CALCULATION
OF REGISTRATION FEE
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Maximum Aggregate
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Amount of Registration
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Title of Each Class of Securities Offered
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Offering Price
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Fee
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Capped Leveraged Buffered Basket-Linked
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$6,100,000
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$614.27
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Notes due 2018
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PROSPECTUS Dated February 16, 2016
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Pricing Supplement No. 1,003 to
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PRODUCT SUPPLEMENT Dated February 29, 2016
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Registration Statement Nos. 333-200365; 333-200365-12
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INDEX SUPPLEMENT Dated February 29, 2016
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Dated July 25, 2016
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Rule 424(b)(2)
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Morgan
Stanley Finance LLC
STRUCTURED
INVESTMENTS
Opportunities
in International Equities
$6,100,000
Capped Leveraged Buffered
Basket-Linked Notes due July 30, 2018
Fully and Unconditionally
Guaranteed by Morgan Stanley
Principal at Risk Securities
The
notes are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed
by Morgan Stanley.
The notes will not bear interest.
The amount that you will be paid on your notes on the stated maturity date (July 30, 2018, subject
to postponement) is based on the performance of a weighted basket comprised of the EURO STOXX 50
®
Index (37.00%
weighting), the FTSE
®
100 Index (23.00% weighting), the Tokyo Stock Price Index (23.00% weighting), the Swiss Market
Index (9.00% weighting) and the S&P/ASX 200 Index (8.00% weighting), as measured from the trade date (July 25, 2016) to and
including the determination date (July 25, 2018, subject to postponement). The initial basket level is 100, and the final basket
level on the determination date will equal the
sum
of the products, as calculated separately for each basket underlier,
of: (i) the final underlier level
multiplied
by (ii) the applicable multiplier. The multiplier equals, for each basket
underlier, (i) the weighting of such basket underlier
multiplied
by 100
divided
by (ii) the initial underlier level
(2,973.22 with respect to the EURO STOXX 50
®
Index, 6,710.13 with respect to the FTSE
®
100 Index, 1,325.36 with respect to the Tokyo Stock Price Index,
8,194.41 with respect to the Swiss Market Index and 5,533.563 with respect to the S&P/ASX 200 Index)
for
such basket underlier. If the final basket level on the determination date is greater than the initial basket level, the return
on your notes will be positive, subject to the maximum settlement amount ($1,277.50 for each $1,000 face amount of your notes).
If the level of the basket declines by up to 10.00% from the initial basket level, you will receive the face amount of your notes.
However, if the level of the basket declines
by more than 10.00% from the initial basket level, the return on your notes will be negative. You could lose your entire investment
in the notes.
The
notes are notes 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 notes 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.
To determine
your payment at maturity, we will calculate the basket return, which is the percentage increase or decrease in the basket level
from the initial basket level to the final basket level. On the stated maturity date, for each $1,000 face amount of your notes,
you will receive an amount in cash equal to:
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●
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if the basket return is
positive
(the final basket level is
greater
than
the initial basket level), the
sum
of (i) $1,000
plus
(ii) the
product
of (a) $1,000
times
(b) 150%
times
(c) the basket return,
subject to the maximum settlement amount;
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●
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if the basket return is
zero
or
negative
but
not
below
-10.00% (the final basket level is
equal
to
or
less
than the initial basket level but not by more than 10.00%), $1,000; or
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●
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if the basket return is
negative
and is
below
-10.00% (the final basket level is
less
than
the
initial basket level by more than 10.00%), the
sum
of (i) $1,000
plus
(ii) the
product
of (a) approximately
1.1111
times
(b) the
sum
of the basket return
plus
10.00%
times
(c) $1,000.
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Under these circumstances, you will lose some or all
of your investment.
You should read the additional disclosure herein so that you
may better understand the terms and risks of your investment.
The estimated value on the trade date is $961.90 per note.
See “Estimated Value” on page 2.
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Price
to public
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Agent’s
commissions
(1)
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Proceeds
to us
2)
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Per note
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$1,000
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$20
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$980
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Total
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$6,100,000
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$122,000
|
$5,978,000
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(1)
The price to public is 98.00% for certain investors; see “Summary Information — Supplemental information
regarding plan of distribution; conflicts of interest” on page 8. Morgan Stanley & Co. LLC (“MS & Co.”)
will sell all of the notes that it purchases from us to an unaffiliated dealer. Investors that purchase and hold the notes in fee-based
accounts may be charged fees based on the amount of assets held in those accounts, including the notes.
(2) See
“Summary Information—Use of proceeds and hedging” beginning on page 6.
The notes involve risks not
associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 17.
The Securities and Exchange
Commission and state securities regulators have not approved or disapproved these notes, 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 notes 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 “Key Terms” on page 3.
MORGAN STANLEY
About Your Prospectus
The notes are notes issued as part of MSFL’s Series A Global
Medium-Term Notes program. This prospectus includes this pricing supplement and the accompanying documents listed below. This pricing
supplement constitutes a supplement to the documents listed below and should be read in conjunction with such documents:
The information in this pricing supplement supersedes any conflicting
information in the documents listed above. In addition, some of the terms or features described in the listed documents may not
apply to your notes.
ESTIMATED
VALUE
The Original Issue Price of each note is $1,000. This price includes
costs associated with issuing, selling, structuring and hedging the notes, which are borne by you, and, consequently, the estimated
value of the notes on the Trade Date is less than $1,000. We estimate that the value of each note on the Trade Date is $961.90.
What goes into the estimated value on the Trade Date?
In valuing the notes on the Trade Date, we take into account
that the notes comprise both a debt component and a performance-based component linked to the Basket Underliers. The estimated
value of the notes is determined using our own pricing and valuation models, market inputs and assumptions relating to the Basket
Underliers, instruments based on the Basket Underliers, 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 notes?
In determining the economic terms of the notes, including the
Upside Participation Rate, the Cap Level, the Maximum Settlement Amount and the Buffer Amount, 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 notes would be more favorable to you.
What is the relationship between the estimated value on the
Trade Date and the secondary market price of the notes?
The price at which MS & Co. purchases the notes in the secondary
market, absent changes in market conditions, including those related to the Basket Underliers, may vary from, and be lower than,
the estimated value on the Trade 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 notes 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 notes in the secondary
market, absent changes in market conditions, including those related to the Basket Underliers, 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
notes, and, if it once chooses to make a market, may cease doing so at any time.
SUMMARY
INFORMATION
The Capped Leveraged Buffered Basket-Linked Notes, which we
refer to as the notes, are unsecured obligations of MSFL and are fully and unconditionally guaranteed by Morgan Stanley. The notes
will pay no interest, do not guarantee any return of principal at maturity and have the terms described in the accompanying product
supplement, index supplement and prospectus, as supplemented or modified by this document. The notes are notes issued as part of
MSFL’s Series A Global Medium-Term Notes program.
Capitalized terms used but not defined herein have the meanings
assigned to them in the accompanying product supplement and prospectus. All references to “Buffer Rate,” “Multiplier,”
“Cash Settlement Amount,” “Closing Level,” “Determination Date,” “Face Amount,”
“Basket Closing Level,” “Final Basket Level,” “Initial Basket Level,” “Maximum Settlement
Amount,” “Original Issue Price,” “Stated Maturity Date,” “Trade Date,” “Basket,”
“Basket Underlier,” “Basket Return” and “Upside Participation Rate” herein shall be deemed
to refer to “downside factor,” “multiplier,” “payment at maturity,” “basket component
closing value,” “valuation date,” “stated principal amount,” “basket closing value,”
“final basket value,” “initial basket value,” “maximum payment at maturity,” “issue price,”
“maturity date,” “pricing date,” “basket,” “basket index,” “basket return”
and “leverage factor,” respectively, as used in the accompanying product supplement.
References to “we,” “us” and “our”
refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
If the terms described herein are inconsistent with those
described in the accompanying product supplement or prospectus, the terms described herein shall control.
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Key Terms
Issuer:
Morgan Stanley Finance LLC
Guarantor
: Morgan Stanley
Basket:
Basket Underlier
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Bloomberg Ticker Symbol
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Basket Underlier Publisher
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Basket Underlier Weighting
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Initial Underlier Level
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Multiplier
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EURO STOXX 50
®
Index
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SX5E
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STOXX Limited (“STOXX”)
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37.00%
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2,973.22
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0.012444421
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FTSE
®
100 Index
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UKX
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FTSE International Limited (“FTSE”)
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23.00%
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6,710.13
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0.003427653
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Tokyo Stock Price Index
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TPX
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Tokyo Stock Exchange, Inc. (“TSE”)
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23.00%
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1,325.36
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0.017353776
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Swiss Market Index
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SMI
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SIX Group Ltd. (“SIX Group”)
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9.00%
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8,194.41
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0.001098310
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S&P/ASX 200 Index
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AS51
|
S&P Dow Jones Indices LLC (“S&P”)
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8.00%
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5,533.563
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0.001445723
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For more information on the Basket and the Basket Underliers,
see “The Basket and the Basket Underliers” on page 23.
Notes:
The accompanying product supplement refers to the
notes as the “PLUS.”
Specified currency:
U.S. dollars (“$”)
Face Amount:
Each note will have a Face Amount of $1,000;
$6,100,000 in the aggregate for all the notes; the aggregate Face Amount of notes may be increased if the Issuer, at its sole option,
decides to sell an additional amount of the notes on a date subsequent to the date hereof.
Denominations:
$1,000
and integral multiples thereof
Purchase at amount other
than Face Amount:
The amount we will pay you on the Stated Maturity Date for your notes will
not be adjusted based on the issue price you pay for your notes, so if you acquire notes at a premium (or discount) to the Face
Amount and hold them to the Stated Maturity Date, it could affect your investment in a number of ways. The return on your investment
in such notes will be lower (or higher) than it would have been had you purchased the notes at the Face Amount. Also, the Buffer
Level would not offer the same measure of protection to your investment as would be the case if you had purchased the notes at
the Face Amount. Additionally, the Cap Level would be triggered at a lower (or higher) percentage return than indicated below,
relative to your initial investment. See “Risk Factors—If You Purchase Your Notes At A Premium To The Face Amount,
The Return On Your Investment Will Be Lower Than The Return On Notes Purchased At The Face Amount, And The Impact Of Certain Key
Terms Of The Notes Will Be Negatively Affected” beginning on page 17 of this document.
Cash Settlement Amount (on the Stated Maturity Date):
For
each $1,000 Face Amount of notes, we will pay you on the Stated Maturity Date an amount in cash equal to:
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·
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if the Final Basket Level is
greater than
or
equal to
the Cap Level, the Maximum
Settlement Amount;
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·
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if the Final Basket Level is
greater than
the Initial Basket Level but
less than
the Cap Level, the
sum
of (i) $1,000
plus
(ii) the
product
of (a) $1,000
times
(b) the Upside
Participation Rate
times
(c) the Basket Return;
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·
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if the Final Basket Level is
equal to
or
less than
the Initial Basket Level but
greater than
or
equal to
the Buffer Level, $1,000; or
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·
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if the Final Basket Level is
less than
the Buffer Level, the
sum
of (i) $1,000
plus
(ii) the
product
of (a) $1,000
times
(b) the Buffer Rate
times
(c) the
sum
of the Basket Return and the Buffer Amount.
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You will lose some or all of
your investment at maturity if the Final Basket Level is less than the Buffer Level. Any payment of the Cash Settlement Amount
is subject to the credit of the Issuer.
Initial Basket Level:
100, which is equal to the
sum
of the products, as calculated separately for each Basket Underlier, of (i) the Initial Underlier Level and (ii) the applicable
Multiplier
Initial Underlier Level:
With respect to each Basket Underlier,
the level set forth for such Basket Underlier under “Basket—Initial Underlier Level” above.
Final Underlier Level:
With respect to each Basket Underlier,
the Closing Level of such Basket Underlier on the Determination Date, except in the limited circumstances described under “Description
of PLUS—Postponement of Valuation Date(s)” on page S-44 of the accompanying product supplement, and subject to adjustment
as provided under “Description of PLUS—Discontinuance of Any Underlying Index or Basket Index; Alteration of Method
of Calculation” on page S-47 of the accompanying product supplement.
Basket Closing Level:
On the Determination Date, the
sum
of the following, calculated separately for each Basket Underlier: (i) the Final Underlier Level
multiplied
by (ii)
the applicable Multiplier
Final Basket Level
: The Basket Closing Level on the Determination
Date
Basket Return:
The
quotient
of (i) the Final
Basket Level
minus
the Initial Basket Level
divided
by (ii) the Initial Basket Level, expressed as a percentage
Multiplier
: With respect to each Basket Underlier, the
multiplier set forth for such Basket Underlier under “Basket—Multiplier” above.
Upside Participation Rate:
150%
Cap Level:
118.50, which is 118.50% of the Initial Basket
Level
Maximum Settlement Amount:
$1,277.50
for each $1,000 Face Amount of notes
Buffer Level:
90.00, which is equal to 90.00% of the Initial
Basket Level
Buffer Amount:
10.00%
Buffer Rate:
The
quotient
of the Initial Basket
Level
divided
by the Buffer Level, which equals approximately 111.11%
Trade Date:
July 25, 2016
Original Issue Date (Settlement Date):
August 1, 2016
(5 Business Days after the Trade Date)
Determination Date:
July 25, 2018, subject to postponement
as described in the accompanying product supplement on page S-44 under “Description of PLUS—Postponement of Valuation
Date(s).”
Stated Maturity Date:
July 30, 2018 (3 Business Days after
the Determination Date), subject to postponement as described below.
Postponement of Stated Maturity Date:
If the scheduled
Determination Date is not a Trading Day for a Basket Underlier or if a market disruption event occurs with respect to a Basket
Underlier on that day so that the date on which the Final Underlier Level for all Basket Underliers has been determined falls less
than two Business Days prior to the scheduled Stated Maturity Date, the maturity date of the notes will be postponed to the second
Business Day following such date.
No interest or dividends:
The notes will not pay interest
or dividends.
No listing:
The notes will not be listed on any securities
exchange.
No redemption:
The notes will not be subject to any redemption
right.
Closing Level:
As described under “Description of
PLUS—Some Definitions—index closing value” on page S-37 of the accompanying product supplement
Business Day:
As described under “Description of
PLUS—Some Definitions—business day” on page S-36 of the accompanying product supplement
Trading Day:
With respect to each of the EURO STOXX 50
®
Index, the
FTSE
®
100 Index and the
Tokyo Stock Price Index,
as described under “Description of PLUS—Some Definitions—index business day”
on page S-37 of the accompanying product supplement. The product supplement refers to a Trading Day as an “index business
day.”
With respect to each of the Swiss Market Index and the S&P/ASX
200 Index, notwithstanding the definition of “index business day” on page S-37 of the accompanying product supplement,
Trading Day means a day, as determined by the calculation agent, on which (i) the respective principal securities markets for all
of the stocks composing such Basket Underlier are open for trading, (ii) the Basket Underlier Publisher for such Basket Underlier
is open for business and (iii) such Basket Underlier is calculated and published by its Basket Underlier Publisher. Although the
Basket Underlier Publisher for the Swiss Market Index or the S&P/ASX 200 Index may publish a Closing Level with respect to
such Basket Underlier on a day on which one or more of the principal securities markets for the stocks composing such Basket Underlier
are closed, that day would not be a Trading Day for such Basket Underlier.
Market disruption event:
The following replaces in its
entirety the section entitled “Description of PLUS—Some Definitions—market disruption event” on page S-37
of the accompanying product supplement:
“Market disruption event” means, with respect to
any Basket Underlier:
(i) the occurrence or existence of:
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(a)
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a suspension, absence or material limitation of trading of securities then constituting 20 percent or more, by weight, of such
Basket Underlier (or successor index) on the relevant exchanges for such securities for more than two hours of trading or during
the one-half hour period preceding the close of the principal trading session on such relevant exchange, or
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(b)
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a breakdown or failure in the price and trade reporting systems of any relevant exchange as a result of which the reported
trading prices for securities then constituting 20 percent or more, by weight, of such Basket Underlier (or successor index), or
futures or options contracts, if available, relating to such Basket Underlier (or successor index) or the
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securities then constituting 20 percent or more, by weight,
of such Basket Underlier during the last one-half hour preceding the close of the principal trading session on such relevant exchange
are materially inaccurate, or
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(c)
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the suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options
contracts or exchange-traded funds related to such Basket Underlier (or successor index), or in futures or options contracts, if
available, relating to securities then constituting 20 percent or more, by weight, of such Basket Underlier (or successor index)
for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such
market,
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in each case as determined by the calculation agent in its sole
discretion; and
(ii) a determination by the calculation agent in its sole discretion
that any event described in clause (i) above materially interfered with our ability or the ability of any of our affiliates to
unwind or adjust all or a material portion of the hedge position with respect to the notes.
For the purpose of determining whether a market disruption event
has occurred: (1) a limitation on the hours or number of days of trading will not constitute a market disruption event if it results
from an announced change in the regular business hours of the relevant exchange or market, (2) a decision to permanently discontinue
trading in the relevant futures or options contract or exchange-traded fund will not constitute a market disruption event, (3)
a suspension of trading in futures or options contracts or exchange-traded funds on a Basket Underlier, or futures or options contracts,
if available, relating to securities then constituting 20 percent or more, by weight, of a Basket Underlier, by the primary securities
market trading in such contracts or funds by reason of (a) a price change exceeding limits set by such securities exchange or market,
(b) an imbalance of orders relating to such contracts or funds, or (c) a disparity in bid and ask quotes relating to such contracts
or funds will constitute a suspension, absence or material limitation of trading in futures or options contracts or exchange-traded
funds related to such Basket Underlier and (4) a “suspension, absence or material limitation of trading” on any relevant
exchange or on the primary market on which futures or options contracts or exchange-traded funds related to a Basket Underlier
are traded will not include any time when such securities market is itself closed for trading under ordinary circumstances.
Use of proceeds and hedging:
The proceeds from the sale
of the notes will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per note issued. The costs
of the notes borne by you and described on page 2 comprise the cost of issuing, structuring and hedging the notes.
On or prior to the Trade Date, we hedged our anticipated exposure
in connection with the notes, by entering into hedging transactions with our affiliates and/or third party dealers. We expect our
hedging counterparties to have taken positions in stocks of the Basket Underliers and in futures and options contracts on the Basket
Underliers, and any component stocks of the Basket Underliers listed on major securities markets. Such purchase activity could
have increased the levels of the Basket Underliers on the Trade Date, and therefore could have increased the levels at or above
which the Basket Underliers must close on the Determination Date so that investors do not suffer a loss on their initial investment
in the notes. In addition, through our affiliates, we are likely to modify our hedge position throughout the term of the notes,
including on the Determination Date, by purchasing and selling the stocks constituting the Basket Underliers, futures or options
contracts on the Basket Underliers or their component stocks listed on major securities markets or positions in any other available
securities or instruments that we may wish to use in connection with such hedging activities. As a result, these entities may be
unwinding or adjusting hedge positions during the term of the notes, and the hedging strategy may involve greater and more frequent
dynamic adjustments to the hedge as the Determination Date approaches. We cannot give any assurance that our hedging activities
will not affect the levels of the Basket Underliers, and, therefore, adversely affect the value of the notes or the payment you
will receive at maturity, if any. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging”
in the accompanying product supplement.
Benefit Plan Investor Considerations:
Each fiduciary of
a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s
particular circumstances before authorizing an investment in the notes. 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 notes 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 notes 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 notes. 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 Section 4975(d)(20) of the Code may provide an exemption for the purchase and sale of securities and the related
lending transactions, provided that neither the Issuer of the notes 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 notes.
Because we may be considered a party in interest with respect
to many Plans, the notes 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
notes will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the notes
that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such notes 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 notes on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The notes are contractual financial instruments. The financial
exposure provided by the notes 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 notes. The notes 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 notes.
Each purchaser or holder of any notes acknowledges and agrees
that:
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(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 notes, (B) the purchaser or holder’s investment
in the notes, or (C) the exercise of or failure to exercise any rights we have under or with respect to the notes;
|
(ii)
|
we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to
the notes and (B) all hedging transactions in connection with our obligations under the notes;
|
|
(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 notes has exclusive responsibility
for ensuring that its purchase, holding and disposition of the notes do not violate the prohibited transaction rules of ERISA or
the Code or any Similar Law. The sale of any notes 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 notes 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 notes by the account, plan or annuity.
Additional considerations:
Client accounts over which
Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted
to purchase the notes, either directly or indirectly.
Supplemental information regarding plan of distribution; conflicts
of interest:
We have agreed to sell to MS & Co., and MS & Co. has agreed to purchase from us, the aggregate face amount
of the offered notes specified on the cover of this pricing supplement. MS & Co. proposes initially to offer the notes to an
unaffiliated securities dealer at the price to public set forth on the cover of this pricing supplement less a concession not in
excess of 2.00% of the face amount. The price to public for notes purchased by certain fee-based advisory accounts is 98.00% of
the face amount of the notes, which reduces the agent’s commission specified on the cover of this pricing supplement with
respect to such notes to 0.00%. MS & Co., the agent for this offering, is our affiliate. Because MS & Co. is both our affiliate
and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), the underwriting arrangements for this
offering must comply with the requirements of FINRA Rule 5121 regarding a FINRA member firm’s distribution of the securities
of an affiliate and related conflicts of interest. In accordance with FINRA Rule 5121, MS & Co. may not make sales in offerings
of the notes to any of its discretionary accounts without the prior written approval of the customer.
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 notes.
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 notes 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.
Settlement:
We expect to deliver the notes against payment
for the notes on the Original Issue Date, which will be the fifth scheduled Business Day following the Trade Date. Under Rule 15c6-1
of the
Securities Exchange Act of 1934, as amended, trades in the secondary
market generally are required to settle in three Business Days, unless the parties to a trade expressly agree otherwise. Accordingly,
if the Original Issue Date is more than three Business Days after the Trade Date, purchasers who wish to transact in the notes
more than three Business Days prior to the Original Issue Date will be required to specify alternative settlement arrangements
to prevent a failed settlement.
Trustee:
The Bank of New York Mellon
Calculation Agent:
MS & Co.
CUSIP no.:
61766BBP5
ISIN:
US61766BBP58
HYPOTHETICAL
EXAMPLES
The following table and
chart are provided for purposes of illustration only. They should not be taken as an indication or prediction of future investment
results and are intended merely to illustrate the impact that the various hypothetical closing levels of the Basket and the Basket
Underliers, as applicable, on the Determination Date could have on the Cash Settlement Amount.
The examples below are
based on a range of Final Basket Levels and Final Underlier Levels that are entirely hypothetical; no one can predict what the
level of the Basket will be on any day during the term of the notes, and no one can predict what the Final Basket Level will be
on the Determination Date. The Basket Underliers have at times experienced periods of high volatility — meaning that the
levels of the Basket Underliers have changed considerably in relatively short periods — and their performances cannot be
predicted for any future period.
The information in the
following examples reflects hypothetical rates of return on the notes assuming that they are purchased on the Trade Date at the
Face Amount and held to the Stated Maturity Date. The value of the notes at any time after the Trade Date will vary based on many
economic and market factors, including interest rates, the volatility of the Basket Underliers, our creditworthiness and changes
in market conditions, and cannot be predicted with accuracy. Any sale prior to the Stated Maturity Date could result in a substantial
loss to you.
Key Terms and Assumptions
|
|
Face Amount:
|
$1,000
|
Upside Participation Rate:
|
150.00%
|
Cap Level:
|
118.50% of the Initial Basket Level
|
Maximum Settlement Amount:
|
$1,277.50 per $1,000 Face Amount of notes (127.750% of the Face Amount)
|
Minimum Cash Settlement Amount:
|
None
|
Buffer Level:
|
90.00% of the Initial Basket Level
|
Buffer Rate:
|
Approximately 111.11%
|
Buffer Amount:
|
10.00%
|
|
·
|
Neither a market disruption event nor a non-Trading Day occurs on the Determination Date.
|
|
·
|
No discontinuation of the Underlier or alteration of the method by which the Underlier is calculated.
|
|
·
|
Notes purchased on the Original Issue Date at the Face Amount and held to the Stated Maturity Date.
|
The actual performance of the Basket and the Basket Underliers
over the term of the notes, as well as the Cash Settlement Amount, if any, may bear little relation to the hypothetical examples
shown below or to the historical levels of the Basket and the Basket Underliers shown elsewhere in this document. For information
about the historical levels of each Basket Underlier during recent periods, see “The Basket and The Basket Underliers”
below.
The levels in the left column of the table below represent hypothetical
Final Basket Levels and are expressed as percentages of the Initial Basket Level. The amounts in the right column represent the
hypothetical Cash Settlement Amount, based on the corresponding hypothetical Final Basket Level (expressed as a percentage of the
Initial Basket Level), and are expressed as percentages of the Face Amount of notes (rounded to the nearest one-thousandth of a
percent). Thus, a hypothetical Cash Settlement Amount of 100% means that the value of the cash payment that we would deliver for
each $1,000 Face Amount of notes on the Stated Maturity Date would equal 100% of the Face Amount of notes, based on the corresponding
hypothetical Final Basket Level (expressed as a percentage of the Initial Basket Level) and the assumptions noted above. The numbers
appearing in the table and chart below may have been rounded for ease of analysis.
Hypothetical Final Basket Level
|
Hypothetical Cash Settlement Amount
|
(as Percentage of Initial Basket Level)
|
(as Percentage of Face Amount)
|
200.000%
|
127.750%
|
175.000%
|
127.750%
|
150.000%
|
127.750%
|
125.000%
|
127.750%
|
120.000%
|
127.750%
|
118.500%
|
127.750%
|
115.000%
|
122.500%
|
110.000%
|
115.000%
|
105.000%
|
107.500%
|
100.000%
|
100.000%
|
95.000%
|
100.000%
|
90.000%
|
100.000%
|
85.000%
|
94.444%
|
80.000%
|
88.889%
|
75.000%
|
83.333%
|
50.000%
|
55.556%
|
25.000%
|
27.778%
|
0.000%
|
0.000%
|
If, for example, the Final Basket Level were determined to be
25.000% of the Initial Basket Level, the Cash Settlement Amount would be approximately 27.778% of the Face Amount of notes, as
shown in the table above. As a result, if you purchased your notes on the Original Issue Date at the Face Amount and held them
to the Stated Maturity Date, you would lose approximately 72.222% of your investment. If you purchased your notes at a premium
to the Face Amount, you would lose a correspondingly higher percentage of your investment.
If the Final Basket Level were determined to be 150.000% of the
Initial Basket Level, the Cash Settlement Amount would be capped at the Maximum Settlement Amount (expressed as a percentage of
the Face Amount), or 127.750% of each $1,000 Face Amount of notes, as shown in the table above. As a result, if you purchased the
notes on the Original Issue Date at the Face Amount and held them to the Stated Maturity Date, you would not benefit from any increase
in the Final Basket Level above the Cap Level of 118.500% of the Initial Basket Level.
Payoff Diagram
The following chart shows a graphical illustration of the hypothetical
Cash Settlement Amount (expressed as a percentage of the Face Amount of notes), if the Final Basket Level (expressed as a percentage
of the Initial Basket Level) were any of the hypothetical levels shown on the horizontal axis. The chart shows that any hypothetical
Final Basket Level (expressed as a percentage of the Initial Basket Level) of less than the Buffer Level of 90.00% (the section
left of the 90.00% marker on the horizontal axis) would result in a hypothetical Cash Settlement Amount of less than 100% of the
Face Amount of notes (the section below the 100% marker on the vertical axis), and, accordingly, in a loss of principal to the
holder of the notes. The chart also shows that any hypothetical Final Basket Level (expressed as a percentage of the Initial Basket
Level) of greater than 118.50% (the section right of the Cap Level of 118.50% marker on the horizontal axis) would result in a
capped return on your investment and a Cash Settlement Amount equal to the Maximum Settlement Amount.
Hypothetical Payoff Diagram
|
|
Scenario Analysis and Examples of Cash Settlement Amount at
Maturity
Below are five examples of how the Cash Settlement Amount you
receive at maturity, if any, will be calculated based on the Initial Underlier Levels and Multipliers, as well as hypothetical
Final Underlier Levels for each of the Basket Underliers. As shown below, any increase in the level of one or more of the Basket
Underliers may be moderated, or wholly offset, by lesser increases or declines in the level of one or more of the other Basket
Underliers. The following examples are based on hypothetical data and are provided for illustrative purposes only.
Example 1: All of the Basket Underliers appreciate over
the term of the notes. The Final Basket Level is greater than the Cap Level. The Cash Settlement Amount equals the Maximum
Settlement Amount.
|
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
Basket Underlier & Basket Underlier Weighting
|
|
Initial Underlier Level
|
|
Hypothetical
Final Underlier Level
|
|
Appreciation / Depreciation
|
|
Multiplier
|
|
Column B x
Column D
|
EURO STOXX 50
®
Index (37.00% weighting)
|
|
2,973.22
|
|
4,013.85
|
|
+ 35.00%
|
|
0.012444421
|
|
49.95
|
FTSE
®
100 Index (23.00% weighting)
|
|
6,710.13
|
|
9,058.68
|
|
+ 35.00%
|
|
0.003427653
|
|
31.05
|
Tokyo Stock Price Index (23.00% weighting)
|
|
1,325.36
|
|
1,590.43
|
|
+ 20.00%
|
|
0.017353776
|
|
27.60
|
Swiss Market Index (9.00% weighting)
|
|
8,194.41
|
|
9,833.29
|
|
+ 20.00%
|
|
0.001098310
|
|
10.80
|
S&P/ASX 200 Index (8.00% weighting)
|
|
5,533.563
|
|
8,680.500
|
|
+ 56.87%
|
|
0.001445723
|
|
12.55
|
|
|
|
|
|
|
Final Basket Level:
|
|
131.95
|
|
|
|
|
|
|
Basket Return:
|
|
31.95%
|
In this example, all of the hypothetical
Final Underlier Levels are greater than the applicable Initial Underlier Levels, which results in the hypothetical Final Basket
Level being greater than the Initial Basket Level of 100.00. Because the hypothetical Final Basket Level of 131.95 is greater
than the Cap Level of 118.50, the hypothetical Cash Settlement Amount that we would deliver on your notes at maturity would be
capped at the Maximum Settlement Amount of $1,277.50 for each $1,000 Face Amount of notes (127.750% of each $1,000 Face Amount
of notes).
Example 2: Four Basket Underliers appreciate, while
the other Basket Underlier remains unchanged, over the term of the notes. The Final Basket Level is greater than the Initial Basket
Level but less than the Cap Level.
|
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
Basket Underlier & Basket Underlier Weighting
|
|
Initial Underlier Level
|
|
Hypothetical
Final Underlier Level
|
|
Appreciation / Depreciation
|
|
Multiplier
|
|
Column B x
Column D
|
EURO STOXX 50
®
Index (37.00% weighting)
|
|
2,973.22
|
|
3,121.88
|
|
+ 5.00%
|
|
0.012444421
|
|
38.85
|
FTSE
®
100 Index (23.00% weighting)
|
|
6,710.13
|
|
7,381.14
|
|
+10.00%
|
|
0.003427653
|
|
25.30
|
Tokyo Stock Price Index (23.00% weighting)
|
|
1,325.36
|
|
1,325.36
|
|
0.00%
|
|
0.017353776
|
|
23.00
|
Swiss Market Index (9.00% weighting)
|
|
8,194.41
|
|
8,399.27
|
|
+ 2.50%
|
|
0.001098310
|
|
9.23
|
S&P/ASX 200 Index (8.00% weighting)
|
|
5,533.563
|
|
5,962.414
|
|
+ 7.75%
|
|
0.001445723
|
|
8.62
|
|
|
|
|
|
|
Final Basket Level:
|
|
105.00
|
|
|
|
|
|
|
Basket Return:
|
|
5.00%
|
In this example, all of the hypothetical
Final Underlier Levels are greater than or equal to the applicable Initial Underlier Levels, which results in the hypothetical
Final Basket Level being greater than the Initial Basket Level of 100.00. Because the hypothetical Final Basket Level is
105.00, the hypothetical Cash Settlement Amount for each $1,000 Face Amount of notes will equal:
Cash Settlement Amount = $1,000
+ ($1,000 × 150.00% × 5.00%) = $1,075.00
Example 3. Two Basket Underliers appreciate, while the
other three Basket Underliers depreciate, over the term of the notes. The Final Basket Level is less than the Initial Basket Level,
but greater than the Buffer Level. The Cash Settlement Amount equals the $1,000 Face Amount.
|
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
Basket Underlier & Basket Underlier Weighting
|
|
Initial Underlier Level
|
|
Hypothetical
Final Underlier Level
|
|
Appreciation / Depreciation
|
|
Multiplier
|
|
Column B x
Column D
|
EURO STOXX 50
®
Index (37.00% weighting)
|
|
2,973.22
|
|
3,005.33
|
|
+ 1.08%
|
|
0.012444421
|
|
37.40
|
FTSE
®
100 Index (23.00% weighting)
|
|
6,710.13
|
|
5,703.61
|
|
- 15.00%
|
|
0.003427653
|
|
19.55
|
Tokyo Stock Price Index (23.00% weighting)
|
|
1,325.36
|
|
1,192.82
|
|
- 10.00%
|
|
0.017353776
|
|
20.70
|
Swiss Market Index (9.00% weighting)
|
|
8,194.41
|
|
7,784.69
|
|
- 5.00%
|
|
0.001098310
|
|
8.55
|
S&P/ASX 200 Index (8.00% weighting)
|
|
5,533.563
|
|
6,086.919
|
|
+ 10.00%
|
|
0.001445723
|
|
8.80
|
|
|
|
|
|
|
Final Basket Level:
|
|
95.00
|
|
|
|
|
|
|
Basket Return:
|
|
-5.00%
|
In this example, even though the hypothetical
Final Underlier Levels for the EURO STOXX 50
®
Index and the S&P/ASX 200 Index are greater than their Initial
Underlier Levels, the negative returns of the FTSE
®
100 Index, the Tokyo Stock Price Index and the Swiss Market
Index more than offset the positive returns on the EURO STOXX 50
®
Index and the S&P/ASX 200 Index, which results
in the hypothetical Final Basket Level being less than the Initial Basket Level of 100.00. However, because the hypothetical
Final Basket Level of 95.00 is greater than the Buffer Level of 90.00, the hypothetical Cash Settlement Amount for each $1,000
Face Amount of notes will equal the Face Amount of $1,000.
Example 4: One Basket Underlier depreciates, while the
other Basket Underliers remain unchanged or appreciate, over the term of the notes. The Final Basket Level is less than the Buffer
Level, and therefore the Cash Settlement Amount is less than the $1,000 Face Amount.
|
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
Basket Underlier & Basket Underlier Weighting
|
|
Initial Underlier Level
|
|
Hypothetical
Final Underlier Level
|
|
Appreciation / Depreciation
|
|
Multiplier
|
|
Column B x
Column D
|
EURO STOXX 50
®
Index (37.00% weighting)
|
|
2,973.22
|
|
891.97
|
|
- 70.00%
|
|
0.012444421
|
|
11.10
|
FTSE
®
100 Index (23.00% weighting)
|
|
6,710.13
|
|
6,710.13
|
|
0.00%
|
|
0.003427653
|
|
23.00
|
Tokyo Stock Price Index (23.00% weighting)
|
|
1,325.36
|
|
1,325.36
|
|
0.00%
|
|
0.017353776
|
|
23.00
|
Swiss Market Index (9.00% weighting)
|
|
8,194.41
|
|
9,423.57
|
|
+ 15.00%
|
|
0.001098310
|
|
10.35
|
S&P/ASX 200 Index (8.00% weighting)
|
|
5,533.563
|
|
6,363.597
|
|
+ 15.00%
|
|
0.001445723
|
|
9.20
|
|
|
|
|
|
|
Final Basket Level:
|
|
76.65
|
|
|
|
|
|
|
Basket Return:
|
|
-23.35%
|
In this example, the hypothetical Final Underlier
Level of the EURO STOXX 50
®
Index is less than its Initial Underlier Level, while the hypothetical Final Underlier
Levels of the FTSE
®
100 Index and the Tokyo Stock Price Index are equal to their applicable Initial Underlier Levels
and the hypothetical Final Underlier Levels of the Swiss Market Index and the S&P/ASX 200 Index are greater than their applicable
Initial Underlier Levels.
Because the Basket Underliers are unequally
weighted, increases in the lower-weighted Basket Underliers may be more than offset by decreases in the higher-weighted Basket
Underliers. In this example, the large decline in the level of the EURO STOXX 50
®
Index results in the hypothetical
Final Basket Level being less than the Buffer Level of 90.00% of the Initial Basket Level, even though the levels of the FTSE
®
100 Index and the Tokyo Stock Price Index remained unchanged and the levels of the Swiss Market Index and the S&P/ASX 200 Index
increased.
Because the hypothetical Final Basket Level
of 76.65 is less than the Buffer Level of 90.00% of the Initial Basket Level, the hypothetical Cash Settlement Amount for each
$1,000 Face Amount of notes will equal:
Cash Settlement Amount = $1,000 + ($1,000 ×
111.11% × (-23.35% + 10.00%)) = $851.67
Example 5. All of the Basket Underliers depreciate over
the term of the notes. The Final Basket Level is less than the Buffer Level, and therefore the Cash Settlement Amount is less than
the $1,000 Face Amount.
|
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
Basket Underlier & Basket Underlier Weighting
|
|
Initial Underlier Level
|
|
Hypothetical
Final Underlier Level
|
|
Appreciation / Depreciation
|
|
Multiplier
|
|
Column B x
Column D
|
EURO STOXX 50
®
Index (37.00% weighting)
|
|
2,973.22
|
|
1,253.51
|
|
- 57.84%
|
|
0.012444421
|
|
15.60
|
FTSE
®
100 Index (23.00% weighting)
|
|
6,710.13
|
|
5,047.36
|
|
- 24.78%
|
|
0.003427653
|
|
17.30
|
Tokyo Stock Price Index (23.00% weighting)
|
|
1,325.36
|
|
861.48
|
|
- 35.00%
|
|
0.017353776
|
|
14.95
|
Swiss Market Index (9.00% weighting)
|
|
8,194.41
|
|
6,327.72
|
|
- 22.78%
|
|
0.001098310
|
|
6.95
|
S&P/ASX 200 Index (8.00% weighting)
|
|
5,533.563
|
|
3,596.816
|
|
- 35.00%
|
|
0.001445723
|
|
5.20
|
|
|
|
|
|
|
Final Basket Level:
|
|
60.00
|
|
|
|
|
|
|
Basket Return:
|
|
-40.00%
|
In this example, all of the hypothetical
Final Underlier Levels are less than the applicable Initial Underlier Levels, which results in the hypothetical Final Basket Level
being significantly less than the Initial Basket Level of 100.00. Because the hypothetical Final Basket Level of 60.00 is
less than the
Buffer
Level of 90.00% of the Initial Basket Level, the hypothetical Cash Settlement Amount for each $1,000 Face Amount of notes will
equal:
Cash Settlement Amount = $1,000
+ ($1,000 × 111.11% × (-40.00% + 10.00%)) = $666.67
RISK
FACTORS
The following is a non-exhaustive list of certain key risk factors for investors in the notes. For further discussion of these and other risks, you should read the section entitled “Risk Factors” in the accompanying product supplement and prospectus. We also urge you to consult your investment, legal, tax, accounting and other advisers in connection with your investment in the notes.
|
The Notes Do Not Pay Interest Or Guarantee
The Return Of Any Of Your Principal
The terms of the notes differ from those of ordinary debt securities
in that the notes do not pay interest and do not guarantee any return of principal at maturity. If the Final Basket Level has declined
by an amount greater than the Buffer Amount of 10.00% from the Initial Basket Level, you will receive for each note that you hold
a Cash Settlement Amount that is less than the Face Amount of each note by an amount proportionate to the decline in the level
of the Basket below 90.00% of the Initial Basket Level times the Buffer Rate of approximately 111.11%. As there is no minimum Cash
Settlement Amount on the notes, you could lose your entire initial investment.
Also, the market price of your notes prior to the Stated Maturity
Date may be significantly lower than the purchase price you pay for your notes. Consequently, if you sell your notes before the
Stated Maturity Date, you may receive significantly less than the amount of your investment in the notes.
The Appreciation Potential Of The Notes
Is Limited By The Maximum Settlement Amount
The appreciation potential of the notes is limited by the Maximum
Settlement Amount of
$1,277.50
per note, or
127.75% of the Face Amount. Although the Upside Participation Rate provides 150% exposure to any increase in the Final Basket Level
over the Initial Basket Level, because the Cash Settlement Amount will be limited to 127.75% of the Face Amount for the notes,
any increase in the Final Basket Level beyond 118.50% of the Initial Basket Level will not further increase the return on the notes.
If You Purchase Your Notes At A Premium
To The Face Amount, The Return On Your Investment Will Be Lower Than The Return On Notes Purchased At The Face Amount, And The
Impact Of Certain Key Terms Of The Notes Will Be Negatively Affected
The Cash Settlement Amount will not be adjusted based on the
issue price you pay for the notes. If you purchase notes at a price that differs from the Face Amount of notes, then the return
on your investment in such notes held to the Stated Maturity Date will differ from, and may be substantially less than, the return
on notes purchased at the Face Amount. If you purchase your notes at a premium to the Face Amount and hold them to the Stated Maturity
Date, the return on your investment in the notes will be lower than it would have been had you purchased the notes at the Face
Amount or at a discount to the Face Amount. In addition, the impact of the Buffer Level and the Cap Level on the return on your
investment will depend upon the price you pay for your notes relative to the Face Amount. For example, if you purchase your notes
at a premium to the Face Amount, the Cap Level will reduce your potential percentage return on the notes to a greater extent than
would have been the case for notes purchased at the Face Amount or at a discount to the Face Amount. Similarly, the Buffer Level
will provide less protection of the investment amount for notes purchased at a premium to the Face Amount than for notes purchased
at the Face Amount or a discount to the Face Amount.
The Basket Underliers Reflect The Price
Return Of The Stocks Composing Each Basket Underlier, Not A Total Return
The return on the notes is based on the performance of the Basket
Underliers, which reflect the changes in the market prices of the stocks composing each Basket Underlier. The Basket Underliers
are not, however, “total return” indices, which, in addition to reflecting the price returns of their respective component
stocks, would also reflect all dividends and other distributions paid on such component stocks. The return on the notes will not
include such a total return feature.
The Market Price Will Be Influenced By
Many Unpredictable Factors
Several factors, many of which are beyond our control, will influence
the value of the notes in the secondary market and the price at which MS & Co. may be willing to purchase or sell the notes
in the
secondary market, including: the level of the Basket and each
Basket Underlier at any time, volatility (frequency and magnitude of changes in value) of each of the Basket Underliers, the dividend
yield of the component stocks of each Basket Underlier, the actual or expected positive or negative correlation among the Basket
Underliers, or the actual or expected absence of any such correlation, interest and yield rates, time remaining to maturity, geopolitical
conditions and economic, financial, political and regulatory or judicial events that affect the Basket Underliers or equities markets
generally and which may affect the Final Underlier Levels of the Basket Underliers and any actual or anticipated changes in our
credit ratings or credit spreads. The levels of the Basket Underliers may be, and have been, volatile, and we can give you no assurance
that the volatility will lessen. See “The Basket and The Basket Underliers ” below. You may receive less, and possibly
significantly less, than the Face Amount per note if you try to sell your notes prior to maturity.
The Notes 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 Notes
You are dependent on our ability to pay all amounts due on the
notes at maturity, and therefore you are subject to our credit risk. If we default on our obligations under the notes, your investment
would be at risk and you could lose some or all of your investment. As a result, the market value of the notes 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 notes.
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
the notes if they make claims in respect of such notes 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 the notes should accordingly assume that in any such proceedings
they could 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.
The Amount Payable On The Notes Is Not
Linked To The Levels Of The Basket Underliers At Any Time Other Than The Determination Date
The Final Basket Level will be based on the Closing Levels of
the Basket Underliers on the Determination Date, subject to adjustment for non-Trading Days and certain market disruption events.
Even if the levels of some or all of the Basket Underliers appreciate prior to the Determination Date but then drop by the Determination
Date, the Cash Settlement Amount may be less, and may be significantly less, than it would have been had the Cash Settlement Amount
been linked to the levels of the Basket Underliers prior to such drop. Although the actual levels of the Basket Underliers on the
Stated Maturity Date or at other times during the term of the notes may be higher than the Final Underlier Levels on the Determination
Date, the Cash Settlement Amount will be based solely on the Closing Levels of the Basket Underliers on the Determination Date
as compared to their respective Initial Underlier Levels.
Changes In The Level Of One Or More Of
The Basket Underliers May Offset Changes In The Levels Of The Others
Movements in the levels of the Basket Underliers may not correlate
with each other. At a time when the level of one or more Basket Underliers increases, the level of one or more of the other Basket
Underliers may not increase as much, or may decline. Therefore, in calculating the Basket Return, increases in the level of one
or more Basket Underliers may be moderated, or wholly offset, by lesser increases or declines in the level of one or more of the
other Basket Underliers. Further, the Basket is not equally weighted among the Basket Underliers. Decreases in the level of a more
heavily weighted Basket Underlier could moderate or wholly offset increases in the levels of the less heavily weighted Basket Underliers.
If the Final Basket Level has declined by an amount greater than the Buffer Amount of
10.00% from the Initial Basket Level, you will receive at maturity
an amount that is less, and may be significantly less, than the Face Amount of your notes, and which could be zero.
The Notes Are Linked
To The Basket Underliers And Are Subject To Risks Associated With Investments In Securities Linked To The Value Of Foreign Equity
Securities
The notes are linked to the value of foreign
equity securities. Investments in securities linked to the value of foreign equity securities involve risks associated with the
securities markets in those countries, including risks of volatility in those markets, governmental intervention in those markets
and cross-shareholdings in companies in certain countries. Although the equity securities included in the Basket Underliers are
traded in foreign currencies, the value of your notes (as measured in U.S. dollars) will not be adjusted for any exchange rate
fluctuations. Also, there is generally less publicly available information about foreign companies than about U.S. companies that
are subject to the reporting requirements of the United States Securities and Exchange Commission, and foreign companies are subject
to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting companies.
The prices of securities issued in foreign markets may be affected by political, economic, financial and social factors in those
countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws. Local securities
markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries may differ favorably
or unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payment positions.
Investing In The Notes Is Not Equivalent
To Investing In The Basket Underliers Or The Stocks Composing The Basket Underliers
Investing in the notes is not equivalent to investing in the
Basket Underliers or the stocks that constitute the Basket Underliers. Investors in the notes will not have voting rights or rights
to receive dividends or other distributions or any other rights with respect to stocks that constitute the Basket Underliers.
Adjustments To The Basket Underliers Could
Adversely Affect The Value Of The Notes
The publisher of each Basket Underlier may add, delete or substitute
the stocks constituting such Basket Underlier or make other methodological changes that could change the level of such Basket Underlier.
The publisher of each Basket Underlier may also discontinue or suspend calculation or publication of such Basket Underlier 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 Basket Underlier and is permitted to consider indices that are calculated and published by the calculation
agent or any of its affiliates. If the calculation agent determines that there is no appropriate successor index, the Final Underlier
Level for such Basket Underlier will be determined based on the closing prices at maturity of the securities composing the Basket
Underlier at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance
with the formula for calculating such Basket Underlier last in effect prior to discontinuance of such Basket Underlier.
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
Notes In The Original Issue Price Reduce The Economic Terms Of The Notes, Cause The Estimated Value Of The Notes 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 notes 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 notes in the Original Issue Price and the lower rate we are willing to pay as issuer make the economic terms of the
notes less favorable to you than they otherwise would be.
However, because the costs associated with issuing, selling,
structuring and hedging the notes 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 notes in the secondary market, absent changes in market conditions, including
those related to the Basket Underliers, 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 Notes 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 notes than those generated by others, including other dealers in the market, if they attempted to value the notes.
In addition, the estimated value on the Trade Date does not represent a minimum or maximum price at which dealers, including MS
& Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value of your notes
at any time after the date hereof 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.
The Notes Will Not Be Listed On Any Securities
Exchange And Secondary Trading May Be Limited
The notes will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the notes. MS & Co. may, but is not obligated to, make a market in the notes
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 notes, 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 notes. Even if
there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Since other broker-dealers
may not participate significantly in the secondary market for the notes, the price at which you may be able to trade your notes
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 notes, it is likely that there would be no secondary market for the notes. Accordingly, you should be willing
to hold your notes to maturity.
The Calculation Agent, Which Is A Subsidiary
Of Morgan Stanley And An Affiliate Of MSFL, Will Make Determinations With Respect To The Notes
As calculation agent, MS & Co. has determined the Initial
Underlier Levels, will determine the Final Underlier Levels and the Final Basket Level and will calculate the Cash Settlement Amount
you receive 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 non-occurrence of market
disruption events and the selection of a successor index or calculation of the Final Underlier Level in the event of a market disruption
event with respect to a Basket Underlier or discontinuance of a Basket Underlier. These potentially subjective determinations may
adversely affect the Cash Settlement Amount at maturity, if any. For further information regarding these types of determinations,
see “Description of PLUS—Postponement of Valuation Date(s)” and “—Calculation Agent and Calculations”
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the notes on the Trade
Date.
Hedging And Trading Activity By Our Affiliates
Could Potentially Adversely Affect The Value Of The Notes
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 notes, including trading in the stocks that constitute
the Basket Underliers
as well as in other instruments related to the Basket Underliers.
As a result, these entities may be unwinding or adjusting hedge positions during the term of the notes, and the hedging strategy
may involve greater and more frequent dynamic adjustments to the hedge as the Determination Date approaches. Some of our affiliates
also trade the stocks that constitute the Basket Underliers and other financial instruments related to the Basket Underliers 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 Trade Date could have increased the Initial Underlier Levels, and, therefore, could have increased the levels at or above
which the Basket Underliers must close on the Determination Date so that investors do not suffer a loss on their initial investment
in the notes. Additionally, such hedging or trading activities during the term of the notes, including on the Determination Date,
could adversely affect the levels of the Basket Underliers on the Determination Date, and, accordingly, the Cash Settlement Amount
an investor will receive at maturity, if any. Furthermore, if the dealer from which you purchase notes is to conduct trading and
hedging activities for us in connection with the notes, that dealer may profit in connection with such trading and hedging activities
and such profit, if any, will be in addition to any compensation that the dealer receives for the sale of the notes to you. You
should be aware that the potential to earn a profit in connection with hedging activities may create a further incentive for the
dealer to sell the notes to you, in addition to any compensation they would receive for the sale of the notes.
We May Sell An Additional Aggregate Face
Amount Of Notes At A Different Issue Price
At our sole option, we may decide to sell an additional aggregate
Face Amount of notes subsequent to the date hereof. The issue price of the notes in the subsequent sale may differ substantially
(higher or lower) from the issue price you paid as provided on the cover of this document.
Past Performance is No Guide to Future
Performance
The actual performance of the Basket Underliers over the term
of the notes, as well as the amount payable at maturity, may bear little relation to the historical Closing Levels of the Basket
Underliers or to the hypothetical return examples set forth herein. We cannot predict the future performance of the Basket Underliers.
The U.S. Federal Income Tax Consequences
Of An Investment In The Notes Are Uncertain
Please read the discussion under “Tax Considerations”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement (together
the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of an investment in the notes. If
the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment, the timing and character
of income on the notes might differ significantly from the tax treatment described in the Tax Disclosure Sections. For example,
under one possible treatment, the IRS could seek to recharacterize the notes as debt instruments. In that event, U.S. Holders would
be required to accrue into income original issue discount on the notes every year at a “comparable yield” determined
at the time of issuance and recognize all income and gain in respect of the notes as ordinary income. Additionally, as discussed
under “United States Federal Taxation—FATCA Legislation” in the accompanying product supplement, the withholding
rules commonly referred to as “FATCA” would apply to the notes if they were recharacterized as debt instruments. The
risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the notes, would
be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not have
such features. We do not plan to request a ruling from the IRS regarding the tax treatment of the notes, and the IRS or a court
may not agree with the tax treatment described in the Tax Disclosure Sections.
In 2007, the U.S. Treasury Department and the IRS released a
notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment.
It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded
status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to
which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether
these instruments are or should be subject to the “constructive ownership” rule, which very
generally can operate to recharacterize certain long-term capital
gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective
dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the notes, possibly with retroactive effect. Both U.S. and Non-U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the notes, 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.
THE BASKET
AND THE BASKET UNDERLIERS
The Basket
The Basket consists of five Basket Underliers with the following
weightings within the Basket: the EURO STOXX 50
®
Index (37.00%), the FTSE
®
100 Index (23.00%), the
Tokyo Stock Price Index (23.00%), the Swiss Market Index (9.00%) and the S&P/ASX 200 Index (8.00%).
The actual performance
of the Basket and the Basket Underliers over the term of the notes, as well as the Cash Settlement Amount you receive at maturity,
if any, may bear little relation to the historical levels of the Basket and the Basket Underliers or to the hypothetical return
examples set forth herein.
Historical Information
The following graph is calculated to show the performance of
the Basket during the period from January 1, 2011 through July 25, 2016, assuming the Basket Underliers were weighted as set forth
herein and that the weightings were set on January 1, 2011 such that the initial basket level of the Basket were 100, and illustrates
the effect of the offset and/or correlation among the Basket Underliers during such period. The graph does not take into account
the Upside Participation Rate or the Buffer Level, nor does it attempt to show your expected return on an investment in the notes.
The historical values of the Basket should not be taken as an indication of its future performance.
The EURO STOXX 50
®
Index
The EURO STOXX 50
®
Index was created by STOXX
Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50
®
Index began
on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50
®
Index is
composed of 50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes stocks selected
from the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across all market sectors.
For additional information about the EURO STOXX 50
®
Index, see the information set forth under “EURO STOXX
50
®
Index” in the accompanying index supplement.
Information as of market close on July 25, 2016:
Bloomberg Ticker Symbol:
|
SX5E
|
Current Index Value:
|
2,973.22
|
The following graph sets forth
the daily Closing Levels of the EURO STOXX 50
®
Index for each quarter in the period from January 1, 2011 through
July 25, 2016
. The Closing Level of the EURO STOXX 50
®
Index on
July
25, 2016
was 2,973.22. We obtained the information in the graph below from Bloomberg Financial Markets
without independent verification. The EURO STOXX 50
®
Index has at times experienced periods of high volatility.
The actual performance of the EURO STOXX 50
®
Index over the term of the notes may bear little relation to the historical
Closing Levels of the EURO STOXX 50
®
Index or to the hypothetical return examples set forth herein. We cannot predict
the future performance of the EURO STOXX 50
®
Index. You should not take the historical levels of the EURO STOXX
50
®
Index as an indication of its future performance, and no assurance can be given as to the Closing Level of the
EURO STOXX 50
®
Index on the Determination Date.
License Agreement between Morgan Stanley and STOXX Limited
“EURO STOXX 50
®
” and “STOXX
®
”
are registered trademarks of STOXX Limited and have been licensed for use for certain purposes by Morgan Stanley. For more information,
see “EURO STOXX 50
®
Index” in the accompanying index supplement.
The FTSE
®
100 Index
The FTSE
®
100 Index, which is calculated, published
and disseminated by FTSE International Limited, is a free-float-adjusted index which measures the composite price performance of
stocks of the largest 100 companies (determined on the basis of market capitalization) traded on the London Stock Exchange. The
100 stocks included in the FTSE
®
100 Index (the “FTSE Underlying Stocks”) are selected from a reference
group of stocks trading on the London Stock Exchange which are in turn selected by excluding certain stocks that have low liquidity
based on public float, accuracy and reliability of prices, size and number of trading days. The FTSE Underlying Stocks are selected
from this reference group by selecting 100 stocks with the largest market value. For additional information about the FTSE
®
100 Index, see the information set forth under “FTSE
TM
100 Index” in the accompanying index supplement.
Information as of market close on July 25, 2016:
Bloomberg Ticker Symbol:
|
UKX
|
Current Index Value:
|
6,710.13
|
The following graph sets forth the daily Closing Levels of the
FTSE
®
100 Index for each quarter in the period from January 1, 2011 through July 25, 2016. The Closing Level of
the FTSE
®
100 Index on July 25, 2016 was 6,710.13. We obtained the information in the graph below from Bloomberg
Financial Markets without independent verification. The FTSE
®
100 Index has at times experienced periods of high
volatility. The actual performance of the FTSE
®
100 Index over the term of the notes may bear little relation to
the historical Closing Levels of the FTSE
®
100 Index or to the hypothetical return examples set forth herein. We
cannot predict the future performance of the FTSE
®
100 Index. You should not take the historical levels of the FTSE
®
100 Index as an indication of its future performance, and no assurance can be given as to the Closing Level of the FTSE
®
100 Index on the Determination Date.
License Agreement between Morgan Stanley and FTSE International
Limited
“FTSE
TM
” and “Footsie
TM
”
are trademarks of London Stock Exchange Plc and The Financial Times Limited and are used by FTSE International Limited and Morgan
Stanley under license. For more information, see “FTSE
TM
100 Index” in the accompanying index supplement.
The Tokyo Stock Price Index
The Tokyo Stock Price Index (the “TOPIX Index
®
”)
is published by the Tokyo Stock Exchange, Inc. (“TSE”). The TOPIX Index
®
was developed by the TSE. Publication
of the TOPIX Index
®
began on July 1, 1969, based on a base index value of 100 as of January 4, 1968. The TSE domestic
stock market is divided into two sections: the First Section and the Second Section. Listings of stocks on the TSE are divided
between these two sections, with stocks listed on the First Section typically being limited to larger, longer-established and more
actively traded issues and the Second Section to smaller and newly listed companies. The component stocks of the TOPIX Index
®
consist of all domestic common stocks listed on the First Section of the TSE. The TOPIX Index
®
is computed and published
every second via TSE’s Market Information System, and is reported to securities companies across Japan and available worldwide
through computerized information networks. For additional information about the TOPIX Index
®
, see the information
set forth under “Tokyo Stock Price Index” in the accompanying index supplement.
Information as of market close
on
July 25, 2016
:
Bloomberg Ticker Symbol:
|
TPX
|
Current Index Value:
|
1,325.36
|
The following graph sets forth
the daily Closing Levels of the TOPIX Index
®
for each quarter in the period from January 1, 2011 through
July
25, 2016
. The Closing Level of the TOPIX Index
®
on
July 25, 2016
was 1,325.36. We obtained the information in the graph below from Bloomberg Financial Markets without independent verification.
The TOPIX Index
®
has at times experienced periods of high volatility. The actual performance of the TOPIX Index
®
over the term of the notes may bear little relation to the historical Closing Levels of the TOPIX Index
®
or to the
hypothetical return examples set forth herein. We cannot predict the future performance of the TOPIX Index
®
. You
should not take the historical levels of the TOPIX Index
®
as an indication of its future performance, and no assurance
can be given as to the Closing Level of the TOPIX Index
®
on the Determination Date.
License Agreement between Morgan Stanley and TSE
“TOPIX
®
” and “TOPIX Index
®
”
are trademarks of the TSE and have been licensed for use by Morgan Stanley. For more information, see “Tokyo Stock Price
Index” in the accompanying index supplement.
The Swiss Market Index
The Swiss Market Index (“SMI
®
”) represents
approximately 85% of the free-float capitalization of the Swiss equity market. The Swiss Market Index
consists of the
20 largest and most liquid equities of the Swiss Performance Index
®
. The composition of the Swiss Market Index is
reviewed annually, and in order to ensure a high degree of continuity in the composition of the Swiss Market Index, the component
stocks are subject to a special procedure for adding them to the Swiss Market Index or removing them based on free-float market
capitalization and liquidity. For additional information about the Swiss Market Index, see the information set forth under “Swiss
Market Index” in the accompanying index supplement.
Information as of market close
on
July 25, 2016
:
Bloomberg Ticker Symbol:
|
SMI
|
Current Index Value:
|
8,194.41
|
The following graph sets forth
the daily Closing Levels of the Swiss Market Index for each quarter in the period from January 1, 2011 through
July 25,
2016
. The Closing Level of the Swiss Market Index on
July 25, 2016
was 8,194.41. We obtained the information in the graph below from Bloomberg Financial Markets without independent verification.
The Swiss Market Index has at times experienced periods of high volatility. The actual performance of the Swiss Market Index over
the term of the notes may bear little relation to the historical Closing Levels of the Swiss Market Index or to the hypothetical
return examples set forth herein. We cannot predict the future performance of the Swiss Market Index. You should not take the historical
levels of the Swiss Market Index as an indication of its future performance, and no assurance can be given as to the Closing Level
of the Swiss Market Index on the Determination Date.
License Agreement between Morgan Stanley and SIX Swiss Exchange
SMI
®
is a trademark of SIX Swiss Exchange and
has been licensed for use by Morgan Stanley. For more information, see “Swiss Market Index” in the accompanying index
supplement.
The S&P/ASX 200 Index
The S&P/ASX 200 Index is Australia’s large-capitalization
tradable equity index and Australia’s institutional benchmark. The S&P/ASX 200 Index measures the performance of the
200 largest index-eligible stocks listed on the Australian Securities Exchange by float-adjusted market capitalization. Only stocks
that are actively and regularly traded are considered for inclusion in the S&P/ASX 200 Index. The index is float-adjusted,
and, as of August 2014, covers approximately 80% of Australian equity market capitalization.
For
additional information about the S&P/ASX 200 Index, see the information set forth under “S&P/ASX 200 Index”
in the accompanying index supplement.
Information as of market close on July 25, 2016:
Bloomberg Ticker Symbol:
|
AS51
|
Current Index Value:
|
5,533.563
|
The following graph sets forth the daily Closing Levels of the
S&P/ASX 200 Index
for each quarter in the period from January 1, 2011 through July 25,
2016. The Closing Level of the
S&P/ASX 200 Index
on July 25, 2016 was 5,533.563. We obtained
the information in the graph below from Bloomberg Financial Markets without independent verification. The
S&P/ASX
200 Index
has at times experienced periods of high volatility. The actual performance of the
S&P/ASX
200 Index
over the term of the notes may bear little relation to the historical Closing Levels of the
S&P/ASX
200 Index
or to the hypothetical return examples set forth herein. We cannot predict the future performance of the
S&P/ASX
200 Index
. You should not take the historical levels of the
S&P/ASX 200 Index
as
an indication of its future performance, and no assurance can be given as to the Closing Level of the
S&P/ASX
200 Index
on the Determination Date.
License Agreement between Morgan Stanley and S&P
“Standard & Poor’s
®
,” “S&P
®
”
and “S&P/ASX 200
®
” are trademarks of Standard and Poor’s Financial Services LLC and have been
licensed for use by S&P Dow Jones Indices LLC and Morgan Stanley. For more information, see “
S&P/ASX
200 Index
” in the accompanying index supplement.
TAX CONSIDERATIONS
Although there is uncertainty
regarding the U.S. federal income tax consequences of an investment in the notes due to the lack of governing authority, in the
opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a note should
be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
Assuming this treatment
of the notes is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product
supplement, the following U.S. federal income tax consequences should result based on current law:
|
§
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A U.S. Holder should not be required to
recognize taxable income over the term of the notes prior to settlement, other than pursuant to a sale or exchange.
|
|
§
|
Upon sale, exchange or settlement of the
notes, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s
tax basis in the notes. Such gain or loss should be long-term capital gain or loss if the investor has held the notes for more
than one year, and short-term capital gain or loss otherwise.
|
In 2007,
the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on
the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in
particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks
for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status
of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which
income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these
instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize
certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate
transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues
could materially and adversely affect the tax consequences of an investment in the notes, possibly with retroactive effect.
Both U.S.
and non-U.S. investors considering an investment in the notes should read the discussion under “Risk Factors” in this
document and the discussion under “United States Federal Taxation” in the accompanying product supplement and consult
their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the notes, including possible
alternative treatments, the issues presented by the aforementioned notice and any tax consequences arising under the laws of any
state, local or non-U.S. taxing jurisdiction.
The discussion
in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying product supplement, insofar as they purport to describe provisions of U.S. federal
income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding
the material U.S. federal tax consequences of an investment in the notes.
CONTACT
Morgan Stanley clients may contact their local Morgan Stanley
branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776).
All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured
Investment Sales at (800) 233-1087.
WHERE
YOU CAN FIND MORE INFORMATION
MSFL and Morgan Stanley have filed a registration statement (including
a prospectus, as supplemented by the product supplement 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, the index supplement and any other documents relating to this offering that MSFL and Morgan Stanley have filed
with the SEC for more complete information about MSFL, Morgan Stanley and this offering. You may get these documents without cost
by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, MSFL and/or Morgan Stanley will arrange to send you the product
supplement, index supplement and prospectus if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at www.sec.gov.as
follows:
Prospectus dated February 16, 2016
Product Supplement dated February 29, 2016
Index Supplement dated February 29, 2016
Terms used but not defined in this document are defined in the
product supplement, in the index supplement or in the prospectus.
VALIDITY
OF THE NOTES
In the opinion of Davis
Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the notes 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 notes 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 notes 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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