Morgan Stanley plans participation notes tied to Systematic Volatility

By Angela McDaniels

Tacoma, Wash., Oct. 7 - Morgan Stanley plans to price 0% participation securities due April 2015 linked to the Morgan Stanley Systematic Volatility index, according to a 424B2 filing with the Securities and Exchange Commission.

The notes are putable subject to a minimum of $100,000 principal amount of notes and the payment of a repurchase fee of 1.5% per year.

The payout at maturity or upon redemption will be par plus the index return minus the accrued tracking fee of 1.5% per year. There is no principal protection, so the payout will be less than par if the index return is negative.

The index is intended to provide long exposure to volatility in periods of rising volatility while seeking to avoid the high cost of maintaining that exposure in generally stable volatility environments. It uses two strategies, a term structure carry strategy and a long volatility strategy, and shifts between the two strategies depending on the particular volatility environment. These strategies are effected by taking different notional exposures to distinct portfolios of futures contracts on the CBOE Volatility index, each with a different constant maturity, and deducting transaction costs.

Morgan Stanley & Co. LLC is the agent.

The notes will price and settle in October.

The Cusip number is 61761JLN7.

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