|
August 2015
Preliminary Terms No.
455
Registration Statement
No. 333-200365
Dated July 30, 2015
Filed pursuant to Rule
433 |
Structured Investments
Opportunities in U.S. Equities
Contingent Income Auto-Callable Securities due
August 10, 2018
Based on the Performance of the Common Stock
of Under Armour, Inc.
Principal at Risk Securities
Contingent Income Auto-Callable Securities do not guarantee the
payment of interest or the repayment of principal. Instead, the securities offer the opportunity for investors to earn a contingent
quarterly coupon at an annual rate of 8.15%, but only with respect to each determination date on which the determination closing
price of the underlying stock is greater than or equal to 80% of the initial share price, which we refer to as the downside threshold
level. In addition, if the determination closing price of the underlying stock is greater than or equal to the initial share price
on any determination date, the securities will be automatically redeemed for an amount per security equal to the stated principal
amount and the contingent quarterly coupon. However, if the securities are not automatically redeemed prior to maturity, the payment
at maturity due on the securities will be either (i) the stated principal amount and the contingent quarterly coupon with respect
to the final determination date, if the final share price is greater than or equal to the downside threshold level, or (ii) a number
of shares of the underlying stock, or at our option the cash value thereof, if the final share price is less than the downside
threshold level. These shares or this amount of cash will be worth significantly less than the principal amount of the securities
and could be worth zero. Moreover, if on any determination date the determination closing price of the underlying stock is less
than the downside threshold level, you will not receive any contingent quarterly coupon for that quarterly period. As a result,
investors must be willing to accept the risk of not receiving any contingent quarterly coupons and also the risk of receiving shares
of the underlying stock, or the cash value thereof, that are worth significantly less than the stated principal amount of the securities
and could be worth zero. Accordingly, investors could lose their entire initial investment in the securities. The securities
are for investors who are willing to risk their principal and seek an opportunity to earn interest at a potentially above-market
rate in exchange for the risk of receiving few or no contingent quarterly coupons over the 3-year term of the securities. Investors
will not participate in any appreciation of the underlying stock. The securities are unsecured obligations of Morgan Stanley, issued
as part of Morgan Stanley’s Series F Global Medium-Term Notes program.
All payments are subject to the credit risk of Morgan Stanley.
If Morgan Stanley defaults on its obligations, you could lose some or all of your investment. These securities are not secured
obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or
assets.
SUMMARY
TERMS |
|
Issuer: |
Morgan Stanley |
Underlying
stock: |
Under Armour, Inc. common stock |
Aggregate
principal amount: |
$ |
Stated
principal amount: |
$10 per security |
Issue
price: |
$10 per security |
Pricing
date: |
August 7, 2015 |
Original
issue date: |
August 12, 2015 (3 business days after the pricing date) |
Maturity
date: |
August 10, 2018 |
Early
redemption: |
If, on any of the first eleven determination dates, the determination closing price of the underlying stock is greater than or equal to the initial share price, the securities will be automatically redeemed for an early redemption payment on the third business day following the related determination date. No further payments will be made on the securities once they have been redeemed. |
Early
redemption payment: |
The early redemption payment will be an amount equal to (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the related determination date. |
Determination
closing price: |
The closing price of the underlying stock on any determination date other than the final determination date times the adjustment factor on such determination date |
Contingent
quarterly coupon: |
· If,
on any determination date, the determination closing price or the final share price, as applicable, is greater than or equal to
the downside threshold level, we will pay a contingent quarterly coupon at an annual rate of 8.15% (corresponding to approximately
$0.20375 per quarter per security) on the related contingent payment date.
· If,
on any determination date, the determination closing price or the final share price, as applicable, is less than the downside threshold
level, no contingent quarterly coupon will be paid with respect to that determination date.
|
Determination
dates: |
November 9, 2015, February 8, 2016, May 9, 2016, August 10, 2016, November 7, 2016, February 7, 2017, May 8, 2017, August 7, 2017, November 7, 2017, February 7, 2018, May 7, 2018 and August 7, 2018, subject to postponement for non-trading days and certain market disruption events. We also refer to August 7, 2018 as the final determination date. |
Contingent
payment dates: |
With respect to each determination date other than the final determination date, the third business day after the related determination date. The payment of the contingent quarterly coupon, if any, with respect to the final determination date will be made on the maturity date. |
Payment
at maturity: |
· If the final share price is greater than or equal to the downside threshold level: |
(i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the final determination date |
|
· If the final share price is less than the downside threshold level: |
(i) a number of shares of the underlying stock equal to the product of the exchange ratio and the adjustment factor, each as of the final determination date, or (ii) at our option, the cash value of such shares as of the final determination date |
Exchange
ratio: |
, which is the stated principal amount divided by the initial share price |
Adjustment
factor: |
1.0, subject to adjustment in the event of certain corporate events affecting the underlying stock |
Downside
threshold level: |
$ , which is equal to 80% of the initial share price |
Initial
share price: |
$ , which is equal to the closing price of the underlying stock on the pricing date |
Final
share price: |
The closing price of the underlying stock on the final determination date times the adjustment factor on such date |
CUSIP: |
61765G762 |
ISIN: |
US61765G7622 |
Listing: |
The securities will not be listed on any securities exchange. |
Agent: |
Morgan Stanley & Co. LLC (“MS & Co.”), a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.” |
Estimated
value on the pricing date: |
Approximately $9.661 per security, or within $0.225 of that estimate. See “Investment Summary” beginning on page 2. |
Commissions and issue price: |
|
Price to public |
Agent’s commissions and fees |
Proceeds to issuer(3) |
Per security |
|
$10 |
$0.20(1) |
$9.75 |
|
|
|
$0.05(2) |
|
Total |
|
$ |
$ |
$ |
| (1) | Selected dealers, including Morgan Stanley Wealth
Management (an affiliate of the agent), and their financial advisors will collectively receive from the agent, MS & Co., a
fixed sales commission of $0.20 for each security they sell. See “Supplemental information regarding plan of distribution;
conflicts of interest.” For additional information, see “Plan of Distribution (Conflicts of Interest)” in the
accompanying product supplement. |
| (2) | Reflects a structuring fee payable to Morgan Stanley
Wealth Management by the agent or its affiliates of $0.05 for each security. |
| (3) | See “Use of proceeds and hedging” on page
20. |
The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 9.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement
and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not bank deposits and are not insured by
the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
You should read this document together with the related product
supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional Information
About the Securities” at the end of this document.
Product
Supplement for Auto-Callable Securities dated November 19, 2014 Prospectus
dated November 19, 2014
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
The Contingent Income Auto-Callable Securities
due August 10, 2018 Based on the Performance of the Common Stock of Under Armour, Inc., which we refer to as the securities, provide
an opportunity for investors to earn a contingent quarterly coupon at an annual rate of 8.15% with respect to each quarterly determination
date on which the determination closing price or the final share price, as applicable, is greater than or equal to 80% of the initial
share price, which we refer to as the downside threshold level. It is possible that the closing price of the underlying stock could
remain below the downside threshold level for extended periods of time or even throughout the term of the securities so that you
may receive few or no contingent quarterly coupons. If the determination closing price is greater than or equal to the initial
share price on any of the first eleven determination dates, the securities will be automatically redeemed for an early redemption
payment equal to the stated principal amount plus the contingent quarterly coupon with respect to the related determination
date. If the securities have not previously been redeemed and the final share price is greater than or equal to the downside threshold
level, the payment at maturity will also be the sum of the stated principal amount and the contingent quarterly coupon with respect
to the related determination date. However, if the securities have not previously been redeemed and the final share price is less
than the downside threshold level, investors will be exposed to the decline in the closing price of the underlying stock, as compared
to the initial share price, on a 1 to 1 basis and will receive (i) a number of shares of the underlying stock equal to the product
of the exchange ratio and the adjustment factor or (ii) at our option, the cash value of such shares. The value of such shares
(or that cash) will be less than 80% of the stated principal amount of the securities and could be zero. Investors in the securities
must be willing to accept the risk of losing their entire principal and also the risk of not receiving any contingent quarterly
coupon. In addition, investors will not participate in any appreciation of the underlying stock.
The original issue price of each security is
$10. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you,
and, consequently, the estimated value of the securities on the pricing date will be less than $10. We estimate that the value
of each security on the pricing date will be approximately $9.661, or within $0.225 of that estimate. Our estimate of the value
of the securities as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
stock. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying stock, instruments based on the underlying stock, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the contingent quarterly coupon rate and the downside threshold level, we use an internal funding rate, which is likely
to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and
hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the securities
would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the
securities in the secondary market, absent changes in market conditions, including those related to the underlying stock, may vary
from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary
market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type
and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not
fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy
or sell the securities in the
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
secondary market, absent changes in market
conditions, including those related to the underlying stock, and to our secondary market credit spreads, it would do so based on
values higher than the estimated value. We expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to,
make a market in the securities, and, if it once chooses to make a market, may cease doing so at any time.
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
quarterly coupon at an annual rate of 8.15% with respect to each determination date on which the determination closing price or
the final share price, as applicable, is greater than or equal to 80% of the initial share price, which we refer to as the downside
threshold level. The securities may be redeemed prior to maturity for the stated principal amount per security plus the
applicable contingent quarterly coupon, and the payment at maturity will vary depending on the final share price, as follows:
Scenario
1 |
On any of the first eleven determination
dates, the determination closing price is greater than or equal to the initial share price.
§ The
securities will be automatically redeemed for (i) the stated principal amount plus (ii) the contingent quarterly coupon
with respect to the related determination date.
§ Investors
will not participate in any appreciation of the underlying stock from the initial share price.
|
Scenario
2 |
The securities are not automatically redeemed
prior to maturity, and the final share price is greater than or equal to the downside threshold level.
§ The
payment due at maturity will be (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to
the final determination date.
§ Investors
will not participate in any appreciation of the underlying stock from the initial share price.
|
Scenario
3 |
The securities are not automatically redeemed
prior to maturity, and the final share price is less than the downside threshold level.
§ The
payment due at maturity will be (i) a number of shares of the underlying stock equal to the product of the exchange ratio and the
adjustment factor, each as of the final determination date, or (ii) at our option, the cash value of those shares as of the final
determination date.
§ Investors
will lose a significant portion, and may lose all, of their principal in this scenario.
|
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing price and (2) the final share price.
Diagram #1: First Eleven Determination Dates
Diagram #2: Payment at Maturity if No Automatic
Early Redemption Occurs
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
Hypothetical Examples
The below examples are based on the following terms:
Hypothetical Initial Share Price: |
$100.00 |
Hypothetical Downside Threshold Level: |
$80.00, which is 80% of the hypothetical initial share price |
Hypothetical Exchange Ratio: |
0.1 which is the stated principal amount divided by the hypothetical initial share price |
Hypothetical Adjustment Factor: |
1.0 |
Contingent Quarterly Coupon: |
8.15% per annum (corresponding to approximately $0.20375 per quarter per security)1 |
Stated Principal Amount: |
$10 per security |
1 The actual contingent quarterly coupon will be an
amount determined by the calculation agent based on the numbers of days in the applicable payment period, calculated on a 30/360
day count basis. The hypothetical contingent quarterly coupon of $0.20375 is used in these examples for ease of analysis.
In Examples 1 and 2, the closing price of the
underlying stock fluctuates over the term of the securities and the determination closing price of the underlying stock is greater
than or equal to the hypothetical initial share price of $100.00 on one of the first eleven determination dates. Because the determination
closing price is greater than or equal to the initial share price on one of the first eleven determination dates, the securities
are automatically redeemed following the relevant determination date. In Examples 3 and 4, the determination closing price on the
first eleven determination dates is less than the initial share price, and, consequently, the securities are not automatically
redeemed prior to, and remain outstanding until, maturity.
|
Example 1 |
Example 2 |
Determination Dates |
Hypothetical Determination Closing Price / Final Share Price |
Contingent Quarterly Coupon |
Early Redemption Amount* |
Hypothetical Determination Closing Price / Final Share Price |
Contingent Quarterly Coupon |
Early Redemption Amount |
#1 |
$76.00 |
$0 |
N/A |
$98.00 |
$0.20375 |
N/A |
#2 |
$100.00 |
—* |
$10.20375 |
$78.40 |
$0 |
N/A |
#3 |
N/A |
N/A |
N/A |
$96.00 |
$0.20375 |
N/A |
#4 |
N/A |
N/A |
N/A |
$76.80 |
$0 |
N/A |
#5 |
N/A |
N/A |
N/A |
$94.00 |
$0.20375 |
N/A |
#6 |
N/A |
N/A |
N/A |
$93.00 |
$0.20375 |
N/A |
#7 |
N/A |
N/A |
N/A |
$75.20 |
$0 |
N/A |
#8 |
N/A |
N/A |
N/A |
$92.00 |
$0.20375 |
N/A |
#9 |
N/A |
N/A |
N/A |
$90.00 |
$0.20375 |
N/A |
#10 |
N/A |
N/A |
N/A |
$120.00 |
—* |
$10.20375 |
#11 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
Final Determination Date |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
* The Early Redemption Amount includes the unpaid
contingent quarterly coupon with respect to the determination date on which the determination closing price is greater than or
equal to the initial share price and the securities are redeemed as a result.
| § | In Example 1, the securities are automatically redeemed following the second determination date, as the determination
closing price on the second determination date is equal to the initial share price. You receive the early redemption payment, calculated
as follows: |
stated principal
amount + contingent quarterly coupon = $10 + $0.20375 = $10.20375
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
In this
example, the early redemption feature limits the term of your investment to approximately 6 months, and you may not be able to
reinvest at comparable terms or returns. If the securities are redeemed early, you will stop receiving contingent coupons.
| § | In Example 2, the securities are automatically redeemed following the tenth determination date, as the determination
closing price on the tenth determination date is greater than the initial share price. As the determination closing prices on the
first, third, fifth, sixth, eighth, ninth and tenth determination dates are greater than the downside threshold level, you receive
the contingent coupon of $0.20375 with respect to each such determination date. Following the tenth determination date, you receive
an early redemption amount of $10.20375, which includes the contingent quarterly coupon with respect to the tenth determination
date. |
In this example, the early redemption feature
limits the term of your investment to approximately 30 months, and you may not be able to reinvest at comparable terms or returns.
If the securities are redeemed early, you will stop receiving contingent coupons. Further, although the underlying stock has appreciated
by 20% from its initial share price as of the tenth determination date, you receive only $10.20375 per security and do not benefit
from such appreciation.
|
Example 3 |
Example 4 |
Determination Dates |
Hypothetical Determination Closing Price / Final Share Price |
Contingent Quarterly Coupon |
Early Redemption Amount |
Hypothetical Determination Closing Price / Final Share Price |
Contingent Quarterly Coupon |
Early Redemption Amount |
#1 |
$78.40 |
$0 |
N/A |
$77.60 |
$0 |
N/A |
#2 |
$76.80 |
$0 |
N/A |
$76.00 |
$0 |
N/A |
#3 |
$75.20 |
$0 |
N/A |
$74.40 |
$0 |
N/A |
#4 |
$68.80 |
$0 |
N/A |
$68.80 |
$0 |
N/A |
#5 |
$72.00 |
$0 |
N/A |
$70.40 |
$0 |
N/A |
#6 |
$64.00 |
$0 |
N/A |
$73.60 |
$0 |
N/A |
#7 |
$65.60 |
$0 |
N/A |
$65.60 |
$0 |
N/A |
#8 |
$69.60 |
$0 |
N/A |
$62.40 |
$0 |
N/A |
#9 |
$67.20 |
$0 |
N/A |
$66.40 |
$0 |
N/A |
#10 |
$66.40 |
$0 |
N/A |
$75.20 |
$0 |
N/A |
#11 |
$64.80 |
$0 |
N/A |
$66.80 |
$0 |
N/A |
Final Determination Date |
$60.00 |
$0 |
N/A |
$85.00 |
—* |
N/A |
Payment at Maturity |
$6.00 |
$10.20375 |
* The final contingent quarterly coupon, if
any, will be paid at maturity.
Examples 3 and 4 illustrate the payment at
maturity per security based on the final share price.
| § | In Example 3, the closing price of the underlying stock remains below the downside threshold level on every determination
date. As a result, you do not receive any contingent coupons during the term of the securities and, at maturity, you are fully
exposed to the decline in the closing price of the underlying stock. As the final share price is less than the downside threshold
level, investors will receive a number of shares of the underlying stock equal to the product of the exchange ratio and the adjustment
factor or the cash value thereof, calculated as follows: |
the cash value of 0.1 shares
of the underlying stock = $60.00 x 0.1 = $6.00
In this example, the value of shares you
receive at maturity is significantly less than the stated principal amount.
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
| § | In Example 4, the closing price of the underlying stock decreases to a final share price of $85.00. Although the final
share price is less than the initial share price, because the final share price is still not less than the downside threshold level,
you receive the stated principal amount plus a contingent quarterly coupon with respect to the final determination date. Your payment
at maturity is calculated as follows: |
$10 + $0.20375 = $10.20375
In this example, although the final share
price represents a 15% decline from the initial share price, you receive the stated principal amount per security plus the final
contingent quarterly coupon, equal to a total payment of $10.20375 per security at maturity, because the final share price is not
less than the downside threshold level.
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement and prospectus. You should also consult your investment, legal,
tax, accounting and other advisers in connection with your investment in the securities.
| § | The securities do not guarantee the return of any principal. The terms of the securities differ from those of ordinary
debt securities in that the securities do not guarantee the payment of regular interest or the return of any of the principal amount
at maturity. Instead, if the securities have not been automatically redeemed prior to maturity and if the final share price is
less than the downside threshold level, you will be exposed to the decline in the closing price of the underlying stock, as compared
to the initial share price, on a 1 to 1 basis and you will receive for each security that you hold at maturity a number of shares
of the underlying stock equal to the exchange ratio times the adjustment factor (or, at our option, the cash value of such
shares). The value of those shares (or that cash) will be less than 80% of the stated principal amount and could be zero. |
| § | You will not receive any contingent quarterly coupon for any quarterly period where the determination closing price is less
than the downside threshold level. A contingent quarterly coupon will be paid with respect to a quarterly period only if the
determination closing price is greater than or equal to the downside threshold level. If the determination closing price remains
below the downside threshold level on each determination date over the term of the securities, you will not receive any contingent
quarterly coupons. |
| § | The contingent quarterly coupon, if any, is based solely on the determination closing price or the final share price, as
applicable. Whether the contingent quarterly coupon will be paid with respect to a determination date will be based on the
determination closing price or the final share price, as applicable. As a result, you will not know whether you will receive the
contingent quarterly coupon until the related determination date. Moreover, because the contingent quarterly coupon is based solely
on the determination closing price on a specific determination date or the final share price, as applicable, if such determination
closing price or final share price is less than the downside threshold level, you will not receive any contingent quarterly coupon
with respect to such determination date, even if the closing price of the underlying stock was higher on other days during the
term of the securities. |
| § | Investors will not participate in any appreciation in the price of the underlying stock. Investors will not participate
in any appreciation in the price of the underlying stock from the initial share price, and the return on the securities will be
limited to the contingent quarterly coupon, if any, that is paid with respect to each determination date on which the determination
closing price or the final share price, as applicable, is greater than or equal to the downside threshold level. It is possible
that the closing price of the underlying stock could be below the downside threshold level on most or all of the determination
dates so that you will receive few or no contingent quarterly coupons. If you do not earn sufficient contingent quarterly coupons
over the term of the securities, the overall return on the securities may be less than the amount that would be paid on a conventional
debt security of the issuer of comparable maturity. |
| § | The automatic early redemption feature may limit the term of your investment to approximately three months. If the securities
are redeemed early, you may not be able to reinvest at comparable terms or returns.
The term of your investment in the securities may be limited to as short as approximately
three months by the automatic early redemption feature of the securities. If the securities are redeemed prior to maturity, you
will receive no more contingent quarterly coupons and may be forced to invest in a lower interest rate environment and may not
be able to reinvest at comparable terms or returns. |
| § | The market price will be influenced by many unpredictable factors. Several factors
will influence the value of the securities in the secondary market and the price at which MS & Co. may be willing to purchase
or sell the securities in the secondary market. Although we expect that generally the closing price of the underlying stock on
any day will affect the value of the securities more than any other single factor, other factors that may influence the value of
the securities include: |
| o | the trading price and volatility (frequency and magnitude of changes in value) of the underlying stock, |
| o | whether the determination closing price has been below the downside threshold level on any determination date, |
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
| o | dividend rates on the underlying stock, |
| o | interest and yield rates in the market, |
| o | time remaining until the securities mature, |
| o | geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stock
and which may affect the final share price of the underlying stock, |
| o | the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, and |
| o | any actual or anticipated changes in our credit ratings or credit spreads. |
The
price of the underlying stock may be, and has recently been, volatile, and we can give you no assurance that the volatility will
lessen. See “Under Armour, Inc. Overview” below. You may receive less, and possibly significantly less, than the stated
principal amount per security if you try to sell your securities prior to maturity.
| § | The securities are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings
or credit spreads may adversely affect the market value of the securities. You are dependent on Morgan Stanley’s ability
to pay all amounts due on the securities on each contingent payment date, upon automatic redemption or at maturity, and therefore
you are subject to the credit risk of Morgan Stanley. If Morgan Stanley defaults on its obligations under the securities, your
investment would be at risk and you could lose some or all of your investment. As a result, the market value of the securities
prior to maturity will be affected by changes in the market’s view of Morgan Stanley’s creditworthiness. Any actual
or anticipated decline in Morgan Stanley’s credit ratings or increase in the credit spreads charged by the market for taking
Morgan Stanley credit risk is likely to adversely affect the market value of the securities. |
| § | Investing in the securities is not equivalent to investing in the common stock of Under Armour, Inc.
Investors in the securities will not have voting rights or rights to receive dividends or other distributions or any other rights
with respect to the underlying stock. |
| § | No affiliation with Under Armour, Inc. Under Armour, Inc. is not an affiliate of ours, is not involved with this offering
in any way, and has no obligation to consider your interests in taking any corporate actions that might affect the value of the
securities. We have not made any due diligence inquiry with respect to Under Armour, Inc. in connection with this offering. |
| § | We may engage in business with or involving Under Armour, Inc. without regard to your interests. We or our affiliates
may presently or from time to time engage in business with Under Armour, Inc. without regard to your interests and thus may acquire
non-public information about Under Armour, Inc. Neither we nor any of our affiliates undertakes to disclose any such information
to you. In addition, we or our affiliates from time to time have published and in the future may publish research reports with
respect to Under Armour, Inc., which may or may not recommend that investors buy or hold the underlying stock. |
| § | The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect
the underlying stock. MS & Co., as calculation agent, will adjust the adjustment factor for certain corporate events affecting
the underlying stock, such as stock splits and stock dividends, and certain other corporate actions involving the issuer of the
underlying stock, such as mergers. However, the calculation agent will not make an adjustment for every corporate event that can
affect the underlying stock. For example, the calculation agent is not required to make any adjustments if the issuer of the underlying
stock or anyone else makes a partial tender or partial exchange offer for the underlying stock, nor will adjustments be made following
the final determination date. If an event occurs that does not require the calculation agent to adjust the adjustment factor, the
market price of the securities may be materially and adversely affected. |
| § | The securities will not be listed on any securities exchange and secondary trading may be limited. The securities will
not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS & Co.
may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so at any
time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on
its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of |
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
| |
unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able to resell the securities.
Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Since
other broker-dealers may not participate significantly in the secondary market for the securities, the price at which you may be
able to trade your securities is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any
time, MS & Co. were to cease making a market in the securities, it is likely that there would be no secondary market for the
securities. Accordingly, you should be willing to hold your securities to maturity. |
| § | The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices. Assuming no change in market conditions or any other relevant factors, the
prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities in secondary market transactions
will likely be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling,
structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary
market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary
market transaction of this type as well as other factors. |
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying stock, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
| § | The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price. These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this pricing supplement will vary based on many factors that cannot be predicted
with accuracy, including our creditworthiness and changes in market conditions. See also “The market price will be influenced
by many unpredictable factors” above. |
| § | Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the securities. One
or more of our subsidiaries and/or third-party dealers expect to carry out hedging activities related to the securities (and to
other instruments linked to the underlying stock), including trading in the underlying stock. As a result, these entities may be
unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more
frequent dynamic adjustments to the hedge as the final determination date approaches. Some of our subsidiaries also trade the underlying
stock and other financial instruments related to the underlying stock on a regular basis as part of their general broker-dealer
and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the
initial share price, and, as a result, the downside threshold level, which is the price at or above which the underlying stock
must close on each determination date in order for you to earn a contingent quarterly coupon, and, if the securities are not called
prior to maturity, in order for you to avoid being exposed to the negative price performance of the underlying stock at maturity.
Additionally, such hedging or trading activities during the term of the securities could potentially affect the price of the underlying
stock on the determination dates, and, accordingly, whether the securities are automatically called prior to maturity, and, if
the securities are not called prior to maturity, the payout to you at maturity, if any. |
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
| § | The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the securities.
As calculation agent, MS & Co. will determine the initial share price, the downside threshold level, the final share price,
whether the contingent quarterly coupon will be paid on each contingent payment date, whether the securities will be redeemed following
any determination date, whether a market disruption event has occurred, whether to make any adjustments to the adjustment factor
and the payment that you will receive upon an automatic early redemption or at maturity, if any. Moreover, certain determinations
made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments,
such as with respect to the occurrence or nonoccurrence of market disruption events and certain adjustments to the adjustment factor.
These potentially subjective determinations may affect the payout to you upon an automatic early redemption or at maturity, if
any. For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable
Securities Linked to Underlying Shares” and “—Calculation Agent and Calculations” in the accompanying product
supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date. |
| § | The U.S. federal income tax consequences of an investment in the securities are uncertain. There is no direct legal
authority as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects
of the tax treatment of the securities are uncertain. |
Please read the discussion under
“Additional Provisions—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities
every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference, if any,
between the actual and the projected amount of any contingent payments on the securities) and recognize all income and gain in
respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features. Non-U.S. Holders should note that we currently intend to withhold
on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified by an applicable income tax treaty
under an “other income” or similar provision, and will not be required to pay any additional amounts with respect to
amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance issued after consideration of these issues
could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect.
The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and timing
of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax.
Both U.S. and Non-U.S. Holders (as defined below) should consult their tax advisers regarding the U.S. federal income tax consequences
of an investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax
consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
Under Armour, Inc. Overview
Under Armour, Inc. develops, markets and distributes branded
performance apparel, footwear and accessories for men, women and youth. The underlying stock is registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Information provided to or filed with the Securities and Exchange
Commission by Under Armour, Inc. pursuant to the Exchange Act can be located by reference to the Securities and Exchange Commission
file number 001-33202 through the Securities and Exchange Commission’s website at.www.sec.gov.
In addition, information regarding Under Armour, Inc. may be obtained from other sources including, but not limited to, press releases,
newspaper articles and other publicly disseminated documents. Neither the issuer nor the agent makes any representation that
such publicly available documents or any other publicly available information regarding the issuer of the underlying stock is accurate
or complete.
Information as of market close on July 29, 2015:
Bloomberg Ticker Symbol: |
UA |
Exchange: |
NYSE |
Current Stock Price: |
$98.82 |
52 Weeks Ago: |
$59.91 |
52 Week High (on 7/29/2015): |
$98.82 |
52 Week Low (on 10/13/2014): |
$61.64 |
Current Dividend Yield: |
N/A |
The following table sets forth the published
high and low closing prices of, as well as dividends on, the underlying stock for each quarter from January 1, 2012 through July
29, 2015. The closing price of the underlying stock on July 29, 2015 was $98.82. The associated graph shows the closing prices
of the underlying stock for each day from January 1, 2010 through July 29, 2015. We obtained the information in the table and graph
below from Bloomberg Financial Markets, without independent verification. The historical performance of the underlying stock should
not be taken as an indication of its future performance, and no assurance can be given as to the price of the underlying stock
at any time, including on the determination dates.
Common Stock of Under Armour, Inc. (CUSIP: 904311107) |
High ($) |
Low ($) |
Dividends ($) |
2012 |
|
|
|
First Quarter |
24.74 |
18.05 |
– |
Second Quarter |
26.61 |
22.25 |
– |
Third Quarter |
30.02 |
22.74 |
– |
Fourth Quarter |
29.64 |
23.71 |
– |
2013 |
|
|
|
First Quarter |
25.60 |
22.93 |
– |
Second Quarter |
32.15 |
25.28 |
– |
Third Quarter |
40.59 |
29.91 |
– |
Fourth Quarter |
43.65 |
38.18 |
– |
2014 |
|
|
|
First Quarter |
62.22 |
41.00 |
– |
Second Quarter |
59.65 |
46.24 |
– |
Third Quarter |
72.69 |
57.00 |
– |
Fourth Quarter |
72.49 |
61.64 |
– |
2015 |
|
|
|
First Quarter |
81.84 |
64.22 |
– |
Second Quarter |
87.76 |
76.74 |
– |
Third Quarter (through July 29, 2015) |
98.82 |
84.26 |
– |
We make no representation as to the amount
of dividends, if any, that Under Armour, Inc. may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable
Securities, you will not be entitled to receive dividends, if any, that may be payable on the common stock of Under Armour, Inc.
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
Common Stock of Under Armour, Inc. – Daily Closing Prices
January 1, 2010 to July 29, 2015 |
|
The red solid line indicates the hypothetical
downside threshold level, assuming the closing price of the underlying stock on July 29, 2015 were the initial share price.
This document relates only to the securities offered hereby
and does not relate to the underlying stock or other securities of Under Armour, Inc. We have derived all disclosures contained
in this document regarding Under Armour, Inc. stock from the publicly available documents described in the preceding paragraph.
In connection with the offering of the securities, neither we nor the agent has participated in the preparation of such documents
or made any due diligence inquiry with respect to Under Armour, Inc. Neither we nor the agent makes any representation that such
publicly available documents or any other publicly available information regarding Under Armour, Inc. is accurate or complete.
Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect
the accuracy or completeness of the publicly available documents described in the preceding paragraph) that would affect the trading
price of the underlying stock (and therefore the price of the underlying stock at the time we price the securities) have been publicly
disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning
Under Armour, Inc. could affect the value received at maturity with respect to the securities and therefore the value of the securities.
Neither the issuer nor any of its affiliates
makes any representation to you as to the performance of the underlying stock.
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
Additional Information About the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional
Provisions: |
|
|
Interest
period: |
|
Quarterly |
Day
count convention: |
|
30/360 |
Record
date: |
|
The record date for each contingent payment date shall be the date one business day prior to such scheduled contingent payment date; provided, however, that any contingent quarterly coupon payable at maturity or upon redemption shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable. |
No
fractional shares: |
|
At maturity, if our payment is to be made in shares of the underlying stock, we will deliver the number of shares of the underlying stock due with respect to the securities, as described above, but we will pay cash in lieu of delivering any fractional share of the underlying stock in an amount equal to the corresponding fractional closing price of such fraction of a share of the underlying stock, as determined by the calculation agent as of the final determination date. |
Underlying
stock: |
|
The accompanying product supplement refers to the underlying stock as the “underlying shares.” |
Underlying
stock issuer: |
|
Under Armour, Inc. The accompanying product supplement refers to the underlying stock issuer as the “underlying company.” |
Postponement
of maturity date: |
|
If the scheduled final determination date is not a trading day or if a market disruption event occurs on that day so that the final determination date is postponed and falls less than two business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the second business day following that final determination date as postponed. |
Postponement
of contingent payment dates: |
|
If a contingent payment date (including the maturity date) is postponed as a result of the postponement of the relevant determination date, no adjustment shall be made to any contingent quarterly coupon paid on that postponed date. |
Antidilution adjustments: |
|
The following replaces in its entirety the portion of the section
entitled “Antidilution Adjustments” in the accompanying product supplement for auto-callable securities from the start
of paragraph 5 to the end of such section.
5. If (i) there occurs any reclassification or change of the underlying
stock, including, without limitation, as a result of the issuance of any tracking stock by the underlying stock issuer, (ii) the
underlying stock issuer or any surviving entity or subsequent surviving entity of the underlying stock issuer (the “successor
corporation”) has been subject to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory
exchange of securities of the underlying stock issuer or any successor corporation with another corporation occurs (other than
pursuant to clause (ii) above), (iv) the underlying stock issuer is liquidated, (v) the underlying stock issuer issues to all of
its shareholders equity securities of an issuer other than the underlying stock issuer (other than in a transaction described in
clause (ii), (iii) or (iv) above) (a “spin-off event”) or (vi) a tender or exchange offer or going-private transaction
is consummated for all the outstanding shares of the underlying stock (any such event in clauses (i) through (vi), a “reorganization
event”), the method of determining whether an early redemption has occurred and the amount payable upon an early redemption
date or at maturity for each security will be as follows:
· Upon
any determination date following the effective date of a reorganization event and prior to the final determination date: If the
exchange property value (as defined below) is greater than or equal to the initial share price, the securities will be automatically
redeemed for an early redemption payment.
· Upon
the final determination date, if the securities have not previously been automatically redeemed: You will receive for each security
that you hold a payment at maturity equal to:
Ø If
the exchange property value on the final determination date is greater than or equal to the downside threshold level: (i) the
stated principal amount plus (ii) the contingent quarterly coupon with respect to the final determination date
Ø If
the exchange property value on the final determination date is less than the downside threshold level: securities, cash or any
other assets distributed to holders of the underlying stock in or as a result of any such reorganization event, including (A) in
the case of the issuance of tracking stock, the reclassified share of the underlying stock, (B) in the case of a spin-off event,
the share of the underlying stock with respect to which the spun-off security was issued, and (C) in the case of any other reorganization
event where the underlying stock continues to be held by the holders receiving such distribution, the underlying stock (collectively,
the “exchange property”), in an amount equal to the exchange property delivered with respect to a number of shares
of the underlying stock equal to the exchange ratio times the adjustment factor, each determined at the time of the reorganization
event, or, at our sole option, the cash value of such exchange property as of the final determination date.
Following the effective date of a reorganization event, the contingent
quarterly coupon will be payable for each determination date on which the exchange property value is greater than or equal to the
downside threshold level.
If exchange property consists of more than one
type of property and we elect to deliver exchange property,
|
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
|
rather than the cash value thereof, we will
deliver to DTC, as holder of the securities, at maturity a pro rata share of each such type of exchange property. We expect that
such exchange property will be distributed to investors in accordance with the standard rules and procedures of DTC and its direct
and indirect participants. If exchange property includes a cash component, investors will not receive any interest accrued on such
cash component. In the event exchange property consists of securities, those securities will, in turn, be subject to the antidilution
adjustments set forth in paragraphs 1 through 5.
For purposes of determining whether or not the
exchange property value is less than the initial share price or less than the downside threshold level, “exchange property
value” means (x) for any cash received in any reorganization event, the value, as determined by the Calculation Agent, as
of the date of receipt, of such cash received for one share of the underlying stock, as adjusted by the adjustment factor at the
time of such reorganization event, (y) for any property other than cash or securities received in any such reorganization event,
the market value, as determined by the Calculation Agent in its sole discretion, as of the date of receipt, of such exchange property
received for one share of the underlying stock, as adjusted by the adjustment factor at the time of such reorganization event and
(z) for any security received in any such reorganization event, an amount equal to the closing price, as of the day on which the
exchange property value is determined, per share of such security multiplied by the quantity of such security received for each
share of the underlying stock, as adjusted by the adjustment factor at the time of such reorganization event.
For purposes of paragraph 5 above, in the case
of a consummated tender or exchange offer or going-private transaction involving consideration of particular types, exchange property
shall be deemed to include the amount of cash or other property delivered by the offeror in the tender or exchange offer (in an
amount determined on the basis of the rate of exchange in such tender or exchange offer or going-private transaction). In the event
of a tender or exchange offer or a going-private transaction with respect to exchange property in which an offeree may elect to
receive cash or other property, exchange property shall be deemed to include the kind and amount of cash and other property received
by offerees who elect to receive cash.
Following the occurrence of any reorganization
event referred to in paragraph 5 above, all references in this offering document and in the related product supplement with respect
to the securities to “the underlying stock” shall be deemed to refer to the exchange property and references to a “share”
or “shares” of the underlying stock shall be deemed to refer to the applicable unit or units of such exchange property,
unless the context otherwise requires.
No adjustment to the adjustment factor will
be required unless such adjustment would require a change of at least 0.1% in the adjustment factor then in effect. The adjustment
factor resulting from any of the adjustments specified above will be rounded to the nearest one hundred-thousandth, with five one-millionths
rounded upward. Adjustments to the adjustment factor will be made up to the close of business on the final determination date.
No adjustments to the adjustment factor or method
of calculating the adjustment factor will be required other than those specified above. The adjustments specified above do not
cover all events that could affect the determination closing price or the final share price of the underlying stock, including,
without limitation, a partial tender or exchange offer for the underlying stock.
The Calculation Agent shall be solely responsible
for the determination and calculation of any adjustments to the adjustment factor or method of calculating the adjustment factor
and of any related determinations and calculations with respect to any distributions of stock, other securities or other property
or assets (including cash) in connection with any corporate event described in paragraphs 1 through 5 above, and its determinations
and calculations with respect thereto shall be conclusive in the absence of manifest error.
The Calculation Agent will provide information as to any adjustments
to the adjustment factor or to the method of calculating the amount payable at maturity of the securities made pursuant to paragraph
5 above upon written request by any investor in the securities.
|
Listing: |
|
The securities will not be listed on any securities exchange. |
Minimum
ticketing size: |
|
$1,000 / 100 securities |
Trustee: |
|
The Bank of New York Mellon |
Calculation
agent: |
|
MS & Co. |
Tax considerations: |
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the securities
issued under this document and is superseded by the following discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of the ownership and disposition of the securities. This discussion
applies only to initial investors in the securities who:
· purchase
the securities at their “issue price,” which will equal the first price at which a substantial amount of the securities
is sold to the public (not including bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers); and
|
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
|
|
|
|
· hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
· certain
financial institutions;
· insurance
companies;
· certain
dealers and traders in securities or commodities;
· investors
holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive
sale transaction;
· U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
· partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
· regulated
investment companies;
· real
estate investment trusts;
· tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of
the Code, respectively; or
· persons
subject to the alternative minimum tax.
As the law applicable to the U.S. federal income
taxation of instruments such as the securities is technical and complex, the discussion below necessarily represents only a general
summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any consequences resulting
from the Medicare tax on investment income. In addition, this summary does not address the U.S. federal income tax consequences
of the ownership or disposition of the underlying stock should an investor receive the underlying stock at maturity. Investors
should consult their tax advisers regarding the potential U.S. federal income tax consequences of the ownership and disposition
of the underlying stock.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial or administrative authorities
that directly address the treatment of the securities or instruments that are similar to the securities for U.S. federal income
tax purposes, no assurance can be given that the IRS or a court will agree with the tax treatment described herein. We intend to
treat a security for U.S. federal income tax purposes as a single financial contract that provides for a coupon that will be treated
as gross income to you at the time received or accrued in accordance with your regular method of tax accounting. In the opinion
of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under current law; however, our counsel
has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative
treatments are possible.
You should consult your tax adviser regarding all aspects of
the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments of the securities).
Unless otherwise stated, the following discussion is based on the treatment of each security as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal
income tax purposes:
· a
citizen or individual resident of the United States;
· a
corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
· an
estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as set forth above is
respected, the following U.S. federal income tax consequences should result.
Tax Basis. A U.S. Holder’s tax basis in the securities
should equal the amount paid by the U.S. Holder to
|
Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
|
|
acquire the securities.
Tax Treatment of Coupon Payments. Any coupon payment on
the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in accordance with the U.S.
Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the Securities.
Upon a sale, exchange or settlement of the securities for cash, a U.S. Holder should recognize gain or loss equal to the difference
between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the securities sold, exchanged
or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include sale proceeds
attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should be long-term
capital gain or loss if the U.S. Holder has held the securities for more than one year at the time of the sale, exchange or settlement,
and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
A U.S. Holder that, upon settlement of the securities,
receives the underlying stock and cash in lieu of any fractional share should be treated as recognizing capital loss equal to the
difference between the amount of cash received in lieu of any fractional share and the pro rata portion of the U.S. Holder’s
tax basis in the security that is allocable to such fractional share, based on the amount of cash received and the fair market
value of the underlying stock received, as of the final determination date of the securities. The U.S. Holder should not recognize
any gain or loss with respect to any underlying stock received. The U.S. Holder should have a basis in the underlying stock equal
to the U.S. Holder’s tax basis in the security, other than any amount allocated to a fractional share. The holding period
for such underlying stock should start on the day after receipt.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due to the absence of authorities that directly address the proper
tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment
described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the securities
under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”). If the
IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the timing and character of income
thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on
the securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
securities would be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S.
Holder’s prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments providing
for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized as debt is greater
than the risk of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal income tax treatments of the securities
are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the
securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether to require holders
of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment. It also
asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded
status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible
alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that
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Contingent Income Auto-Callable Securities due August 10, 2018
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Principal at Risk Securities
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the required information is timely furnished to the IRS. In
addition, information returns will be filed with the IRS in connection with payments on the securities and the payment of proceeds
from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides proof of an applicable exemption
from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S. Holder.
As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax
purposes:
· an
individual who is classified as a nonresident alien;
· a
foreign corporation; or
· a
foreign estate or trust.
The term “Non-U.S. Holder” does
not include any of the following holders:
· a
holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes;
· certain
former citizens or residents of the United States; or
· a
holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in
the United States.
Such holders should consult their tax advisers regarding the U.S.
federal income tax consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection with
any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment of
proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA Legislation
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied.
An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
This legislation generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source
“fixed or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable)
applies to payments of U.S.-source FDAP income and, for dispositions after December 31, 2016, to payments of gross proceeds of
the disposition (including upon retirement) of certain financial instruments treated as providing for U.S.-source interest or dividends.
While the treatment of
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Contingent Income Auto-Callable Securities due August 10, 2018
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Principal at Risk Securities
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the securities is unclear, you should assume that any coupon payment
on the securities will be subject to the FATCA rules. It is also possible in light of this uncertainty that an applicable withholding
agent will treat gross proceeds of a disposition (including upon retirement) of the securities after 2016 as being subject to the
FATCA rules. If withholding applies to the securities, we will not be required to pay any additional amounts with respect to amounts
withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the
securities.
The discussion in the preceding paragraphs, insofar as it purports
to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full opinion
of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
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Use
of proceeds and hedging: |
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The proceeds we receive from the sale of the securities will be
used for general corporate purposes. We will receive, in aggregate, $10 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 2 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we will hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our subsidiaries and/or third party dealers.
We expect our hedging counterparties to take positions in the underlying stock, in futures and/or options contracts on the underlying
stock, or positions in any other available securities or instruments that they may wish to use in connection with such hedging.
Such purchase activity could potentially increase the initial share price, and, as a result, the downside threshold level, which
is the price at or above which the underlying stock must close on each determination date in order for you to earn a contingent
quarterly coupon, and, if the securities are not redeemed prior to maturity, in order for you to avoid being exposed to the negative
price performance of the underlying stock at maturity. In addition, through our subsidiaries, we are likely to modify our hedge
position throughout the life of the securities, including on the determination dates, by purchasing and selling the underlying
stock, options contracts relating to the underlying stock or any other available securities or instruments that we may wish to
use in connection with such hedging activities. As a result, these entities may be unwinding or adjusting hedge positions during
the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as
the final determination date approaches. We cannot give any assurance that our hedging activities will not affect the value of
the underlying stock, and, therefore, adversely affect the value of the securities or the payment you will receive at maturity,
if any.
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Benefit
plan investor considerations: |
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Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our subsidiaries and
affiliates, including MS & Co., may each be considered a “party in interest” within the meaning of ERISA, or a
“disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”),
with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”). ERISA Section
406 and Code Section 4975 generally prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited
transactions within the meaning of ERISA or the Code would likely arise, for example, if the securities are acquired by or with
the assets of a Plan with respect to which MS & Co. or any of its affiliates is a service provider or other party in interest,
unless the securities are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of
these “prohibited transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section
4975 of the Code for such persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited
transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined
by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company
separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In
addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) may provide an exemption for the purchase and sale of securities
and the related lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises
any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved in the
transaction and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in
connection with the transaction (the so-called “service provider” exemption). There can be no assurance that any of
these class or statutory exemptions will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with
respect to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets
include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or
any person investing “plan assets” of
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any Plan, unless such purchase, holding or disposition
is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider
exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing
on behalf of a Plan, transferee or holder of the securities will be deemed to have represented, in its corporate and its fiduciary
capacity, by its purchase and holding of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing
such securities on behalf of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church
plan that is subject to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406
of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition are eligible for
exemptive relief or such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar
Law.
Due to the complexity of these rules and the penalties
that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries
or other persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with
their counsel regarding the availability of exemptive relief.
The securities are contractual financial instruments.
The financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy
for, individualized investment management or advice for the benefit of any purchaser or holder of the securities. The securities
have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of
any purchaser or holder of the securities.
Each purchaser or holder of any securities acknowledges
and agrees that:
(i) the purchaser or holder
or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser or holder has not
relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with
respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities, or (C)
the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii) we and our affiliates
have acted and will act solely for our own account in connection with (A) all transactions relating to the securities and (B) all
hedging transactions in connection with our obligations under the securities;
(iii) any and all assets and
positions relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets
and positions held for the benefit of the purchaser or holder;
(iv) our interests are adverse
to the interests of the purchaser or holder; and
(v) neither we nor any of our
affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions,
and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive
responsibility for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction
rules of ERISA or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect
a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements
with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally
or any particular plan.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional
considerations: |
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Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities, either directly or indirectly. |
Supplemental information regarding plan of distribution; conflicts of interest: |
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The agent may distribute the securities through Morgan
Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”), as selected dealer, or other dealers, which may include
Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley AG. Morgan Stanley Wealth Management, MSIP
and Bank Morgan Stanley AG are affiliates of Morgan Stanley. Selected dealers, including Morgan Stanley Wealth Management, and
their financial advisors will collectively receive from the agent, Morgan Stanley & Co. LLC, a fixed sales commission of $0.20
for each security they sell. In addition, Morgan Stanley Wealth Management will receive a structuring fee of $0.05 for each security.
MS & Co. is our wholly-owned subsidiary and it and
other subsidiaries of ours expect to make a profit by selling, structuring and, when applicable, hedging the securities. When MS
& Co. prices this offering of securities, it will determine the economic terms of the securities such that for each security
the estimated
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Contingent Income Auto-Callable Securities due August 10, 2018
Based on the Performance of the Common Stock of Under Armour, Inc.
Principal at Risk Securities
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value on the pricing date will be no lower than the
minimum level described in “Investment Summary” beginning on page 2.
MS & Co. will conduct this offering in compliance
with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as
FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.
MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of
Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement
for auto-callable securities.
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Contact: |
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Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087. |
Where
you can find more information: |
|
Morgan Stanley has filed a registration statement (including a
prospectus, as supplemented by the product supplement for auto-callable securities) with the Securities and Exchange Commission,
or SEC, for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration
statement, the product supplement for auto-callable securities and any other documents relating to this offering that Morgan Stanley
has filed with the SEC for more complete information about Morgan Stanley and this offering. You may get these documents without
cost by visiting EDGAR on the SEC web site at.www.sec.gov. Alternatively, Morgan Stanley, any
underwriter or any dealer participating in the offering will arrange to send you the prospectus and the product supplement for
auto-callable securities if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at.www.sec.gov
as follows:
Product
Supplement for Auto-Callable Securities dated November 19, 2014
Prospectus
dated November 19, 2014
Terms used but not defined in this document are defined in the
product supplement for auto-callable securities or in the prospectus. As used in this document, the “Company,” “we,”
“us” and “our” refer to Morgan Stanley.
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