CALCULATION OF REGISTRATION FEE
|
|
Maximum Aggregate |
|
Amount of Registration |
Title of Each Class of Securities Offered |
|
Offering Price |
|
Fee |
Buffered Securities due 2020 |
|
$3,200,000 |
|
$322.24 |
|
October
2015
Pricing Supplement No. 608
Registration Statement No. 333-200365
Dated October 5, 2015
Filed pursuant to Rule 424(b)(2)
|
Structured Investments
Opportunities in U.S. Equities
Buffered Securities Based on the Value of the
Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
The Buffered Securities,
which we refer to as the securities, are unsecured obligations of Morgan Stanley, will pay no interest, do not guarantee the return
of any of the principal amount at maturity and have the terms described in the accompanying product supplement for Jump Securities,
index supplement and prospectus, as supplemented and modified by this pricing supplement. If the final index value of each underlying
index is greater than or equal to its respective initial index value, you will receive the stated principal amount for each security
that you hold at maturity plus the upside payment of $4.2702 per security. If the final index value of either underlying index
is less than its respective initial index value but neither underlying index has declined by more than 20% from its initial
value, you will receive the stated principal amount of your investment plus a positive return of 2.1351% for every 1% by which
the final index value of the worst performing underlying index exceeds 80% of its respective initial index value. However, if
either underlying index declines in value by more than 20% as of the valuation date from its initial index value,
the payment due at maturity will be less, and possibly significantly less, than the stated principal
amount of the securities. Under these circumstances, you will lose 1% for every 1% decline beyond the specified buffer amount,
subject to the minimum payment at maturity of 20% of the stated principal amount. Investors may lose up to 80% of the stated
principal amount of the securities. Because the payment at maturity on the securities is based on the worst performing of
the underlying indices, a decline in either underlying index below 80% of its respective initial index value will result in a
loss on your investment, even if the other underlying index has appreciated or has not declined as much. The securities are for
investors who seek an equity index-based return and who are willing to risk their principal, risk exposure to the worst performing
of two underlying indices and forgo current income and returns above the fixed upside payment in exchange for the upside payment
feature that applies only if the value of each underlying index remains unchanged or increases over the term of the securities,
the opportunity to receive a positive return if neither underlying index declines to or below 80% of its respective initial index
value, and the buffer feature. The securities are notes issued as part of Morgan Stanley’s Series F Global Medium-Term Notes
Program.
The securities differ from the Buffered Jump Securities described
in the accompanying product supplement for Jump Securities in that the securities offer the potential for a positive return at
maturity if the worst performing underlying index depreciates by an amount less than 20%.
All payments are subject to the credit risk of Morgan Stanley.
If Morgan Stanley defaults on its obligations, you could lose some or all of your investment. These securities are not secured
obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or
assets.
FINAL
TERMS |
Issuer: |
Morgan Stanley |
Issue price: |
$10 per security |
Stated principal amount: |
$10 per security |
Pricing date: |
October 5, 2015 |
Original issue date: |
October 8, 2015 (3 business days after the pricing date) |
Maturity date: |
March 31, 2020 |
Aggregate principal amount: |
$3,200,000 |
Interest: |
None |
Underlying indices: |
S&P 500® Index (the “SPX Index”) and the Russell 2000® Index (the “RTY Index”) |
Payment at maturity: |
· If
the final index value of each underlying index is greater than or equal to its respective initial index value:
$10 + the upside payment
· If
the final index value of either underlying index is less than its respective initial index value but the
final index value of each underlying index is greater than or equal to 80% of its respective initial index
value, meaning the value of neither underlying index has declined by more than the buffer amount of 20% from its initial
index value:
$10 + [$10 × ((index
performance factor of the worst performing underlying index – 80%) × 213.51%)]
· If
the final index value of either underlying index is less than 80% of its respective initial index value,
meaning the value of either underlying index has declined by more than the buffer amount of 20% from its respective initial
value:
$10 × (index performance
factor of the worst performing underlying index + 20%)
Because the index performance factor of
the worst performing underlying index will be less than 80% in this scenario, the payment at maturity will be less, and potentially
significantly less, than the stated principal amount of $10, subject to the minimum payment at maturity of $2.00 per security.
|
Upside payment: |
$4.2702 per security (42.702% of the stated principal amount) |
Index performance factor: |
With respect to each underlying index, final index value / initial index value |
Worst performing underlying index: |
The underlying index with the lesser index performance factor |
Initial index value: |
With respect to the SPX Index, 1,951.36, which was the index closing
value of such index on October 2, 2015
With respect to the RTY Index, 1,114.120, which was the
index closing value of such index on October 2, 2015 |
Final index value: |
With respect to each underlying index, the index closing value of such index on the valuation date |
Valuation date: |
March 26, 2020, subject to postponement for non-index business days and certain market disruption events |
Buffer amount: |
20% |
Minimum payment at maturity: |
$2.00 per security (20% of the stated principal amount) |
CUSIP / ISIN: |
61765R719 / US61765R7199 |
Listing: |
The securities will not be listed on any securities exchange. |
Agent: |
Morgan Stanley & Co. LLC (“MS & Co.”), a wholly-owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.” |
Estimated value on the pricing date: |
$9.639 per security. See “Investment Summary” on page 2. |
Commissions and issue price: |
Price to public |
Agent’s commissions and fees |
Proceeds to issuer(3) |
Per security |
$10 |
$0.15(1) |
|
|
|
$0.05(2) |
$9.80 |
Total |
$3,200,000 |
$64,000 |
$3,136,000 |
(1) Selected dealers, including Morgan Stanley
Wealth Management (an affiliate of the agent), and their financial advisors will collectively receive from the agent, MS &
Co., a fixed sales commission of $0.15 for each security they sell. See “Supplemental information regarding plan of distribution;
conflicts of interest.” For additional information, see “Plan of Distribution (Conflicts of Interest)” in the
accompanying product supplement for Jump Securities.
(2) Reflects a structuring fee payable to
Morgan Stanley Wealth Management by the agent or its affiliates of $0.05 for each security.
(3) See “Use of proceeds and hedging” on page
17.
The securities involve risks not associated
with an investment in ordinary debt securities. See “Risk Factors” beginning on page 8.
The Securities and Exchange Commission and
state securities regulators have not approved or disapproved these securities, or determined if this document or the accompanying
product supplement, index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal
offense.
The securities are not bank deposits and
are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or
guaranteed by, a bank.
You should read this document together with
the related product supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please
also see “Additional Information About the Securities” at the end of this document.
Product
Supplement for Jump Securities dated November 19, 2014 Index
Supplement dated November 19, 2014
Prospectus
dated November 19, 2014
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
Investment Summary
Buffered Securities
Principal at Risk Securities
The Buffered Securities Based on the Value of the Worst Performing
of the S&P 500® Index and the Russell 2000® Index due March 31, 2020 (the “securities”)
can be used:
| § | As an alternative to direct exposure to the underlying indices that provides a fixed return of 42.702%, if the final index
value of each underlying index is greater than or equal to its respective initial index value as of the valuation date; |
| § | As an alternative to direct exposure to the underlying indices that provides a positive return if the final index value of
each underlying index is greater than 80% of its respective initial index value as of the valuation date; |
| § | To enhance returns and potentially outperform the worst performing of the S&P 500® Index and the Russell
2000® Index in a moderately bullish or moderately bearish scenario; |
| § | To obtain a buffer against a specified level of negative performance in the worst performing underlying index. |
The securities are exposed on a 1:1 basis to
the percentage decline of the final index value of the worst performing underlying index from its respective initial index value
beyond the buffer amount of 20%. Accordingly, 80% of your principal is at risk (e.g., a 50% depreciation in the worst
perfoming underlying index will result in a payment at maturity of $7.00 per security).
Maturity: |
Approximately 4.5 years |
Upside
payment: |
$4.2702 (42.702% of the stated principal
amount), payable only if the final index value of each underlying index is greater than or equal to its respective initial
index value. |
Buffer
amount |
20% |
Minimum
payment at maturity: |
$2.00 per security (20% of the stated
principal amount) |
Interest: |
None |
The original issue price of each security is $10. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date is less than $10. We estimate that the value of each security on the
pricing date is $9.639.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
indices. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying indices, instruments based on the underlying indices, 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.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the upside payment, the buffer amount and the minimum payment at maturity, we use an internal funding rate, which is
likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring
and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the
securities would be more favorable to you.
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
What is 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 indices, may vary from, and be
lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market
credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and
other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully
deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell
the securities in the secondary market, absent changes in market conditions, including those related to the underlying indices,
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.
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
Key Investment Rationale
The securities provide a return based on the peformance of the
worst performing of the S&P 500® Index and the Russell 2000® Index. If the final index value
of each underlying index is greater than or equal to its respective initial index value, you will receive the stated principal
amount for each security that you hold at maturity plus the upside payment of $4.2702 per security. If the final index value of
either underlying index is less than its respective initial index value but neither underlying index has declined by more
than 20% from its initial value, you will receive the stated principal amount of your investment plus a positive return of 2.1351%
for every 1% by which the final index value of the worst performing underlying index exceeds 80% of its respective initial index
value. However, if either underlying index declines in value by more than 20% as of the valuation date from its initial
index value, the payment due at maturity will be less, and possibly significantly less, than the stated principal amount of the
securities. Under these circumstances, the payment at maturity will be less than $8.00 per security and could be zero.
Upside Scenario |
If the final index value of each underlying index is greater than or equal to its respective initial index value, the payment at maturity for each security will be equal to $10 plus the upside payment of $4.2702. |
Upside/Par Scenario |
If the final index value of either underlying index is less than its respective initial index value, but the final index value of each underlying index is greater than or equal to 80% of its respective initial index value, which means that neither underlying index has depreciated by more than 20% from its respective initial value, the payment at maturity will be the stated principal amount of your investment plus a positive return of 2.1351% for every 1% by which the final index value of the worst performing underlying index exceeds 80% of its respective initial index value. |
Downside Scenario |
If the final index value of either underlying index
is less than 80% of its respective initial index value, which means that the value of either underlying index
has depreciated by more than 20%, you will lose 1% for every 1% decline in the value of the worst performing underlying
index from its initial index value beyond the buffer amount of 20%, subject to the minimum payment at maturity of $2.00 per security
(e.g., a 50% depreciation in the index will result in a payment at maturity of $7.00 per security).
Because the payment at maturity of the securities is based on
the worst performing of the underlying indices, a decline in either underlying index below 80% of its respective initial index
value will result in a loss on your investment, even if the other underlying index has appreciated or has not declined as much.
|
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to calculate
the payment at maturity on the securities. The following examples are for illustrative purposes only. The payment at maturity on
the securities is subject to the credit risk of Morgan Stanley. The below examples are based on the following terms. The actual
initial index values are set forth on the cover page of this document.
Stated Principal Amount: |
$10 per security |
|
|
Hypothetical Initial Index Value: |
With respect to the SPX Index: 1,900
With respect to the RTY Index: 1,100
|
Upside Payment: |
$4.2702 (42.702% of the stated principal amount) |
|
|
Buffer Amount: |
20%. As a result of the buffer amount of 20%, the hypothetical
value at or above which each underlying index must close on the valuation date so that investors do not suffer a loss on their
initial investment in the securities is:
with respect to the SPX Index: 1,520, which is 80% of its hypothetical
initial index value; and
with respect to the RTY Index: 880, which is 80% of its hypothetical
initial index value.
|
Minimum Payment at Maturity: |
$2.00 per security (20% of the stated principal amount) |
|
|
Interest: |
None |
EXAMPLE 1: Both underlying indices appreciate substantially
so that the final index value of each underlying index is greater than its respective initial index value, and investors therefore
receive the stated principal amount plus the upside payment.
Final index value |
|
SPX Index: 3,420 |
|
|
|
RTY Index: 2,090 |
Index performance factor |
|
SPX Index: 3,420 / 1,900 = 180%
RTY Index: 2,090 / 1,100 = 190%
|
Payment at maturity |
= |
$10 + upside payment |
|
= |
$10 + $4.2702 |
|
= |
$14.2702 |
In example 1, the SPX Index has appreciated by 180% and the RTY
Index has appreciated by 190% as of the valuation date. Because the final index value of each underlying index is above its respective
initial index value, investors receive at maturity the stated principal amount plus the upside payment of $4.2702. Investors
receive $14.2702 per security at maturity and do not participate in the appreciation of either underlying index. Although both
underlying indices have appreciated substantially, the return on the securities is limited to the stated principal amount plus
the fixed upside payment of $4.2702.
EXAMPLE 2: The final index value of one of the underlying
indices is less than its respective initial index value, but the final index values of both underlying indices are at or above
80% of their respective initial index values, and investors therefore receive a positive return of 2.1351% for every 1% by which
the final index value of the worst performing underlying index exceeds 80% of its respective initial index value.
Final index value |
|
SPX Index: 2,280 |
|
|
|
RTY Index: 990 |
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
Index performance factor |
|
SPX Index: 2,280 / 1,900 = 120%
RTY Index: 990 / 1,100 = 90%
|
Payment at maturity |
= |
$10 + [$10 × ((index performance factor of the worst performing underlying index – 80%) × 213.51%)] |
|
= |
$10 + [$10 × ((90 – 80%) × 213.51%)] |
|
= |
$12.1351 |
In example 2, the SPX index has appreciated by 20% while the
RTY Index has depreciated by 10% as of the valuation date. Because the RTY Index, which is the worst performing underlying index
in this example, has declined below its respective initial index value, investors do not receive the upside payment. However, because
the final index value of each underlying index is at or above 80% of its respective initial index value, investors receive at maturity
a positive return of 2.1351% for every 1% by which the final index value of the worst performing underlying index exceeds 80% of
its respective initial index value. In this example, investors would receive a payment at maturity equal to $12.1351, resulting
in a postive return of 21.351%.
EXAMPLE 3: The final index values of both underlying
indices are less than their respective initial index values, but the final index values of both underlying indices are at or above
80% of their respective initial index values, and investors therefore receive a positive return of 2.1351% for every 1% by which
the final index value of the worst performing underlying index exceeds 80% of its respective initial index value.
Final index value |
|
SPX Index: 1,615 |
|
|
|
RTY Index: 990 |
Index performance factor |
|
SPX Index: 1,615 / 1,900 = 85%
RTY Index: 990 / 1,100 = 90%
|
Payment at maturity |
= |
$10 + [$10 × ((index performance factor of the worst performing underlying index – 85%) × 213.51%)] |
|
= |
$10 + [$10 × ((90 – 85%) × 213.51%)] |
|
= |
$11.06755 |
In example 3, the SPX index has depreciated by 15% and the RTY
Index has depreciated by 10% as of the valuation date. Because both underlying indices have declined below their respective initial
index values, investors do not receive the upside payment. However, because the final index value of each underlying index is at
or above 80% of its respective initial index value, investors receive at maturity a positive return of 2.1351% for every 1% by
which the final index value of the SPX Index, which is the worst performing underlying index in this example, exceeds 80% of its
respective initial index value. In this example, investors would receive a payment at maturity equal to $11.06755, resulting in
a postive return of 10.6755%.
EXAMPLE 4: The final index value of one of the underlying
indices is less than 80% of its respective initial index value. Investors are therefore exposed to the negative performance of
the worst performing underlying index, and will lose 1% for every 1% decline beyond the buffer amount of 20%, subject to the minimum
payment at maturity of $2.00.
Final index value |
|
SPX Index: 1,615 |
|
|
|
RTY Index: 770 |
Index performance factor |
|
SPX Index: 1,615 / 1,900 = 85%
RTY Index: 770 / 1,100 = 70%
|
Payment at maturity |
= |
$10 × (index performance factor of the worst performing underlying index + 20%) |
|
= |
$10 × (70% + 20%) |
|
= |
$9.00 |
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
In example 4, the SPX index has depreciated by 15% and the RTY
Index has depreciated by 30% as of the valuation date. Because both underlying indices have declined below their respective initial
index values, investors do not receive the upside payment, and because one of the underlying indices has declined below 80% of
its respective initial index value, investors do not receive a positive return on the securities and are exposed to the negative
performance of the RTY Index, which is the worst performing underlying index in this example. Under these circumstances, investors
would lose 1% for every 1% decline in the value of the worst performing underlying index beyond the buffer amount of 20%, subject
to the minimum payment at maturity of $2.00. In this example, investors would receive a payment at maturity equal to $9.00, resulting
in a loss of 10%.
EXAMPLE 5: The final index values of both underlying
indices are less than 80% of their respective initial index values. Investors are therefore exposed to the negative performance
of the worst performing underlying index, and will lose 1% for every 1% decline beyond the buffer amount of 20%, subject to the
minimum payment at maturity of $2.00.
Final index value |
|
SPX Index: 950 |
|
|
|
RTY Index: 440 |
Index performance factor |
|
SPX Index: 950 / 1,900 = 50%
RTY Index: 440 / 1,100 = 40%
|
Payment at maturity |
= |
$10 × (index performance factor of the worst performing underlying index + 20%) |
|
= |
$10 × (40% + 20%) |
|
= |
$6.00 |
In example 5, the SPX index has depreciated by 50% and the RTY
Index has depreciated by 60% as of the valuation date. Because both underlying indices have declined below their respective initial
index values, investors do not receive the upside payment, and because at least one of the underlying indices has declined below
80% of its respective initial index value, investors do not receive a positive return on the securities and are exposed to the
negative performance of the RTY Index, which is the worst performing underlying index in this example. Under these circumstances,
investors would lose 1% for every 1% decline in the value of the worst performing underlying index beyond the buffer amount of
20%, subject to the minimum payment at maturity of $2.00. In this example, investors would receive a payment at maturity equal
to $6.00, resulting in a loss of 40%.
Because the payment at maturity of the securities is based
on the worst performing of the underlying indices, a decline in either underlying index of more than 20% from its respective initial
index value will result in a loss, and possibly a significant loss, of your investment, even if the other underlying index has
appreciated or has not declined as much. You could lose up to 80% of your investment in the securities.
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement, index supplement and prospectus. You should also consult with
your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
| § | The securities do not pay interest and provide for a minimum payment at maturity of only 20% of your principal. The
terms of the securities differ from those of ordinary debt securities in that the securities do not pay interest and provide for
a minimum return of only 20% of the principal amount of the securities at maturity. At maturity, you will receive for each $10
stated principal amount of securities that you hold an amount in cash based upon the final index value of each underlying index.
If the final index value of either underlying index is less than 80% of its respective initial index value, you will receive
an amount in cash that is less than the $10 stated principal amount of each security by an amount proportionate to the decline
in the value of the worst performing underlying index beyond the buffer amount, and you will lose money on your investment. You
could lose up to 80% of the stated principal amount of the securities. |
| § | You are exposed to the price risk of both underlying indices. Your return on the securities is not linked to a basket
consisting of both underlying indices. Rather, it will be based upon the independent performance of each underlying index. Unlike
an instrument with a return linked to a basket of underlying assets, in which risk is mitigated and diversified among all the components
of the basket, you will be exposed to the risks related to both underlying indices. Poor performance by either underlying index
over the term of the securities will negatively affect your return and will not be offset or mitigated by any positive performance
by the other underlying index. If either underlying index declines to below 80% of its respective initial index value as of the
valuation date, you will be exposed to the negative performance of the worst performing underlying index at maturity, even if the
other underlying index has appreciated or has not declined as much. Accordingly, your investment is subject to the price risk of
both underlying indices. |
| § | Because the securities are linked to the performance of the worst performing underlying index, you are exposed to greater
risk of sustaining a significant loss on your investment than if the securities were linked to just one underlying index. The
risk that you will suffer a loss on your investment is greater if you invest in the securities as opposed to substantially similar
securities that are linked to the performance of just one underlying index. With two underlying indices, it is more likely that
either underlying index will decline to below 80% of its respective initial index value as of the valuation date than if the securities
were linked to only one underlying index. Therefore, it is more likely that you will suffer a loss on your investment. In addition,
with two underlying indices, it is more likely that either underlying index will not be at or above its respective initial index
value as of the valuation date. |
| § | Appreciation potential is fixed and limited. Where the final index value of each underlying index is greater than or
equal to its respective initial index value, the appreciation potential of the securities is limited to the fixed upside payment
of $4.2702 per security (42.702% of the stated principal amount), even if both underlying indices have appreciated substantially. |
| § | The securities will not be listed on any securities exchange and secondary trading may be limited. The securities will
not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. Morgan Stanley
& Co. LLC, which we refer to as 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 |
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
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, including: |
|
§ |
the values of the underlying indices at any time (including in relation to their initial index values), |
|
|
|
|
§ |
the volatility (frequency and magnitude of changes in value) of the underlying indices, |
|
|
|
|
§ |
dividend rates on the securities underlying the underlying indices, |
|
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|
§ |
interest and yield rates in the market, |
|
|
|
|
§ |
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks of the underlying indices or securities markets generally and which may affect the value of the underlying indices, |
|
|
|
|
§ |
the time remaining until the maturity of the securities, |
|
|
|
|
§ |
the composition of the underlying indices and changes in the constituent stocks of the underlying indices, and |
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|
|
|
§ |
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. In particular, you may have to sell your securities
at a substantial discount from the stated principal amount if at the time of sale the value of either underlying index is near,
at or below 80% of its respective initial index value.
You cannot predict the future performance
of the underlying indices based on their historical performance. If the final index value of either underlying index is less than
80% of its respective initial index value, you will be exposed on a 1 to 1 basis to such decline in the final index value of the
worst performing underlying index beyond the buffer amount. There can be no assurance that the final index value of each underlying
index will be greater than 80% of its respective initial index value so that you will receive at maturity an amount that is greater
than the $10 stated principal amount for each security you hold.
| § | The securities are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings
or credit spreads may adversely affect the market value of the securities. You are dependent on Morgan Stanley’s ability
to pay all amounts due on the securities 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., are 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. |
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
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 period of up to 6 months
following the issue date, 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 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 is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price. These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the 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 does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this 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 linked to the Russell 2000®
Index and are subject to risks associated with small-capitalization companies. As the Russell 2000® Index is
one of the underlying indices, and the Russell 2000® Index consists of stocks issued by companies with relatively
small market capitalization, the securities are linked to the value of small-capitalization companies. These companies often have
greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies and therefore the Russell
2000® Index may be more volatile than indices that consist of stocks issued by large-capitalization companies. Stock
prices of small-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business
and economic developments, and the stocks of small-capitalization companies may be thinly traded. In addition, small capitalization
companies are typically less well-established and less stable financially than large-capitalization companies and may depend on
a small number of key personnel, making them more vulnerable to loss of personnel. Such companies tend to have smaller revenues,
less diverse product lines, smaller shares of their product or service markets, fewer financial resources and less competitive
strengths than large-capitalization companies and are more susceptible to adverse developments related to their products. |
| § | Investing in the securities is not equivalent to investing in the underlying indices. Investing in the securities is
not equivalent to investing in either underlying index or the component stocks of either undelying index. Investors in the securities
will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to stocks that
constitute the underlying indices. |
| § | Adjustments to the underlying indices could adversely affect the value of the securities. The publisher of either underlying
index may add, delete or substitute the stocks underlying such index or make other methodological changes that could change the
value of such underlying index. Any of these actions could adversely affect the value of the securities. The publisher of such
underlying index may also discontinue or suspend calculation or publication of such 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. MS & Co. could have an economic interest that is different than that of investors in the securities
insofar as, for example, MS & Co. is permitted to consider indices that are calculated and published by MS & Co. or any
of its affiliates. If MS & Co. determines that there is no appropriate successor index, the payout on the securities at maturity
will be an amount based on the closing prices on the valuation date of the stocks underlying the relevant index at the time of
such discontinuance, without rebalancing or substitution, |
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
computed by the calculation agent in accordance with the formula
for calculating such underlying index last in effect prior to such discontinuance.
| § | The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the securities.
As calculation agent, MS & Co. has determined the initial index values, and will determine the final index values, the index
performance factors, if applicable, and the payment that you will receive at maturity. 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 the index closing values in the event of a market disruption event or discontinuance of an underlying index. These
potentially subjective determinations may adversely affect the payout to you at maturity. For further information regarding
these types of determinations, see “Description of Securities—Postponement of Valuation Date(s),” “—Discontinuance
of Any Underlying Index or Basket Index; Alteration of Method of Calculation,” “—Alternate Exchange Calculation
in case of an Event of Default” and “—Calculation Agent and Calculations” in the accompanying product supplement. In
addition, MS & Co. has determined the estimated value of the securities on the pricing date. |
| § | Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the securities. One
or more of our subsidiaries and/or third-party dealers have carried out, and will continue to carry out, hedging activities related
to the securities (and to other instruments linked to the underlying indices or their component stocks), including trading in the
stocks that constitute the underlying indices as well as in other instruments related to the underlying indices. 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 valuation date approaches. Some of our subsidiaries also trade
the stocks that constitute the underlying indices and other financial instruments related to the underlying indices 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 October
2, 2015, the day on which the initial index values were determined, could have increased the initial index value of an underlying
index, and, therefore, could have increased the value at or above which such underlying index must close on the valuation date
so that you do not suffer a loss on your initial investment in the securities (depending also on the performance of the other underlying
index). Additionally, such hedging or trading activities during the term of the securities, including on the valuation date, could
adversely affect the value of either underlying index on the valuation date, and, accordingly, the amount of cash an investor will
receive at maturity (depending also on the performance of the other underlying index). |
| § | The U.S. federal income tax consequences of an investment in the securities are uncertain. Please read the discussion
under “Additional Provisions – Tax considerations” in this document and the discussion under “United States
Federal Taxation” in the accompanying product supplement for Jump Securities (together the “Tax Disclosure Sections”)
concerning the U.S. federal income tax consequences of an investment in the securities. If the Internal Revenue Service (the “IRS”)
were successful in asserting an alternative treatment for the securities, the timing and character of income on the securities
might differ significantly from the tax treatment described in the Tax Disclosure Sections. For example, under one possible treatment,
the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders would be required
to accrue into income original issue discount on the securities every year at a “comparable yield” determined at the
time of issuance and recognize all income and gain in respect of the securities as ordinary income. Additionally, as discussed
under “United States Federal Taxation—FATCA Legislation” in the accompanying product supplement for Jump Securities,
the withholding rules commonly referred to as “FATCA” would apply to the securities if they were recharacterized as
debt instruments except that, under a recent IRS notice, withholding under FATCA will not apply to payments of gross proceeds (other
than any amount treated as interest) of any disposition of financial instruments before January 1, 2019. The risk that financial
instruments providing for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized
as debt is greater than the risk of recharacterization for comparable financial instruments that do not have such features. 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 Tax Disclosure Sections. |
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
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
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, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and
impose an interest charge. 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.
Both
U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment
in the securities, including possible alternative treatments, the issues presented by this
notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
S&P 500®
Index Overview
The S&P 500® Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies selected
to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500® Index is based
on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time
as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941 through
1943. S&P has announced that effective with the September 2015 rebalance, consolidated share class lines are no longer included
in the S&P 500® Index. Each share class line is subject to public float and liquidity criteria individually,
but the company’s total market capitalization is used to evaluate each share class line for purposes of determining index
membership eligibility. This may result in one listed share class line of a company being included in the S&P 500®
Index while a second listed share class line of the same company is excluded. For additional information about the S&P 500®
Index, see the information set forth under “S&P 500® Index” in the accompanying index supplement.
Information as of market close on October 5, 2015:
Bloomberg Ticker Symbol: |
SPX |
Current Index Value: |
1,987.05 |
52 Weeks Ago: |
1,964.82 |
52 Week High (on 5/21/2015): |
2,130.82 |
52 Week Low (on 10/15/2014): |
1,862.49 |
The following graph sets forth the daily closing values of the
SPX Index for the period from January 1, 2010 through October 5, 2015. The related table sets forth the published high and low
closing values, as well as end-of-quarter closing values, of the SPX Index for each quarter in the same period. The closing value
of the SPX Index on October 5, 2015 was 1,987.05. We obtained the information in the table and graph below from Bloomberg Financial
Markets, without independent verification. The SPX Index has at times experienced periods of high volatility, and you should not
take the historical values of the SPX Index as an indication of its future performance.
SPX Index Daily Closing Values
January 1, 2010 to October 5, 2015 |
|
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
S&P 500® Index |
High |
Low |
Period End |
2010 |
|
|
|
First Quarter |
1,174.17 |
1,056.74 |
1,169.43 |
Second Quarter |
1,217.28 |
1,030.71 |
1,030.71 |
Third Quarter |
1,148.67 |
1,022.58 |
1,141.20 |
Fourth Quarter |
1,259.78 |
1,137.03 |
1,257.64 |
2011 |
|
|
|
First Quarter |
1,343.01 |
1,256.88 |
1,325.83 |
Second Quarter |
1,363.61 |
1,265.42 |
1,320.64 |
Third Quarter |
1,353.22 |
1,119.46 |
1,131.42 |
Fourth Quarter |
1,285.09 |
1,099.23 |
1,257.60 |
2012 |
|
|
|
First Quarter |
1,416.51 |
1,277.06 |
1,408.47 |
Second Quarter |
1,419.04 |
1,278.04 |
1,362.16 |
Third Quarter |
1,465.77 |
1,334.76 |
1,440.67 |
Fourth Quarter |
1,461.40 |
1,353.33 |
1,426.19 |
2013 |
|
|
|
First Quarter |
1,569.19 |
1,457.15 |
1,569.19 |
Second Quarter |
1,669.16 |
1,541.61 |
1,606.28 |
Third Quarter |
1,725.52 |
1,614.08 |
1,681.55 |
Fourth Quarter |
1,848.36 |
1,655.45 |
1,848.36 |
2014 |
|
|
|
First Quarter |
1,878.04 |
1,741.89 |
1,872.34 |
Second Quarter |
1,962.87 |
1,815.69 |
1,960.23 |
Third Quarter |
2,011.36 |
1,909.57 |
1,972.29 |
Fourth Quarter |
2,090.57 |
1,862.49 |
2,058.90 |
2015 |
|
|
|
First Quarter |
2,117.39 |
1,992.67 |
2,067.89 |
Second Quarter |
2,130.82 |
2,057.64 |
2,063.11 |
Third Quarter |
2,128.28 |
1,867.61 |
1,920.03 |
Fourth Quarter (through October 5, 2015) |
1,987.05 |
1,923.82 |
1,987.05 |
License Agreement between Standard & Poor’s Financial
Services LLC and Morgan Stanley
“Standard & Poor’s®,” “S&P®,”
“S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC and have been licensed for use by S&P Dow Jones Indices LLC and Morgan Stanley.
For more information, see “S&P 500® Index” in the accompanying index supplement.
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
Russell 2000® Index Overview
The Russell 2000® Index is an index calculated,
published and disseminated by Russell Investments, and measures the composite price performance of stocks of 2,000 companies (the
“Russell 2000 Component Stocks”) incorporated in the U.S. and its territories. All 2,000 stocks are traded on a major
U.S. exchange and are the 2,000 smallest securities that form the Russell 3000® Index. The Russell 3000®
Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of
the U.S. equity market. The Russell 2000® Index consists of the smallest 2,000 companies included in the
Russell 3000® Index and represents a small portion of the total market capitalization of the Russell 3000®
Index. The Russell 2000® Index is designed to track the performance of the small capitalization segment of
the U.S. equity market. For additional information about the Russell 2000® Index, see the information set forth
under “Russell 2000® Index” in the accompanying index supplement.
Information as of market close on October 5, 2015:
Bloomberg Ticker Symbol: |
RTY |
Current Index Value: |
1,141.637 |
52 Weeks Ago: |
1,094.646 |
52 Week High (on 6/23/2015): |
1,295.799 |
52 Week Low (on 10/13/2014): |
1,049.303 |
The following graph sets forth the daily closing values of the
RTY Index for the period from January 1, 2010 through October 5, 2015. The related table sets forth the published high and low
closing values, as well as end-of-quarter closing values, of the RTY Index for each quarter in the same period. The closing value
of the RTY Index on October 5, 2015 was 1,141.637. We obtained the information in the table below from Bloomberg Financial Markets,
without independent verification. The RTY Index has at times experienced periods of high volatility, and you should not take the
historical values of the RTY Index as an indication of its future performance.
RTY Index Daily Closing Values
January 1, 2010 to October 5, 2015 |
|
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
Russell 2000® Index |
High |
Low |
Period End |
2010 |
|
|
|
First Quarter |
690.303 |
586.491 |
678.643 |
Second Quarter |
741.922 |
609.486 |
609.486 |
Third Quarter |
677.642 |
590.034 |
676.139 |
Fourth Quarter |
792.347 |
669.450 |
783.647 |
2011 |
|
|
|
First Quarter |
843.549 |
773.184 |
843.549 |
Second Quarter |
865.291 |
777.197 |
827.429 |
Third Quarter |
858.113 |
643.421 |
644.156 |
Fourth Quarter |
765.432 |
609.490 |
740.916 |
2012 |
|
|
|
First Quarter |
846.129 |
747.275 |
830.301 |
Second Quarter |
840.626 |
737.241 |
798.487 |
Third Quarter |
864.697 |
767.751 |
837.450 |
Fourth Quarter |
852.495 |
769.483 |
849.350 |
2013 |
|
|
|
First Quarter |
953.068 |
872.605 |
951.542 |
Second Quarter |
999.985 |
901.513 |
977.475 |
Third Quarter |
1,078.409 |
989.535 |
1,073.786 |
Fourth Quarter |
1,163.637 |
1,043.459 |
1,163.637 |
2014 |
|
|
|
First Quarter |
1,208.651 |
1,093.594 |
1,173.038 |
Second Quarter |
1,192.964 |
1,095.986 |
1,192.964 |
Third Quarter |
1,208.150 |
1,101.676 |
1,101.676 |
Fourth Quarter |
1,219.109 |
1,049.303 |
1,204.696 |
2015 |
|
|
|
First Quarter |
1,266.373 |
1,154.709 |
1,252.772 |
Second Quarter |
1,295.799 |
1,215.417 |
1,253.947 |
Third Quarter |
1,273.328 |
1,083.907 |
1,100.688 |
Fourth Quarter (through October 5, 2015) |
1,141.637 |
1,097.552 |
1,141.637 |
License Agreement between Russell Investments and Morgan Stanley
The “Russell 2000® Index” is a trademark
of Russell Investments and has been licensed for use by Morgan Stanley. For more information, see “Russell 2000®
Index—License Agreement between Russell Investments and Morgan Stanley” in the accompanying index supplement.
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
Additional Information About the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Provisions: |
Postponement of maturity date: |
If the scheduled valuation date is not an index business day with respect to either underlying index or if a market disruption event occurs with respect to either underlying index on that day so that the valuation date is postponed and falls less than two business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the second business day following the latest valuation date as postponed with respect to either underlying index. |
Minimum ticketing size: |
$1,000 / 100 securities |
Tax considerations: |
Although there is uncertainty regarding the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, each security should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. |
|
Assuming this treatment of the securities is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement for Jump Securities, the following U.S. federal income tax consequences should result based on current law: |
|
§ A U.S. Holder should not be required to recognize taxable income over the term of the securities prior to settlement, other than pursuant to a sale or exchange. |
|
§ Upon sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain or loss if the investor has held the securities for more than one year, and short-term capital gain or loss otherwise. |
|
In 2007, the U.S. Treasury
Department and the Internal Revenue Service (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, which very generally can operate to recharacterize certain long-term capital
gain as ordinary income and impose an interest charge. 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.
As discussed under “United
States Federal Taxation – Tax Consequences to Non-U.S. Holders – Possible Application of Section 871(m) of the Code”
in the accompanying product supplement for Jump Securities, Section 871(m) of the Internal
Revenue Code of 1986, as amended (the “Code”), imposes a 30% withholding tax on certain “dividend equivalents”
paid or deemed paid with respect to U.S. equities or equity indices under certain circumstances. However, in light of recently
promulgated Treasury regulations under Section 871(m) of the Code, the withholding tax generally will not apply to the securities.
Both U.S. and non-U.S. investors considering
an investment in the securities should read the discussion under “Risk Factors” in this document and the discussion
under “United States Federal Taxation” in the accompanying product supplement for Jump Securities and consult their
tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the securities, including possible
alternative treatments, the issues presented by the aforementioned notice and any tax consequences arising under the laws of any
state, local or non-U.S. taxing jurisdiction.
The discussion in
the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying product supplement for Jump Securities, insofar as they purport to describe
provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk
& Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
|
Trustee: |
The Bank of New York Mellon |
Calculation agent: |
Morgan Stanley & Co. LLC (“MS & Co.”) |
Use
of proceeds and |
The proceeds we receive from the sale of the securities
will be used for general corporate purposes. We |
Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
hedging: |
will receive, in aggregate, $10.00 per security issued, because,
when we enter into hedging transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse
the cost of the agent’s commissions. The costs of the securities borne by you and described on page 2 above comprise the
agent’s commissions and the cost of issuing, structuring and hedging the securities.
On or prior to October 2, 2015, we hedged our anticipated exposure
in connection with the securities, by entering into hedging transactions with our subsidiaries and/or third party dealers. We expect
our hedging counterparties to have taken positions in stocks of the underlying indices and in futures and options contracts on
the underlying indices and any component stocks of the underlying indices listed on major securities markets. Such purchase activity
could have increased the initial index value of either underlying index, and, therefore, could have increased the value at or above
which such underlying index must close on the valuation date so that you do not suffer a loss on your initial investment in the
securities (depending also on the performance of the other underlying index). In addition, through our subsidiaries, we are likely
to modify our hedge position throughout the life of the securities, including on the valuation date, by purchasing and selling
the stocks constituting the underlying indices, futures or options contracts on the underlying indices or their component stocks
listed on major securities markets or positions in any other available securities or instruments that we may wish to use in connection
with such hedging activities. 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 valuation date
approaches. We cannot give any assurance that our hedging activities will not affect the value of either underlying index, and,
therefore, adversely affect the value of the securities or the payment you will receive at maturity (depending also on the performance
of the other underlying index). For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging”
in the accompanying product supplement.
|
Benefit plan investor considerations: |
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our subsidiaries and affiliates,
including MS & Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified
person” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many
Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”). ERISA Section 406 and Code Section
4975 generally prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited transactions within
the meaning of ERISA or the Code would likely arise, for example, if the securities are acquired by or with the assets of a Plan
with respect to which MS & Co. or any of its affiliates is a service provider or other party in interest, unless the securities
are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of these “prohibited
transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those
persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Code Section 4975(d)(20) of the Code may provide an exemption for the purchase and sale of securities and the related
lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary
authority or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided
further that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction
(the so-called “service provider” exemption). There can be no assurance that any of these class or statutory exemptions
will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with respect
to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or
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Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
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Section 4975 of the Code (“Similar Law”) or (b) its
purchase, holding and disposition are eligible for exemptive relief or such purchase, holding and disposition are not prohibited
by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The securities are contractual financial instruments.
The financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy
for, individualized investment management or advice for the benefit of any purchaser or holder of the securities. The securities
have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of
any purchaser or holder of the securities.
Each purchaser or holder of any securities acknowledges
and agrees that:
(i) the purchaser or holder
or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser or holder has not
relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with
respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities, or (C)
the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii) we and our affiliates
have acted and will act solely for our own account in connection with (A) all transactions relating to the securities and (B) all
hedging transactions in connection with our obligations under the securities;
(iii) any and all assets
and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities and
are not assets and positions held for the benefit of the purchaser or holder;
(iv) our interests are adverse
to the interests of the purchaser or holder; and
(v) neither we nor any of our
affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions,
and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations: |
Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities, either directly or indirectly. |
Supplemental
information regarding plan of distribution; conflicts of interest: |
The agent may distribute the securities through Morgan Stanley
Smith Barney LLC (“Morgan Stanley Wealth Management”), as selected dealer, or other dealers, which may include Morgan
Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley AG. Morgan Stanley Wealth Management, MSIP and
Bank Morgan Stanley AG are affiliates of Morgan Stanley. Selected dealers, including Morgan Stanley Wealth Management, and their
financial advisors will collectively receive from the agent, Morgan Stanley & Co. LLC, a fixed sales commission of $0.15 for
each security they sell. In addition, Morgan Stanley Wealth Management will receive a structuring fee of $0.05 for each security.
MS & Co. is our wholly-owned subsidiary and it and other subsidiaries
of ours expect to make a profit by selling, structuring and, when applicable, hedging the securities.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
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Buffered Securities Based on the Value of the Worst Performing of the S&P 500® Index and the Russell 2000® Index due March 31, 2020
Principal at Risk Securities
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of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement. |
Validity
of the securities: |
In the opinion of Davis Polk & Wardwell LLP, as special counsel to Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by Morgan Stanley, authenticated by the trustee pursuant to the Senior Debt Indenture and delivered against payment as contemplated herein, such securities will be valid and binding obligations of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above. This opinion is given as of the date hereof and is limited to the laws of the State of New York and the General Corporation Law of the State of Delaware. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 19, 2014, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 19, 2014. |
Contact: |
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. |
Where
you can find more information: |
Morgan Stanley has filed a registration statement (including a
prospectus, as supplemented by the product supplement for Jump and the index supplement) with the Securities and Exchange Commission,
or SEC, for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration
statement, the product supplement for Jump, the index supplement and any other documents relating to this offering that Morgan
Stanley has filed with the SEC for more complete information about Morgan Stanley and this offering. You may get these documents
without cost by visiting EDGAR on the SEC web site at.www.sec.gov. Alternatively, Morgan Stanley,
any underwriter or any dealer participating in the offering will arrange to send you the prospectus, the product supplement for
Jump and the index supplement if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at.www.sec.gov
as follows:
Product
Supplement for Jump Securities dated November 19, 2014
Index
Supplement dated November 19, 2014
Prospectus
dated November 19, 2014
Terms used but not defined in this document are defined in the
product supplement for Jump, in the index supplement or in the prospectus. As used in this document, the “Company,”
“we,” “us” and “our” refer to Morgan Stanley.
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