|
September
2015
Preliminary
Terms No. 522 dated August 27, 2015 relating to
Preliminary
Pricing Supplement No. 522 dated August 27, 2015
Registration
Statement No. 333-200365
Filed pursuant
to Rule 433 |
Structured Investments
Opportunities in Commodities
Contingent Income Auto-Callable Securities due
September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™
Crude Oil Index - Excess Return
Principal at Risk Securities
Unlike ordinary debt securities,
the Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period Based on the Performance
of the S&P GSCI™ Crude Oil Index - Excess Return, which we refer to as the securities, do not provide for the regular
payment of interest or the return of any principal at maturity. Instead, the securities will pay a contingent quarterly coupon
but only if the determination index value or the final index value, as applicable, is greater than or equal to the downside
threshold level of 70% of the initial index value on the related determination date. If, on any determination date, the determination
index value or the final index value, as applicable, is less than the downside threshold level, you will not receive any
contingent quarterly coupon on the related contingent payment date for the related quarterly period. However, if the determination
index value or the final index value, as applicable, is greater than or equal to the downside threshold level on any subsequent
determination date, investors will receive, in addition to the contingent quarterly coupon for that quarterly period, any previously
unpaid contingent quarterly coupons from prior determination dates. In addition, if the determination index value is greater
than or equal to the initial index value on any determination date after the first six months, the securities will be automatically
redeemed for the early redemption payment on the third business day following the related determination date. The early redemption
payment will equal (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the related determination
date and with respect to any prior determination date(s) for which a contingent quarterly coupon was not paid. If the securities
are not redeemed prior to maturity, the payment due at maturity will be either (i) the stated principal amount plus
the contingent quarterly coupon with respect to the final determination date and any previously unpaid contingent quarterly coupons
with respect to the prior determination dates, if the final index value is greater than or equal to the downside threshold
level, or (ii) the stated principal amount multiplied by the index performance factor, if the final index value is less than
the downside threshold level. If the final index value is less than the downside threshold level, investors will lose
more than 30%, and possibly all, of their investment in the securities. There is no minimum payment at maturity on the securities.
Accordingly, you could lose your 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 during the entire term of the securities if the underlying commodity index closes
below the downside threshold level on the determination dates, with no possibility of being called out of the securities until
after the initial 6-month non-call period. Investors will not participate in any appreciation of the underlying commodity index.
The securities are notes issued as part of Morgan Stanley’s Series F Global Medium-Term Notes program.
All payments are subject to the credit risk of Morgan Stanley.
If Morgan Stanley defaults on its obligations, you could lose some or all of your investment. These securities are not secured
obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or
assets.
SUMMARY TERMS |
|
Issuer: |
Morgan Stanley |
Underlying commodity index: |
S&P GSCI™ Crude Oil Index - Excess Return |
Aggregate principal amount: |
$ |
Stated principal amount: |
$1,000 per security |
Issue price: |
$1,000 per security (see “Commissions and issue price” below) |
Pricing date: |
September 14, 2015 |
Original issue date: |
September 17, 2015 (3 business days after the pricing date) |
Maturity date: |
September 19, 2017 |
Contingent quarterly coupon: |
A contingent quarterly coupon plus any previously unpaid
contingent quarterly coupons with respect to any prior determination dates will be paid on the securities on each contingent payment
date but only if the determination index value or the final index value, as applicable, is at or above the
downside threshold level on the related determination date. If payable, the contingent quarterly coupon will be an amount in cash
per stated principal amount corresponding to a return of 10.00% per annum (corresponding to approximately $25.00 per quarter per
security) for each interest payment period for each applicable determination date.
If the contingent quarterly coupon is not paid on any contingent
payment date other than the final determination date (because the determination index value of the underlying commodity index is
less than the downside threshold level on the related determination date), such unpaid contingent quarterly coupon will be paid
on a later contingent payment date but only if the determination index value or the final index value, as applicable, of the underlying
commodity index on such later determination date is greater than or equal to the downside threshold level. You will not receive
such unpaid contingent quarterly coupons if the determination index value of the underlying commodity index is less than the downside
threshold level on each subsequent determination date. If the determination index value or the final index value, as applicable,
of the underlying commodity index is less than the downside threshold level on each determination date, you will not receive any
contingent quarterly coupons for the entire 2-year term of the securities.
|
Payment at maturity: |
If the final index value is greater than or equal to the
downside threshold level, investors will receive the stated principal amount plus the contingent quarterly coupon with respect
to the final determination date and any previously unpaid contingent quarterly coupons with respect to the prior determination
dates.
If the final index value is less than the downside threshold
level, investors will receive (i) the stated principal amount times (ii) the index performance factor.
Under these circumstances, you will lose more than 30%, and
possibly all, of your investment in the securities.
|
|
Terms continued on the following page |
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 $947.30 per security, or within $15.00 of that estimate. See “Investment Summary” beginning on page 3. |
Commissions and issue price: |
|
Price to public(1) |
Agent’s commissions and fees(2) |
Proceeds to issuer(3) |
Per security |
|
$1,000 |
$ |
$ |
Total |
|
$ |
$ |
$ |
| (1) | The price to public for investors purchasing the securities
in fee-based advisory accounts will be $985 per security. |
| (2) | Selected dealers and their financial advisors will
collectively receive from the agent, MS & Co., a fixed sales commission of $ for each security they sell; provided that dealers
selling to investors purchasing the securities in fee-based advisory accounts will receive a sales commission of $ per security.
See “Supplemental information regarding plan of distribution; conflicts of interest.” For additional information,
see “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus supplement. |
| (3) | See “Use of proceeds and hedging” on page
12. |
You should read this document together
with the preliminary pricing supplement describing the offering and the related prospectus supplement and prospectus, each of
which can be accessed via the hyperlinks below, before you decide to invest.
Preliminary
Pricing Supplement No. 522 dated August 27, 2015
Prospectus
Supplement dated November 19, 2014 Prospectus
dated November 19, 2014
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.
The issuer has filed a registration statement
(including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read
the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information
about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at.www.sec.gov.
Alternatively, the issuer, any underwriter or any dealer participating in this offering will arrange to send you the prospectus
if you request it by calling toll-free 1-800-584-6837.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Terms continued from previous page: |
Early redemption: |
If, on any determination date occurring on or after March 14, 2016 to but excluding the final determination date, the determination index value is greater than or equal to the initial index value, 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 equal (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the related determination date and any previously unpaid contingent quarterly coupons with respect to the prior determination dates. |
Determination dates: |
December 14, 2015, March 14, 2016, June 14, 2016, September 14, 2016, December 14, 2016, March 14, 2017, June 14, 2017 and September 14, 2017, subject to postponement for non-index business days and certain market disruption events. We also refer to September 14, 2017 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. |
Downside threshold level: |
, which is equal to 70% of the initial index value |
Determination index value: |
The index closing value on any determination date other than the final determination date |
Initial index value: |
, which is the index closing value on the pricing date |
Final index value: |
The index closing value on the final determination date |
Index closing value: |
On any day, the official settlement price of the underlying commodity index, as published by the index publisher or its successor on such day. |
Index performance factor: |
The final index value divided by the initial index value |
CUSIP / ISIN: |
61762GET7 / US61762GET76 |
Listing: |
The securities will not be listed on any securities exchange. |
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Investment Summary
The Contingent Income Auto-Callable Securities
due September 19, 2017, With 6-month Initial Non-Call Period Based on the Performance of the S&P GSCI™ Crude Oil Index
- Excess Return, which we refer to as the securities, do not provide for the regular payment of interest or the return of any principal
at maturity. Instead, the securities will pay a contingent quarterly coupon but only if the determination index value or the final
index value, as applicable, is greater than or equal to the downside threshold level of 70% of the initial index value on
the related determination date. If, on any determination date, the determination index value or the final index value, as applicable,
is less than the downside threshold level, you will not receive any contingent quarterly coupon on the related contingent
payment date for the related quarterly period. However, if the determination index value or the final index value, as applicable,
is greater than or equal to the downside threshold level on any subsequent determination date, investors will receive,
in addition to the contingent quarterly coupon for that quarterly period, any previously unpaid contingent quarterly coupons from
prior determination dates.
In addition,
if the determination index value is greater than or equal to the initial index value on any determination date occurring
on or after March 14, 2016 to but excluding the final determination date, the securities will be automatically redeemed for the
early redemption payment on the third business day following the related determination date. The early redemption payment will
equal (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the related determination
date and with respect to any prior determination date(s) for which a contingent quarterly coupon was not paid. If the securities
are not redeemed prior to maturity, the payment due at maturity will be either (i) the stated principal amount plus
the contingent quarterly coupon with respect to the final determination date and any previously unpaid contingent quarterly coupons
with respect to the prior determination dates, if the final index value is greater than or equal to the downside threshold
level, or (ii) the stated principal amount multiplied by the index performance factor, if the final index value is less than
the downside threshold level. If the final index value is less than the downside threshold level, investors will lose more
than 30%, and possibly all, of their investment in the securities. There is no minimum payment at maturity on the securities.
Accordingly, you could lose your 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 during the entire term of the securities if the underlying commodity index closes
below the downside threshold level on the determination dates, with no possibility of being called out of the securities until
after the initial 6-month non-call period. Investors will not participate in any appreciation of the underlying commodity index.
The original issue price of each security is $1,000. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date will be less than $1,000. We estimate that the value of each security
on the pricing date will be approximately $947.30, or within $15.00 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 commodity index.
The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating
to the underlying commodity index, instruments based on the underlying commodity index, 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 Morgan Stanley & Co. LLC, which we refer
to as MS & Co., purchases the securities in the secondary market, absent changes in market conditions, including those related
to the underlying commodity index, 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 9 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 commodity index, 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.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk 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.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
S&P GSCI™ Crude Oil Index - Excess
Return Overview
The S&P GSCI™ Crude Oil Index—Excess Return is
a sub-index of the S&P GSCITM-Excess Return. It represents only the crude oil component of the S&P GSCITM-
Excess Return, a composite index of commodity sector returns, calculated, maintained and published daily by S&P Dow Jones Indices
LLC. The S&P GSCI™ is a world production-weighted index that is designed to reflect the relative significance of principal
non-financial commodities (i.e., physical commodities) in the world economy.
Information as of market close on August 25, 2015:
Underlying Index information as of August 25, 2015 |
|
Bloomberg Ticker Symbol* |
Current Value |
52 Weeks Ago |
52 Week High |
52 Week Low |
S&P GSCITM Crude Oil Index—Excess Return |
SPGCCLP |
186.7696 |
505.9448 |
520.9020
(on 8/29/2014)
|
181.6858
(on 8/24/2015)
|
|
|
|
|
|
|
*The Bloomberg ticker symbol is being provided for reference purposes
only. The value of the underlying commodity index on any index business day will be determined based on the price published by
the publisher of the underlying commodity index.
Underlying Commodity
Index Historical Performance – Daily Index Closing Values
January 1, 2010 to August
25, 2015
|
|
* The red solid line in the graph indicates
the hypothetical downside threshold level, assuming the index closing value of the underlying commodity index on August 25, 2015
were the initial index value.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
quarterly coupon at an annual rate of 10.00% (corresponding to approximately $25.00 per quarter per security) with respect to each
determination date on which the determination index value or the final index value, as applicable, is greater than or equal
to 70% of the initial index value, which we refer to as the downside threshold level. If the determination index value or the
final index value, as applicable, is less than the downside threshold level for any determination date, we will pay no interest
for the related quarterly period. However, if the determination index value or the final index value, as applicable, is greater
than or equal to the downside threshold level on any determination date, investors will receive, in addition to the contingent
quarterly coupon for that quarterly period, any previously unpaid contingent quarterly coupons from prior determination dates.
The securities may be redeemed prior to maturity for the stated principal amount per security plus the applicable contingent
quarterly coupon or any previously unpaid contingent quarterly coupons, and the payment at maturity will vary depending on the
final index value, as follows:
Scenario
1 |
On any determination date occurring on or
after March 14, 2016 to but excluding the final determination date, the determination index value is greater than or equal to
the initial index value.
§ 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 and with respect to any prior determination date(s) for which a contingent quarterly
coupon was not paid. No further payments will be made on the securities once they have been redeemed.
§ Investors
will not participate in any appreciation of the underlying commodity index from the initial index value.
|
Scenario
2 |
The securities are not automatically redeemed
prior to maturity, and the final index value is greater than or equal to the downside threshold level.
§ The
payment at maturity will equal the stated principal amount plus the contingent quarterly coupon with respect to the final determination
date and any previously unpaid contingent quarterly coupons with respect to the prior determination dates.
§ Investors
will not participate in any appreciation of the underlying commodity index from the initial index value.
|
Scenario
3 |
The securities are not automatically redeemed
prior to maturity, and the final index value is less than the downside threshold level.
§ The
payment due at maturity will be the product of the stated principal amount and the index performance factor. The index performance
factor is the quotient of the final index value divided by the initial index value.
§ Investors
will lose more than 30%, and may lose all, of their principal in this scenario.
|
Summary of Selected Key Risks (see page 18)
| § | The securities do not guarantee the return of any principal. |
| § | The securities do not provide for regular interest payments. |
| § | The contingent quarterly coupon, if any, is based only on the value of the underlying commodity index on the related quarterly
determination date at the end of the related interest period. |
| § | Investors will not participate in any appreciation in the underlying commodity index. |
| § | The term of your investment in the securities may be limited to as short as six 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 |
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
| |
reinvest at comparable terms or returns. However, under no circumstances will the securities be redeemed in the first six months
of the term of securities. |
| § | The market price of the securities will be influenced by many unpredictable factors. |
| § | 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. |
| § | An investment in the securities will expose you to concentrated risks relating to crude oil. |
| § | Higher future prices of the index commodity relative to its current prices may adversely
affect the value of the underlying commodity index and the value of the securities. |
| § | An investment linked to commodity futures contracts is not equivalent to an investment linked
to the spot prices of physical commodities. |
| § | Suspensions or disruptions of market trading in commodity and related futures markets could
adversely affect the price of the securities. |
| § | Adjustments to the underlying commodity index could adversely affect the value of the securities. |
| § | Investing in the securities is not equivalent to investing in the underlying commodity index. |
| § | Legal and regulatory changes could adversely affect the return on and value of your securities. |
| § | The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices. |
| § | 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. |
| § | The securities will not be listed on any securities exchange and secondary trading may be limited. |
| § | Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the securities. |
| § | The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the securities. |
§ The
U.S. federal income tax consequences of an investment in the securities are uncertain.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination index value and (2) the final index value.
Diagram #1: Contingent Quarterly Coupons
(until Early Redemption or Maturity)
Diagram #2: Determination Dates From and
Including March 14, 2016 To But Excluding the Final Determination Date
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Diagram #3:
Payment at Maturity If No Automatic Early Redemption Occurs
For more information about the payout upon an early redemption
or at maturity in different hypothetical scenarios, see “Hypothetical Examples” starting on page 15.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Fact Sheet
The securities offered are unsecured obligations of Morgan Stanley,
do not provide for the regular payment of interest or the return of any principal at maturity. Instead, the securities will pay
a contingent quarterly coupon but only if the determination index value or the final index value, as applicable, is greater
than or equal to the downside threshold level of 70% of the initial index value on the related determination date. If, on any
determination date, the determination index value or the final index value, as applicable, is less than the downside threshold
level, you will not receive any contingent quarterly coupon on the related contingent payment date for the related quarterly period.
However, if the determination index value or the final index value, as applicable, is greater than or equal to the downside
threshold level on any subsequent determination date, investors will receive, in addition to the contingent quarterly coupon for
that quarterly period, any previously unpaid contingent quarterly coupons from prior determination dates. In addition, if the determination
index value is greater than or equal to the initial index value on any determination date after the first six months, the
securities will be automatically redeemed for the early redemption payment on the third business day following the related determination
date. The early redemption payment will equal (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect
to the related determination date and with respect to any prior determination date(s) for which a contingent quarterly coupon was
not paid. If the securities are not redeemed prior to maturity, the payment due at maturity will be either (i) the stated principal
amount plus the contingent quarterly coupon with respect to the final determination date and any previously unpaid contingent quarterly
coupons with respect to the prior determination dates, if the final index value is greater than or equal to the downside
threshold level, or (ii) the stated principal amount multiplied by the index performance factor, if the final index value is less
than the downside threshold level. If the final index value is less than the downside threshold level, investors will
lose more than 30%, and possibly all, of their investment in the securities. There is no minimum payment at maturity on the
securities. Accordingly, you could lose your 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 during the entire term of the securities if the underlying commodity
index closes below the downside threshold level on the determination dates, with no possibility of being called out of the securities
until after the initial 6-month non-call period. Investors will not participate in any appreciation of the underlying commodity
index. The securities are notes issued as part of Morgan Stanley’s Series F Global Medium-Term Notes program.
Expected Key Dates |
|
|
Pricing date: |
Original issue date (settlement date): |
Maturity date: |
September 14, 2015 |
September 17, 2015 (3 business days after the pricing date) |
September 19, 2017 |
Key Terms |
|
Issuer: |
Morgan Stanley |
Underlying commodity index: |
S&P GSCI™ Crude Oil Index - Excess Return |
Aggregate principal amount: |
$ |
Stated principal amount: |
$1,000 per security |
Issue price: |
$1,000 per security |
Early redemption: |
If, on any determination date occuring on or after March 14, 2016 to but excluding the final determination date, the determination index value is greater than or equal to the initial index value, 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 equal (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the related determination date and any previously unpaid contingent quarterly coupons with respect to the prior determination dates. |
Determination index value: |
The index closing value on any determination date other than the final determination date |
Contingent quarterly coupon: |
A contingent quarterly coupon plus any previously unpaid contingent
quarterly coupons with respect to any prior determination dates will be paid on the securities on each contingent payment date
but only if the determination index value or the final index value, as applicable, is at or above the downside
threshold level on the related determination date. If payable, the contingent quarterly coupon will be an amount in cash per stated
principal amount corresponding to a return of 10.00% per annum (corresponding to approximately $25.00 per quarter per security)
for each interest payment period for each applicable determination date.
If the contingent quarterly coupon is not paid on any contingent
payment date other than the final determination date (because the determination index value of the underlying commodity index is
less than the downside threshold level on the related determination date), such unpaid contingent quarterly coupon will be paid
on a later contingent payment date but only if the determination index value or the final index value, as applicable, of the underlying
commodity index on such later determination date is greater than or equal to the downside threshold level. You will not receive
such unpaid contingent quarterly coupons if the determination index value of the underlying commodity index is less than the downside
threshold level on each subsequent determination date. If the determination index value or the final index value, as applicable,
of the underlying commodity index is less than the downside threshold level on each determination date, you will not receive any
contingent quarterly coupons for the entire 2-year term of the securities.
|
Determination dates: |
December 14, 2015, March 14, 2016, June 14, 2016, September 14, 2016, December 14, 2016, March 14, 2017, June 14, 2017 and September 14, 2017, subject to postponement for non-index business days and certain market disruption events. We also refer to September 14, 2017 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. |
Record date: |
One business day prior to the related contingent payment date. |
Payment
at maturity: |
If the final index value is greater than or equal to the
downside threshold level, investors will receive the stated principal amount plus the contingent quarterly coupon with respect
to the final determination date and any previously unpaid contingent quarterly coupons with respect to the prior determination
dates.
If the final index value is less than the downside threshold
level, investors will receive (i) the stated principal amount times (ii) the index performance factor. Under these circumstances,
you will lose more than 30%, and
|
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
|
possibly all, of your investment in the securities. |
Index performance factor: |
The final index value divided by the initial index value |
Downside threshold level: |
, which is equal to 70% of the initial index value |
Initial index value: |
, which is the index closing value on the pricing date |
Final index value: |
The index closing value on the final determination date |
Index closing value: |
On any day, the official settlement price of the underlying commodity index, as published by the index publisher or its successor on such day. |
Postponement of maturity date: |
If the scheduled final determination date is not an index business 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. |
Risk factors: |
Please see “Risk Factors” beginning on page 18. |
General
Information |
|
Listing: |
The securities will not be listed on any securities exchange. |
CUSIP: |
61762GET7 |
ISIN: |
US61762GET76 |
Minimum ticketing size: |
$1,000 / 1 security |
Tax considerations: |
You should note that
the discussion under “United States Federal Taxation” in the accompanying prospectus supplement does not apply to the
securities offered under this document and is superseded by the following discussion.
Significant aspects of
the U.S. federal income tax consequences of an investment in the securities are uncertain. We intend (in the absence of an administrative
determination or judicial ruling to the contrary) to treat each 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.
|
|
Assuming this treatment of the securities is respected, the following U.S. federal income tax consequences should result based on current law: |
|
|
|
§ 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 method of accounting for U.S. federal income tax purposes, and |
|
§ upon
sale, exchange or settlement of the securities, a U.S. Holder should recognize capital gain or loss equal to the difference between
the amount realized and the U.S. Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain
or loss if the investor has held the securities for more than one year.
|
|
Non-U.S. Holders should
note that we currently intend to withhold on any coupon paid to Non-U.S. Holders and will not be required to pay any additional
amounts with respect to amounts withheld. Please read the discussion under “Risk Factors” in this document and
the discussion under “United States Federal Taxation” in the accompanying preliminary pricing supplement concerning
the U.S. federal income tax consequences of an investment in the securities.
In 2007, the U.S. Treasury
Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to
require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number
of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments
should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and
the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated
accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject
to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital
gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective
dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the securities, possibly with retroactive effect. 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.
Both U.S. and non-U.S.
investors considering an investment in the securities should read the discussion under “Risk Factors” in this document
and the discussion under “United States Federal Taxation” in the accompanying preliminary pricing supplement and consult
their tax advisers regarding all aspects of the
|
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
|
U.S. federal income
tax consequences of an investment in the securities, including possible alternative treatments, the issues presented by the aforementioned
notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
The discussion in
the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying preliminary pricing supplement, insofar as they purport to describe provisions
of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the
full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
|
Trustee: |
The Bank of New York Mellon |
Calculation agent: |
Morgan Stanley Capital Group Inc. |
Use of proceeds and hedging: |
The proceeds we receive from the sale of the securities will be
used for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we expect to 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 swaps, futures or options contracts on the underlying commodity index
and on the commodity that underlies the underlying commodity index, 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 index
value, and, as a result, increase (i) the level at or above which the underlying commodity index must close on any determination
date after the first six months so that the securities are redeemed prior to maturity for the early redemption payment, and (ii)
the downside threshold level, which is the level at or above which the underlying commodity index must close on each determination
date in order for you to earn a contingent quarterly coupon and to receive any unpaid contingent quarterly coupons from prior determination
dates, and, if the securities are not called prior to maturity, the level at or above which the underlying commodity index must
close on the final determination date so that you are not exposed to the negative performance of the underlying commodity index
at maturity. 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. Additionally,
our hedging activities, as well as our other trading activities, during the term of the securities could potentially affect the
value of the underlying commodity index on the determination dates, and, accordingly, whether the securities are automatically
redeemed prior to maturity, whether we pay a contingent quarterly coupon on the securities and the amount of cash you receive at
maturity, if any.
|
Benefit plan investor considerations: |
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which we refer to
as a “plan,” should consider the fiduciary standards of ERISA in the context of the plan’s particular circumstances
before authorizing an investment in these 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 “parties in interest” within the meaning of ERISA or “disqualified
persons” within the meaning of 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 these securities are acquired by or with the assets of a plan with respect to which MS & Co. or any of its affiliates is
a service provider or other party in interest, unless the securities are acquired pursuant to an exemption from the “prohibited
transaction” rules. A violation of these “prohibited transaction” rules could result in an excise tax or other
liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive relief is available under an applicable
statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of these 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 asset managers). In addition, ERISA Section
408(b)(17) and Section 4975(d)(20) of the Code 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 any plan involved in the transaction and provided further
that the plan pays no more than adequate consideration in connection with the transaction (the so-called “service provider”
|
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
|
exemption). There can be no assurance that any of these class
or statutory exemptions will be available with respect to transactions involving these securities.
Because we may be considered a party in interest with respect
to many plans, unless otherwise specified in the applicable prospectus supplement, these securities may not be purchased, held
or disposed of by any plan, any entity whose underlying assets include “plan assets” by reason of any plan’s
investment in the entity (a “plan asset entity”) or any person investing “plan assets” of any plan, unless
such purchase, holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38,
90-1, 84-14 or the service provider exemption or such purchase, holding or disposition is otherwise not prohibited. Unless otherwise
specified in the applicable prospectus supplement, any purchaser, including any fiduciary purchasing on behalf of a plan, transferee
or holder of these securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase
and holding thereof that either (a) it is not a plan or a plan asset entity, is not purchasing such securities on behalf of or
with “plan assets” of any plan, or with any assets of a governmental 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
or 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 nonexempt prohibited transactions, it is particularly important that fiduciaries or other persons
considering purchasing these 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 these 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 of these 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 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.
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.
|
Additional considerations: |
Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities, either directly or indirectly. |
Supplemental information regarding plan of distribution; conflicts of interest: |
Selected dealers, which may include our affiliates, and their
financial advisors will collectively receive from the agent a fixed sales commission of $ for each security they sell; provided
that dealers selling to investors
|
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
|
purchasing the securities in fee-based advisory accounts will
receive a sales commission of $ per 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 value
on the pricing date will be no lower than the minimum level described in “Investment Summary” beginning on page 3.
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.
In order to facilitate the offering of the securities, the agent
may engage in transactions that stabilize, maintain or otherwise affect the price of the securities or the level of the Index.
Specifically, the agent may sell more securities than it is obligated to purchase in connection with the offering, creating a naked
short position in the securities for its own account. The agent must close out any naked short position by purchasing the securities
in the open market after the offering. A naked short position in the securities is more likely to be created if the agent is concerned
that there may be downward pressure on the price of the securities in the open market after pricing that could adversely affect
investors who purchase in the offering. As an additional means of facilitating the offering, the agent may bid for, and purchase,
the securities in the open market to stabilize the price of the securities. Any of these activities may raise or maintain the market
price of the securities above independent market prices or prevent or retard a decline in the market price of the securities. The
agent is not required to engage in these activities, and may end any of these activities at any time. An affiliate of the agent
has entered into a hedging transaction in connection with this offering of the securities. See “Use of Proceeds and Hedging”
in the accompanying preliminary pricing supplement.
|
Contact: |
Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087. |
This is a summary of the terms and conditions of the securities.
We encourage you to read the accompanying preliminary pricing supplement, prospectus supplement and prospectus for this offering,
which can be accessed via the hyperlinks on the front page of this document.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to a determination date and how to calculate the payment at maturity
if the securities have not been automatically redeemed early. The following examples are for illustrative purposes only. Whether
you receive a contingent quarterly coupon will be determined by reference to the determination index value of the underlying commodity
index on each quarterly determination date, and the amount you will receive at maturity, if any, will be determined by reference
to the final index value of the underlying commodity index on the final determination date. The actual initial index value and
downside threshold level for the underlying commodity index will be determined on the pricing date. All payments on the securities,
if any, are subject to the credit risk of Morgan Stanley. The numbers in the hypothetical examples below may have been rounded
for the ease of analysis. The below examples are based on the following terms:
Contingent Quarterly Coupon: |
|
A contingent quarterly coupon plus any previously unpaid contingent quarterly coupons with respect to any prior determination dates will be paid on the securities on each contingent payment date but only if the determination index value or the final index value, as applicable, is at or above the downside threshold level on the related determination date. If payable, the contingent quarterly coupon will be an amount in cash per stated principal amount corresponding to a return of 10.00% per annum (corresponding to approximately $25.00 per quarter per security*) for each interest payment period for each applicable determination date. |
Automatic Early Redemption (starting in March 2016): |
|
Beginning in March 2016, if the determination index value of the underlying commodity index is greater than or equal to the initial index value on any quarterly determination date, 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 and any previously unpaid contingent quarterly coupons with respect to the prior determination dates. No further payments will be made on the securities once they have been redeemed. |
Payment at Maturity (if the securities have not been automatically redeemed early): |
|
If the final index value is greater than or equal to the
downside threshold level, investors will receive the stated principal amount plus the contingent quarterly coupon with respect
to the final determination date and any previously unpaid contingent quarterly coupons with respect to the prior determination
dates.
If the final index value is less than the downside threshold
level, investors will receive (i) the stated principal amount times (ii) the index performance factor.
Under these circumstances, the payment at maturity will be less
than 70% of the stated principal amount of the securities and could be zero.
|
Stated Principal Amount: |
|
$1,000 |
Hypothetical Initial Index Value: |
|
200 |
Hypothetical Downside Threshold Level: |
|
140, which is 70% of the hypothetical initial index value |
* The actual contingent quarterly coupon will be an amount determined
by the calculation agent based on the number of days in the applicable period, calculated on a 30/360 basis. The hypothetical contingent
quarterly coupon of $25.00 is used in these examples for ease of analysis.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
How to determine whether a contingent quarterly
coupon is payable with respect to a determination date:
|
Hypothetical Determination Index Value |
Contingent Quarterly Coupon |
Hypothetical Determination Date 1 |
120 (below the downside threshold level) |
$0 |
Hypothetical Determination Date 2 |
130 (below the downside threshold level) |
$0 |
Hypothetical Determination Date 3 |
110 (below the downside threshold level) |
$0 |
Hypothetical Determination Date 4 |
180 (at or above the downside threshold level) |
Contingent quarterly coupon with respect to hypothetical determination date 4 and the previously unpaid contingent quarterly coupons with respect to hypothetical determination dates 1 to 3 = $25 + ($25 × 3) = $100 |
On each of hypothetical determination dates 1 to 3, the underlying
commodity index closes below the downside threshold level. Therefore, no contingent quarterly coupon is paid on the related contingent
payment dates.
On hypothetical determination date 4, the underlying commodity
index closes at or above the downside threshold level. Therefore, a contingent quarterly coupon of $25.00 is paid on the related
contingent payment date and the previously unpaid contingent quarterly coupons with respect to hypothetical determination dates
1 to 3 are also paid on the related contingent payment date.
If the contingent quarterly coupon is not paid on any contingent
payment date other than the final determination date (because the determination index value of the underlying commodity index is
less than the downside threshold level on the related determination date), such unpaid contingent quarterly coupon will be paid
on a later contingent payment date but only if the determination index value or the final index value, as applicable, of the underlying
commodity index on such later determination date is greater than or equal to the downside threshold level. You will not receive
such unpaid contingent quarterly coupons if the determination index value of the underlying commodity index is less than the downside
threshold level on each subsequent determination date. If the determination index value or the final index value, as applicable,
of the underlying commodity index is less than the downside threshold level on each determination date, you will not receive any
contingent quarterly coupons for the entire 2-year term of the securities.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
How to calculate the payment at maturity (if
the securities have not been automatically redeemed):
Starting in March 2016, if the determination index value of the
underlying commodity index is greater than or equal to the initial index value on any quarterly determination date, the securities
will be automatically redeemed for an early redemption payment equal to (i) the stated principal amount for each security you hold
plus (ii) the contingent quarterly coupon with respect to the related determination date and any previously unpaid contingent quarterly
coupons with respect to the prior determination dates. No further payments will be made on the securities once they have been redeemed.
The examples below illustrate how to calculate the payment at
maturity if the securities have not been automatically redeemed prior to maturity.
|
Hypothetical Final Index Value |
Payment at Maturity |
Example 1: |
80 (below the downside threshold level) |
$1,000 x index performance factor of the underlying commodity index =
$1,000 x (80 / 200) = $400 |
Example 2: |
60 (below the downside threshold level) |
$1,000 x (60 / 200) = $300 |
Example 3: |
250 (at or above the downside threshold level) |
The stated principal amount + the contingent quarterly coupon with respect to the final determination date and any previously unpaid contingent quarterly coupons with respect to the prior determination dates. For more information, please see above under “How to determine whether a contingent quarterly coupon is payable with respect to a determination date.” |
In examples 1 and 2, the final index value of the underlying
commodity index is below the downside threshold level. Therefore, investors are exposed to the downside performance of the underlying
commodity index at maturity and receive at maturity an amount equal to the stated principal amount times the index performance
factor of the underlying commodity index, and investors suffer a significant loss on their investment. Moreover, investors do not
receive the contingent quarterly coupon for the final quarterly period or any previously unpaid contingent quarterly coupons.
In example 3, the final index value of the underlying commodity
index is at or above the downside threshold level. Therefore, investors receive at maturity the stated principal amount of the
securities plus the contingent quarterly coupon for the final quarterly period and any previously unpaid contingent quarterly coupons
with respect to the prior determination dates.
If
the final index value of the underlying commodity index is below the downside threshold level, you will be exposed to the downside
performance of the underlying commodity index at maturity, and your payment at maturity will be less than $700 per security and
could be zero.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
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 preliminary pricing supplement and prospectus. We also urge you to 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 at maturity. The terms of the securities differ from those
of ordinary debt securities in that we do not guarantee the payment of regular interest or the return of any principal at maturity.
Instead, if the securities have not been automatically redeemed prior to maturity, and if the final index value is less than the
downside threshold level, you will be exposed to the decline in the value of the underlying commodity index, as compared to the
initial index value, on a 1 to 1 basis, and the payment at maturity will represent a loss of at least 30% on your initial investment
and may be zero. There is no minimum payment at maturity on the securities. Accordingly, you could lose your entire initial
investment in the securities. |
| § | The securities do not provide for regular interest payments. The terms of the securities differ from those of ordinary
debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent
quarterly coupon only if the determination index value or final index value, as applicable, is at or above 70% of the initial index
value, which we refer to as the downside threshold level, on the related determination date. If, on the other hand, the determination
index value or final index value, as applicable, is lower than the downside threshold level on the relevant determination date
for any interest period, we will pay no coupon on the applicable contingent payment date. However, if the contingent quarterly
coupon is not paid on any contingent payment date (other than the final determination date) because the determination closing price
of the underlying commodity index is less than the downside threshold level on the related determination date, such unpaid contingent
quarterly coupon will be paid on a later contingent payment date but only if the determination index value or final index value,
as applicable, of the underlying commodity index on such later determination date is greater than or equal to the downside
threshold level. Therefore, you will not receive such unpaid contingent quarterly coupon if the determination index value of the
underlying stock is less than the downside threshold level on each subsequent determination date. If the determination index
value of the underlying stock is less than the downside threshold level on each determination date, you will not receive any contingent
quarterly coupon for the entire term of the securities. 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 contingent quarterly coupon, if any, is based only on the value of the underlying commodity index on the related quarterly
determination date at the end of the related interest period. Whether the contingent quarterly coupon will be paid on any contingent
payment date will be determined at the end of the relevant interest period, based on the determination index value of the underlying
commodity index on the relevant quarterly determination date. As a result, you will not know whether you will receive the contingent
quarterly coupon on any contingent payment date until near the end of the relevant interest period. Moreover, because the contingent
quarterly coupon is based solely on the value of the underlying commodity index on quarterly determination dates, if the determination
index value of the underlying commodity index on any determination date is below the downside threshold level, you will receive
no coupon for the related interest period, or any previously unpaid coupons, as applicable, even if the level of the underlying
commodity index was at or above the downside threshold level on other days during that interest period. |
| § | Investors will not participate in any appreciation in the underlying commodity index. Investors will not participate
in any appreciation of the underlying commodity index from the initial index value, and the return on the securities will be limited
to the contingent quarterly coupons, if any, that are paid with respect to each determination date on which the determination index
value or the final index value, as applicable, is greater than the downside threshold level. It is possible that the value of the
underlying commodity index could be at or below the downside threshold level on most or all of the determination dates so that
you will receive few or no contingent quarterly coupons during the entire term of the securities. 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. |
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
| § | The automatic early redemption feature may limit the term of your investment to approximately six 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
six 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. However, under no circumstances will the securities be redeemed in the first six months
of the term of the securities. |
| § | The market price will be influenced by many unpredictable factors. Several factors, some of which are beyond our control,
will influence the value of the securities in the secondary market and the price at which Morgan Stanley & Co. LLC, which we
refer to as MS & Co., may be willing to purchase or sell the securities in the secondary market. We expect that generally the
level of interest rates available in the market and the value of the underlying commodity index on any day, including in relation
to the initial index value and the downside threshold level, will affect the value of the securities more than any other factors.
Other factors that may influence the value of the securities include: |
| § | the volatility (frequency and magnitude of changes in value) of the underlying commodity index; |
| § | the price of the index contracts that underlie the underlying commodity index and the volatility of such prices; |
| § | trends of supply and demand for the index contracts that underlie the underlying commodity index; |
| § | interest and yield rates in the market; |
| § | geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the commodities markets
generally and which may affect the value of the underlying commodity index; |
| § | the time remaining until the next determination date and the maturity of the securities; and |
| § | any actual or anticipated changes in our credit ratings or credit spreads. |
Some or all of these factors will
influence the price that you will receive if you sell your securities prior to maturity. In particular, if the underlying commodity
index has closed near or below the downside threshold level, the market value of the securities is expected to decrease substantially,
and you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security.
You cannot predict the future performance
of the underlying commodity index based on its historical performance. The value of the underlying commodity index may decrease
and be below the downside threshold level on each determination date so that you will receive no return on your investment, and
the underlying commodity index may close below the downside threshold level on the final determination date so that you lose more
than 30% or all of your initial investment in the securities. There can be no assurance that the determination index value will
be at or above the downside threshold level on any determination date so that you will receive a coupon payment on the securities
for the applicable interest period, or that it will be at or above the downside threshold level on the final determination date
so that you do not suffer a significant loss on your initial investment in the securities. See “S&P GSCI™ Crude
Oil Index - Excess Return” below.
| § | The securities are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings
or credit spreads may adversely affect the market value of the securities. You are dependent on Morgan Stanley’s ability
to pay all amounts due on the securities at maturity or on any contingent payment date, and therefore you are subject to the credit
risk of Morgan Stanley. The securities are not guaranteed by any other entity. 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. |
| § | An investment in the securities will expose you to concentrated risks relating to crude oil. The underlying commodity
index is composed entirely of crude oil futures contracts included in the S&P GSCITM–ER. An investment in
the securities may therefore bear risks similar to a securities investment concentrated in a single underlying sector. The price
of crude oil futures is primarily affected by the global demand for and supply of crude oil, but is also |
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
| |
influenced significantly from time to time by speculative actions and by currency exchange rates. Demand for refined petroleum
products by consumers, as well as the agricultural, manufacturing and transportation industries, affects the price of crude oil.
Crude oil’s end-use as a refined product is often as transport fuel, industrial fuel and in-home heating fuel. Potential
for substitution in most areas exists, although considerations including relative cost often limit substitution levels. Because
the precursors of demand for petroleum products are linked to economic activity, demand will tend to reflect economic conditions.
Demand is also influenced by government regulations, such as environmental or consumption policies. In addition to general economic
activity and demand, prices for crude oil are affected by political events, labor activity and, in particular, direct government
intervention (such as embargos) or supply disruptions in major oil producing regions of the world. Such events tend to affect oil
prices worldwide, regardless of the location of the event. Supply for crude oil may increase or decrease depending on many factors.
These include production decisions by the Organization of Petroleum Exporting Countries (OPEC) and other crude oil producers. In
the event of sudden disruptions in the supplies of oil, such as those caused by war, natural events, accidents or acts of terrorism,
prices of oil futures contracts could become extremely volatile and unpredictable. Also, sudden and dramatic changes in the futures
market may occur, for example, upon a cessation of hostilities that may exist in countries producing oil, the introduction of new
or previously withheld supplies into the market or the introduction of substitute products or commodities. The price of crude oil
futures has experienced very severe price fluctuations over the recent past and there can be no assurance that this extreme price
volatility will not continue in the future. |
| § | Higher future prices of the index commodity relative to its current prices may adversely affect the value of the underlying
commodity index and the value of the securities. The S&P GSCITM–ER, on which the underlying commodity
index is based, is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to
a continuing stake in a corporation, commodity futures contracts normally specify a certain date for delivery of the underlying
physical commodity. As the futures contracts that compose the underlying commodity index approach expiration, they are replaced
by contracts that have a later expiration. Thus, for example, a contract purchased and held in September may specify an October
expiration. As time passes, the contract expiring in October is replaced by a contract for delivery in November. This process is
referred to as “rolling.” If the market for these contracts is (putting aside other considerations) in “backwardation,”
where the prices are lower in the distant delivery months than in the nearer delivery months, the sale of the October contract
would take place at a price that is higher than the price of the November contract, thereby creating a “roll yield.”
However, crude oil and certain other commodities included in the S&P GSCITM–ER have historically traded in
“contango” markets. Contango markets are those in which the prices of contracts are higher in the distant delivery
months than in the nearer delivery months. The presence of contango and absence of backwardation in the crude oil markets generally
results in negative “roll yields,” which would adversely affect the value of the underlying commodity index, and, accordingly,
the value of the securities. |
| § | An investment linked to commodity futures contracts is not equivalent to an investment linked to the spot prices of physical
commodities. The underlying commodity index has returns based on the change in price of futures contracts included in such
underlying commodity index, not the change in the spot price of actual physical commodities to which such futures contracts relate.
The price of a futures contract reflects the expected value of the commodity upon delivery in the future, whereas the price of
a physical commodity reflects the value of such commodity upon immediate delivery, which is referred to as the spot price. Several
factors can result in differences between the price of a commodity futures contract and the spot price of a commodity, including
the cost of storing such commodity for the length of the futures contract, interest costs related to financing the purchase of
such commodity and expectations of supply and demand for such commodity. While the changes in the price of a futures contract are
usually correlated with the changes in the spot price, such correlation is not exact. In some cases, the performance of a commodity
futures contract can deviate significantly from the spot price performance of the related underlying commodity, especially over
longer periods of time. Accordingly, investments linked to the return of commodities futures contracts may underperform similar
investments that reflect the spot price return on physical commodities. |
| § | Suspensions or disruptions of market trading in commodity and related futures markets could adversely affect the price of
the securities. The commodity markets are subject to temporary distortions or other disruptions due to various factors, including
the lack of liquidity in the markets, the participation of speculators and government |
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
| |
regulation and intervention. In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount
of fluctuation in futures contract prices which may occur during a single business day. These limits are generally referred to
as “daily price fluctuation limits” and the maximum or minimum price of a contract on any given day as a result of
these limits is referred to as a “limit price.” Once the limit price has been reached in a particular contract, no
trades may be made at a different price. Limit prices have the effect of precluding trading in a particular contract or forcing
the liquidation of contracts at disadvantageous times or prices. These circumstances could adversely affect the value of the underlying
commodity index, and, therefore, the value of the securities. |
| § | Adjustments to the underlying commodity index could adversely affect the value of the securities. The publisher of the
underlying commodity index may add, delete or substitute the commodity contracts constituting the underlying commodity index or
make other methodological changes that could change the value of the underlying commodity index. The underlying commodity index
publisher may discontinue or suspend calculation or publication of the underlying commodity index at any time. Any of these actions
could adversely affect the value of the securities. Where the underlying commodity index is discontinued, the calculation agent
will have the sole discretion to substitute a successor index that is comparable to the underlying commodity index and will be
permitted to consider indices that are calculated and published by the calculation agent or any of its affiliates. |
| § | Investing in the securities is not equivalent to investing in the underlying commodity index.
Investing in the securities is not equivalent to investing in the underlying commodity index or the futures contracts that
underlie the underlying commodity index. |
| § | Legal and regulatory changes could adversely affect the return on and value of your securities. Futures contracts and
options on futures contracts, including those related to the index commodities, are subject to extensive statutes, regulations,
and margin requirements. The Commodity Futures Trading Commission, commonly referred to as the “CFTC,” and the exchanges
on which such futures contracts trade, are authorized to take extraordinary actions in the event of a market emergency, including,
for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of
daily limits and the suspension of trading. Furthermore, certain exchanges have regulations that limit the amount of fluctuations
in futures contract prices that may occur during a single five-minute trading period. These limits could adversely affect the market
prices of relevant futures and options contracts and forward contracts. The regulation of commodity transactions in the U.S. is
subject to ongoing modification by government and judicial action. In addition, various non-U.S. governments have expressed concern
regarding the disruptive effects of speculative trading in the commodity markets and the need to regulate the derivative markets
in general. The effect on the value of the securities of any future regulatory change is impossible to predict, but could be substantial
and adverse to the interests of holders of the securities. |
For example, the Dodd-Frank Act,
which was enacted on July 21, 2010, requires the CFTC to establish limits on the amount of positions that may be held by any person
in certain commodity futures contracts and swaps, futures and options that are economically equivalent to such contracts. While
the effects of these or other regulatory developments are difficult to predict, when adopted, such rules may have the effect of
making the markets for commodities, commodity futures contracts, options on futures contracts and other related derivatives more
volatile and over time potentially less liquid. Such restrictions may force market participants, including us and our affiliates,
or such market participants may decide, to sell their positions in such futures contracts and other instruments subject to the
limits. If this broad market selling were to occur, it would likely lead to declines, possibly significant declines, in commodity
prices, in the price of such commodity futures contracts or instruments and potentially, the value of the securities.
| § | The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices. Assuming no change in market conditions or any other relevant factors, the
prices, if any, at which dealers, including MS & Co., 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 |
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
| |
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 9 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 commodity index, 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. |
| § | The securities will not be listed on any securities exchange and secondary trading may be limited. The securities will
not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS & Co.
may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so at any
time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on
its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary
market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any,
at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it
is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity. |
| § | 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 possibly
to other instruments linked to the underlying commodity index), including trading in swaps or futures contracts on the underlying
commodity index and on commodities that underlie the underlying commodity index. As a result, these entities may be unwinding or
adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic
adjustments to the hedge as the final determination date approaches. Some of our subsidiaries also trade in financial instruments
related to the underlying commodity index or the prices of the commodities or contracts that underlie the underlying commodity
index on a regular basis as part of their general commodity trading and other businesses. Any of these hedging or trading activities
on or prior to the pricing date could potentially increase the initial index value, and, as a result, increase (i) the level at
or above which the underlying commodity index must close on any determination date after the first six months so that the securities
are redeemed prior to maturity for the early redemption payment, and (ii) the downside threshold level, which is the level at or
above which the underlying commodity index must close on each determination date in order for you to earn a contingent quarterly
coupon and to receive any unpaid contingent quarterly coupons from prior determination dates, and, if the securities are not called
prior to maturity, the level at or |
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
| |
above which the underlying commodity index must close on the final determination date so that you are not exposed to the negative
performance of the underlying commodity index at maturity. Additionally, our hedging activities, as well as our other trading activities,
during the term of the securities could potentially affect the value of the underlying commodity index on the determination dates,
and, accordingly, whether the securities are automatically redeemed prior to maturity, whether we pay a contingent quarterly coupon
on the securities and the amount of cash you receive at maturity, if any. |
| § | The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the securities.
As calculation agent, Morgan Stanley Capital Group Inc. (“MSCG”) will determine the initial index value, the downside
threshold level, the determination index value, the final index value, the contingent quarterly coupon, if any, due to you with
respect to each determination date, whether the securities will be redeemed following any determination date after the first six
months, whether a market disruption event has occurred, and, if the securities are not redeemed prior to maturity, the amount of
cash, if any, you will receive at maturity. Moreover, certain determinations made by MSCG, in its capacity as calculation agent,
may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of
market disruption events and the selection of a successor index or calculation of the final index value in the event of a discontinuance
of the underlying commodity index. These potentially subjective determinations may adversely affect the payout to you at maturity,
if any. For further information regarding these types of determinations, see “Description of Securities—Determination
Dates,” “—Discontinuance of the Underlying Commodity Index; Alteration of Method of Calculation” and “—Alternate
Exchange Calculation in case of an Event of Default,” and “—Calculation Agent and Calculations” in the
accompanying preliminary pricing 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. Please read the discussion
under “Fact Sheet – General Information – Tax considerations” in this document and the discussion under
“United States Federal Taxation” in the accompanying preliminary pricing supplement (together, the “Tax Disclosure
Sections”) concerning the U.S. federal income tax consequences of an investment in the securities. As discussed in the Tax
Disclosure Sections, 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. If the IRS were successful in asserting an
alternative treatment for the securities, the timing and character of income on the securities might differ significantly from
the tax treatment described in the Tax Disclosure Sections. For example, under one possible treatment, U.S. Holders could be required
to accrue original issue discount on the securities every year at a “comparable yield” determined at the time of issuance
and recognize all income and gain in respect of the securities as ordinary income. Additionally, as discussed under “United
States Federal Taxation – FATCA Legislation” in the accompanying preliminary pricing supplement for the securities,
the withholding rules commonly referred to as “FATCA” would apply to the securities if they were recharacterized as
debt instruments. The risk that financial instruments providing for buffers, triggers or similar downside protection features,
such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable financial
instruments that do not have such features. We do not plan to request a ruling from the IRS regarding the tax treatment of the
securities, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections. |
Non-U.S. Holders should note that
we currently intend to withhold on any coupon paid to Non-U.S. Holders 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. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which
very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While
the notice requests comments on appropriate transition rules and effective dates, any
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Treasury regulations or other guidance
promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in
the securities, possibly with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments, the issues
presented by this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Information about the Underlying Commodity Index
The S&P GSCITM
Crude Oil Index–Excess Return. The S&P GSCITM
Crude Oil Index–Excess Return is a sub-index of the S&P GSCITM- Excess Return. It represents only the
crude oil component of the S&P GSCITM-Excess Return, a composite index of commodity sector returns, calculated,
maintained and published daily by S&P Dow Jones Indices LLC (“S&P”). The S&P GSCI™ is a world production-weighted
index that is designed to reflect the relative significance of principal non-financial commodities (i.e., physical commodities)
in the world economy. The S&P GSCI™ represents the return of a portfolio of the futures contracts for the underlying
commodities. The S&P GSCI™ Crude Oil Index Excess Return references the front-month West Texas Intermediate (“WTI”)
crude oil futures contract (i.e., the WTI crude futures contract generally closest to expiration) traded on the New York
Mercantile Exchange. The S&P GSCI™ Crude Oil Index Excess Return provides investors with a publicly available benchmark
for investment performance in the crude oil commodity markets. The S&P GSCI™ Crude Oil Index Excess Return is an excess
return index and not a total return index. An excess return index reflects the returns that are potentially available through an
unleveraged investment in the contracts composing the index (which, in the case of the underlying commodity index, are the designated
crude oil futures contracts).
The S&P GSCI™—Excess
Return is calculated and maintained using the same methodology utilized by S&P Dow Jones Indices LLC
in calculating the S&P GSCI™. See the information set
forth under “Description of Securities— The S&P GSCI™ Crude Oil Index”
in the accompanying preliminary pricing supplement.
License Agreement between S&P
and Morgan Stanley. S&P and Morgan Stanley have
entered into a non-exclusive license agreement providing for the license to Morgan Stanley, and certain of its affiliated or subsidiary
companies, in exchange for a fee, of the right to use the S&P GSCITM Crude Oil Index–Excess Return, which
is owned and published by S&P, in connection with securities, including the securities.
The license agreement between S&P and Morgan Stanley provides
that the following language must be set forth in these preliminary terms:
The securities are not sponsored, endorsed, sold or promoted
by The McGraw-Hill Companies, Inc. (including its affiliates) (S&P, with its affiliates, are referred to as the “Corporations”).
The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures
relating to, the securities. The Corporations make no representation or warranty, express or implied, to the holders of the securities
or any member of the public regarding the advisability of investing in securities generally or in the securities particularly,
or the ability of the underlying commodity to track general agricultural commodity market performance. The Corporations’
only relationship to us (the “Licensee”) is in the licensing of the underlying commodity index and S&P®
trademarks or service marks and certain trade names of the Corporations and the use of the underlying commodity index which is
determined, composed and calculated by S&P without regard to the Licensee or the securities. S&P has no obligation to take
the needs of the Licensee or the owners of the securities into consideration in determining, composing or calculating the underlying
commodity index. The Corporations are not responsible for and have not participated in the determination of the timing, prices,
or quantities of the securities to be issued or in the determination or calculation of the equation by which the securities are
to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the
securities.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED
CALCULATION OF THE UNDERLYING COMMODITY INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING
COMMODITY INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIM ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE UNDERLYING COMMODITY INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR LOST PROFITS
OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
“Standard & Poor’s®,” “S&P®”
and “S&P GSCITM” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
Morgan Stanley. The securities have not been passed on by the Corporations as to their legality or suitability. The securities
are not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO SECURITIES.
Contingent Income Auto-Callable Securities due September 19, 2017, With 6-month Initial Non-Call Period
Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return
Principal at Risk Securities
Historical Information
The following
table sets forth the published high and low daily official settlement prices, as well as end-of-quarter daily official settlement
prices, of the underlying commodity index for each quarter in the period from January 1, 2010 through August 25, 2015. The official
settlement price of the underlying commodity index on August 25, 2015 was 186.7696.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical
values of the underlying commodity index should not be taken as an indication of future performance, and no assurance can be given
as to the level of the underlying commodity index on the valuation date.
S&P GSCITM Crude Oil Index—Excess Return |
High |
Low |
Period End |
2010 |
|
|
|
First Quarter |
580.7973 |
494.2745 |
575.7510 |
Second Quarter |
596.9223 |
444.4116 |
480.7402 |
Third Quarter |
521.3389 |
449.7758 |
494.2388 |
Fourth Quarter |
553.5523 |
490.9833 |
552.7660 |
2011 |
|
|
|
First Quarter |
607.1437 |
503.8268 |
607.1437 |
Second Quarter |
644.4647 |
506.8806 |
533.7882 |
Third Quarter |
556.0875 |
438.3955 |
438.3955 |
Fourth Quarter |
567.1342 |
418.8559 |
545.2173 |
2012 |
|
|
|
First Quarter |
601.9905 |
530.5137 |
562.3674 |
Second Quarter |
576.7051 |
419.0127 |
458.2227 |
Third Quarter |
529.9358 |
451.6967 |
491.8431 |
Fourth Quarter |
493.3903 |
448.5244 |
481.9584 |
2013 |
|
|
|
First Quarter |
511.6316 |
468.0970 |
502.6795 |
Second Quarter |
505.8752 |
448.0953 |
495.0573 |
Third Quarter |
572.0864 |
502.3888 |
533.9717 |
Fourth Quarter |
543.2078 |
480.0819 |
510.6378 |
2014 |
|
|
|
First Quarter |
545.7297 |
475.5971 |
530.6062 |
Second Quarter |
571.2074 |
520.3681 |
563.4010 |
Third Quarter |
563.2406 |
496.6154 |
498.5767 |
Fourth Quarter |
497.7563 |
293.2265 |
293.2265 |
2015 |
|
|
|
First Quarter |
293.2265 |
232.6960 |
245.1058 |
Second Quarter |
303.8245 |
253.0357 |
289.5632 |
Third Quarter (through August 25, 2015) |
277.3419 |
181.6858 |
186.7696 |
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