agent will determine the index closing value of the affected basket index or underlying index on such date in accordance with the formula for calculating such index last in effect prior to the commencement of the market disruption event (or prior to the non-index business day), 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, limitation or non-index business day) on such date of each security most recently constituting the affected basket index or underlying index.

For issuances of securities that have multiple consecutive determination dates: If any scheduled determination date is not an index business day or if a market disruption event occurs on any such date, the

index closing value or basket closing value, as applicable, will be determined on the immediately succeeding index business day on which no market disruption event occurs with respect to such underlying index or basket index, as applicable. Each succeeding determination date shall then be the next index business day following the preceding determination date as postponed. The final average index value or final average basket value, as applicable, shall be determined on the date on which the index closing values or basket closing values, as applicable, for all scheduled determination dates have been determined; provided that (i) the index closing value or basket closing value, as applicable, for any determination date will not be determined on a date later than the tenth business day after the last scheduled determination date, (ii) the index closing value or basket closing value, as applicable, for any remaining determination dates that would otherwise fall after such tenth business day shall be the index closing value or basket closing value, as applicable, on such tenth business day and (iii) if such tenth business day is not an index business day or if there is a market disruption event on such date, the Calculation Agent will determine the index closing value or basket closing value, as applicable, for any such remaining determination dates in accordance with the procedures described in the applicable paragraph of the prior two paragraphs.

If, however, the applicable pricing supplement for issuances of securities linked to a single index specifies multiple determination dates and that the determination dates will be a specified number of index business days in a specified “calculation period,” then the final average index value will be calculated by the Calculation Agent, as follows:

The final average index value will equal the sum of the products, each a “daily calculation value,” of the index closing value and the weighting for each determination date. The weighting for each determination date will initially be the same and will be a fraction, the numerator of which is 1 and the denominator of which is equal to the specified number of determination dates in the calculation period (so that, for example, if three value determination dates have been scheduled, each such determination date will initially receive a weighting of 1/3). However, if a market disruption event occurs on any determination date, then the Calculation Agent shall not compute a daily calculation value for that date and will instead compute the daily calculation value on the next index business day when a market disruption event does not occur. If, however, there are less than the required number of scheduled determination dates remaining in any calculation period, the Calculation Agent will weight the daily calculation value for each succeeding determination date during the calculation period to ratably distribute the intended weight of such date across the remaining determination dates. Accordingly, if a market disruption event occurs during the calculation period, the daily calculation values will be calculated as follows:

If a market disruption event occurs on the last scheduled index business day in the calculation period or if such date is not an index business day, the Calculation Agent will determine the value of the underlying index on such date in accordance with the formula for and method of calculating the underlying index last in effect prior to the commencement of the market disruption event (or prior to the non-index business day), 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 or non-index business day) on such date of each security most recently constituting the underlying index.

If the applicable pricing supplement for issuances of securities linked to a basket of indices indicates that a calculation period will apply, the provisions above related to securities linked to a single index will be adapted to apply to multiple underlying indices in calculating the final average index value.

Our Call Right

If so specified in the applicable pricing supplement, we may call an issuance of securities on or after the call date, in whole or in part, for mandatory exchange into cash at the applicable call price specified in the applicable pricing supplement. If we call an issuance of securities, we will not pay you a supplemental redemption amount with respect to such issuance of securities. If we call an issuance of securities, then the cash to be delivered to you will be delivered on the call date fixed by us and set forth in our call notice, upon delivery of your securities to the Trustee in accordance with the delivery instructions. We will, or will cause the Calculation Agent to, deliver the cash to the Trustee for delivery to you. We refer to this right as “our call right.”

Additional Price Dependent Call Right

If so specified in the applicable pricing supplement, we may have the right to call the securities, in whole or in part, for mandatory exchange into cash during the price dependent call period (as defined below) only if the index closing value of the underlying index or the basket closing value of the underlying basket of indices, as applicable, on the trading day immediately preceding the relevant notice date is, in the case of bull securities, greater than the threshold value (as defined below), or, in the case of bear securities, less than the threshold value, specified in such pricing supplement (the “price dependent call right”).

If we call the securities for mandatory exchange, the applicable call price will be delivered on the call date fixed by us and set forth in our notice of mandatory exchange, upon delivery of such securities to the Trustee, as described under “Our Call Right.”

Price dependent call period and threshold value. In the applicable pricing supplement for any securities issued with a price dependent call right, we will specify the applicable call price or the formula for determining the call prices, the period during which such mandatory exchange for cash may be effected as the “price dependent call period” and the threshold value required to permit such exchange as the “threshold value.”

Trustee

The “Trustee” for each offering of securities issued under each of the Senior Debt Indenture and the MSFL Senior Debt Indenture will be The Bank of New York Mellon, a New York banking corporation (as successor to JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase Bank)).

We shall, or shall cause the Calculation Agent to, (i) provide written notice to the Trustee and to DTC, of the amount of cash to be delivered with respect to the stated principal amount of each security, on or prior to 10:30 a.m. on the business day preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to the securities to the Trustee for delivery to DTC, as holder of the securities, on the maturity date. We expect such amount of cash will be distributed to investors on the maturity date in accordance with the standard rules and procedures of DTC and its direct and indirect participants. See “—Forms of Securities—Book-Entry Securities” or “—Forms of Securities—Certificated Securities” below, and see “Form of Securities — The Depositary” in the accompanying prospectus.

Agent

Unless otherwise specified in the applicable pricing supplement, the “Agent” for each underwritten offering of securities will be MS & Co.

Calculation Agent and Calculations

The “Calculation Agent” for us with respect to the equity-linked partial principal at risk securities will be MS & Co. As Calculation Agent, MS & Co. will determine the initial index value, the index closing values, the multipliers, the final index value, the final basket value, the final average index value, the final average basket value, the percentage change in the underlying index or basket of indices, the supplemental redemption amount and the payment at maturity.

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.

All calculations with respect to any issuance of securities linked to a single index will be made by the Calculation Agent and will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., .876545 would be rounded to .87655); all dollar amounts related to determination of the amount of cash payable per security will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to .7655); and all dollar amounts paid on the aggregate number of securities will be rounded to the nearest cent, with one-half cent rounded upward.

All calculations with respect to any issuance of securities linked to a basket of indices will be made by the Calculation Agent and will be rounded to the nearest one billionth, with five ten-billionths rounded upward (e.g., .9876543215 would be rounded to .987654322); all dollar amounts related to determination of the amount of cash payable per security will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to .7655); and all dollar amounts paid on the aggregate number of any securities will be rounded to the nearest cent, with one-half cent rounded upward.

Because the Calculation Agent is our affiliate, the economic interests of the Calculation Agent and its affiliates may be adverse to your interests, as an owner of the securities, including with respect to certain determinations and judgments that the Calculation Agent must make. MS & Co., as a registered broker-dealer, is required to maintain policies and procedures regarding the handling and use of confidential proprietary information, and such policies and procedures will be in effect throughout the term of the securities to restrict the use of information relating to the calculation of the final index value or final average index value, as applicable, prior to the dissemination of such information. MS & Co. is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable judgment.

Alternate Exchange Calculation in the 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 (including accrued and unpaid interest) 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:

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 default amount.

Notwithstanding the foregoing, if a voluntary or involuntary liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to the relevant issuer, then depending on applicable bankruptcy law, your claim may be limited to an amount that could be less than the default 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 DTC 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 default amount first becomes due and ending on the third business day after that day, unless:

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 valuation date, then the default amount will equal the principal amount of the securities.

Qualified Financial Institutions

For the purpose of determining the default 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:

Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation

If the underlying index publisher discontinues publication of the underlying index or a basket 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 or basket 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, to the extent the index closing value of such successor index differs from the index closing value of the discontinued underlying index or basket index at the time of such substitution, a proportionate adjustment will be made by the Calculation Agent to the relevant initial index value.

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 DTC, as holder of such 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

relevant securities, in accordance with the standard rules and procedures of DTC and its direct and indirect participants.

If the underlying index publisher discontinues publication of the underlying index or a basket index prior to, and such discontinuance is continuing on, any determination date 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 of the affected index for each such date. The index closing value will be computed by the Calculation Agent in accordance with the formula for and method of calculating the underlying index or basket 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 determination date of each security most recently constituting such underlying index or basket index without any rebalancing or substitution of such securities following such discontinuance. Notwithstanding these alternative arrangements, discontinuance of the publication of the underlying index or any basket index may adversely affect the value of the securities.

If at any time the method of calculating the underlying index or basket index or successor index, or the value thereof, is changed in a material respect, or if the underlying index or basket index or successor index is in any other way modified so that such index does not, in the opinion of MS & Co., as the Calculation Agent, fairly represent the value of such 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 on which the index closing value and/or basket closing value 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 the underlying index or basket 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 final index value or final average index value, as applicable, with reference to the underlying index or basket index or successor index, as adjusted. Accordingly, if the method of calculating the underlying index or basket 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 the underlying index or basket index or successor index as if it had not been modified (e.g., as if such split had not occurred).

Forms of Securities

As noted above, the securities are issued as part of Morgan Stanley’s Series I medium-term note program or MSFL’s Series A medium-term note program, as applicable. We will issue securities only in fully registered form either as book-entry securities or as certificated securities. References to “holders” mean those who own securities registered in their own names, on the books that we or the Trustee maintain for this purpose, and not those who own beneficial interests in securities registered in street name or in securities issued in book-entry form through one or more depositaries.

Book-Entry Securities. For securities in book-entry form, we will issue one or more global certificates representing the entire issue of securities. Except as set forth in the prospectus under “Forms of Securities — Global Securities,” you may not exchange book-entry securities or interests in book-entry securities for certificated securities.

Each global security certificate representing book-entry securities will be deposited with, or on behalf of, the Depositary and registered in the name of the Depositary or a nominee of the Depositary. These certificates name the Depositary or its nominee as the owner of the securities. The Depositary maintains a computerized system that will reflect the interests held by its participants in the global securities. An investor’s beneficial interest will be reflected in the records of the Depositary’s direct or indirect participants through an account maintained by the investor with its broker/dealer, bank, trust company or other representative. A further description of the Depositary’s procedures for global securities representing book-entry securities is set forth under “Forms of Securities—The Depositary” in the prospectus. The Depositary has confirmed to us, the agent and the Trustee that it intends to follow these procedures.

Certificated Securities. If we issue securities in certificated form, the certificate will name the investor or the investor’s nominee as the owner of the securities. The person named in the security register will be considered the owner of the security for all purposes under the Senior Debt Indenture. For example, if we need to ask the holders of any issuance of securities to vote on a proposed amendment to such securities, the person named in the security register will be asked to cast any vote regarding that issuance of securities. If you have chosen to have some other entity hold the certificates for you, that entity will be considered the owner of your security in our records and will be entitled to cast the vote regarding your security. You may not exchange certificated securities for book-entry securities or interests in book-entry securities.

New York Law to Govern. The securities and Morgan Stanley’s guarantee of securities issued by MSFL will be governed by, and construed in accordance with, the laws of the State of New York.

Interest and Principal Payments

You should read the section called “Description of Debt Securities” in the prospectus, where we describe generally how principal and interest payments, if any, on the securities are made, how exchanges and transfers of the securities are effected and how fixed and floating rates of interest on the securities, if any, are calculated.