|
November 2015
|
Preliminary Terms No. 677
Registration Statement No. 333-200365
Dated November 23, 2015
Filed pursuant to Rule 433
|
STRUCTURED INVESTMENTS
Opportunities in U.S. Equities
PLUS Based on the Value of the S&P 500®
Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk
Securities
The PLUS are unsecured obligations
of Morgan Stanley, will pay no interest, do not guarantee any return of principal at maturity and have the terms described in
the accompanying product supplement for PLUS, index supplement and prospectus, as supplemented or modified by this document. At
maturity, if the underlying index has appreciated in value, investors will receive the stated principal amount of their
investment plus leveraged upside performance of the underlying index. However, if the underlying index has depreciated
in value, investors will lose 1% for every 1% decline in the index value over the term of the securities. Under these circumstances,
the payment at maturity will be less than the stated principal amount and could be zero. Accordingly, you may lose your entire
investment. The PLUS are for investors who seek an equity index-based return and who are willing to risk their principal and
forgo current income in exchange for the leverage feature. Investors may lose their entire initial investment in the PLUS.
The PLUS 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 PLUS 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 |
Maturity date: |
November 30, 2018 |
Underlying index: |
S&P 500® Index |
Aggregate principal amount: |
$ |
Payment at maturity: |
If final index value is greater than initial index value, |
|
$1,000 + leveraged upside payment |
|
If final index value is less than or equal to initial index value, |
|
$1,000 × index performance factor |
|
This amount will be less than or equal to the stated principal amount of $1,000. |
Leveraged upside payment: |
$1,000 × leverage factor × index percent increase |
Index percent increase: |
(final index value – initial index value) / 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 valuation date |
Valuation date: |
November 27, 2018, subject to postponement for non-index business days and certain market disruption events |
Leverage factor: |
The leverage factor will be between 132% and 134%. The actual leverage factor will be determined on the pricing date. |
Index performance factor: |
final index value / initial index value |
Maximum payment at maturity: |
None |
Stated principal amount: |
$1,000 per PLUS |
Issue price: |
$1,000 per PLUS (see “Commissions and issue price” below) |
Pricing date: |
November 24, 2015 |
Original issue date: |
November 30, 2015 (3 business days after the pricing date) |
CUSIP: |
61761JQ93 |
ISIN: |
US61761JQ935 |
Listing: |
The PLUS will not be listed on any securities exchange. |
Agent: |
Morgan Stanley & Co. LLC (“MS & Co.”), a wholly-owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.” |
Estimated value on the pricing date: |
Approximately $957.50 per PLUS, or within $15.00 of that estimate. See “Investment Summary” beginning on page 2. |
Commissions and issue price: |
Price to public |
Agent’s commissions(1) |
Proceeds to issuer(2) |
Per PLUS |
$1,000 |
$23.50 |
$976.50 |
Total |
$ |
$ |
$ |
| (1) | Selected dealers and their financial advisors will collectively receive from the Agent, MS & Co., a fixed sales commission
of $23.50 for each PLUS they sell. See “Supplemental information regarding plan of distribution; conflicts of interest.”
For additional information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying product supplement
for PLUS. |
| (2) | See “Use of proceeds and hedging” on page 12. |
The PLUS involve risks not
associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 6.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement,
index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The PLUS are not bank deposits and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
You should read this document together with the related product
supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Information About the PLUS” at the end of this document.
Product Supplement for PLUS dated November 19, 2014 Index Supplement dated November 19, 2014
Prospectus dated November 19, 2014
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Investment Summary
Performance Leveraged Upside Securities
Principal at Risk Securities
The PLUS Based on the Value of
the S&P 500® Index due November 30, 2018 (the “PLUS”) can be used:
| § | As
an alternative to direct exposure to the underlying index that enhances returns for any
positive performance of the underlying index. |
| § | To
enhance returns and potentially outperform the underlying index in a bullish scenario,
with no limitation on the appreciation potential. |
| § | To
achieve similar levels of upside exposure to the underlying index as a direct investment
while using fewer dollars by taking advantage of the leverage factor. |
The PLUS are exposed on a 1:1
basis to the negative performance of the underlying index.
Maturity: |
3 years |
Leverage
factor: |
132% to 134% (applicable
only if the final index value is greater than the initial index value). The actual leverage factor will be determined on the
pricing date. |
Minimum
payment at maturity: |
None. Investors
may lose their entire initial investment in the PLUS. |
Coupon: |
None |
The original
issue price of each PLUS is $1,000. This price includes costs associated with issuing, selling, structuring and hedging the PLUS,
which are borne by you, and, consequently, the estimated value of the PLUS on the pricing date will be less than $1,000. We estimate
that the value of each PLUS on the pricing date will be approximately $957.50, or within $15.00 of that estimate. Our estimate
of the value of the PLUS 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
PLUS on the pricing date, we take into account that the PLUS comprise both a debt component and a performance-based component
linked to the underlying index. The estimated value of the PLUS is determined using our own pricing and valuation models, market
inputs and assumptions relating to the underlying index, instruments based on the underlying 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 PLUS?
In determining
the economic terms of the PLUS, including the leverage factor, 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 PLUS 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 PLUS?
The price at
which MS & Co. purchases the PLUS in the secondary market, absent changes in market conditions, including those related to
the underlying 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 PLUS are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent
that MS & Co. may buy or sell the PLUS in the secondary market, absent changes in market conditions, including those related
to the underlying 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.
MS & Co.
may, but is not obligated to, make a market in the PLUS, and, if it once chooses to make a market, may cease doing so at any time.
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Key Investment Rationale
The PLUS offer leveraged exposure to any positive performance
of the S&P 500® Index. In exchange for enhanced performance of 132% to 134% of the appreciation of the underlying
index, investors forgo current income. The actual leverage factor will be determined on the pricing date. At maturity, if the underlying
index has appreciated in value, investors will receive the stated principal amount of their investment plus leveraged upside performance
of the underlying index. However, if the underlying index has depreciated in value, investors will lose 1% for every 1% decline
in the index value over the term of the securities. Under these circumstances, the payment at maturity will be less than the stated
principal amount and could be zero. Investors may lose their entire initial investment in the PLUS. All payments on the
PLUS are subject to the credit risk of Morgan Stanley.
Leveraged Performance |
The PLUS offer investors an opportunity to capture enhanced returns relative to a direct investment in the underlying index. |
Upside Scenario |
The underlying index increases in value, and, at maturity, you receive a full return of principal as well as 132% to 134% of the increase in the value of the underlying index. For example, if the final index value is 2% greater than the initial index value, the PLUS will provide a total return of 2.64% to 2.68% at maturity. The actual leverage factor will be determined on the pricing date. |
Par scenario |
The final index value is equal to the initial index value. In this case, you receive the stated principal amount of $1,000 at maturity. |
Downside Scenario |
The underlying index declines in value, and, at maturity, the PLUS redeem for less than the stated principal amount by an amount proportionate to the full decline in the value of the underlying index over the term of the PLUS. For example, if the final index value is 30% less than the initial index value, the PLUS will redeem at maturity for a loss of 30% of principal at $700, or 70% of the stated principal amount. There is no minimum payment at maturity on the PLUS, and you could lose your entire investment. |
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
How the PLUS Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the PLUS based on the following terms:
Stated principal amount: |
$1,000 per PLUS |
Hypothetical leverage factor: |
133% (the midpoint of the range of 132% to 134%) |
Minimum payment at maturity: |
None |
PLUS Payoff Diagram |
|
See the next page for a description
of how the PLUS work.
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
How it works
| § | Upside Scenario. If the final index value is greater than the initial index value,
the investor would receive the $1,000 stated principal amount plus 133% of the appreciation of the underlying index over the term
of the PLUS (assuming a hypothetical leverage factor of 133%). |
| § | If the underlying index appreciates 2%, the investor would receive a 2.66% return, or $1,026.60 per PLUS. |
| § | Par Scenario. If the final index value is equal to the initial index value, the
investor would receive the $1,000 stated principal amount. |
| § | Downside Scenario. If the final index value is less than the initial index value,
the investor would receive an amount that is less than the $1,000 stated principal amount, based on a 1% loss of principal for
each 1% decline in the underlying index. Under these circumstances, the payment at maturity will be less than the stated principal
amount per PLUS. There is no minimum payment at maturity on the PLUS. |
| § | If the underlying index depreciates 30%, the investor would lose 30% of the investor’s principal and receive only $700
per PLUS at maturity, or 70% of the stated principal amount. |
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the PLUS. For further discussion of these and other risks, you should read the section entitled “Risk
Factors” in the accompanying product supplement for PLUS, index supplement and prospectus. We also urge you to consult your
investment, legal, tax, accounting and other advisers in connection with your investment in the PLUS.
| § | The PLUS do not pay interest or guarantee return of any principal. The terms of the PLUS differ from those of ordinary
debt securities in that the PLUS do not pay interest or guarantee the payment of any principal amount at maturity. If the final
index value is less than the initial index value, the payout at maturity will be an amount in cash that is less than the $1,000
stated principal amount of each PLUS by an amount proportionate to the full decline in the value of the underlying index over the
term of the PLUS. There is no minimum payment at maturity on the PLUS, and, accordingly, you could lose your entire initial investment
in the PLUS. |
| § | The market price will be influenced by many unpredictable factors. Several factors, many of which are beyond our control,
will influence the value of the PLUS in the secondary market and the price at which MS & Co. may be willing to purchase or
sell the PLUS in the secondary market, including: the value, volatility (frequency and magnitude of changes in value) and dividend
yield of the underlying index, interest and yield rates, time remaining to maturity, geopolitical conditions and economic, financial,
political and regulatory or judicial events that affect the underlying index or equities markets generally and which may affect
the final index value of the underlying index and any actual or anticipated changes in our credit ratings or credit spreads. The
level of the underlying index may be, and has recently been, extremely volatile, and we can give you no assurance that the volatility
will lessen. See “S&P 500® Index Overview” below. You may receive less, and
possibly significantly less, than the stated principal amount per PLUS if you try to sell your PLUS prior to maturity. |
| § | The PLUS 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 PLUS. You are dependent on Morgan Stanley’s ability to pay
all amounts due on the PLUS at maturity and therefore you are subject to the credit risk of Morgan Stanley. If Morgan Stanley defaults
on its obligations under the PLUS, your investment would be at risk and you could lose some or all of your investment. As a result,
the market value of the PLUS 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 PLUS. |
| § | The amount payable on the PLUS is not linked to the value of the underlying index at any time other than the valuation date.
The final index value will be based on the index closing value on the valuation date, subject to postponement for non-index
business days and certain market disruption events. Even if the value of the underlying index appreciates prior to the valuation
date but then drops by the valuation date, the payment at maturity will be less, and may be significantly less, than it would have
been had the payment at maturity been linked to the value of the underlying index prior to such drop. Although the actual value
of the underlying index on the stated maturity date or at other times during the term of the PLUS may be higher than the final
index value, the payment at maturity will be based solely on the index closing value on the valuation date. |
| § | Investing in the PLUS is not equivalent to investing in the underlying index. Investing in the PLUS is not equivalent
to investing in the underlying index or its component stocks. Investors in the PLUS will not have voting rights or rights to receive
dividends or other distributions or any other rights with respect to the stocks that constitute the underlying index. |
| § | Adjustments to the underlying index could adversely affect the value of the PLUS. The underlying index publisher may
add, delete or substitute the stocks constituting the underlying index or make other methodological changes that could change the
value of the underlying index. The underlying index publisher may discontinue or suspend calculation or publication of the underlying
index at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a successor index
that is comparable to the discontinued underlying index and is not precluded from considering indices that are calculated and published
by the calculation agent or any of its affiliates. If
the calculation agent determines that there is no appropriate successor index, the payment at maturity on the PLUS |
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
will
be an amount based on the closing prices at maturity of the securities composing the underlying index at the time of such discontinuance,
without rebalancing or substitution, computed by the calculation agent in accordance with the formula for calculating the underlying
index last in effect prior to discontinuance of the underlying index.
| § | 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 PLUS in the original issue price reduce the economic terms of the PLUS, cause
the estimated value of the PLUS 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 PLUS in secondary market transactions will likely be significantly lower than the original
issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are
included in the original issue price and borne by you and because the secondary market prices will reflect our secondary market
credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as
other factors. |
The inclusion of the costs of issuing,
selling, structuring and hedging the PLUS in the original issue price and the lower rate we are willing to pay as issuer make the
economic terms of the PLUS less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the PLUS are not fully deducted upon issuance, for a period of up to 6 months following
the issue date, to the extent that MS & Co. may buy or sell the PLUS in the secondary market, absent changes in market conditions,
including those related to the underlying 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 PLUS 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 PLUS than those generated by others, including other dealers in the market, if they attempted to value the
PLUS. 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 PLUS in the secondary market (if any exists) at any time. The value of your PLUS
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 PLUS will not be listed on any securities exchange and secondary trading may be limited. The PLUS will not be listed
on any securities exchange. Therefore, there may be little or no secondary market for the PLUS. MS & Co. may, but is not obligated
to, make a market in the PLUS 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 PLUS, 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 PLUS. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the
PLUS easily. Since other broker-dealers may not participate significantly in the secondary market for the PLUS, the price at which
you may be able to trade your PLUS 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 PLUS, it is likely that there would be no secondary market for the
PLUS. Accordingly, you should be willing to hold your PLUS to maturity. |
| § | The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the PLUS. As calculation
agent, MS & Co. will determine the initial index value and the final index value and will calculate the amount of cash you
receive at maturity, if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require
it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption
events and the selection of a successor index or calculation of the |
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
final index value in the event of
a market disruption event or discontinuance of the underlying 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 PLUS—Postponement of Valuation Date(s)” and “—Calculation Agent and Calculations” in the accompanying
product supplement. In addition, MS & Co. has determined the estimated value of the PLUS on the pricing date.
| § | Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the PLUS. One or more
of our subsidiaries and/or third-party dealers expect to carry out hedging activities related to the PLUS (and possibly to other
instruments linked to the underlying index or its component stocks), including trading in the stocks that constitute the underlying
index as well as in other instruments related to the underlying index. As a result, these entities may be unwinding or adjusting
hedge positions during the term of the PLUS, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the valuation date approaches. MS & Co. and some of our other subsidiaries also trade the stocks that constitute
the underlying index and other financial instruments related to the underlying index on a regular basis as part of their general
broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially
increase the initial index value, and, therefore, could increase the value at or above which the underlying index must close on
the valuation date so that investors do not suffer a loss on their initial investment in the PLUS. Additionally, such hedging or
trading activities during the term of the PLUS, including on the valuation date, could adversely affect the value of the underlying
index on the valuation date, and, accordingly, the amount of cash an investor will receive at maturity, if any. |
| § | The U.S. federal income tax consequences of an investment in the PLUS are uncertain. Please read the discussion under
“—Additional provisions―Tax considerations” in this document and the discussion under “United States
Federal Taxation” in the accompanying product supplement for PLUS (together the “Tax Disclosure Sections”) concerning
the U.S. federal income tax consequences of an investment in the PLUS. If the Internal Revenue Service (the “IRS”)
were successful in asserting an alternative treatment, the timing and character of income on the PLUS might differ significantly
from the tax treatment described in the Tax Disclosure Sections. For example, under one possible treatment, the IRS could seek
to recharacterize the PLUS as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue
discount on the PLUS every year at a “comparable yield” determined at the time of issuance and recognize all income
and gain in respect of the PLUS as ordinary income. Additionally, as discussed under “United States Federal Taxation—FATCA
Legislation” in the accompanying product supplement for PLUS, the withholding rules commonly referred to as “FATCA”
would apply to the PLUS if they were recharacterized as debt instruments except that, under a recent IRS notice, withholding under
FATCA will not apply to payments of gross proceeds (other than any amount treated as interest) of any disposition of financial
instruments before January 1, 2019. We do not plan to request a ruling from the IRS regarding the tax treatment of the PLUS, and
the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections. |
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which
very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While
the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated
after consideration of these issues could materially and adversely affect the tax consequences of an investment in the PLUS, 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 PLUS, including possible
alternative treatments, the potential application of the constructive ownership rule, the issues presented by this notice and any
tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
S&P 500® Index Overview
The S&P 500® Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies selected
to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500® Index is based
on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time
as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941 through
1943. S&P has announced that, effective with the September 2015 rebalance, consolidated share class lines are no longer included
in the S&P 500® Index. Each share class line is subject to public float and liquidity criteria individually,
but the company’s total market capitalization is used to evaluate each share class line for purposes of determining index
membership eligibility. This may result in one listed share class line of a company being included in the S&P 500®
Index while a second listed share class line of the same company is excluded. For additional information about the S&P 500®
Index, see the information set forth under “S&P 500® Index” in the accompanying index supplement.
Information as of market close on November 20, 2015:
Bloomberg Ticker Symbol: |
SPX |
Current Index Value: |
2,089.17 |
52 Weeks Ago: |
2,052.75 |
52 Week High (on 5/21/2015): |
2,130.82 |
52 Week Low (on 8/25/2015): |
1,867.61 |
The following graph sets forth the daily closing values of the
underlying index for the period from January 1, 2010 through November 20, 2015. The related table sets forth the published high
and low closing values, as well as end-of-quarter closing values, of the underlying index for each quarter in the same period.
The closing value of the underlying index on November 20, 2015 was 2,089.17. We obtained the information in the table and graph
below from Bloomberg Financial Markets without independent verification. The underlying index has at times experienced periods
of high volatility, and you should not take the historical values of the underlying index as an indication of its future performance.
S&P 500®
Index
Daily Index Closing Values
January 1, 2010 to November
20, 2015
|
|
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
S&P 500® Index |
High |
Low |
Period End |
2010 |
|
|
|
First Quarter |
1,174.17 |
1,056.74 |
1,169.43 |
Second Quarter |
1,217.28 |
1,030.71 |
1,030.71 |
Third Quarter |
1,148.67 |
1,022.58 |
1,141.20 |
Fourth Quarter |
1,259.78 |
1,137.03 |
1,257.64 |
2011 |
|
|
|
First Quarter |
1,343.01 |
1,256.88 |
1,325.83 |
Second Quarter |
1,363.61 |
1,265.42 |
1,320.64 |
Third Quarter |
1,353.22 |
1,119.46 |
1,131.42 |
Fourth Quarter |
1,285.09 |
1,099.23 |
1,257.60 |
2012 |
|
|
|
First Quarter |
1,416.51 |
1,277.06 |
1,408.47 |
Second Quarter |
1,419.04 |
1,278.04 |
1,362.16 |
Third Quarter |
1,465.77 |
1,334.76 |
1,440.67 |
Fourth Quarter |
1,461.40 |
1,353.33 |
1,426.19 |
2013 |
|
|
|
First Quarter |
1,569.19 |
1,457.15 |
1,569.19 |
Second Quarter |
1,669.16 |
1,541.61 |
1,606.28 |
Third Quarter |
1,725.52 |
1,614.08 |
1,681.55 |
Fourth Quarter |
1,848.36 |
1,655.45 |
1,848.36 |
2014 |
|
|
|
First Quarter |
1,878.04 |
1,741.89 |
1,872.34 |
Second Quarter |
1,962.87 |
1,815.69 |
1,960.23 |
Third Quarter |
2,011.36 |
1,909.57 |
1,972.29 |
Fourth Quarter |
2,090.57 |
1,862.49 |
2,058.90 |
2015 |
|
|
|
First Quarter |
2,117.39 |
1,992.67 |
2,067.89 |
Second Quarter |
2,130.82 |
2,057.64 |
2,063.11 |
Third Quarter |
2,128.28 |
1,867.61 |
1,920.03 |
Fourth Quarter (through November 20, 2015) |
2,109.79 |
1,923.82 |
2,089.17 |
License Agreement between Morgan
Stanley and Standard & Poor’s Financial Services LLC
Standard & Poor’s®,”
“S&P®,” “S&P 500®,” “Standard & Poor’s 500”
and “500” are trademarks of Standard and Poor’s Financial Services LLC and have been licensed for use by S&P
Dow Jones Indices LLC and Morgan Stanley. See “S&P 500® Index” in the accompanying index supplement.
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
Additional Information About the PLUS
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Provisions: |
|
Underlying index publisher: |
S&P Dow Jones Indices LLC |
Denominations: |
$1,000 per PLUS and integral multiples thereof |
Interest: |
None |
Bull market or bear market PLUS: |
Bull market PLUS |
Postponement of maturity date: |
If the scheduled valuation date is not an index business day or if a market disruption event occurs on that day so that the valuation date is postponed and falls less than two business days prior to the scheduled maturity date, the maturity date of the PLUS will be postponed to the second business day following that valuation date as postponed. |
Minimum ticketing size: |
$1,000 / 1 PLUS |
Tax considerations: |
Although there is uncertainty regarding the U.S. federal income tax consequences of an investment in the PLUS due to the lack of governing authority, in the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a PLUS should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. |
|
Assuming this treatment of the PLUS is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement for PLUS, the following U.S. federal income tax consequences should result based on current law: |
|
§ A U.S. Holder should not be required to recognize taxable income over the term of the PLUS prior to settlement, other than pursuant to a sale or exchange. |
|
§ Upon sale, exchange or settlement of the PLUS, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the PLUS. Such gain or loss should be long-term capital gain or loss if the investor has held the PLUS for more than one year, and short-term capital gain or loss otherwise. |
|
In 2007, the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the |
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
PLUS, possibly with retroactive effect.
As discussed under “United
States Federal Taxation – Tax Consequences to Non-U.S. Holders – Possible Application of Section 871(m) of the Code”
in the accompanying product supplement for PLUS, Section 871(m) of the Internal Revenue Code of 1986, as amended (the “Code”),
imposes a 30% withholding tax on certain “dividend equivalents” paid or deemed paid with respect to U.S. equities or
equity indices under certain circumstances. However, in light of recently promulgated Treasury regulations under Section 871(m)
of the Code, the withholding tax generally will not apply to the PLUS.
Both U.S. and non-U.S. investors considering
an investment in the PLUS should read the discussion under “Risk Factors” in this document and the discussion under
“United States Federal Taxation” in the accompanying product supplement for PLUS and consult their tax advisers regarding
all aspects of the U.S. federal income tax consequences of an investment in the PLUS, including possible alternative treatments,
the issues presented by the aforementioned notice and any tax consequences arising under the laws of any state, local or non-U.S.
taxing jurisdiction.
The discussion in the preceding paragraphs
under “Tax considerations” and the discussion contained in the section entitled “United States Federal Taxation”
in the accompanying product supplement for PLUS, 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 PLUS.
|
Trustee: |
The Bank of New York Mellon |
Calculation agent: |
MS & Co. |
Use of proceeds and hedging: |
The proceeds we receive from the sale of the PLUS will be used
for general corporate purposes. We will receive, in aggregate, $1,000 per PLUS issued, because, when we enter into hedging transactions
in order to meet our obligations under the PLUS, our hedging counterparty will reimburse the cost of the agent’s commissions.
The costs of the PLUS borne by you and described beginning on page 2 above comprise the agent’s commissions and the cost
of issuing, structuring and hedging the PLUS.
On or prior to the pricing date, we will hedge our anticipated
exposure in connection with the PLUS by entering into hedging transactions with our subsidiaries and/or third party dealers. We
expect our hedging counterparties to take positions in stocks of the underlying index, in futures and/or options contracts on the
underlying index or any component stocks of the underlying index listed on major securities markets, or in any other securities
or instruments that they may wish to use in connection with such hedging. Such purchase activity could potentially increase the
value of the underlying index on the pricing date, and, therefore, could increase the value at or above which the underlying index
must close on the valuation date so that investors do not suffer a loss on their initial investment in the PLUS. In addition, through
our subsidiaries, we are likely to modify our hedge position throughout the term of the PLUS, including on the valuation date,
by purchasing and selling the stocks constituting the underlying index, futures or options contracts on the underlying index or
its component stocks listed on major securities markets or positions in any other available securities or instruments that we may
wish to use in connection with such hedging activities. As a result, these entities may be unwinding or adjusting hedge positions
during the
|
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
term of the PLUS,
and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation date
approaches. We cannot give any assurance that our hedging activities will not affect the value of the underlying
index, and, therefore, adversely affect the value of the PLUS or the payment you will receive at maturity, if
any. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in
the accompanying product supplement for PLUS. |
Benefit plan investor considerations: |
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the PLUS. 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 be considered a “party in interest” within the meaning of ERISA, or a “disqualified
person” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many
Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”). ERISA Section 406 and Code Section
4975 generally prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited transactions within
the meaning of ERISA or the Code would likely arise, for example, if the PLUS 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 PLUS 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 Code Section 4975 for such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the PLUS. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Section 4975(d)(20) of the Code may provide an exemption for the purchase and sale of securities and the related
lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary
authority or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided
further that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction
(the so-called “service provider” exemption). There can be no assurance that any of these class or statutory exemptions
will be available with respect to transactions involving the PLUS.
Because we may be considered a party in interest with respect
to many Plans, the PLUS 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
|
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
entity (a “Plan Asset Entity”) or any person investing
“plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief, including
relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding or disposition
is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or holder of the
PLUS will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the PLUS that
either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such PLUS on behalf of or with “plan assets”
of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S.
law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”)
or (b) its purchase, holding and disposition are eligible for exemptive relief or such purchase, holding and disposition are not
prohibited by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the PLUS on behalf of or with “plan assets” of any Plan consult with their counsel regarding
the availability of exemptive relief.
The PLUS are contractual financial instruments. The financial
exposure provided by the PLUS 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 PLUS. The PLUS 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 PLUS.
Each purchaser or holder of any PLUS 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 PLUS, (B) the purchaser or holder’s investment in the PLUS, or (C) the exercise
of or failure to exercise any rights we have under or with respect to the PLUS;
(ii) we and our affiliates
have acted and will act solely for our own account in connection with (A) all transactions relating to the PLUS and (B) all hedging
transactions in connection with our obligations under the PLUS;
(iii) any and all assets and
positions relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets
and positions held for the benefit of the purchaser or holder;
(iv) our interests are adverse
to the interests of the purchaser or holder; and
(v) neither we nor any of
our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions,
and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the PLUS has exclusive responsibility
for ensuring that its purchase, holding and disposition of the PLUS do not violate the prohibited transaction rules of ERISA or
the Code or any Similar Law. The sale of any PLUS to any Plan or plan subject to Similar Law is in no respect a representation
by us or
|
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
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 PLUS if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the PLUS by the account, plan or annuity.
|
Additional considerations: |
Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the PLUS, 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, Morgan Stanley & Co. LLC, a fixed sales commission of $23.50 for
each PLUS they sell.
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 PLUS. When MS & Co.
prices this offering of PLUS, it will determine the economic terms of the PLUS, including the leverage factor, such that for each
PLUS the estimated value on the pricing date will be no lower than the minimum level described in “Investment Summary”
beginning on page 2.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for PLUS.
|
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. |
Where you can find more information: |
Morgan Stanley has filed
a registration statement (including a prospectus, as supplemented by the product supplement for PLUS and the index supplement)
with the Securities and Exchange Commission, or SEC, for the offering to which this communication relates. You should
read the prospectus in that registration statement, the product supplement for PLUS, the index supplement and any other
documents relating to this offering that Morgan Stanley has filed with the SEC for more complete information about Morgan
Stanley and this offering. You may get these documents without cost by visiting EDGAR on the SEC web site at.www.sec.gov.
Alternatively, Morgan Stanley will arrange to send you the product supplement for PLUS, index supplement and prospectus
if you so request by calling toll-free 800-584-6837.
You may access these documents
on the SEC web site at.www.sec.gov.as follows:
Product Supplement for PLUS dated November 19, 2014
Index Supplement dated November 19, 2014
|
PLUS Based on the Value of the S&P 500® Index due November 30, 2018
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
Prospectus dated November 19, 2014
Terms used but not defined
in this document are defined in the product supplement for PLUS, in the index supplement or in the prospectus. As used
in this document, the “Company,” “we,” “us” and “our” refer to Morgan
Stanley.
“Performance Leveraged
Upside SecuritiesSM” and “PLUSSM” are our service marks.
|
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