CALCULATION
OF REGISTRATION FEE
|
|
Maximum Aggregate
|
|
Amount of Registration
|
Title of Each Class of Securities Offered
|
|
Offering Price
|
|
Fee
|
|
|
|
|
|
Contingent Income Auto-
|
|
$5,465,230
|
|
$550.35
|
Callable Securities due 2019
|
|
|
|
|
July 2016
Pricing Supplement No. 1,007
Registration Statement Nos. 333-200365;
333-200365-12
Dated July 22, 2016
Filed pursuant to Rule 424(b)(2)
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities
in U.S. Equities
Contingent Income Auto-Callable Securities due
July 25, 2019
Based on the Performance of the Market Vectors
Gold Miners ETF
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
Contingent Income Auto-Callable Securities do not guarantee the
payment of interest or the repayment of principal. Instead, the securities offer the opportunity for investors to earn a contingent
quarterly coupon at an annual rate of 12.20%, but only with respect to each determination date on which the determination closing
price of the underlying shares is greater than or equal to 60% of the initial share price, which we refer to as the downside threshold
level. In addition, if the determination closing price of the underlying shares is greater than or equal to the initial share price
on any determination date, the securities will be automatically redeemed for an amount per security equal to the stated principal
amount and the contingent quarterly coupon. However, if the securities are not automatically redeemed prior to maturity, the payment
at maturity due on the securities will be as follows: (i) if the final share price is greater than or equal to the downside threshold
level, investors will receive the stated principal amount and the contingent quarterly coupon with respect to the final determination
date, or (ii) if the final share price is less than the downside threshold level, investors will be exposed to the decline in the
underlying shares on a 1-to-1 basis and will receive a payment at maturity that is less than 60% of the stated principal amount
of the securities and could be zero. Moreover, if on any determination date, the determination closing price of the underlying
shares is less than the downside threshold level, you will not receive any contingent quarterly coupon for that quarterly period.
As a result, investors must be willing to accept the risk of not receiving any contingent quarterly coupons and also the risk of
receiving a payment at maturity that is significantly less than the stated principal amount of the securities and could be zero.
Accordingly, investors could lose their entire initial investment in the securities.
The securities are for investors who
are willing to risk their principal and seek an opportunity to earn interest at a potentially above-market rate in exchange for
the risk of receiving few or no contingent quarterly coupons over the 3-year term of the securities. Investors will not participate
in any appreciation of the underlying shares. The securities are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”)
and are fully and unconditionally guaranteed by Morgan Stanley. The securities are issued as part of MSFL’s Series A Global
Medium-Term Notes program.
All payments are subject to our credit risk. If we default
on our 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 Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying shares:
|
Shares of the Market Vectors Gold Miners ETF (the “Fund”)
|
Aggregate principal amount:
|
$5,465,230
|
Stated principal amount:
|
$10 per security
|
Issue price:
|
$10 per security
|
Pricing date:
|
July 22, 2016
|
Original issue date:
|
July 27, 2016 (3 business days after the pricing date)
|
Maturity date:
|
July 25, 2019
|
Early redemption:
|
If, on any of the first eleven determination dates, the determination closing price of the underlying shares is
greater than or equal to
the initial share price, the securities will be automatically redeemed for an early redemption payment on the third business day following the related determination date. No further payments will be made on the securities once they have been redeemed.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the related determination date.
|
Determination
closing price:
|
The closing price of one underlying share on any determination date other than the final determination date
times
the adjustment factor on such determination date
|
Contingent quarterly coupon:
|
·
If,
on any determination date, the determination closing price or the final share price, as applicable, is greater than or equal to
the downside threshold level, we will pay a contingent quarterly coupon at an annual rate of 12.20% (corresponding to approximately
$0.305 per quarter per security) on the related contingent payment date.
·
If,
on any determination date, the determination closing price or the final share price, as applicable, is less than the downside threshold
level, no contingent quarterly coupon will be paid with respect to that determination date.
|
Determination dates:
|
October 24, 2016, January 23, 2017, April 24, 2017, July 24, 2017, October 23, 2017, January 22, 2018, April 23, 2018, July 23, 2018, October 22, 2018, January 22, 2019, April 22, 2019 and July 22, 2019, subject to postponement for non-trading days and certain market disruption events. We also refer to July 22, 2019 as the final determination date.
|
Contingent payment dates:
|
With respect to each determination date other than the final determination date, the third business day after the related determination date. The payment of the contingent quarterly coupon, if any, with respect to the final determination date will be made on the maturity date.
|
Payment at maturity:
|
·
If the final share price is
greater than or equal to
the downside threshold level:
|
(i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the final determination date
|
|
·
If the final share price is
less than
the downside threshold level:
|
(i) the stated principal amount
multiplied by
(ii) the share performance factor
|
Share performance factor:
|
The final share price divided by the initial share price
|
Adjustment
factor:
|
1.0, subject to adjustment in the event of certain events affecting the underlying shares
|
Downside
threshold level:
|
$17.268, which is equal to 60% of the initial share price
|
Initial
share price:
|
$28.78, which is equal to the closing price of one underlying share on the pricing date
|
Final
share price:
|
The closing price of one underlying share on the final determination date
times
the adjustment factor on such date
|
CUSIP:
|
61766B747
|
ISIN:
|
US61766B7477
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
$9.619 per security. See “Investment Summary” beginning on page 2.
|
Commissions and issue price:
|
|
Price to public
|
Agent’s commissions and fees
|
Proceeds to us
(3)
|
Per security
|
|
$10.00
|
$0.20
(1)
|
|
|
|
|
$0.05
(2)
|
$9.75
|
Total
|
|
$5,465,230
|
$136,630.75
|
$5,328,599.25
|
|
(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 $0.20
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.
|
|
(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 21.
|
The securities involve risks
not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 9.
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 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.
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.
As used in this document, “we,”
“us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context
requires.
Product Supplement for Auto-Callable Securities dated February 29, 2016
Index Supplement dated February 29, 2016
Prospectus dated February 16, 2016
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
The Contingent Income Auto-Callable Securities
due July 25, 2019 Based on the Performance of the Market Vectors Gold Miners ETF, which we refer to as the securities, provide
an opportunity for investors to earn a contingent quarterly coupon at an annual rate of 12.20% with respect to each quarterly determination
date on which the determination closing price or the final share price, as applicable, is greater than or equal to 60% of the initial
share price, which we refer to as the downside threshold level. It is possible that the closing price of the underlying shares
could remain below the downside threshold level for extended periods of time or even throughout the term of the securities so that
you may receive few or no contingent quarterly coupons.
If the determination closing price is greater
than or equal to the initial share price on any of the first eleven determination dates, the securities will be automatically redeemed
for an early redemption payment equal to the stated principal amount
plus
the contingent quarterly coupon with respect to
the related determination date. If the securities have not previously been redeemed and the final share price is greater than or
equal to the downside threshold level, the payment at maturity will also be the sum of the stated principal amount and the contingent
quarterly coupon with respect to the related determination date. However, if the securities have not previously been redeemed and
the final share price is less than the downside threshold level, investors will be exposed to the decline in the closing price
of the underlying shares, as compared to the initial share price, on a 1-to-1 basis. In this case, the payment at maturity will
be less than 60% of the stated principal amount of the securities and could be zero. Investors in the securities must be willing
to accept the risk of losing their entire principal and also the risk of not receiving any contingent quarterly coupon. In addition,
investors will not participate in any appreciation of the underlying shares.
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 $9.619.
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
shares. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying shares, instruments based on the underlying shares, 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 contingent quarterly coupon rate and the downside threshold level, 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 the underlying shares, 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
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
secondary market, absent changes in market
conditions, including those related to the underlying shares, 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.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
quarterly coupon at an annual rate of 12.20% with respect to each determination date on which the determination closing price or
the final share price, as applicable, is greater than or equal to 60% of the initial share price, which we refer to as the downside
threshold level. The securities may be redeemed prior to maturity for the stated principal amount per security
plus
the
applicable contingent quarterly coupon, and the payment at maturity will vary depending on the final share price, as follows:
Scenario
1
|
On any of the first eleven determination dates, the determination closing price is
greater than or equal to
the initial
share price.
§
The
securities will be automatically redeemed for (i) the stated principal amount
plus
(ii) the contingent quarterly coupon
with respect to the related determination date.
§
Investors
will not participate in any appreciation of the underlying shares from the initial share price.
|
Scenario 2
|
The securities are not automatically redeemed prior to maturity, and the final share price is
greater than or equal to
the downside threshold level.
§
The
payment due at maturity will be (i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to
the final determination date.
§
Investors
will not participate in any appreciation of the underlying shares from the initial share price.
|
Scenario
3
|
The securities
are not automatically redeemed prior to maturity, and the final share price is
less than
the downside threshold level.
§
The
payment due at maturity will be equal to (i) the stated principal amount
multiplied by
(ii) the share performance factor.
§
Investors
will lose a significant portion, and may lose all, of their principal in this scenario.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing price and (2) the final share price.
Diagram #1: First Eleven Determination Dates
Diagram #2: Payment at Maturity if No Automatic
Early Redemption Occurs
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
Hypothetical Examples
The below examples are based on the following terms:
Hypothetical Initial Share Price:
|
$30.00
|
Hypothetical Downside Threshold Level:
|
$18.00, which is 60% of the hypothetical initial share price
|
Hypothetical Adjustment Factor:
|
1.0
|
Contingent Quarterly Coupon:
|
12.20% per annum (corresponding to approximately $0.305 per quarter per security)
1
|
Stated Principal Amount:
|
$10 per security
|
1
The actual contingent
quarterly coupon will be an amount determined by the calculation agent based on the numbers of days in the applicable payment
period, calculated on a 30/360 day-count basis. The hypothetical contingent quarterly coupon of $0.305 is used in these examples
for ease of analysis.
In Examples 1 and 2, the closing price of the
underlying shares fluctuates over the term of the securities and the determination closing price of the underlying shares is greater
than or equal to the hypothetical initial share price of $30.00 on one of the first eleven determination dates. Because the determination
closing price is greater than or equal to the initial share price on one of the first eleven determination dates, the securities
are automatically redeemed following the relevant determination date. In Examples 3 and 4, the determination closing price on the
first eleven determination dates is less than the initial share price, and, consequently, the securities are not automatically
redeemed prior to, and remain outstanding until, maturity.
|
Example
1
|
Example
2
|
Determination
Dates
|
Hypothetical
Determination Closing Price / Final Share Price
|
Contingent
Quarterly Coupon
|
Early
Redemption Amount*
|
Hypothetical
Determination Closing Price / Final Share Price
|
Contingent
Quarterly Coupon
|
Early
Redemption Amount
|
#1
|
$17.10
|
$0
|
N/A
|
$29.40
|
$0.305
|
N/A
|
#2
|
$30.00
|
—*
|
$10.305
|
$17.65
|
$0
|
N/A
|
#3
|
N/A
|
N/A
|
N/A
|
$28.80
|
$0.305
|
N/A
|
#4
|
N/A
|
N/A
|
N/A
|
$17.30
|
$0
|
N/A
|
#5
|
N/A
|
N/A
|
N/A
|
$28.20
|
$0.305
|
N/A
|
#6
|
N/A
|
N/A
|
N/A
|
$27.90
|
$0.305
|
N/A
|
#7
|
N/A
|
N/A
|
N/A
|
$16.90
|
$0
|
N/A
|
#8
|
N/A
|
N/A
|
N/A
|
$27.60
|
$0.305
|
N/A
|
#9
|
N/A
|
N/A
|
N/A
|
$27.00
|
$0.305
|
N/A
|
#10
|
N/A
|
N/A
|
N/A
|
$36.00
|
—*
|
$10.305
|
#11
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
Final
Determination Date
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
* The Early Redemption Amount includes the unpaid
contingent quarterly coupon with respect to the determination date on which the determination closing price is greater than or
equal to the initial share price and the securities are redeemed as a result.
|
§
|
In
Example 1
, the securities are automatically redeemed following the second determination date, as the determination
closing price on the second determination date is equal to the initial share price. You receive the early redemption payment, calculated
as follows:
|
stated principal
amount + contingent quarterly coupon = $10.00 + $0.305 = $10.305
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
In this example, the early redemption feature
limits the term of your investment to approximately 6 months, and you may not be able to reinvest at comparable terms or returns.
If the securities are redeemed early, you will stop receiving contingent coupons.
|
§
|
In
Example 2
, the securities are automatically redeemed following the tenth determination date, as the determination
closing price on the tenth determination date is greater than the initial share price. As the determination closing prices on the
first, third, fifth, sixth, eighth, ninth and tenth determination dates are greater than or equal to the downside threshold level,
you receive the contingent coupon of $0.305 with respect to each such determination date. Following the tenth determination date,
you receive an early redemption amount of $10.305, which includes the contingent quarterly coupon with respect to the tenth determination
date.
|
In this example, the early redemption feature
limits the term of your investment to approximately 30 months, and you may not be able to reinvest at comparable terms or returns.
If the securities are redeemed early, you will stop receiving contingent coupons. Further, although the underlying shares have
appreciated by 20% from their initial share price as of the tenth determination date, you receive only
$10.305
per security
and do not benefit from such appreciation.
|
Example
3
|
Example
4
|
Determination
Dates
|
Hypothetical
Determination Closing Price / Final Share Price
|
Contingent
Quarterly Coupon
|
Early
Redemption Amount
|
Hypothetical
Determination Closing Price / Final Share Price
|
Contingent
Quarterly Coupon
|
Early
Redemption Amount
|
#1
|
$17.65
|
$0
|
N/A
|
$17.45
|
$0
|
N/A
|
#2
|
$17.30
|
$0
|
N/A
|
$17.10
|
$0
|
N/A
|
#3
|
$16.90
|
$0
|
N/A
|
$16.75
|
$0
|
N/A
|
#4
|
$15.50
|
$0
|
N/A
|
$15.50
|
$0
|
N/A
|
#5
|
$16.20
|
$0
|
N/A
|
$15.85
|
$0
|
N/A
|
#6
|
$14.40
|
$0
|
N/A
|
$16.55
|
$0
|
N/A
|
#7
|
$14.75
|
$0
|
N/A
|
$14.75
|
$0
|
N/A
|
#8
|
$15.65
|
$0
|
N/A
|
$14.05
|
$0
|
N/A
|
#9
|
$15.10
|
$0
|
N/A
|
$14.95
|
$0
|
N/A
|
#10
|
$14.95
|
$0
|
N/A
|
$16.90
|
$0
|
N/A
|
#11
|
$14.60
|
$0
|
N/A
|
$15.05
|
$0
|
N/A
|
Final
Determination Date
|
$15.00
|
$0
|
N/A
|
$25.50
|
—*
|
N/A
|
Payment
at Maturity
|
$5.00
|
$10.305
|
* The final contingent quarterly coupon, if
any, will be paid at maturity.
Examples 3 and 4 illustrate the payment at
maturity per security based on the final share price.
|
§
|
In
Example 3
, the closing price of the underlying shares remains below the downside threshold level on every determination
date. As a result, you do not receive any contingent coupons during the term of the securities, and, at maturity, you are fully
exposed to the decline in the closing price of the underlying shares. As the final share price is less than the downside threshold
level, investors will receive a payment at maturity equal to the stated principal amount
multiplied by
the share performance
factor, calculated as follows:
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
stated
principal amount x share performance factor
= $10.00 x ($15.00 / $30.00) = $5.00
In this example, the payment at maturity
is significantly less than the stated principal amount.
|
§
|
In
Example 4
, the closing price of the underlying shares decreases to a final share price of $25.50. Although the final
share price is less than the initial share price, because the final share price is still not less than the downside threshold level,
you receive the stated principal amount plus a contingent quarterly coupon with respect to the final determination date. Your payment
at maturity is calculated as follows:
|
$10.00 + $0.305 = $10.305
In this example, although the final share
price represents a 15% decline from the initial share price, you receive the stated principal amount per security plus the final
contingent quarterly coupon, equal to a total payment of $10.305 per security at maturity, because the final share price is not
less than the downside threshold level.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
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 your
investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
|
§
|
The securities do not guarantee the return of any principal.
The terms of the securities differ from those of ordinary
debt securities in that the securities do not guarantee the payment of regular interest or the return of any of the principal amount
at maturity. Instead, if the securities have not been automatically redeemed prior to maturity and if the final share price is
less than the downside threshold level, you will be exposed to the decline in the closing price of the underlying shares, as compared
to the initial share price, on a 1-to-1 basis and you will receive a payment at maturity that will be less than 60% of the stated
principal amount and could be zero.
|
|
§
|
You will not receive any contingent quarterly coupon for any quarterly period where the determination closing price is less
than the downside threshold level.
A contingent quarterly coupon will be paid with respect to a quarterly period only if the
determination closing price is greater than or equal to the downside threshold level. If the determination closing price remains
below the downside threshold level on each determination date over the term of the securities, you will not receive any contingent
quarterly coupons.
|
|
§
|
The contingent quarterly coupon, if any, is based solely on the determination closing price or the final share price, as
applicable.
Whether the contingent quarterly coupon will be paid with respect to a determination date will be based on the
determination closing price or the final share price, as applicable. As a result, you will not know whether you will receive the
contingent quarterly coupon until the related determination date. Moreover, because the contingent quarterly coupon is based solely
on the determination closing price on a specific determination date or the final share price, as applicable, if such determination
closing price or final share price is less than the downside threshold level, you will not receive any contingent quarterly coupon
with respect to such determination date, even if the closing price of the underlying shares was higher on other days during the
term of the securities.
|
|
§
|
Investors will not participate in any appreciation in the price of the underlying shares.
Investors will not participate
in any appreciation in the price of the underlying shares from the initial share price, and the return on the securities will be
limited to the contingent quarterly coupon, if any, that is paid with respect to each determination date on which the determination
closing price or the final share price, as applicable, is greater than or equal to the downside threshold level. It is possible
that the closing price of the underlying shares could be below the downside threshold level on most or all of the determination
dates so that you will receive few or no contingent quarterly coupons. If you do not earn sufficient contingent quarterly coupons
over the term of the securities, the overall return on the securities may be less than the amount that would be paid on a conventional
debt security of ours of comparable maturity.
|
|
§
|
The automatic early redemption feature may limit the term of your investment to approximately three months. If the securities
are redeemed early, you may not be able to reinvest at comparable terms or returns.
The term of your investment in the securities may be limited to as short as approximately
three months by the automatic early redemption feature of the securities. If the securities are redeemed prior to maturity, you
will receive no more contingent quarterly coupons and may be forced to invest in a lower interest rate environment and may not
be able to reinvest at comparable terms or returns.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors
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. Although we expect that generally the closing price of the underlying shares on
any day will affect the value of the securities more than any other single factor, other factors that may influence the value of
the securities include:
|
|
o
|
the trading price, volatility (frequency and magnitude of changes in value) and dividends of the underlying shares and of the
securities composing the NYSE Arca Gold Miners Index (the “share underlying index”),
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
|
o
|
whether the determination closing price has been below the downside threshold level on any determination date,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying shares
or the securities markets generally and which may affect the final share price of the underlying shares,
|
|
o
|
the occurrence of certain events affecting the underlying shares that may or may not require an adjustment to the adjustment
factor, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
The
price of the underlying shares may be, and has recently been, volatile, and we can give you no assurance that the volatility will
lessen. See “Market Vectors Gold Miners ETF Overview” below. You may receive less, and possibly significantly less,
than the stated principal amount per security if you try to sell your securities prior to maturity.
|
§
|
The price of the underlying shares is subject to currency exchange risk.
Because the
price of the underlying shares is related to the U.S. dollar value of stocks underlying the
share underlying index
,
holders of the securities will be exposed to currency exchange rate risk with respect to each of the currencies in which such component
securities trade. Exchange rate movements for a particular currency are volatile and are the result of numerous factors including
the supply of, and the demand for, those currencies, as well as relevant government policy, intervention or actions, but are also
influenced significantly from time to time by political or economic developments, and by macroeconomic factors and speculative
actions related to the relevant region. An investor’s net exposure will depend on the extent to which the currencies of the
component securities strengthen or weaken against the U.S. dollar and the relative weight of each currency. If, taking into account
such weighting, the dollar strengthens against the currencies of the component securities represented in the
share underlying
index
, the price of the underlying shares will be adversely affected and the payment at maturity
on the securities may be reduced.
|
Of
particular importance to potential currency exchange risk are:
|
·
|
existing and expected rates of inflation;
|
|
·
|
existing and expected interest rate levels;
|
|
·
|
the balance of payments between countries; and
|
|
·
|
the extent of governmental surpluses or deficits in the countries represented in the share
underlying index and the United States.
|
All
of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of various countries
represented in the share underlying index and the United States and other countries important to international trade and finance.
|
§
|
Investing in the securities exposes investors to risks associated with investments in securities with concentration in a
single industry.
The securities are subject to certain risks applicable to the gold and silver mining industry. The stocks
included in the NYSE Arca Gold Miners Index and that are generally tracked by the Fund are stocks of companies primarily engaged
in the mining of gold or silver. The underlying shares may be subject to increased price volatility as they are linked to a single
industry, market or sector and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting
that industry, market or sector.
|
Because the Fund primarily invests
in stocks, American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”) of companies that
are involved in the gold mining industry, the underlying shares are subject to certain risks associated with such companies.
Competitive pressures may have a
significant effect on the financial condition of companies in the gold mining industry. Also, gold mining companies are highly
dependent on the price of gold. Gold prices are subject to volatile price movements over short periods of time and are affected
by numerous factors. These include economic factors,
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
including, among other things, the
structure of and confidence in the global monetary system, expectations of the future rate of inflation, the relative strength
of, and confidence in, the U.S. dollar (the currency in which the price of gold is generally quoted), interest rates and gold borrowing
and lending rates, and global or regional economic, financial, political, regulatory, judicial or other events. Gold prices may
also be affected by industry factors such as industrial and jewelry demand, lending, sales and purchases of gold by the official
sector, including central banks and other governmental agencies and multilateral institutions which hold gold, levels of gold production
and production costs, and short-term changes in supply and demand because of trading activities in the gold market.
The Fund invests to a lesser extent
in stocks, ADRs and GDRs of companies involved in the silver mining industry. Silver mining companies are highly dependent on the
price of silver. Silver prices can fluctuate widely and may be affected by numerous factors. These include general economic trends,
technical developments, substitution issues and regulation, as well as specific factors including industrial and jewelry demand,
expectations with respect to the rate of inflation, the relative strength of the U.S. dollar (the currency in which the price of
silver is generally quoted) and other currencies, interest rates, central bank sales, forward sales by producers, global or regional
political or economic events, and production costs and disruptions in major silver producing countries such as Mexico and Peru.
The supply of silver consists of a combination of new mine production and existing stocks of bullion and fabricated silver held
by governments, public and private financial institutions, industrial organizations and private individuals. In addition, the price
of silver has on occasion been subject to very rapid short-term changes due to speculative activities. From time to time, above-ground
inventories of silver may also influence the market. The major end-uses for silver include industrial applications, jewelry, photography
and silverware.
|
§
|
The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads
may adversely affect the market value of the securities.
You are dependent on our ability to pay all amounts due on the securities
on each contingent payment date, upon automatic redemption or at maturity, and therefore you are subject to our credit risk. If
we default on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment.
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 market value of the securities.
|
|
§
|
As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should
be treated
pari passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders
of Morgan Stanley-issued securities.
|
|
§
|
Investing in the securities is not equivalent to investing in the underlying shares or the securities composing the share
underlying index.
Investing in the securities is not equivalent to investing in the underlying
shares, the
share underlying index
or the securities that constitute the
share
underlying 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 the underlying shares or the stocks that constitute the
share
underlying index
.
|
|
§
|
Adjustments to the underlying shares or to the share underlying index could adversely affect the value of the securities.
The investment advisor to the Market Vectors Gold Miners ETF, The Van Eck Associates Corporation
(the “Investment Advisor” or “Van Eck”), seeks investment results that correspond generally to the price
and yield performance, before fees and expenses, of the share underlying index. Pursuant to its investment strategy or otherwise,
the Investment Advisor may add, delete or substitute the stocks composing the Market Vectors Gold Miners ETF. Any of these actions
could adversely affect the price of the underlying shares and, consequently, the value of the securities. NYSE Arca is responsible
for calculating and maintaining the share underlying index. NYSE Arca may add, delete or substitute the securities constituting
the share underlying index or make other methodological changes that could change the value of the share underlying index, and,
consequently, the price of the
underlying shares and the value of the securities. NYSE Arca may discontinue or suspend calculation or
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
publication of the share
underlying index at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a successor
index that is comparable to the discontinued share underlying index and will be permitted to consider indices that are calculated
and published by the calculation agent or any of its affiliates.
|
§
|
The performance and market price of the Fund, particularly during periods of market volatility, may not correlate with the
performance of the share underlying index, the performance of the component securities of the share underlying index or the net
asset value per share of the Fund.
The Fund does not fully replicate the share underlying index and may hold securities
that are different than those included in the share underlying index. In addition, the performance of the Fund will reflect
additional transaction costs and fees that are not included in the calculation of the share underlying index. All of these
factors may lead to a lack of correlation between the performance of the Fund and the share underlying index. In addition,
corporate actions (such as mergers and spin-offs) with respect to the equity securities underlying the Fund may impact the variance
between the performances of the Fund and the share underlying index. Finally, because the shares of the Fund are traded on
an exchange and are subject to market supply and investor demand, the market price of one share of the Fund may differ from
the net asset value per share of the Fund.
|
In particular, during periods of
market volatility, or unusual trading activity, trading in the securities underlying the Fund may be disrupted or limited, or such
securities may be unavailable in the secondary market. Under these circumstances, the liquidity of the Fund may be adversely
affected, market participants may be unable to calculate accurately the net asset value per share of the Fund, and their ability
to create and redeem shares of the Fund may be disrupted. Under these circumstances, the market price of shares of the Fund may
vary substantially from the net asset value per share of the Fund or the level of the share underlying index.
For all of the foregoing reasons,
the performance of the Fund may not correlate with the performance of the share underlying index, the performance of the component
securities of the share underlying index or the net asset value per share of the Fund. Any of these events could materially
and adversely affect the price of the shares of the Fund and, therefore, the value of the securities. Additionally, if market
volatility or these events were to occur on the final determination date, the calculation agent would maintain discretion to determine
whether such market volatility or events have caused a market disruption event to occur, and such determination would affect the
payment at maturity of the securities. If the calculation agent determines that no market disruption event has taken place,
the payment at maturity would be based solely on the published closing price per share of the Fund on the final determination date,
even if the Fund’s shares are underperforming the share underlying index or the component securities of the share underlying
index and/or trading below the net asset value per share of the Fund.
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the underlying
shares.
MS & Co., as calculation agent, will adjust the adjustment factor for certain events affecting the underlying shares.
However, the calculation agent will not make an adjustment for every event that could affect the underlying shares. If an event
occurs that does not require the calculation agent to adjust the adjustment factor, the market price of the securities may be materially
and adversely affected. The determination by the calculation agent to adjust, or not to adjust, the adjustment factor may materially
and adversely affect the value of the securities.
|
|
§
|
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.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
|
§
|
The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions or any other relevant factors, the
prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities in secondary market transactions
will likely be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling,
structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary
market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary
market transaction of this type as well as other factors.
|
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a 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 shares, 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 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. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
Hedging and trading activity by our affiliates could potentially adversely affect the value of the securities
. One or
more of our affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related
to the securities (and to other instruments linked to the underlying shares or the share underlying index), including trading in
the underlying shares and in other instruments related to the underlying shares or the share underlying index. 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 final determination date approaches. Some of our affiliates also
trade the underlying shares or the stocks that constitute the share underlying index and other financial instruments related to
the share underlying index and other financial instruments related to the underlying shares on a regular basis as part of their
general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing date could have
increased the initial share price, and, as a result, could have increased the downside threshold level, which is the price at or
above which the underlying shares must close on each determination date in order for you to earn a contingent quarterly coupon,
and, if the securities are not called prior to maturity, in order for you to avoid being exposed to the negative price performance
of the underlying shares at maturity. Additionally, such hedging or trading activities during the term of the securities could
potentially affect the price of the underlying shares on the determination dates, and, accordingly, whether the securities are
automatically called prior to maturity, and, if the securities are not called prior to maturity, the payout to you at maturity,
if any.
|
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. has determined the initial share price and the downside threshold level,
and will determine the final share price, whether the contingent quarterly
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
coupon will be paid on each contingent
payment date, whether the securities will be redeemed following any determination date, whether a market disruption event has occurred,
whether to make any adjustments to the adjustment factor and the payment that you will receive upon an automatic early redemption
or at maturity, if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require
it to exercise discretion and make subjective judgments, such as with respect to the occurrence or nonoccurrence of market disruption
events and certain adjustments to the adjustment factor. These potentially subjective determinations may affect the payout to you
upon an automatic early redemption or at maturity, if any. For further information regarding these types of determinations, see
“Description of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares” 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.
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal
authority as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects
of the tax treatment of the securities are uncertain.
|
Please read the discussion under
“Additional Provisions—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described 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 (as adjusted based on the difference, if any,
between the actual and the projected amount of any contingent payments on the securities) 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.
Non-U.S. Holders should note that we currently intend to withhold
on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified by an applicable income tax treaty
under an “other income” or similar provision, and will not be required to pay any additional amounts with respect to
amounts withheld.
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. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that 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.
The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and timing
of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax.
Both U.S. and Non-U.S. Holders (as defined below) 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
.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
Market Vectors
Gold Miners ETF Overview
The Market Vectors Gold Miners ETF (the “Fund”) is
an exchange-traded fund managed by Van Eck Associates Corporation (“Van Eck”), a registered investment company, that
seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the NYSE Arca
Gold Miners Index. Information provided to or filed with the Securities and Exchange Commission (“the Commission”)
by the Fund pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission
file numbers 333-123257 and 811-10325, respectively, through the Commission’s website at
.
www.sec.gov.
In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and
other publicly disseminated documents.
Neither the issuer nor the agent makes any representation that such publicly available
documents or any other publicly available information regarding the Fund is accurate or complete.
Information as of market close on July 22, 2016:
Bloomberg Ticker Symbol:
|
GDX UP
|
Current Stock Price:
|
$28.78
|
52 Weeks Ago:
|
$14.08
|
52 Week High (on 7/11/2016):
|
$30.60
|
52 Week Low (on 1/19/2016):
|
$12.47
|
The following graph sets forth the daily closing
values of the underlying shares for the period from January 1, 2011 through July 22, 2016. The related table sets forth the published
high and low closing prices, as well as the end-of-quarter closing prices, of the underlying shares for each quarter in the same
period. The closing price of the underlying shares on July 22, 2016 was $28.78. We obtained the information in the table and graph
below from Bloomberg Financial Markets, without independent verification. The historical closing prices of the underlying shares
should not be taken as an indication of future performance, and no assurance can be given as to the price of the underlying shares
at any time, including on the determination dates.
Market Vectors Gold Miners ETF – Daily Closing Prices
January 1, 2011 to July 22, 2016
|
|
* The
red solid line indicates the downside threshold level of $17.268, which is 60% of the initial share price.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
Market Vectors Gold Miners ETF (CUSIP:
5706U100
)
|
High ($)
|
Low ($)
|
Period End ($)
|
2011
|
|
|
|
First Quarter
|
60.79
|
53.12
|
60.06
|
Second Quarter
|
63.95
|
51.80
|
54.59
|
Third Quarter
|
66.69
|
53.75
|
55.19
|
Fourth Quarter
|
63.32
|
50.07
|
51.43
|
2012
|
|
|
|
First Quarter
|
57.47
|
48.75
|
49.57
|
Second Quarter
|
50.37
|
39.34
|
44.77
|
Third Quarter
|
54.81
|
40.70
|
53.71
|
Fourth Quarter
|
54.25
|
44.85
|
46.39
|
2013
|
|
|
|
First Quarter
|
47.09
|
35.91
|
37.85
|
Second Quarter
|
37.45
|
22.22
|
24.41
|
Third Quarter
|
30.43
|
22.90
|
25.06
|
Fourth Quarter
|
26.52
|
20.39
|
21.12
|
2014
|
|
|
|
First Quarter
|
27.73
|
21.27
|
23.60
|
Second Quarter
|
26.45
|
22.04
|
26.45
|
Third Quarter
|
27.46
|
21.35
|
21.35
|
Fourth Quarter
|
21.94
|
16.59
|
18.38
|
2015
|
|
|
|
First Quarter
|
22.94
|
17.67
|
18.24
|
Second Quarter
|
20.82
|
17.76
|
17.76
|
Third Quarter
|
17.85
|
13.04
|
13.74
|
Fourth Quarter
|
16.90
|
13.08
|
13.72
|
2016
|
|
|
|
First Quarter
|
20.86
|
12.47
|
19.98
|
Second Quarter
|
27.70
|
19.53
|
27.70
|
Third Quarter (through July 22, 2016)
|
30.60
|
27.96
|
28.78
|
This document relates only to the securities referenced hereby
and does not relate to the underlying shares. We have derived all disclosures contained in this document regarding Van Eck from
the publicly available documents described above. In connection with the offering of the securities, neither we nor the agent has
participated in the preparation of such documents or made any due diligence inquiry with respect to Van Eck. Neither we nor the
agent makes any representation that such publicly available documents or any other publicly available information regarding Van
Eck is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including
events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph)
that would affect the trading price of the underlying shares (and therefore the price of the underlying shares at the time we priced
the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose
material future events concerning Van Eck could affect the value received with respect to the securities and therefore the value
of the securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the underlying shares.
We and/or our affiliates may presently or from time to time engage
in business with Van Eck. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to Van Eck, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more
of our affiliates may publish research reports with respect to the underlying shares. The statements in the preceding two sentences
are not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the
securities, you should undertake an independent investigation of Van Eck as in your judgment is appropriate to make an informed
decision with respect to an investment linked to the underlying shares.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
Market Vectors
SM
is a service mark of Van Eck Associates
Corporation (“Van Eck”). The securities are not sponsored, endorsed, sold, or promoted by Van Eck. Van Eck makes no
representations or warranties to the owners of the securities or any member of the public regarding the advisability of investing
in the securities. Van Eck has no obligation or liability in connection with the operation, marketing, trading or sale of the securities.
The NYSE Arca Gold
Miners Index.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted
index comprised of publicly traded companies involved primarily in the mining of gold and silver. The NYSE Arca Gold Miners Index
includes common stocks, ADRs or GDRs of selected companies involved in the mining for gold and silver ore and are listed for trading
and electronically quoted on a major stock market that is accessible by foreign investors. For additional information about the
NYSE Arca Gold Miners Index, please see the information set forth under “NYSE Arca Gold Miners Index” in the accompanying
index supplement.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
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:
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Day
count convention:
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30/360
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Interest
period:
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Quarterly
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Record
date:
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The record date for each contingent payment
date shall be the date one business day prior to such scheduled contingent payment date;
provided, however,
that any
contingent quarterly coupon payable at maturity or upon redemption shall be payable to the person to whom the payment at maturity
or early redemption payment, as the case may be, shall be payable.
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Share
underlying index:
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NYSE Arca Gold Miners Index
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Postponement
of maturity date:
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If the scheduled final determination date
is not a trading day or if a market disruption event occurs on that day so that the final determination 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 that final determination date as postponed.
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Postponement
of contingent payment dates:
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If a contingent payment date (including
the maturity date) is postponed as a result of the postponement of the relevant determination date, no adjustment shall be
made to any contingent quarterly coupon paid on that postponed date.
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Listing:
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The securities will not be listed on any
securities exchange.
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Minimum
ticketing size:
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$1,000 / 100 securities
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Trustee:
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The Bank of New York Mellon
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Calculation
agent:
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MS & Co.
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Tax
considerations:
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Prospective investors
should note that the discussion under the section called “United States Federal Taxation” in the accompanying
product supplement does not apply to the securities issued under this document 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:
·
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
·
hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
“Code”).
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:
·
certain
financial institutions;
·
insurance
companies;
·
certain
dealers and traders in securities or commodities;
·
investors
holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction
or constructive sale transaction;
·
U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated
investment companies;
·
real
estate investment trusts; or
·
tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A
of the Code, respectively.
If
an entity that is classified as a partnership for U.S. federal income tax purposes holds the securities, the U.S. federal
income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership.
If you are a partnership holding the securities or a partner in such a partnership, you should consult your tax adviser
as to the particular U.S. federal tax consequences of holding and disposing of the securities to you.
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
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
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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.
General
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 IRS or a court will agree with the tax treatment described herein. We intend to
treat a security for U.S. federal income tax purposes as a single financial contract that provides for a coupon that will be treated
as gross income to you at the time received or accrued in accordance with your regular method of tax accounting. In the opinion
of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under current law; however, our counsel
has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative
treatments are possible.
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 each security 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:
·
a citizen or individual resident of the United States;
·
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
·
an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source.
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 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.
Tax Treatment of Coupon Payments
.
Any coupon payment on the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in
accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the Securities
.
Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between
the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the securities sold, exchanged
or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include sale proceeds
attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized 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, exchange or settlement,
and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
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
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
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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, adjusted upward or downward to reflect the difference, if any, between the
actual and the projected amount of any contingent payments on the securities. 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 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 on whether
to require holders of “prepaid forward contracts” and similar 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; 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; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, 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
payments on the securities 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 will 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:
·
an individual who is classified as a nonresident alien;
·
a foreign corporation; or
·
a foreign estate or trust.
The term “Non-U.S. Holder” does
not include any of the following holders:
·
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;
·
certain former citizens or residents of the United States; or
·
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.
Such holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security are uncertain, we intend to withhold
on any
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
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coupon paid to a Non-U.S. Holder generally at a rate of 30% or
at a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision. We will
not be required to pay any additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction
in, the 30% withholding tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that
it is not a U.S. person and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S.
Holder, you should consult your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining
a refund of any withholding tax and the certification requirement described 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 will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. 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. 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 (“FDAP income”). Withholding (if applicable)
applies to payments of U.S.-source FDAP income and, for dispositions after December 31, 2018, to payments of gross proceeds of
the disposition (including upon retirement) of certain financial instruments treated as providing for U.S.-source interest or dividends.
While the treatment of the securities is unclear, you should assume that any coupon payment with respect to the securities will
be subject to the FATCA rules. It is also possible in light of this uncertainty that an applicable withholding agent will treat
gross proceeds of a disposition (including upon retirement) of the securities after 2018 as being subject to the FATCA rules. 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.
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Use
of proceeds and hedging:
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The proceeds from the sale
of the securities will be used by us for general corporate purposes. We will receive, in aggregate, $10 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 beginning
on page 2 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing
date, we hedged our anticipated exposure in connection with the securities by entering into hedging transactions with
our affiliates and/or third party dealers. We expect our hedging counterparties to have taken positions in the underlying
shares and in futures and/or options contracts on the underlying shares or any component stocks of the share underlying
index listed on major securities markets. Such purchase activity could have increased the initial share price, and, as
a result, could have increased the downside threshold level, which is the price at or above which the underlying shares
must close on each determination date in order for you to earn a contingent quarterly coupon, and, if the securities are
not redeemed prior to maturity, in order for you to avoid being exposed to the negative price performance of the underlying
shares at maturity. In addition, through our affiliates, we are likely to modify our hedge position throughout the term
of the securities, including on the determination dates, by purchasing and selling the underlying shares, options contracts
relating to the underlying shares or any other available securities or
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
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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 final determination date approaches. We cannot give any assurance that our hedging activities will not affect the
price of the underlying shares, and, therefore, adversely affect the value of the securities or the payment you will receive
at maturity, if any.
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Benefit
plan investor considerations:
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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 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 such 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) 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 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)
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
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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:
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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.
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Supplemental
information regarding plan of distribution; conflicts of interest:
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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 ours. 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 $0.20 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 an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley, and it and other affiliates 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. See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and
Hedging” in the accompanying product supplement for auto-callable securities.
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Validity
of the securities:
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In the opinion of Davis Polk & Wardwell LLP, as special counsel
to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL,
authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered
against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee
will be a valid and binding obligation 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 (i) the effect of fraudulent conveyance, fraudulent transfer
or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture
that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by
limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as
of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware
and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about
the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the
securities and the validity, binding nature and enforceability of the MSFL 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.
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 25, 2019
Based on the Performance of the Market Vectors Gold Miners ETF
Principal at Risk Securities
Contact:
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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.
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Where
you can find more information:
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Morgan Stanley and MSFL
have filed a registration statement (including a prospectus, as supplemented by the product supplement for auto-callable
securities and the index supplement) with the Securities and Exchange Commission, or SEC, for the offering to which this
communication relates. You should read the prospectus in that registration statement, the product supplement for auto-callable
securities, the index supplement and any other documents relating to this offering that Morgan Stanley and MSFL have filed
with the SEC for more complete information about Morgan Stanley, MSFL 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, MSFL, any underwriter or any
dealer participating in the offering will arrange to send you the prospectus, the product supplement for auto-callable
securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents
on the SEC web site at
.
www.sec.gov as follows:
Product Supplement for Auto-Callable Securities dated February 29, 2016
Index Supplement dated February 29, 2016
Prospectus dated February 16, 2016
Terms used but not defined
in this document are defined in the product supplement for auto-callable securities, in the index supplement or in the
prospectus.
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