CALCULATION
OF REGISTRATION FEE
|
|
Maximum
Aggregate
|
|
Amount
of Registration
|
Title
of Each Class of Securities Offered
|
|
Offering
Price
|
|
Fee
|
Buffered
Jump Securities due 2017
|
|
$500,000
|
|
$50.35
|
|
|
|
|
|
|
July
2016
Pricing
Supplement No. 996
Registration
Statement No. 333-200365
Dated
July 22, 2016
Filed
pursuant to Rule 424(b)(2)
|
Structured Investments
Buffered Jump
Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk
Securities
The Buffered Jump Securities, which
we refer to as the securities, offer the opportunity to earn a return based on the performance of the 10-Year U.S. Dollar ICE
Swap Rate (the “reference rate”). Unlike ordinary debt securities, the securities do not pay interest and provide
for the minimum payment at maturity of only 15% of the principal amount at maturity. At maturity, you will receive for each security
that you hold an amount in cash that will vary depending on the performance of the reference rate, as determined on the valuation
date. If the final reference rate is greater than or equal to 85% of the initial reference rate, you will receive at maturity
the stated principal amount plus the fixed upside payment of $155.00 per security. However, if the reference rate has declined
by more than 15% over the term of the securities from its initial reference rate, the payment due at maturity will be less, and
possibly significantly less, than the stated principal amount of the securities.
A very small absolute change in the reference
rate can result in a significant loss on the securities
. For example, assuming an initial reference rate of 2.000%, if the
final reference rate were to decline by only one percentage point to 1.000%, while the absolute change in the rate is only 1.00%,
that move actually represents a 50% decline from the initial reference rate, and you would lose 35% of the stated principal amount.
The securities are for investors who seek a return based on changes in the reference rate and who are willing to risk
their principal and forgo current income and upside above the fixed upside payment at maturity in exchange for the fixed upside
payment and buffer features that in each case apply to a limited range of performance of the reference rate.
You could lose
up to 85% of your investment in the securities.
The securities are notes issued as part of Morgan Stanley’s Series F
Global Medium-Term Notes program.
All payments are subject to the
credit risk of Morgan Stanley. If Morgan Stanley defaults on its obligations, you could lose some or all of your investment. These
securities are not secured obligations and you will not have any security interest in, or otherwise have any access to, any underlying
reference asset or assets.
FINAL TERMS
|
Issuer:
|
Morgan Stanley
|
Aggregate principal amount:
|
$500,000
|
Issue price:
|
$1,000 per security
|
Stated principal amount:
|
$1,000 per security
|
Pricing date:
|
July 22, 2016
|
Original issue date:
|
July 27, 2016 (3 business days after the pricing date)
|
Maturity date:
|
August 28, 2017
|
Interest:
|
None
|
Reference rate:
|
The 10-Year U.S. Dollar ICE Swap Rate (10CMS). Please see “Additional
Provisions—Reference Rate” below.
|
Payment at maturity:
|
§
If
the final reference rate is
greater than or equal to
the threshold reference rate:
$1,000
+ the fixed upside payment
§
If
the final reference rate is
less than
the threshold reference rate:
$1,000
× (reference rate performance factor + 15%)
Because the reference
rate performance factor will be less than 85% in this scenario, the payment at maturity will be less, and potentially significantly
less, than the stated principal amount of $1,000, subject to the minimum payment at maturity of $150 per security.
|
Fixed upside payment:
|
$155.00 per security (15.50% of the stated principal amount)
|
Minimum payment at maturity:
|
$150.00 per security (15% of the stated principal amount)
|
Reference rate performance factor:
|
final reference rate / initial reference rate.
In no event, however,
will the reference rate performance factor be less than 0%.
|
Initial reference rate:
|
1.4740, which is the reference rate on the pricing date
|
Final reference rate:
|
The reference rate on the valuation date
|
Threshold reference rate:
|
1.253, which is 85% of the initial reference rate (rounded to three decimal places)
|
Buffer amount:
|
15%
|
Valuation date:
|
August 23, 2017
|
Specified currency:
|
U.S. dollars
|
CUSIP / ISIN:
|
61760QJX3 / US61760QJX34
|
Book-entry or certificated security:
|
Book-entry
|
Business day:
|
New York
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), a wholly owned subsidiary
of Morgan Stanley. See “Supplemental Information Concerning Plan of Distribution; Conflicts of Interest.”
|
Calculation agent:
|
Morgan Stanley Capital Services LLC
|
Trustee:
|
The Bank of New York Mellon
|
Estimated value on the pricing date:
|
$982.10 per security. See “Investment Summary” on page
2.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions
(1)
|
Proceeds to issuer
(2)
|
Per security
|
$1,000
|
$12.50
|
$987.50
|
Total
|
$500,000
|
$6,250
|
$493,750
|
|
(1)
|
Morgan Stanley or one of
our affiliates will pay varying discounts and commissions to dealers, including Morgan Stanley Wealth Management (an affiliate
of the agent) and their financial advisors, of $12.50 per security depending on market conditions. See “Supplemental Information
Concerning Plan of Distribution; Conflicts of Interest.” For additional information, see “Plan of Distribution (Conflicts
of Interest)” in the accompanying prospectus supplement.
|
|
(2)
|
See “Use of Proceeds
and Hedging” on page 13.
|
You should
read this document together with the related prospectus supplement and prospectus,
each of which can be accessed via the hyperlinks below.
Prospectus Supplement dated November 19, 2014
Prospectus dated February 16, 2016
The securities are not deposits
or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
Buffered Jump
Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal
at Risk Securities
Investment Summary
Buffered Jump Securities
Principal
at Risk Securities
The Buffered Jump Securities Based on the 10-Year U.S. Dollar
ICE Swap Rate due August 28, 2017 (the “securities”) can be used:
|
§
|
As an alternative to direct exposure to the reference rate that provides for a fixed positive
return of 15.50% if the reference rate has appreciated or has declined by 15% or less over the term of the securities;
|
|
§
|
To enhance returns and potentially outperform the reference rate; and
|
|
§
|
To obtain a buffer against a specified level of negative performance of the reference rate.
|
The securities are exposed on a 1:1 basis to
the percentage decline of the final reference rate from the initial reference rate beyond the buffer amount of 15%.
Accordingly,
85% of your principal is at risk (
e.g.
, a 50% depreciation in 10CMS will result in the payment at maturity of $650 per security).
Maturity:
|
Approximately 1 year and 1 month
|
Fixed upside payment:
|
$155.00 per security (15.50% of the stated principal amount).
|
Buffer amount:
|
15%
|
Minimum payment at maturity:
|
$150 per security. You could lose up to 85% of the stated principal amount of the securities.
|
Interest:
|
None
|
The stated principal amount and issue price of each security
is $1,000. 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 the issue price. We estimate
that the value of each security on the pricing date is $982.10.
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 10CMS. The estimated value of the
securities is determined using our own pricing and valuation models, market inputs and assumptions relating to 10CMS, instruments
based on 10CMS, 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 fixed 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.
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 interest rates and 10CMS, 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, the
costs of unwinding the related hedging transactions and other factors.
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 Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
Key Investment Rationale
This investment does not pay interest but offers a fixed positive
return of 15.50% if the level of the reference rate does not decline by more than 15% from its initial reference rate over the
term of the securities. However, if the level of the reference rate has declined by more than 15% from its initial reference rate,
the payment due at maturity will be less, and possibly significantly less, than the stated principal amount of the securities.
You could lose up to 85% of the stated principal amount of the securities.
Upside Scenario
|
If the final reference rate is
greater than or equal to the threshold reference rate, which is equal to 85% of the initial reference rate
, the payment at maturity for each security will be equal to $1,000
plus
the fixed upside payment of $155.00 per security.
|
Downside Scenario
|
If the final reference rate is
less than the threshold reference rate
, which means that 10CMS has
depreciated
by an amount greater than the buffer amount of 15%
, you will lose 1% for every 1% decline beyond the buffer amount of 15%, subject to the minimum payment at maturity of $150 per security (e.g., a 50% depreciation in 10CMS will result in a payment at maturity of $650 per security).
A very small absolute change in the reference rate can result in a significant loss on the securities.
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
Additional Provisions
Reference Rate
What is the 10-Year U.S. Dollar ICE Swap Rate?
The 10-Year U.S. Dollar ICE Swap Rate (which we refer to as “10CMS”)
is, on any day, the fixed rate of interest payable on an interest rate swap with a 10-year maturity as reported on Reuters Page
ICESWAP1 or any successor page thereto at approximately 11:00 a.m. New York City time for such day. This rate is one of the market-accepted
indicators of medium to longer-term interest rates.
The rate reported on Reuters Page ICESWAP1 (or any successor
page thereto) is calculated by ICE Benchmark Administration Limited based on tradeable quotes for the related interest rate swap
of the relevant tenor that is sourced from electronic trading venues.
An interest rate swap rate, at any given time, generally indicates
the fixed rate of interest (paid semi-annually) that a counterparty in the swaps market would have to pay for a given maturity,
in order to receive a floating rate (paid quarterly) equal to 3-month LIBOR for that same maturity.
CMS Rate Fallback Provisions
If the reference rate is not displayed by approximately 11:00
a.m. New York City time on the Reuters Page ICESWAP1 on any day on which the level of the reference rate must be determined, the
rate for such day will be determined on the basis of the mid-market semi-annual swap rate quotations to the calculation agent provided
by five leading swap dealers in the New York City interbank market (the “Reference Banks”) at approximately 11:00 a.m.,
New York City time, on such day, and, for this purpose, the mid-market semi-annual swap rate means the mean of the bid and offered
rates for the semi-annual fixed leg, calculated on a 30/360 day count basis, of a fixed-for-floating U.S. Dollar interest rate
swap transaction with a 10 year maturity commencing on such day and in a representative amount with an acknowledged dealer of good
credit in the swap market, where the floating leg, calculated on an actual/360 day count basis, is equivalent to USD LIBOR with
a designated maturity of three months. The calculation agent will request the principal New York City office of each of the Reference
Banks to provide a quotation of its rate. If at least three quotations are provided, the rate for that day will be the arithmetic
mean of the quotations, eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation
(or, in the event of equality, one of the lowest). If fewer than three quotations are provided as requested, the reference rate
will be determined by the calculation agent in good faith and in a commercially reasonable manner.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
How the Buffered Jump Securities Work
Payoff Diagram
The payoff diagram below illustrates the payout on the securities
at maturity for a range of hypothetical percentage changes in the reference rate. The diagram is based on the following terms:
Stated principal amount:
|
$1,000 per security
|
Fixed upside payment:
|
$155.00 per security (15.50% of the stated principal amount).
|
Buffer amount:
|
15%
|
Hypothetical initial reference rate:
|
1.3000%
|
Hypothetical threshold reference rate:
|
1.1050%, which is equal to 85% of the hypothetical initial reference rate
|
Minimum payment at maturity:
|
$150.00 per security (15% of the stated principal amount)
|
As indicated in the payoff diagram below, a very small absolute
change in the reference rate can result in a significant loss on the securities.
For example, assuming an initial reference
rate of 1.3000%, if the final reference rate were to decline by 0.780 percentage points to 0.5200%, which represents a 60% decline
from the hypothetical initial reference rate, investors would lose 45% of the stated principal amount.
Investors may lose up
to 85% of the stated principal amount of the securities.
How it works
|
§
|
Upside Scenario.
If the final reference
rate is
greater than or equal to
the threshold reference rate, the investor would receive the $1,000 stated principal amount
plus
the fixed upside payment per security.
|
|
§
|
Downside Scenario.
If the final reference
rate has decreased from the initial reference rate by an amount greater than the buffer amount of 15%, the payment at maturity
would be less than the stated principal amount of $1,000 by an amount that is proportionate to the percentage decrease of the reference
rate beyond the buffer amount.
A very small absolute change in the reference rate can result in a significant loss on the securities.
However, under no circumstances will the payment due at maturity be less than $150 per security.
|
|
o
|
For example, assuming an initial reference rate of 1.3000%, if the final reference rate has declined
by 0.650 percentage points to 0.6500%, which represents a 50% decline from the initial reference rate, the payment at maturity
would be $650 per security (65% of the stated principal amount)
.
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
What is the return on the securities at maturity,
assuming a range of performances for the reference rate?
The following table and
examples illustrate the hypothetical payment at maturity and hypothetical return at maturity on the securities. The return on the
securities is the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000 stated principal
amount to $1,000. The table and examples set forth below assume a hypothetical initial reference rate of 1.3000% and a hypothetical
threshold reference rate of 1.1050% (equal to 85% of the hypothetical initial reference rate), which represents a decrease of only
0.195 percentage points.
Accordingly, a very small absolute change in the reference rate can result in a significant loss
on the securities, because the return on the securities is based on the percentage change of the reference rate from the pricing
date to the valuation date rather than the absolute change in the level of the reference rate.
The actual initial reference rate and threshold reference rate are set forth on the cover of this document. The returns set forth
below are for illustrative purposes only and may not be the actual return applicable to a purchaser of the securities. The numbers
appearing in the following table and examples have been rounded for ease of analysis.
Final
reference rate
|
Reference
rate increase / decline
|
Reference
rate
performance factor
(1)
|
Payment
at maturity
|
Return
on securities
|
1.950%
|
50.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.820%
|
40.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.690%
|
30.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.560%
|
20.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.430%
|
10.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.365%
|
5.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.333%
|
2.50%
|
N/A
|
$1,155.00
|
15.50%
|
1.313%
|
1.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.300%
|
0.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.235%
|
-5.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.170%
|
-10.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.105%
|
-15.00%
|
N/A
|
$1,155.00
|
15.50%
|
1.040%
|
-20.00%
|
80.00%
|
$950.00
|
-5.00%
|
0.910%
|
-30.00%
|
70.00%
|
$850.00
|
-15.00%
|
0.780%
|
-40.00%
|
60.00%
|
$750.00
|
-25.00%
|
0.650%
|
-50.00%
|
50.00%
|
$650.00
|
-35.00%
|
0.520%
|
-60.00%
|
40.00%
|
$550.00
|
-45.00%
|
0.390%
|
-70.00%
|
30.00%
|
$450.00
|
-55.00%
|
0.260%
|
-80.00%
|
20.00%
|
$350.00
|
-65.00%
|
0.130%
|
-90.00%
|
10.00%
|
$250.00
|
-75.00%
|
0.000%
|
-100.00%
|
0.00%
|
$150.00
|
-85.00%
|
-0.130%
|
-110.00%
|
0.00%
|
$150.00
|
-85.00%
|
-0.260%
|
-120.00%
|
0.00%
|
$150.00
|
-85.00%
|
-0.650%
|
-150.00%
|
0.00%
|
$150.00
|
-85.00%
|
(1)
The reference rate
performance factor will not be less than 0.00%, even if the final reference rate is negative.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
Hypothetical Examples of Amount Payable
at Maturity
The following examples illustrate how the payment at maturity
and return on the securities in different hypothetical scenarios are calculated.
Example 1: The reference rate increases by 0.650 percentage
points from the initial reference rate of 1.3000% to a final reference rate of 1.9500%, which represents a 50.00% increase from
the initial reference rate.
Because the final reference rate is greater than or equal to
the threshold reference rate, the payment at maturity is equal to $1,155.00 per security, calculated as follows:
$1,000 + fixed upside payment
$1,000 + $155.00 = $1,155.00
Although the reference rate increased by 50.00% from its initial
reference rate to its final reference rate in this example, the return is limited to the fixed upside payment of $155.00 (15.50%
of the stated principal amount). The return on the securities is 15.50%.
Example 2: The reference rate decreases by 0.130 percentage
points from the initial reference rate of 1.3000% to a final reference rate of 1.1700%, which represents a 10.00% decrease from
the initial reference rate.
Because the final reference rate is greater than or equal to
the threshold reference rate, the payment at maturity is equal to $1,155.00 per security, calculated as follows:
$1,000 + the fixed upside payment
$1,000 + $155.00 = $1,155.00
Although the reference rate decreased by 10% from its initial
reference rate to its final reference rate in this example, because the reference rate has not decreased by more than the buffer
amount of 15%, you receive the fixed upside payment at maturity and the return on the securities is 15.50%.
Example 3: The reference rate decreases by 0.650 percentage
points from the initial reference rate
of 1.3000% to a final reference rate of 0.6500%, which represents a 50.00% decrease
from the initial reference rate.
Because the final reference rate is less than the threshold reference
rate, the payment at maturity is equal to $650 per $1,000 security, calculated as follows:
$1,000 × (reference rate performance
factor + 15%)
= $1,000 × [(final reference rate /
initial reference rate) + 15%]
= $1,000 × [(0.6500% / 1.3000%) + 15%]
= $1,000 × 65%
= $650
The return on the securities in this example is -35.00%.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
Historical Information
The following graph sets forth the historical percentage levels
of the reference rate for the period from January 1, 2006 to July 22, 2016. The historical levels of the reference rate should
not be taken as an indication of its future performance. We obtained the information in the graph below from Bloomberg Financial
Markets, without independent verification.
When reviewing the historical performance of the reference rate
in the below graph, it is important to understand that
a very small absolute percentage-point change in the reference rate can
result in a significant loss on the securities.
For example, assuming a hypothetical initial reference rate of 1.3000%, the
threshold reference rate would be equal to 1.1050% (85% of the hypothetical initial reference rate), which represents a decrease
of only 0.195 percentage points.
If the final reference rate is less than the threshold reference rate, you will lose some of
your investment. Investors may lose up to 85% of the stated principal amount of the securities.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
Risk Factors
An investment in the securities entails significant risks
not associated with similar investments in a conventional debt security, including, but not limited to, fluctuations in the reference
rate, and other events that are difficult to predict and beyond the issuer’s control. This section describes the most significant
risks relating to the securities. For a complete list of risk factors, please see the accompanying prospectus supplement and prospectus.
Investors should consult their financial and legal advisers as to the risks entailed by an investment in the securities and the
suitability of the securities in light of their particular circumstances.
|
§
|
The securities do not pay interest and provide for the minimum payment at maturity of only
15% of your principal.
The terms of the securities differ from those of ordinary debt securities in that we will not pay you
any interest and the securities provide for the return of only 15% of the principal amount of the securities at maturity. At maturity,
you will receive for each $1,000 stated principal amount of securities that you hold an amount in cash based upon the final reference
rate. If the reference rate decreases from the initial reference rate by more than the buffer amount of 15%, you will receive an
amount in cash that is less than the $1,000 stated principal amount of each security by an amount proportionate to the decline
in level of the reference rate beyond the buffer amount, and you will lose money on your investment.
A very small absolute
percentage-point change in the reference rate can result in a significant loss on the securities
. For example, assuming
an initial reference rate of 2.000%, if the final reference rate were to decline by only one percentage point to 1.000%, which
represents a 50% decline from the initial reference rate, investors would lose 35% of the stated principal amount. You could lose
up to 85% of the stated principal amount of the securities. See “How the Buffered Jump Securities Work” above.
|
|
§
|
The potential return on the securities is limited to the fixed upside payment.
Any positive
return on your securities will not exceed the fixed upside payment, regardless of any increase in the reference rate, which may
be significant. The payment at maturity will under no circumstances exceed $1,155.00 per $1,000 stated principal amount of securities.
|
|
§
|
The historical performance of the reference rate is not an indication of future performance.
The historical performance of the reference rate should not be taken as an indication of future performance during the term
of the securities. Changes in the levels of the reference rate will affect the trading price of the securities, but it is impossible
to predict whether such levels will rise or fall. There can be no assurance that the reference rate will not decline below the
threshold reference rate, in which case you will lose money on your investment.
|
|
§
|
Investors 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.
Investors are dependent on our ability to
pay all amounts due on the securities on interest payment dates and at maturity and therefore investors are subject to our credit
risk and to changes in the market’s view of our creditworthiness. 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 the credit spreads charged by the
market for taking our credit risk is likely to adversely affect the value of the securities.
|
|
§
|
The reference rate will be affected by a number of factors.
A number of factors can affect
the reference rate, including but not limited to:
|
|
§
|
changes in, or perceptions, about the future reference rate;
|
|
§
|
general economic conditions: the economic, financial, political, regulatory and judicial events
that affect financial markets generally will affect the reference rate;
|
|
§
|
prevailing interest rates: the reference rate is subject to daily fluctuations depending on prevailing
interest rates in the market generally; and
|
|
§
|
policies of the Federal Reserve Board regarding interest rates.
|
These and other factors may have
a negative impact on the payment at maturity and on the value of the securities prior to maturity.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
|
§
|
The reference rate may be volatile.
The reference rate is subject to volatility due to a variety
of factors affecting interest rates generally, including but not limited to:
|
|
§
|
sentiment regarding the U.S. and global economies;
|
|
§
|
expectations regarding the level of price inflation;
|
|
§
|
sentiment regarding credit quality in the U.S. and global credit markets;
|
|
§
|
central bank policy regarding interest rates; and
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performance of capital markets.
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The
reference rate may be volatile, and even a
very small change in the reference rate can result in a significant loss on the
securities. Accordingly, volatility of the reference rate may adversely affect your return on the securities.
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The price at which the securities may be sold prior to maturity will depend on a number of
factors and may be substantially less than the amount for which they were originally purchased.
Some of these factors include,
but are not limited to: (i) actual or anticipated changes in the level of the reference rate, (ii) volatility of the level of the
reference rate, (iii) changes in interest and yield rates, (iv) any actual or anticipated changes in our credit ratings or credit
spreads and (v) time remaining to maturity. Depending on the actual or anticipated level of the reference rate, the market value
of the securities may decrease, and you may receive substantially less than 100% of the issue price if you are able to sell your
securities prior to maturity.
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The amount payable on the securities is not linked to the level of the reference rate at any
time other than the valuation date.
The final reference rate will be the reference rate on the valuation date. Even if the
level of the reference rate appreciates prior to the valuation date but then drops by the valuation date, the payment at maturity
may be less, and may be significantly less, than it would have been had the payment at maturity been linked to the level of the
reference rate prior to such drop. Although the actual level of the reference rate on the stated maturity date or at other times
during the term of the securities may be higher than the final reference rate, the payment at maturity will be based solely on
the reference rate on the valuation date.
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The rate we are willing to pay for securities of this type, maturity and issuance size is
likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both the lower rate and
the inclusion of costs associated with issuing, selling, structuring and hedging the 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, the costs of unwinding the related hedging transactions as well as other factors.
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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.
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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 securities in the secondary market
(if any exists) at any time. The value of your securities at any time after the date of this document will vary based on many factors
that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions.
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Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
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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. 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.
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Morgan Stanley & Co. LLC, which is a subsidiary of the issuer, has determined the estimated
value on the pricing date.
MS & Co. has determined the estimated value of the securities on the pricing date.
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The issuer, its subsidiaries or affiliates may publish research that could affect the market
value of the securities. They also expect to hedge the issuer’s obligations under the securities.
The issuer or one or
more of its affiliates may, at present or in the future, publish research reports with respect to movements in interest rates generally
or the reference rate specifically. This research is modified from time to time without notice and may express opinions or provide
recommendations that are inconsistent with purchasing or holding the securities.
Any of these activities may affect the market value of the securities. In addition, the issuer’s subsidiaries expect
to hedge the issuer’s obligations under the securities and they may realize a profit from that expected hedging activity
even if investors do not receive a favorable investment return under the terms of the securities or in any secondary market transaction.
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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 reference rate and the threshold reference
rate, and will determine the final reference rate, the reference rate performance factor and the payment that you will receive
at maturity. Any of these determinations made by the calculation agent may adversely affect the payout to investors. Moreover,
certain determinations made by the calculation agent may require it to exercise discretion and make subjective judgments, such
as with respect to the reference rate. These potentially subjective determinations may adversely affect the payout to you on the
securities. For further information regarding these types of determinations, see “Additional Provisions―Reference Rate”
and related definitions above.
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The U.S. federal income tax consequences of an investment in the securities are uncertain.
Please note that the discussions in this pricing supplement concerning the U.S. federal income tax consequences of an investment
in the securities supersede the discussions contained in the accompanying prospectus supplement.
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Subject to the discussion under
“United States Federal Taxation” in this pricing supplement, 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 (“our counsel”), under current law, and based on current market conditions, a security
should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
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 herein. 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. 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 herein.
Even if a security is properly treated
as a single financial contract that is an "open transaction," there is uncertainty regarding whether gain or loss recognized
upon settlement at maturity should be treated as capital gain or loss or as ordinary gain or loss (which, in the case of loss,
is potentially subject to the 2% floor on “miscellaneous itemized deductions”).
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, 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 issued
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 read carefully the discussion under “United States Federal Taxation” in this pricing supplement and consult
their tax advisers regarding all aspects of the U.S. federal tax consequences of an investment in the securities, including possible
alternative treatments, the issues presented by this notice and any tax consequences arising under the laws of any state, local
or non-U.S. taxing jurisdiction.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
Use of Proceeds and Hedging
The proceeds we receive from the sale of the
securities will be used for general corporate purposes. We will receive, in aggregate, $1,000 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.
Supplemental Information Concerning Plan of Distribution;
Conflicts of Interest
We expect to deliver the securities against payment therefor
in New York, New York on July 27, 2016, which will be the third scheduled business day following the date of the pricing of the
securities.
Morgan Stanley or one of our affiliates will
pay varying discounts and commissions to dealers, including Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”)
and their financial advisors, of $12.50 per security depending on market conditions. The agent may distribute the securities through
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.
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
of our other affiliates may not make sales in this offering to any discretionary account.
Contact Information
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.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
Acceleration Amount in Case of an Event of Default
If an event of default with respect to the securities shall have
occurred and be continuing, the amount declared due and payable upon any acceleration of the securities (the “Acceleration
Amount”) will be an amount, determined by the calculation agent in its sole discretion, that is equal to the cost of having
a qualified financial institution, of the kind and selected as described below, expressly assume all our payment and other obligations
with respect to the securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations
providing substantially equivalent economic value to you with respect to the securities. That cost will equal:
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the lowest amount that a qualified financial institution would charge
to effect this assumption or undertaking, plus
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the reasonable expenses, including reasonable attorneys’ fees,
incurred by the holders of the securities in preparing any documentation necessary for this assumption or undertaking.
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During the default quotation period for the securities, which
we describe below, the holders of the securities and/or we may request a qualified financial institution to provide a quotation
of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the
other party in writing of the quotation. The amount referred to in the first bullet point above will equal the lowest—or,
if there is only one, the only—quotation obtained, and as to which notice is so given, during the default quotation period.
With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds,
to the assumption or undertaking by the qualified financial institution providing the quotation and notify the other party in writing
of those grounds within two business days after the last day of the default quotation period, in which case that quotation will
be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to Morgan Stanley, then depending on
applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount.
If the maturity of the securities is accelerated because of an
event of default as described above, we shall, or shall cause the calculation agent to, provide written notice to the trustee at
its New York office, on which notice the trustee may conclusively rely, and to the depositary of the Acceleration Amount and the
aggregate cash amount due with respect to the securities as promptly as possible and in no event later than two business days after
the date of such acceleration.
Default quotation period
The default quotation period is the period beginning on the day
the Acceleration Amount first becomes due and ending on the third business day after that day, unless:
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no quotation of the kind referred to above is obtained, or
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every quotation of that kind obtained is objected to within five business
days after the due date as described above.
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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 valuation date, then the Acceleration Amount will equal the principal
amount of the securities.
Qualified financial institutions
For the purpose of determining the Acceleration Amount at any
time, a qualified financial institution must be a financial institution organized under the laws of any jurisdiction in the United
States or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date
of issue and rated either:
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A-2 or higher by Standard & Poor’s Ratings Services or any
successor, or any other comparable rating then used by that rating agency, or
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P-2 or higher by Moody’s Investors Service or any successor,
or any other comparable rating then used by that rating agency.
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Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
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 February 16, 2016, which is Exhibit 5-a to Post-Effective Amendment No. 1 to
the Registration Statement on Form S-3 filed by Morgan Stanley on February 16, 2016.
Tax Considerations
Prospective investors
should note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus
supplement does not apply to the securities issued under this pricing supplement and is superseded by the following discussion.
The following is a general discussion of the
material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the securities.
This discussion applies only to initial investors in the securities who:
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purchase the securities at their “issue price,” which will
equal the first price at which a substantial amount of the securities is sold to the public (not including bond houses, brokers
or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers); and
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hold the securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
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This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
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certain financial institutions;
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certain dealers and traders in securities or commodities;
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investors holding the securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
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U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
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partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
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As the law applicable to the U.S. federal income
taxation of instruments such as the securities is technical and complex, the discussion below necessarily represents only a general
summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum
tax consequences or consequences resulting from the Medicare tax on investment income.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
General
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, 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.
Due to the absence of statutory, judicial
or administrative authorities that directly address the treatment of the securities or instruments that are similar to the securities
for U.S. federal income tax purposes, no assurance can be given that the Internal Revenue Service (the “IRS”) or a
court will agree with the tax treatment described herein. Accordingly, you should consult your tax adviser regarding all aspects
of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments of the securities).
Unless otherwise stated, the following discussion is based on the treatment of the securities as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
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a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
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Tax Treatment of the Securities
Assuming the treatment of the securities as
set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Treatment Prior to Settlement.
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 as described below.
Tax Basis
. A U.S. Holder’s tax
basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.
Sale or Exchange of the Securities.
Upon
a sale or exchange of the securities prior to maturity, a U.S. Holder should recognize gain or loss equal to the difference between
the amount realized on the sale or exchange and the U.S. Holder’s tax basis in the securities sold or exchanged. Any such
gain or loss should be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the
time of the sale or exchange, and should be short-term capital gain or loss otherwise.
Settlement of the Securities at Maturity.
Upon settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized
on the settlement and the U.S. Holder’s tax basis in the securities. Although not free from doubt in light of the lack of
clear authority addressing the treatment of the settlement of instruments such as the securities, any such gain or loss should
be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the time of the settlement,
and should be short-term capital gain or loss otherwise. However, the IRS may assert that any gain or loss recognized by a U.S.
Holder upon settlement of the securities should be treated as ordinary gain or loss. In the event of an ordinary loss to a U.S.
Holder that is an individual, any deduction arising from the loss may be subject to the 2% floor on “miscellaneous itemized
deductions.”
You should consult your tax adviser regarding the
character of gain or loss recognized upon a settlement
of the securities.
Possible Alternative Tax Treatments of
an Investment in the Securities
Due to the absence of authorities that directly address the proper
tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment
described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the securities
under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”). If the
IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the timing and character of income
thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the securities every year at a “comparable yield” determined at the time of their issuance. Furthermore,
any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the securities would be treated
as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals
of original issue discount and as capital loss thereafter. The risk that
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
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.
Other alternative federal income tax treatments
of the securities are possible, which, if applied, could significantly affect the timing and character of the income or loss with
respect to the securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S.
federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular
on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments
on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term
instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments
and the nature of the underlying property to which the instruments are linked; 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. 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 and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of
the payment on the securities at maturity and the payment of proceeds from a sale, exchange or other disposition of the securities,
unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies
with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an
additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that
the required information is timely furnished to the IRS. In addition, information returns may be filed with the IRS in connection
with payments on the securities and the payment of proceeds from a sale, exchange or other disposition of the securities, unless
the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are
a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is, for U.S.
federal income tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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The term “Non-U.S. Holder” does
not include any of the following holders:
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a holder who is an individual present in the United States for 183
days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income
tax purposes;
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certain former citizens or residents of the United States; or
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a holder for whom income or gain in respect of the securities is effectively
connected with the conduct of a trade or business in the United States.
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Such holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the securities.
Tax Treatment upon Sale, Exchange or
Settlement of the Securities
In general.
Assuming the treatment of
the securities as set forth above is respected (including the characterization of the gain recognized at settlement of the securities
at maturity as capital gain), and subject to the discussion below concerning backup withholding, a Non-U.S. Holder of the securities
generally will not be subject to U.S. federal income or withholding tax in respect of amounts paid to the Non-U.S. Holder.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
Subject to the discussion regarding the possible
application of FATCA, if all or any portion of the securities were recharacterized as a debt instrument, any payment made to a
Non-U.S. Holder with respect to the securities would not be subject to U.S. federal withholding tax, provided that:
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the Non-U.S. Holder does not own, directly or by attribution, ten percent
or more of the total combined voting power of all classes of our stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation related,
directly or indirectly, to us through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest under Section
881(c)(3)(A) of the Code, and
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the certification requirement described below has been satisfied with
respect to the beneficial owner.
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Certification Requirement.
The certification
requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a security (or a financial institution
holding a security on behalf of the beneficial owner) furnishes to the applicable withholding agent an applicable IRS Form W-8BEN
(or other appropriate form) on which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
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. Among the issues addressed in the notice is the degree, if any, to which any income with respect to instruments
such as the securities should be subject to U.S. withholding tax. It is possible that any Treasury regulations or other guidance
issued after consideration of this issue could materially and adversely affect the withholding tax consequences of ownership and
disposition of the securities, possibly on a retroactive basis. Non-U.S. Holders should note that we currently do not intend to
withhold on any payment made with respect to the securities to Non-U.S. Holders (subject to compliance by such holders with the
certification requirement described above and the discussion below regarding FATCA).
However, in the event of a change of law
or any formal or informal guidance by the IRS, the U.S. Treasury Department or Congress, we may decide to withhold on payments
made with respect to the securities to Non-U.S. Holders and we will not be required to pay any additional amounts with respect
to amounts withheld.
Accordingly, Non-U.S. Holders should consult their tax advisers regarding all aspects of the U.S. federal
income tax consequences of an investment in the securities, including the possible implications of the notice referred to above.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the
property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for
example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers)
should note that, absent an applicable treaty exemption, the securities may be treated as U.S. situs property subject to U.S. federal
estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their
tax advisers regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns may be filed with the IRS
in connection with the payment on the securities at maturity as well as in connection with the payment of proceeds from a sale,
exchange or other disposition of the securities. A Non-U.S. Holder may be subject to backup withholding in respect of amounts paid
to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person
for U.S. federal income tax purposes or otherwise establishes an exemption. Compliance with the certification procedures described
above under “―Tax Treatment upon Sale, Exchange or Settlement of the Securities – Certification Requirement”
will satisfy the certification requirements necessary to avoid backup withholding as well. The amount of any backup withholding
from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA Legislation
Legislation commonly referred to as “FATCA”
generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect
to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied.
An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
This legislation generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source
“fixed or determinable annual or periodical” income. If the securities were recharacterized as debt instruments, this
legislation would apply to any payment of amounts treated as interest.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due August 28, 2017
Principal at Risk Securities
If withholding applies to the securities, we
will not be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult
their tax advisers regarding the potential application of FATCA to the securities.
The discussion in the preceding paragraphs,
insofar as it purports to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes
the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the
securities.
Where You
Can Find More Information
Morgan Stanley has filed
a registration statement (including a prospectus, as supplemented by a prospectus supplement) with the Securities and Exchange
Commission, or SEC, for the offering to which this pricing supplement relates. You should read the prospectus in that registration
statement, the prospectus 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 will arrange to send you the
prospectus and the prospectus 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:
Prospectus
Supplement dated November 19, 2014
Prospectus
dated February 16, 2016
Terms used but not defined
in this pricing supplement are defined in the prospectus supplement or in the prospectus. As used in this pricing supplement, the
“Company,” “we,” “us” and “our” refer to Morgan Stanley.
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