CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities Offered |
|
Maximum Aggregate Offering Price |
|
Amount of Registration Fee |
Fixed to Floating Rate Securities due 2035 |
|
$1,000,000 |
|
$100.70 |
|
October
2015
Pricing
Supplement No. 611
Registration
Statement No. 333-200365
Dated
October 5, 2015
Filed
pursuant to Rule 424(b)(2)
|
INTEREST RATE Structured
PRODUCTS
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst
Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
As further
described below, interest will accrue on the securities at a rate of (i) in years 1 to 2: 9.00% per annum and (ii) in years 3
to maturity: 9.00% per annum for each day that (A) the 30-Year Constant Maturity Swap Rate (“30CMS”) is greater than
or equal to the 2-Year Constant Maturity Swap Rate (“2CMS”) and (B) the closing value of each of
the S&P 500® Index and the Russell 2000® Index is greater than or equal to
65% of its respective initial index value (which we refer to as the index reference level). At maturity, if the final index value
of each index is greater than or equal to its barrier level of 50% of its respective initial index value, investors
will receive the stated principal amount of the securities plus any accrued but unpaid interest. However, if the final index value
of either index is less than its respective barrier level, investors will be fully exposed to the decline in the worst
performing index over the term of the securities, and the payment at maturity will be less than 50% of the stated principal amount
of the securities and could be zero. There is no minimum payment at maturity on the securities. Accordingly, investors may
lose up to their entire initial investment in the securities. Because payments on the securities are based on the worst performing
of the indices, a decline beyond the respective index reference level and/or respective barrier level, as applicable, of either
index will result in few or no interest payments during the variable interest rate period and/or a significant loss of your
investment, as applicable, even if the other index has appreciated or has not declined as much. Investors will not participate
in any appreciation of either index. These long-dated securities are for investors who seek an opportunity to earn interest at
a potentially above-market rate in exchange for the risk of losing their principal and the risk of receiving little or no interest
on the securities during the variable interest rate period.
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.
FINAL TERMS |
Issuer: |
Morgan Stanley |
Indices: |
S&P 500® Index (the “SPX Index”) and Russell
2000® Index (the “RTY Index”) |
CMS reference index: |
30-Year Constant Maturity Swap Rate minus 2-Year Constant Maturity Swap Rate,
expressed as a percentage. Please see “Additional Provisions—CMS Reference Index” below. |
Aggregate principal amount: |
$1,000,000. May be increased prior to the original issue date but
we are not required to do so. |
Issue price: |
At variable prices |
Stated principal amount: |
$1,000 per security |
Pricing date: |
October 5, 2015 |
Original issue date: |
October 30, 2015 (18 business days after the pricing date) |
Maturity date: |
October 30, 2035 |
Interest accrual date: |
October 30, 2015 |
Payment at maturity: |
· If
the final index value of each index is greater than or equal to its respective barrier level: the
stated principal amount plus any accrued and unpaid interest
· If
the final index value of either index is less than its respective barrier level: (a) the stated principal
amount times the index performance factor of the worst performing index plus (b) any accrued and unpaid
interest.
This amount
will be less than 50% of the stated principal amount of the securities and could be zero.
|
Interest: |
From and
including the original issue date to but excluding October 30, 2017 (the “fixed interest rate period”):
9.00%
per annum
From and
including October 30, 2017 to but excluding the maturity date (the “variable interest rate period”):
(x)
9.00% per annum times (y) N/ACT; where,
“N”
= the total number of calendar days in the applicable interest payment period on which (i) the level of the CMS reference
index is greater than or equal to the CMS reference index strike and (ii) the index closing value of each
index is greater than or equal to its respective index reference level (each such day, an “accrual day”);
and
“ACT”
= the total number of calendar days in the applicable interest payment period.
Beginning
October 30, 2017, it is possible that you could receive little or no interest on the securities. If, on any calendar day
in the variable interest rate period, the level of the CMS reference index is less than the CMS reference index strike
or the index closing value of either index is less than the index reference level for such index, interest will
accrue at a rate of 0.00% per annum for that day. The determination of the index closing value for each index will be
subject to certain market disruption events. Please see “Annex A—Market Disruption Event” below.
|
Agent: |
Morgan Stanley & Co. LLC (“MS & Co.”), a wholly owned subsidiary
of Morgan Stanley. See “Supplemental Information Concerning Plan of Distribution; Conflicts of Interest.” |
|
Terms continued on the
following page |
Estimated value on the pricing date: |
$851.60 per security. The estimated
value on any subsequent pricing date may be lower than this estimate, but will in no case be less than $840.00 per security. See
“The Securities” on page 3. |
Commissions and issue price: |
Price to public(1)(2) |
Agent’s commissions(2) |
Proceeds to issuer(3) |
Per security |
At variable prices |
$35 |
$965 |
Total |
At variable prices |
$35,000 |
$965,000 |
| (1) | The securities will be
offered from time to time in one or more negotiated transactions at varying prices to be determined at the time of each sale,
which may be at market prices prevailing, at prices related to such prevailing prices or at negotiated prices; provided, however,
that such price will not be less than $970 per security and will not be more than $1,000 per security. See “Risk Factors—The
Price You Pay For The Securities May Be Higher Than The Prices Paid By Other Investors.” |
| (2) | Morgan Stanley or one
of our affiliates will pay varying discounts and commissions to dealers, including Morgan Stanley Wealth Management (an affiliate
of the agent) and their financial advisors, of up to $35 per security depending on market conditions. See “Supplemental
Information Concerning 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 20. |
The securities involve risks
not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 15.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this pricing supplement or the accompanying prospectus
supplement, index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
You should read this document together
with the related prospectus supplement, index supplement and prospectus, each of which can be
accessed via the hyperlinks below.
Prospectus
Supplement dated November 19, 2014 Index
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.
Terms continued from previous page: |
Interest payment period: |
Monthly |
Interest payment period end dates: |
Unadjusted |
Interest payment dates: |
The 30th calendar day of each month (or, in the case of February, the last calendar day
of such month), beginning November 30, 2015; provided that if any such day is not a business day, that interest payment
will be made on the next succeeding business day and no adjustment will be made to any interest payment made on that succeeding
business day. |
Underlying index publisher: |
With respect
to the SPX Index: S&P Dow Jones Indices LLC
With respect
to the RTY Index: Russell Investments
|
CMS reference index strike: |
0.00% |
CMS reference index cutoff: |
Variable interest rate period: The level of the
CMS reference index for any day from and including the third U.S. government securities business day prior to the related
interest payment date for any interest payment period shall be the level of the CMS reference index on such third U.S. government
securities business day prior to such interest payment date. |
Index reference level: |
With respect
to the SPX Index: , which is 65% of its initial index value
With respect
to the RTY Index: , which is 65% of its initial index value
|
Initial index value: |
With respect
to the SPX Index: , which is its index closing value on October 27, 2015, subject to adjustment due to non-index business
days or certain market disruption events.
With respect
to the RTY Index: , which is its index closing value on October 27, 2015, subject to adjustment due to non-index business
days or certain market disruption events.
|
Barrier level: |
With respect
to the SPX Index: , which is 50% of its initial index value
With respect
to the RTY Index: , which is 50% of its initial index value
|
Final index value: |
With respect to each index, the index closing value of such index on the final determination
date |
Index closing value: |
With respect to each index, the closing value of such index. Please see “Additional
Provisions—Indices” below. |
Final determination date: |
The third scheduled business day prior to the maturity date, subject to adjustment due to
non-index business days or certain market disruption events. |
Index cutoff: |
Variable interest rate period: With respect to
each index, the index closing value of such index for any day from and including the third index business day prior to the
related interest payment date for any interest payment period shall be the index closing value of such index on such third
index business day prior to such interest payment date. |
Index performance factor: |
The final index value divided by the initial index value |
Worst performing index: |
The index with the larger percentage decrease from the respective initial index value to
the respective final index value |
Early redemption: |
Not applicable |
Day-count convention: |
Actual/Actual |
Specified currency: |
U.S. dollars |
CUSIP / ISIN: |
61760QHV9 / US61760QHV95 |
Book-entry or certificated security: |
Book-entry |
Business day: |
New York |
Calculation agent: |
Morgan Stanley
Capital Services LLC.
All determinations
made by the calculation agent will be at the sole discretion of the calculation agent and will, in the absence of manifest
error, be conclusive for all purposes and binding on you, the trustee and us.
All values used
in the interest rate formula for the securities and all percentages resulting from any calculation of interest will be
rounded to the nearest one hundred-thousandth of a percentage point, with .000005% rounded up to .00001%. All dollar amounts
used in or resulting from such calculation on the securities will be rounded to the nearest cent, with one-half cent rounded
upward.
Because the calculation
agent is our affiliate, the economic interests of the calculation agent and its affiliates may be adverse to your interests
as an investor in the securities, including with respect to certain determinations and judgments that the calculation
agent must make in determining the payment that you will receive on each interest payment date and at maturity or whether
a market disruption event has occurred. Please see Annex A—Market Disruption Event” and “—Discontinuance
of an Index; Alteration of Method of Calculation” below. The calculation agent is obligated to carry out its duties
and functions as calculation agent in good faith and using its reasonable judgment.
|
Trustee: |
The Bank of New York Mellon |
Contact information: |
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. |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
The Securities
Principal at Risk Securities
The securities are debt securities
of Morgan Stanley. In years 1 to 2, the securities pay interest at a rate of 9.00% per annum. Interest on the securities during
the variable interest rate period will accrue for each day that (i) 30CMS is greater than or equal to 2CMS and (ii) the
closing value of each of the S&P 500® Index and the Russell 2000® Index is greater
than or equal to 65% of its respective initial index value (which we refer to as the index reference level). At maturity,
if the final index value of each index is greater than or equal to its barrier level of 50% of its respective initial
index value, investors will receive the stated principal amount of the securities plus any accrued but unpaid interest. However,
if the final index value of either index is less than its respective barrier level, investors will be fully exposed to
the decline in the worst performing index over the term of the securities, and the payment at maturity will be less than 50% of
the stated principal amount of the securities and could be zero. There is no minimum payment at maturity on the securities.
Accordingly, investors may lose up to their entire initial investment in the securities. Because payments on the securities
are based on the worst performing of the indices, a decline beyond the respective index reference level and/or respective barrier
level, as applicable, of either index will result in few or no interest payments during the variable interest rate period
and/or a significant loss of your investment, as applicable, even if the other index has appreciated or has not declined as much.
Investors will not participate in any appreciation of either index.
We describe the basic features
of these securities in the sections of the accompanying prospectus called “Description of Debt Securities—Floating
Rate Debt Securities” and prospectus supplement called “Description of Securities,” subject to and as modified
by the provisions described below. All payments on the securities are subject to the credit risk of Morgan Stanley.
The stated principal amount of
each security is $1,000, and the issue price is variable. This price includes costs associated with issuing, selling, structuring
and hedging the securities, which are borne by you, and, consequently, the estimated value of the securities on the pricing date
is less than the issue price. We estimate that the value of each security on the pricing date is $851.60. The estimated value
on any subsequent pricing date may be lower than this estimate, but will in no case be less than $840.00 per security.
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 CMS reference index and the indices. The estimated value of the securities is determined using our own pricing and valuation
models, market inputs and assumptions relating to the CMS reference index and the indices, instruments based on the CMS reference
index and the indices, 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 interest rate, the CMS reference index strike, the index reference levels and the barrier levels,
we use an internal funding rate, which is likely to be lower than our secondary market credit spreads and therefore advantageous
to us. If the issuing, selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher,
one or more of the economic terms of the securities would be more favorable to you.
What is the relationship between
the estimated value on the pricing date and the secondary market price of the securities?
The price at which MS & Co.
purchases the securities in the secondary market, absent changes in market conditions, including those related to interest rates
and the CMS reference index and the indices, 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, the costs of unwinding the related hedging transactions and other
factors.
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.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Additional Provisions
CMS Reference Index
What are the 30-Year and 2-Year Constant Maturity Swap Rates?
The 30-Year Constant Maturity Swap Rate (which we refer to as
“30CMS”) is, on any day, the fixed rate of interest payable on an interest rate swap with a 30-year maturity as reported
on Reuters Page ISDAFIX1 or any successor page thereto at approximately 11:00 a.m. New York City time for such day; provided
that for the determination of 30CMS on any calendar day, the “interest determination date” shall be that calendar day
unless that calendar day is not a U.S. government securities business day, in which case the 30CMS level shall be the 30CMS level
on the immediately preceding U.S. government securities business day. This rate is one of the market-accepted indicators of longer-term
interest rates.
The 2-Year Constant Maturity Swap Rate (which we refer to as
“2CMS”) is, on any day, the fixed rate of interest payable on an interest rate swap with a 2-year maturity as reported
on Reuters Page ISDAFIX1 or any successor page thereto at approximately 11:00 a.m. New York City time for such day; provided
that for the determination of 2CMS on any calendar day, the “interest determination date” shall be that calendar day
unless that calendar day is not a U.S. government securities business day, in which case the 2CMS level shall be the 2CMS level
on the immediately preceding U.S. government securities business day. This rate is one of the market-accepted indicators of shorter-term
interest rates.
The rates reported on Reuters Page “ISDAFIX1” (or
any successor page thereto) are calculated by ICE Benchmark Administration Limited based on tradeable quotes for the related interest
rate swaps of the relevant tenor that are sourced from electronic trading venues.
An interest rate swap rate, at any given time, generally indicates
the fixed rate of interest (paid semi-annually) that a counterparty in the swaps market would have to pay for a given maturity,
in order to receive a floating rate (paid quarterly) equal to 3-month LIBOR for that same maturity.
The level of the CMS reference index for any day from and including
the third U.S. government securities business day prior to the related interest payment date for any interest payment period shall
be the level of the CMS reference index in effect on such third U.S. government securities business day prior to such interest
payment date.
U.S. Government Securities Business Day
U.S. government securities business day means any day except
for a Saturday, Sunday or a day on which The Securities Industry and Financial Markets Association recommends that the fixed income
departments of its members be closed for the entire day for purposes of trading in U.S. government securities.
CMS Rate Fallback Provisions
If 30CMS or 2CMS is not displayed by approximately 11:00 a.m.
New York City time on the Reuters Screen ISDAFIX1 Page on any day on which the level of the CMS reference index must be determined,
any such affected rate for such day will be determined on the basis of the mid-market semi-annual swap rate quotations to the calculation
agent provided by five leading swap dealers in the New York City interbank market (the “Reference Banks”) at approximately
11:00 a.m., New York City time, on such day, and, for this purpose, the mid-market semi-annual swap rate means the mean of the
bid and offered rates for the semi-annual fixed leg, calculated on a 30/360 day count basis, of a fixed-for-floating U.S. Dollar
interest rate swap transaction with a term equal to the applicable 30 year or 2 year maturity commencing on such day and in a representative
amount with an acknowledged dealer of good credit in the swap market, where the floating leg, calculated on an actual/360 day count
basis, is equivalent to USD-LIBOR-BBA with a designated maturity of three months. The calculation agent will request the principal
New York City office of each of the Reference Banks to provide a quotation of its rate. If at least three quotations are provided,
the rate for that day will be the arithmetic mean of the quotations, eliminating the highest quotation (or, in the event of equality,
one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest). If fewer than three quotations
are provided as requested, the rate will be determined by the calculation agent in good faith and in a commercially reasonable
manner.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Indices
The S&P 500® Index
The SPX 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 SPX 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 SPX Index, see the information set forth under “Annex
A—The S&P 500® Index” in this document and “S&P 500® Index”
in the accompanying index supplement.
The Russell 2000® Index
The RTY Index is an index calculated, published and disseminated
by Russell Investments, and measures the composite price performance of stocks of 2,000 companies incorporated in the U.S. and
its territories. All 2,000 stocks are traded on a major U.S. exchange and are the 2,000 smallest securities that form the Russell
3000® Index. The Russell 3000® Index is composed of the 3,000 largest U.S. companies as determined
by market capitalization and represents approximately 98% of the U.S. equity market. The RTY Index consists of the smallest 2,000
companies included in the Russell 3000® Index and represents a small portion of the total market capitalization
of the Russell 3000® Index. The RTY Index is designed to track the performance of the small capitalization segment
of the U.S. equity market. For additional information about the RTY Index, see the information set forth under “Annex A—The
Russell 2000® Index” in this document and “Russell 2000® Index” in the accompanying
index supplement.
Index Closing Value Fallback Provisions
The index closing value on any calendar day during the term of
the securities on which the index level of an index is to be determined (each, an “index determination date”) will
equal:
| · | with respect to the SPX Index, the official closing value of such index
as published by the underlying index publisher for the SPX Index or its successor, or in the case of any successor index, the official
closing value for such successor index as published by the publisher of such successor index or its successor, at the regular weekday
close of trading on that calendar day, as determined by the calculation agent; and |
| · | with respect to the RTY Index, the closing value of such index or any
successor index reported by Bloomberg Financial Services, or any successor reporting service the calculation agent may select,
on such index determination date. The closing value of the RTY Index reported by Bloomberg Financial Services may be lower or higher
than the official closing value of the RTY Index published by the underlying index publisher for such index, |
provided that the index closing value
for each index for any day from and including the third index business day prior to the related interest payment date for any interest
payment period shall be the index closing value for such index in effect on such third index business day prior to such interest
payment date; provided further that if a market disruption event with respect to an index occurs on any index determination
date (other than the day on which the initial index value of an index is determined or the final determination date) or if any
such index determination date is not an index business day with respect to an index, the closing value of such index for such index
determination date will be the closing value of such index on the immediately preceding index business day for such index on which
no market disruption event has occurred with respect to such index.
If a market disruption event with respect to
an index occurs on the day on which the initial index value of an index is determined or the final determination date, or if any
such date is not an index business day with respect to an index, the relevant date solely with respect to that affected index shall
be the next succeeding index business day with respect to that index on which there is no market disruption event with respect
to that index; provided that if a market disruption event with respect to that index has occurred on each of the five index
business days with respect to that index immediately succeeding any such scheduled date, then (i) such fifth succeeding index business
day shall be deemed to be the relevant date with respect to that affected index, notwithstanding the occurrence of a market disruption
event with respect to that index on such day, and (ii) with respect to any such fifth succeeding index business day on which a
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
market disruption event occurs with respect to that index, the calculation agent shall determine the index closing value on such
fifth succeeding index business day in accordance with the formula for and method of calculating that index last in effect prior
to the commencement of the market disruption event, using the closing price (or, if trading in the relevant securities has been
materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such
suspension or limitation) at the close of the principal trading session of the relevant exchange on such index business day of
each security most recently constituting that affected index without any rebalancing or substitution of such securities following
the commencement of the market disruption event.
In certain circumstances, the index closing
value of an index shall be based on the alternate calculation of such index described under “Annex A—Discontinuance
of an Index; Alteration of Method of Calculation.”
“Index business day” means, with respect to each
index, a day, as determined by the calculation agent, on which trading is generally conducted on each of the relevant exchange(s)
for such index, other than a day on which trading on such exchange(s) is scheduled to close prior to the time of the posting of
its regular final weekday closing price.
“Relevant exchange” means, with respect to each index,
the primary exchange(s) or market(s) of trading for (i) any security then included in such index, or any successor index, and (ii)
any futures or options contracts related to such index or to any security then included in such index.
For more information regarding market disruption events with
respect to an index, discontinuance of an index and alteration of the method of calculation, see “Annex A—Market Disruption
Event” and “—Discontinuance of an Index; Alteration of Method of Calculation” herein.
Postponement of Maturity Date
If the scheduled final determination date is not an index business
day with respect to an index or if a market disruption event occurs on that day with respect to an index 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 with respect to an index.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
How the Securities Work
How to calculate
the interest payments during the variable interest rate period:
The table below presents examples
of hypothetical interest rates at which interest would accrue on the securities during any month in the variable interest rate
period based on “N,” which is the total number of calendar days in a monthly interest payment period on which the
level of the CMS reference index is greater than or equal to the CMS reference index strike and the index closing value
of each index is greater than or equal to its respective index reference level. The table assumes that the interest payment
period contains 30 calendar days and an interest rate of 9.00% per annum. The example below is for purposes of illustration only
and would provide different results if different assumptions were made. The actual monthly interest payments will depend on the
actual number of calendar days in each interest payment period and the relevant year and the actual level of the CMS reference
index and index closing value of each index on each day. The applicable interest rate for each monthly interest payment period
will be determined on a per-annum basis but will apply only to that interest payment period.
N |
Annualized
Rate of Interest Paid |
0 |
0.0000% |
5 |
1.5000% |
10 |
3.0000% |
15 |
4.5000% |
20 |
6.0000% |
25 |
7.5000% |
30 |
9.0000% |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
How to calculate the payment at maturity:
The following hypothetical examples
illustrate how to calculate the payment at maturity. The following examples are for illustrative purposes only. The amount you
will receive at maturity, if any, will be determined by reference to the index closing value of each index on the final determination
date. The actual initial index value and barrier level for each index will be determined on October 27, 2015. All payments on
the securities, if any, are subject to the credit risk of Morgan Stanley. The below examples are based on the following terms:
Payment
at maturity: |
·
If the final index value of each index is greater than or equal to its respective barrier level: the
stated principal amount plus any accrued and unpaid interest
·
If the final index value of either index is less than its respective barrier level: (a) the stated
principal amount times the index performance factor of the worst performing index plus (b) any accrued
and unpaid interest. This amount will be less than 50% of the stated principal amount of the securities and could
be zero.
|
Stated
principal amount: |
$1,000 per security |
Hypothetical
initial index value: |
With respect to the SPX
Index: 2,000
With respect to the RTY
Index: 1,200
|
Hypothetical
barrier level: |
With respect to the SPX
Index: 1,000, which is 50% of the hypothetical initial index value for such index
With
respect to the RTY Index: 600, which is 50% of the hypothetical initial index value for such index
|
|
Final
Index Value |
Payment
at Maturity |
SPX
Index |
RTY
Index |
Example
1: |
1,200
(at or above the barrier level) |
950
(at or above the barrier level) |
The
stated principal amount plus any accrued and unpaid interest |
Example
2: |
1,100
(at or above the barrier level) |
480
(below the barrier level) |
($1,000
x index performance factor of the worst performing index) + any accrued and unpaid interest
= $1,000
x (480 / 1,200) + any accrued and unpaid interest
= $400
plus any accrued and unpaid interest |
Example
3: |
800
(below the barrier level) |
1,000
(at or above the barrier level) |
[$1,000
x (800 / 2,000)] + any accrued and unpaid interest
= $400
plus any accrued and unpaid interest |
Example
4: |
600
(below the barrier level) |
480
(below the barrier level) |
[$1,000
x (600 / 2,000)] + any accrued and unpaid interest
= $300
plus any accrued and unpaid interest |
Example
5: |
800
(below the barrier level) |
360
(below the barrier level) |
[$1,000
x (360 / 1,200)] + any accrued and unpaid interest
= $300
plus any accrued and unpaid interest |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
In example 1, the final index values
of both the SPX Index and RTY Index are at or above their respective barrier levels. Therefore, investors receive at maturity
the stated principal amount of the securities plus any accrued and unpaid interest.
In examples 2 and 3, the final
index value of one index is at or above its barrier level but the final index value of the other index is below its barrier level.
Therefore, investors are exposed to the downside performance of the worst performing index at maturity and receive at maturity
an amount equal to (i) the stated principal amount times the index performance factor of the worst performing index plus
(ii) any accrued and unpaid interest.
Similarly, in examples 4 and 5,
the final index value of each index is below its respective barrier level, and investors receive at maturity an amount equal to
the stated principal amount times the index performance factor of the worst performing index. In example 4, the SPX Index
has declined 70% from its initial index value to its final index value, while the RTY Index has declined 60% from its initial
index value to its final index value. Therefore, the payment at maturity equals (i) the stated principal amount times the
index performance factor of the SPX Index, which is the worst performing index in this example, plus (ii) any accrued and
unpaid interest. In example 5, the SPX Index has declined 60% from its initial index value, while the RTY Index has declined 70%
from its initial index value to its final index value. Therefore, the payment at maturity equals (i) the stated principal amount
times the index performance factor of the RTY Index, which is the worst performing index in this example, plus (ii)
any accrued and unpaid interest.
If the final index value of
EITHER index is below its respective barrier level, you will be exposed to the downside performance of the worst performing index
at maturity, and your payment at maturity will be less than $500 per security and could be zero.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Historical Information
The CMS Reference Index
The following graph sets forth
the historical difference between the 30-Year Constant Maturity Swap Rate and the 2-Year Constant Maturity Swap Rate for the period
from January 1, 2000 to October 5, 2015. The historical difference between the 30-Year Constant Maturity Swap Rate and the 2-Year
Constant Maturity Swap Rate should not be taken as an indication of the future performance of the CMS reference index. The graph
below does not reflect the return the securities would have yielded during the period presented because it does not take into
account the index closing values. We cannot give you any assurance that the level of the CMS reference index will be greater than
or equal to the CMS reference index strike on any day of any interest payment period during the variable interest rate period.
We obtained the information in the graph below, without independent verification, from Bloomberg Financial Markets (“USSW”),
which closely parallels but is not necessarily exactly the same as the Reuters Page price sources used to determine the CMS reference
index level.
*The
bold red line in the graph above represents the CMS reference index strike of 0.00%.
Historical period |
|
Total number of days in historical period |
5,757 |
Number of days that CMS reference index was greater than
or equal to 0.00% |
5,744 |
Number of days that CMS reference index was less than 0.00% |
13 |
The historical performance shown
above is not indicative of future performance. The CMS reference index level may in the future be negative for extended periods
of time. During the variable interest rate period, you will not receive interest for any day that the CMS reference index is
negative.
Moreover, during the variable
interest rate period, even if the CMS reference index level is greater than or equal to zero on any day, if the index closing
value of either index is less than the index reference level for such index on such day, you will not receive any interest for
that day.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
The S&P 500® Index
The following table sets forth
the published high and low closing values, as well as end-of-quarter closing values, of the SPX Index for each quarter for the
period from January 1, 2010 through October 5, 2015. The related graph sets forth the daily closing values of the SPX Index for
the period from January 1, 2005 through October 5, 2015. The index closing value of the SPX Index on October 5, 2015 was 1,987.05.
The historical index closing values should not be taken as an indication of future performance, and no assurance can be given
as to the level of the SPX Index on any day of any interest payment period during the variable interest rate period. The payment
of dividends on the stocks that constitute the SPX Index are not reflected in its level and, therefore, have no effect on the
calculation of the payment of interest. The graph below does not reflect the return the securities would have yielded during the
period presented because it does not take into account the CMS reference index level or the RTY Index. We obtained the information
in the table and graph below from Bloomberg Financial Markets, without independent verification.
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 |
1,064.88 |
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 |
1,946.16 |
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 October 5, 2015) |
1,987.05 |
1,923.82 |
1,987.05 |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
* The green solid line in the graph indicates the hypothetical
barrier level of the SPX Index, and the red solid line indicates the hypothetical index reference level of the SPX Index, in each
case, assuming the index closing value of such index on October 5, 2015 were its initial index value.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
The Russell 2000® Index
The following table sets forth
the published high and low closing values, as well as end-of-quarter closing values, of the RTY Index for each quarter for the
period from January 1, 2010 through October 5, 2015. The related graph sets forth the daily closing values of the RTY Index for
the period from January 1, 2005 through October 5, 2015. The index closing value of the RTY Index on October 5, 2015 was 1,141.637.
The historical index closing values should not be taken as an indication of future performance, and no assurance can be given
as to the level of the RTY Index on any day of any interest payment period during the variable interest rate period. The payment
of dividends on the stocks that constitute the RTY Index are not reflected in its level and, therefore, have no effect on the
calculation of the payment of interest. The graph below does not reflect the return the securities would have yielded during the
period presented because it does not take into account the CMS reference index level or the SPX Index. We obtained the information
in the table and graph below from Bloomberg Financial Markets, without independent verification.
Russell 2000® Index |
High |
Low |
Period End |
2010 |
|
|
|
First Quarter |
690.30 |
586.49 |
678.64 |
Second Quarter |
741.92 |
609.49 |
609.49 |
Third Quarter |
677.64 |
590.03 |
676.14 |
Fourth Quarter |
792.35 |
669.45 |
783.65 |
2011 |
|
|
|
First Quarter |
843.55 |
773.18 |
843.55 |
Second Quarter |
865.29 |
777.20 |
827.43 |
Third Quarter |
858.11 |
643.42 |
644.16 |
Fourth Quarter |
765.43 |
609.49 |
740.92 |
2012 |
|
|
|
First Quarter |
846.13 |
747.28 |
830.30 |
Second Quarter |
840.63 |
737.24 |
798.49 |
Third Quarter |
864.70 |
767.75 |
837.45 |
Fourth Quarter |
852.49 |
769.48 |
849.35 |
2013 |
|
|
|
First Quarter |
953.07 |
872.60 |
951.54 |
Second Quarter |
999.99 |
901.51 |
977.48 |
Third Quarter |
1,078.41 |
989.47 |
1,073.79 |
Fourth Quarter |
1,163.64 |
1,043.46 |
1,163.64 |
2014 |
|
|
|
First Quarter |
1,208.651 |
1,093.594 |
1,173.038 |
Second Quarter |
1,192.964 |
1,095.986 |
1,192.964 |
Third Quarter |
1,208.150 |
1,101.676 |
1,101.676 |
Fourth Quarter |
1,219.109 |
1,085.409 |
1,209.969 |
2015 |
|
|
|
First Quarter |
1,266.373 |
1,154.709 |
1,252.772 |
Second Quarter |
1,275.350 |
1,215.417 |
1,253.947 |
Third Quarter |
1,273.328 |
1,083.907 |
1,100.688 |
Fourth Quarter (through October 5, 2015) |
1,141.637 |
1,097.552 |
1,141.637 |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
* The green solid line in the graph indicates
the hypothetical barrier level of the RTY Index, and the red solid line indicates the hypothetical index reference level of the
RTY Index, in each case, assuming the index closing value of such index on October 5, 2015 were its initial index value.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Risk Factors
The securities involve risks
not associated with an investment in ordinary floating rate securities. An investment in the securities entails significant risks
not associated with similar investments in a conventional debt security, including, but not limited to, fluctuations in 30CMS,
2CMS and the indices, and other events that are difficult to predict and beyond the issuer’s control. This section describes
the most significant risks relating to the securities. For a complete list of risk factors, please see the accompanying prospectus
supplement, index supplement and prospectus. Investors should consult their financial and legal advisers as to the risks entailed
by an investment in the securities and the suitability of the securities in light of their particular circumstances.
| § | The
Securities Do Not Guarantee The Return Of Any Principal. The terms of the securities
differ from those of ordinary debt securities in that the securities do not guarantee
the return of any of the principal amount at maturity. Instead, if the final index value
of either index is less than its barrier level, you will be fully exposed to the decline
in the closing value of the worst performing index, as compared to its initial index
value, on a 1 to 1 basis, and you will receive for each security that you hold at maturity
an amount of cash that is significantly less than the stated principal amount, in proportion
to the decline in the closing value of the worst performing index. Under this scenario,
the value of any such payment will be less than 50% of the stated principal amount and
could be zero. You may lose up to your entire initial investment in the securities. |
| § | You
Are Exposed To The Price Risk Of Both Indices. Your return on the securities is not
linked to a basket consisting of both indices. Rather, it will be contingent upon the
independent performance of each index. Unlike an instrument with a return linked to a
basket of underlying assets in which risk is mitigated and diversified among all the
components of the basket, you will be exposed to the risks related to both indices. Poor
performance by either index over the term of the securities may negatively affect your
return and will not be offset or mitigated by any positive performance by the other index.
With respect to each interest payment period during the variable interest rate period,
if, on any day, the index closing value of either index is determined to be less than
the index reference level for such index, you will not receive any interest with respect
to such day. In addition, if either index has declined to below its respective barrier
level as of the final determination date, you will be fully exposed to the decline in
the worst performing index over the term of the securities on a 1 to 1 basis, even if
the other index has appreciated or not declined as much. Under this scenario, the value
of any such payment will be less than 50% of the stated principal amount and could be
zero. Accordingly, your investment is subject to the price risk of both indices. |
| § | Because
The Securities Are Linked To The Performance Of The Worst Performing Index, You Are Exposed
To Greater Risks Of Receiving No Interest Payments During The Variable Interest Rate
Period And Sustaining A Significant Loss On Your Investment Than If The Securities Were
Linked To Just One Index. The risk that you will not receive any interest during
the variable interest rate period, or that you will suffer a significant loss on your
investment, is greater if you invest in the securities as opposed to substantially similar
securities that are linked to the performance of just one index. With two indices, it
is more likely that either index will close below its index reference level on any day
during the variable interest rate period, or its barrier level on the final determination
date, than if the securities were linked to only one index. Therefore, it is more likely
that you will not receive any interest during the variable interest rate period and that
you will suffer a significant loss on your investment. |
| § | Investors
Will Not Participate In Any Appreciation In The Value Of Either Index. Investors
will not participate in any appreciation in the value of either index from the initial
index value for such index, and the return on the securities will be limited to the monthly
interest payments that are paid with respect to each interest payment period
during the fixed interest rate period and the variable interest rate period, if
any. |
| § | If
There Are No Accrual Days In Any Interest Payment Period During The Variable Interest
Rate Period, We Will Not Pay Any Interest On The Securities For That Interest Payment
Period And The Market Value Of The Securities May Decrease Significantly. It is possible
that the level of the CMS reference index will be less than the CMS reference index strike
or that the index closing value of either index will be less than the index reference
level for such index for so many days during any monthly interest payment period during
the variable interest rate period that the interest payment for that monthly interest
payment period will be less than the amount that would be paid on an ordinary debt security
and may be zero. To the extent that the level of the CMS reference index is less than
the CMS reference index strike or that the index closing value of either index
is less than the index reference level for such index during the variable interest rate
period, the market value of the securities may decrease and you may receive substantially
less than 100% of the issue price if you wish to sell your securities at such time. |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
| § | The
Level Of The CMS Reference Index For Any Day From And Including The Third U.S. Government Securities Business Day Prior To The
Interest Payment Date Of An Interest Payment Period During The Variable Interest Rate Period Will Be The Level Of The CMS Reference
Index On Such Third Day. Because the level of the CMS reference index for any day from and including the third U.S. government
securities business day prior to the interest payment date of an interest payment period during the variable interest rate period
will be the level of the CMS reference index on such third day, if the level of the CMS reference index on that U.S. government
securities business day is less than the CMS reference index strike, you will not receive any interest in respect of those three
days even if the level of the CMS reference index as actually calculated on any of those days were to be greater than or equal
to the CMS reference index strike. |
| § | The
Index Closing Value Of Each Index For Any Day From And Including The Third Index Business
Day Prior To The Interest Payment Date Of An Interest Payment Period During The Variable
Interest Rate Period Will Be The Index Closing Value For Such Index For Such Third Day.
Because the index closing value of each index for any day from and including the
third index business day prior to the interest payment date of an interest payment period
during the variable interest rate period will be the index closing value for such index
on such third day, if the index closing value for such index for that index business
day is less than its respective index reference level, you will not receive any interest
in respect of any days on or after that third index business day to but excluding the
interest payment date even if the index closing value for such index as actually calculated
on any of those days were to be greater than or equal to its respective index reference
level. |
| § | The
Historical Performance Of 30CMS, 2CMS And The Indices Are Not An Indication Of Their
Future Performance. The historical performance of 30CMS, 2CMS and the indices should
not be taken as indications of their future performance during the term of the securities.
Changes in the levels of 30CMS, 2CMS and the indices will affect the trading price of
the securities, but it is impossible to predict whether such levels will rise or fall.
There can be no assurance that the CMS reference index level will be positive and the
index closing value of each index will be equal to or greater than its respective index
reference level on any day during the variable interest rate period. In addition, there
can be no assurance that the index closing value of each index on the final determination
date will be greater than or equal to its respective barrier level. Furthermore,
the historical performance of each of the CMS reference index and the indices does not
reflect the return the securities would have yielded, because each does not take into
account the other’s performance. |
| § | Investors
Are Subject To Our Credit Risk, And Any Actual Or Anticipated Changes To Our Credit Ratings
And Credit Spreads May Adversely Affect The Market Value Of The Securities. Investors
are dependent on our ability to pay all amounts due on the securities on interest payment
dates and at maturity and therefore investors are subject to our credit risk. If we default
on our obligations under the securities, your investment would be at risk and you could
lose some or all of your investment. As a result, the market value of the securities
prior to maturity will be affected by changes in the market's view of our creditworthiness.
Any actual or anticipated decline in our credit ratings or increase in the credit spreads
charged by the market for taking our credit risk is likely to adversely affect the value
of the securities. |
| § | The
Initial Index Value, The Index Reference Level And The Barrier Level Of Each Index Will
Not Be Set Until October 27, 2015. Because the initial index value of each index
is its respective index closing value on October 27, 2015, and because the index reference
level for each index is 65% of the initial index value of such index and the barrier
level for each index is 50% of the initial index value of such index, you may not know
the initial index value, the index reference level or the barrier level for each index
for a period of time after the pricing date. |
| § | The
Price At Which The Securities May Be Resold Prior To Maturity Will Depend On A Number
Of Factors And May Be Substantially Less Than The Amount For Which They Were Originally
Purchased. Some of these factors include, but are not limited to: (i) changes in
the level of 30CMS and 2CMS, (ii) changes in the index closing values of the indices,
(iii) volatility of 30CMS and 2CMS, (iv) volatility of the indices, (v) changes in interest
and yield rates, (vi) geopolitical conditions and economic, financial, political and
regulatory or judicial events that affect the securities underlying the indices, or equity
markets generally, and that may affect the indices, (vii) any actual or anticipated changes
in our credit ratings or credit spreads and (viii) time remaining to maturity. Generally,
the longer the time remaining to maturity and the more tailored the exposure, the more
the market price of the securities will be affected by the other factors described in
the preceding sentence. This can lead to significant adverse changes in the market price
of securities like the securities. Primarily, if the level of the CMS reference index
is less than the CMS reference index strike or the index closing value of either index
is less than its respective index reference level during the variable interest rate period,
especially if the index closing value of either index is near its respective barrier
level, the market value of the securities is expected to decrease and you may receive
substantially less than 100% of the issue price if you sell your securities at such time. |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
| § |
The Rate We Are Willing To Pay For Securities Of This Type, Maturity And Issuance
Size Is Likely To Be Lower Than The Rate Implied By Our Secondary Market Credit Spreads
And Advantageous To Us. Both The Lower Rate And The Inclusion Of Costs Associated With
Issuing, Selling, Structuring And Hedging The Securities In The Original Issue Price
Reduce The Economic Terms Of The Securities, Cause The Estimated Value Of The Securities
To Be Less Than The Original Issue Price And Will Adversely Affect Secondary Market Prices.
Assuming no change in market conditions or any other relevant factors, the prices,
if any, at which dealers, including MS & Co., are willing to purchase the securities
in secondary market transactions will likely be significantly lower than the original
issue price, because secondary market prices will exclude the issuing, selling, structuring
and hedging-related costs that are included in the original issue price and borne by
you and because the secondary market prices will reflect our secondary market credit
spreads and the bid-offer spread that any dealer would charge in a secondary market transaction
of this type, the costs of unwinding the related hedging transactions 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.
| § | 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. |
| § | The
Price You Pay For The Securities May Be Higher Than The Prices Paid By Other Investors.
The agent proposes to offer the securities from time to time for sale to investors
in one or more negotiated transactions, or otherwise, at market prices prevailing at
the time of sale, at prices related to then-prevailing prices, at negotiated prices,
or otherwise. Accordingly, there is a risk that the price you pay for the securities
will be higher than the prices paid by other investors based on the date and time you
make your purchase, from whom you purchase the securities (e.g., directly from the agent
or through a broker or dealer), any related transaction cost (e.g., any brokerage commission),
whether you hold your securities in a brokerage account, a fiduciary or fee-based account
or another type of account and other market factors. |
| § | The
Securities Will Not Be Listed On Any Securities Exchange And Secondary Trading May Be
Limited. The securities will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the securities. MS & Co. may, but
is not obligated to, make a market in the securities and, if it once chooses to make
a market, may cease doing so at any time. When it does make a market, it will generally
do so for transactions of routine secondary market size at prices based on its estimate
of the current value of the securities, taking into account its bid/offer spread, our
credit spreads, market volatility, the notional size of the proposed sale, the cost of
unwinding any related hedging positions, the time remaining to maturity and the likelihood
that it will be able to resell the securities. Even if there is a secondary market, it
may not provide enough liquidity to allow you to trade or sell the securities easily.
Since other broker-dealers may not participate significantly in the secondary market
for the securities, the price at which you may be able to trade your securities is likely
to depend on the price, if any, at which MS & Co. is willing to transact. If, at
any time, MS & Co. were to cease making a market in the securities, it is likely
that there would be no secondary market for the securities. Accordingly, you should be
willing to hold your securities to maturity. |
| § | Morgan
Stanley & Co. LLC, Which Is A Subsidiary Of The Issuer, Has Determined The Estimated
Value On The Pricing Date. MS & Co. has determined the estimated value of the
securities on the pricing date. |
| § | The
Issuer, Its Subsidiaries Or Affiliates May Publish Research That Could Affect The Market
Value Of The Securities. They Also Expect To Hedge The Issuer’s Obligations Under
The Securities. The issuer or one or more of its affiliates may, at present or in
the future, publish research reports with respect to movements in interest rates generally
or each of the components making up the CMS reference index specifically, or with respect
to the indices. This research is modified from time to time without notice and may express
opinions or provide recommendations that are inconsistent with purchasing or holding
the securities. Any of these activities may affect the market value of the securities.
In addition, the issuer’s subsidiaries expect to hedge the issuer’s obligations
under the securities and they may realize a profit from that expected hedging activity
even if investors do not receive a favorable investment return under the terms of the
securities or in any secondary market transaction. |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
| § | The
Calculation Agent, Which Is A Subsidiary Of The Issuer, Will Make Determinations With
Respect To The Securities. Any of these determinations made by the calculation agent
may adversely affect the payout to investors. Moreover, certain determinations made by
the calculation agent may require it to exercise discretion and make subjective judgments,
such as with respect to the CMS reference index, the index closing values, the occurrence
or non-occurrence of market disruption events and the selection of a successor index
or calculation of the index closing value of an index in the event of a market disruption
event or discontinuance of such index. These potentially subjective determinations may
adversely affect the payout to you on the securities, if any. For further information
regarding these types of determinations, see “Annex A—Market Disruption Event,”
“—Discontinuance of an Index; Alteration of Method of Calculation”
and the related definitions. |
| § | The
Securities Are Linked To The Russell 2000®
Index And Are Subject To Risks Associated With Small-Capitalization Companies.
As the RTY Index is one of the indices, and the RTY Index consists of stocks issued
by companies with relatively small market capitalization, the securities are linked to
the value of small-capitalization companies. These companies often have greater stock
price volatility, lower trading volume and less liquidity than large-capitalization companies
and therefore the RTY Index may be more volatile than indices that consist of stocks
issued by large-capitalization companies. Stock prices of small-capitalization companies
are also more vulnerable than those of large-capitalization companies to adverse business
and economic developments, and the stocks of small-capitalization companies may be thinly
traded. In addition, small capitalization companies are typically less well-established
and less stable financially than large-capitalization companies and may depend on a small
number of key personnel, making them more vulnerable to loss of personnel. Such companies
tend to have smaller revenues, less diverse product lines, smaller shares of their product
or service markets, fewer financial resources and less competitive strengths than large-capitalization
companies and are more susceptible to adverse developments related to their products. |
| § | Adjustments
To The Indices Could Adversely Affect The Value Of The Securities. The underlying
index publisher for each index can add, delete or substitute the stocks underlying such
index, and can make other methodological changes required by certain events relating
to the underlying stocks, such as stock dividends, stock splits, spin-offs, rights offerings
and extraordinary dividends, that could change the value of such index. Any of these
actions could adversely affect the value of the securities. Each underlying index publisher
may also discontinue or suspend calculation or publication of such 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 index. The calculation agent
could have an economic interest that is different than that of investors in the securities
insofar as, for example, the calculation agent is permitted to consider indices that
are calculated and published by the calculation agent or any of its affiliates. If the
calculation agent determines that there is no appropriate successor index, on any day
on which the index closing value of an index is to be determined, the index closing value
for such day will be based on the stocks underlying the discontinued index at the time
of such discontinuance, without rebalancing or substitution, computed by the calculation
agent, in accordance with the formula for calculating the index closing value for such
index last in effect prior to the discontinuance of such index. |
| § | You
Have No Shareholder Rights. As an investor in the securities, you will not have
voting rights, rights to receive dividends or other distributions or any other rights
with respect to the stocks that underlie the indices. |
| § | Investing
In The Securities Is Not Equivalent To Investing In The Indices Or The Stocks Underlying
The Indices. Investing in the securities is not equivalent to investing in the indices
or their component stocks. |
| § | Hedging
And Trading Activity By Our Subsidiaries Could Potentially Adversely Affect The Value
Of The Indices. One or more of our subsidiaries expect to carry out hedging activities
related to the securities (and possibly to other instruments linked to the indices or
their component stocks), including trading in the stocks underlying the indices as well
as in other instruments related to the indices. As a result, we may be unwinding or adjusting
hedge positions during the variable interest rate period, and our hedging strategy may
involve greater and more frequent dynamic adjustments to our hedge as we approach the
final determination date. Some of our subsidiaries also trade in the stocks underlying
the indices and other financial instruments related to the indices on a regular basis
as part of their general broker-dealer and other businesses. Any of these hedging or
trading activities could potentially decrease the index closing value of an index, thus
increasing the risk that the index closing value of such index will be less than its
respective index reference level on any day during the variable interest rate period
or less than its respective barrier level on the final determination date. |
| § | The
U.S. Federal Income Tax Consequences Of An Investment In The Securities Are Uncertain.
There is no direct legal authority as to the proper treatment of the securities for
U.S. federal income tax purposes, and, therefore, significant aspects of the tax treatment
of the securities are uncertain. |
Please
read the discussion under “Tax Considerations” in this pricing supplement concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
provides for a coupon that will be treated as gross income to you at the time received or accrued in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities
every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference, if any,
between the actual and the projected amount of any contingent payments on the securities) and recognize all income and gain in
respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features. Non-U.S. Holders should note that we currently intend to withhold
on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified by an applicable income tax
treaty under an “other income” or similar provision, and will not be required to pay any additional amounts with respect
to amounts withheld.
In
2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment
of “prepaid forward contracts” and similar instruments. While it is not clear whether the securities would be viewed
as similar to the prepaid forward contracts described in the notice, it is possible that any Treasury regulations or other guidance
issued after consideration of these issues could materially and adversely affect the tax consequences of an investment in the
securities, possibly with retroactive effect. The notice focuses on a number of issues, the most relevant of which for holders
of the securities are the character and timing of income or loss and the degree, if any, to which income realized by non-U.S.
investors should be subject to withholding tax. Both U.S. and Non-U.S. Holders (as defined below) should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments,
the issues presented by this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
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 on page 3 above
comprise the Agent’s commissions and the cost of issuing, structuring and hedging the securities.
Supplemental Information Concerning Plan of Distribution;
Conflicts of Interest
We expect to deliver the securities
against payment therefor in New York, New York on October 30, 2015, which will be the eighteenth scheduled business day following
the date of the pricing of the securities. Under Rule 15c6-1 of the Exchange Act, trades in the secondary market generally are
required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers
who wish to trade securities on the date of pricing or on or prior to the third business day prior to the original issue date
will be required to specify alternative settlement arrangements to prevent a failed settlement.
The securities will be offered
from time to time in one or more negotiated transactions at varying prices to be determined at the time of each sale, which may
be at market prices prevailing, at prices related to such prevailing prices or at negotiated prices; provided, however,
that such price will not be less than $970 per security and will not be more than $1,000 per security.
Morgan Stanley
or one of our affiliates will pay varying discounts and commissions to dealers, including Morgan Stanley Smith Barney LLC (“Morgan
Stanley Wealth Management”) and their financial advisors, of up to $35 per security depending on market conditions. The
agent may distribute the securities through Morgan Stanley Wealth Management, as selected dealer, or other dealers, which may
include Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley AG. Morgan Stanley Wealth Management,
MSIP and Bank Morgan Stanley AG are affiliates of Morgan Stanley.
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.
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.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Acceleration Amount in Case of an Event of Default
If an event of default with respect
to the securities shall have occurred and be continuing, the amount declared due and payable upon any acceleration of the securities
(the “Acceleration Amount”) will be an amount, determined by the calculation agent in its sole discretion, that is
equal to the cost of having a qualified financial institution, of the kind and selected as described below, expressly assume all
our payment and other obligations with respect to the securities as of that day and as if no default or acceleration had occurred,
or to undertake other obligations providing substantially equivalent economic value to you with respect to the securities. That
cost will equal:
| · | the
lowest amount that a qualified financial institution would charge to effect this assumption
or undertaking, plus |
| · | the
reasonable expenses, including reasonable attorneys’ fees, incurred by the holders
of the securities in preparing any documentation necessary for this assumption or undertaking.
|
During the default quotation period
for the securities, which we describe below, the holders of the securities and/or we may request a qualified financial institution
to provide a quotation of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation,
it must notify the other party in writing of the quotation. The amount referred to in the first bullet point above will equal
the lowest—or, if there is only one, the only—quotation obtained, and as to which notice is so given, during the default
quotation period. With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and
significant grounds, to the assumption or undertaking by the qualified financial institution providing the quotation and notify
the other party in writing of those grounds within two business days after the last day of the default quotation period, in which
case that quotation will be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing,
if a voluntary or involuntary liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to Morgan
Stanley, then depending on applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration
Amount.
If the maturity of the securities
is accelerated because of an event of default as described above, we shall, or shall cause the calculation agent to, provide written
notice to the trustee at its New York office, on which notice the trustee may conclusively rely, and to the depositary of the
Acceleration Amount and the aggregate cash amount due with respect to the securities as promptly as possible and in no event later
than two business days after the date of such acceleration.
Default quotation period
The default quotation period is
the period beginning on the day the Acceleration Amount first becomes due and ending on the third business day after that day,
unless:
| · | no
quotation of the kind referred to above is obtained, or |
| · | every
quotation of that kind obtained is objected to within five business days after the due
date as described above. |
If either of these two events occurs,
the default quotation period will continue until the third business day after the first business day on which prompt notice of
a quotation is given as described above. If that quotation is objected to as described above within five business days after that
first business day, however, the default quotation period will continue as described in the prior sentence and this sentence.
In any event, if the default quotation
period and the subsequent two business day objection period have not ended before the final determination date, then the Acceleration
Amount will equal the principal amount of the securities.
Qualified financial institutions
For the purpose of determining
the Acceleration Amount at any time, a qualified financial institution must be a financial institution organized under the laws
of any jurisdiction in the United States or Europe, which at that time has outstanding debt obligations with a stated maturity
of one year or less from the date of issue and rated either:
| · | A-2
or higher by Standard & Poor’s Ratings Services or any successor, or any other
comparable rating then used by that rating agency, or |
| · | P-2
or higher by Moody’s Investors Service or any successor, or any other comparable
rating then used by that rating agency. |
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Validity of the Securities
In the
opinion of Davis Polk & Wardwell LLP, as special counsel to Morgan Stanley, when the securities offered by this pricing supplement
have been executed and issued by Morgan Stanley, authenticated by the trustee pursuant to the Senior Debt Indenture and delivered
against payment as contemplated herein, such securities will be valid and binding obligations of Morgan Stanley, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally,
concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good
faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to the effect of fraudulent
conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above. This opinion is given
as of the date hereof and is limited to the laws of the State of New York and the General Corporation Law of the State of Delaware.
In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery
of the Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the
Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 19, 2014, which
is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 19, 2014.
Tax Considerations
Prospective investors should
note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus
supplement does not apply to the securities issued under this pricing supplement and is superseded by the following discussion.
The following is a general discussion
of the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the
securities. This discussion applies only to initial investors in the securities who:
| · | purchase
the securities at their “issue price,” which will equal the first price at
which a substantial amount of the securities is sold to the public (not including bond
houses, brokers, or similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers); and |
| · | hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the “Code”). |
This discussion does not describe
all of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders
subject to special rules, such as:
| · | certain
financial institutions; |
| · | certain
dealers and traders in securities or commodities; |
| · | investors
holding the securities as part of a “straddle,” wash sale, conversion transaction,
integrated transaction or constructive sale transaction; |
| · | U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar; |
| · | partnerships
or other entities classified as partnerships for U.S. federal income tax purposes; |
| · | regulated
investment companies; |
| · | real
estate investment trusts; or |
| · | tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs”
as defined in Section 408 or 408A of the Code, respectively. |
As the law applicable to the U.S.
federal income taxation of instruments such as the securities is technical and complex, the discussion below necessarily represents
only a general summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any
alternative minimum tax consequences or consequences resulting from the Medicare tax on investment income.
This discussion is based on the
Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the
date hereof, changes to any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering
the purchase of the securities should consult their tax advisers with regard to the application of the U.S. federal income tax
laws to their particular situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction.
General
Due to the absence of statutory,
judicial or administrative authorities that directly address the treatment of the securities or instruments that are similar to
the securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will agree with the tax
treatment described herein. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued in accordance with your
regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities
is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively that this treatment
is more likely than not to be upheld, and that alternative treatments are possible.
You should consult your tax
adviser regarding all aspects of the U.S. federal tax consequences of an investment in the securities (including possible alternative
treatments of the securities). Unless otherwise stated, the following discussion is based on the treatment of each security as
described in the previous paragraph.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Tax Consequences to U.S. Holders
This section applies to you only
if you are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for
U.S. federal income tax purposes:
| · | a
citizen or individual resident of the United States; |
| · | a
corporation, or other entity taxable as a corporation, created or organized in or under
the laws of the United States, any state thereof or the District of Columbia; or |
| · | an
estate or trust the income of which is subject to U.S. federal income taxation regardless
of its source. |
Tax Treatment of the Securities
Assuming the treatment of the securities
as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis. A U.S. Holder’s
tax basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon Payments.
Any coupon payment on the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in
accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement
of the Securities. Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal
to the difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the
securities sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and
may not include sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss
recognized should be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the time
of the sale, exchange or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of
the coupon payments, in conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement
of the securities, could result in adverse tax consequences to holders of the securities because the deductibility of capital
losses is subject to limitations.
Possible Alternative Tax
Treatments of an Investment in the Securities
Due to the absence of authorities
that directly address the proper tax treatment of the securities, no assurance can be given that the IRS will accept, or that
a court will uphold, the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences
of owning the securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt
Regulations”). If the IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the
timing and character of income thereon would be significantly affected. Among other things, a U.S. Holder would be
required to accrue into income original issue discount on the securities every year at a “comparable yield” determined
at the time of their issuance, adjusted upward or downward to reflect the difference, if any, between the actual and the projected
amount of any contingent payments on the securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale,
exchange or other disposition of the securities would be treated as ordinary income, and any loss realized would be treated as
ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter.
The risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the securities,
would be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not
have such features.
Other alternative federal income
tax treatments of the securities are possible, which, if applied, could significantly affect the timing and character of the income
or loss with respect to the securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments
on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses
on whether to require holders of “prepaid forward contracts” and similar instruments to accrue income over the term
of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect
to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such
as the exchange–traded status of the instruments and the nature of the underlying property to which the instruments are
linked; whether these instruments are or should be subject to the “constructive ownership” rule, which very generally
can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge; and appropriate
transition rules and effective dates. While it is not clear whether instruments such as the securities would be viewed as similar
to the prepaid forward contracts described in the notice, any Treasury regulations or other guidance promulgated after consideration
of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in
the securities, including possible alternative treatments and the issues presented by this notice.
Backup Withholding and Information
Reporting
Backup withholding may apply in
respect of payments on the securities and the payment of proceeds from a sale, exchange or other disposition of the securities,
unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies
with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not
an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided
that the required information is timely furnished to the IRS. In addition, information returns will be filed with the
IRS in connection with payments on the securities and the payment of proceeds from a sale, exchange or other disposition of the
securities, unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S.
Holders
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
This section applies to you only
if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that
is for U.S. federal income tax purposes:
| · | an
individual who is classified as a nonresident alien; |
| · | a
foreign corporation; or |
| · | a
foreign estate or trust. |
The term “Non-U.S.
Holder” does not include any of the following holders:
| · | a
holder who is an individual present in the United States for 183 days or more in the
taxable year of disposition and who is not otherwise a resident of the United States
for U.S. federal income tax purposes; |
| · | certain
former citizens or residents of the United States; or |
| · | a
holder for whom income or gain in respect of the securities is effectively connected
with the conduct of a trade or business in the United States. |
Such holders should consult their
tax advisers regarding the U.S. federal income tax consequences of an investment in the securities.
Although significant aspects of
the tax treatment of each security are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a
rate of 30% or at a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision.
We will not be required to pay any additional amounts with respect to amounts withheld. In order to claim an exemption from, or
a reduction in, the 30% withholding tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish
that it is not a U.S. person and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S.
Holder, you should consult your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining
a refund of any withholding tax and the certification requirement described above.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and
entities the property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax
purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests
or powers) should note that, absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject
to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described above,
should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information
Reporting
Information returns will be filed
with the IRS in connection with any coupon payment and may be filed with the IRS in connection with the payment at maturity on
the securities and the payment of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup
withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures
to establish that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount
of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s
U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely
furnished to the IRS.
FATCA Legislation
Legislation commonly referred to
as “FATCA” generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial
intermediaries) with respect to certain financial instruments, unless various U.S. information reporting and due diligence requirements
have been satisfied. An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may
modify these requirements. This legislation generally applies to certain financial instruments that are treated as paying U.S.-source
interest or other U.S.-source “fixed or determinable annual or periodical” income (“FDAP income”). Withholding
(if applicable) applies to payments of U.S.-source FDAP income and, for dispositions after December 31, 2018, to payments of gross
proceeds of the disposition (including upon retirement) of certain financial instruments treated as providing for U.S.-source
interest or dividends. While the treatment of the securities is unclear, you should assume that any coupon payment with respect
to the securities will be subject to the FATCA rules. It is also possible in light of this uncertainty that an applicable withholding
agent will treat gross proceeds of a disposition (including upon retirement) of the securities after 2018 as being subject to
the FATCA rules. If withholding applies to the securities, we will not be required to pay any additional amounts with respect
to amounts withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA
to the securities.
The discussion in the preceding
paragraphs, insofar as it purports to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto,
constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment
in the securities.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Where You Can Find More Information
Morgan Stanley has filed a registration statement (including
a prospectus, as supplemented by a prospectus supplement and an index supplement) with the Securities and Exchange Commission,
or SEC, for the offering to which this pricing supplement relates. You should read the prospectus in that registration statement,
the prospectus supplement, 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 prospectus and the prospectus supplement if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at.www.sec.gov
as follows:
Prospectus
Supplement dated November 19, 2014
Index
Supplement dated November 19, 2014
Prospectus
dated November 19, 2014
Terms used in
this pricing supplement are defined in the prospectus supplement, in the index supplement or in the prospectus. As used in this
pricing supplement, the “Company,” “we,” “us” and “our” refer to Morgan Stanley.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Annex A
The S&P 500® Index
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.
License Agreement between S&P
and Morgan Stanley
“Standard & Poor’s®,”
“S&P®,” “S&P 500®,” “Standard & Poor’s 500”
and “500” are trademarks of S&P and have been licensed for use by S&P Dow Jones Indices LLC and Morgan Stanley.
For more information, see “S&P 500® Index—License Agreement between S&P and Morgan Stanley”
in the accompanying index supplement.
The Russell 2000® Index
The Russell
2000® Index is an index calculated, published and disseminated by Russell Investments, and measures the composite
price performance of stocks of 2,000 companies incorporated in the U.S. and its territories. All 2,000 stocks are traded on a
major U.S. exchange and are the 2,000 smallest securities that form the Russell 3000® Index. The Russell 3000®
Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately
98% of the U.S. equity market. The Russell 2000® Index consists of the smallest 2,000 companies included in the
Russell 3000® Index and represents a small portion of the total market capitalization of the Russell 3000®
Index. The Russell 2000® Index is designed to track the performance of the small capitalization segment of
the U.S. equity market. For additional information about the Russell 2000® Index, see the information set forth
under “Russell 2000® Index” in the accompanying index supplement.
License Agreement between
Russell Investments and Morgan Stanley
The “Russell 2000®
Index” is a trademark of Russell Investments and has been licensed for use by Morgan Stanley. For more information,
see “Russell 2000® Index—License Agreement between Russell Investments and Morgan Stanley” in
the accompanying index supplement.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Market Disruption Event
With respect to each index, market
disruption event means:
| (i) | the occurrence or existence
of any of: |
(a)
a suspension, absence or material limitation of trading of securities then constituting 20 percent or more of the value of such
index (or a successor index) on the relevant exchange(s) for such securities for more than two hours of trading or during the
one-half hour period preceding the close of the principal trading session on such relevant exchange(s), or
(b)
a breakdown or failure in the price and trade reporting systems of any relevant exchange as a result of which the reported trading
prices for securities then constituting 20 percent or more of the value of such index (or a successor index) during the last one-half
hour preceding the close of the principal trading session on such relevant exchange(s) are materially inaccurate, or
(c)
the suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options
contracts or exchange-traded funds related to such index (or a successor index) for more than two hours of trading or during the
one-half hour period preceding the close of the principal trading session on such market,
in
each case, as determined by the calculation agent in its sole discretion; and
| (ii) | a determination by the calculation
agent in its sole discretion that any event described in clause (i) above materially
interfered with our ability or the ability of any of our affiliates to unwind or adjust
all or a material portion of the hedge position with respect to the securities. |
For the purpose of determining
whether a market disruption event exists at any time with respect to an index, if trading in a security included in such index
is materially suspended or materially limited at that time, then the relevant percentage contribution of that security to the
value of such index shall be based on a comparison of (x) the portion of the value of such index attributable to that security
relative to (y) the overall value of such index, in each case immediately before that suspension or limitation.
For the purpose of determining
whether a market disruption event exists at any time with respect to an index: (1) a limitation on the hours or number of days
of trading will not constitute a market disruption event if it results from an announced change in the regular business hours
of the relevant exchange or market, (2) a decision to permanently discontinue trading in the relevant futures or options contract
or exchange-traded fund will not constitute a market disruption event, (3) a suspension of trading in futures or options contracts
or exchange-traded funds on such index by the primary securities market trading in such contracts or funds by reason of (a) a
price change exceeding limits set by such securities exchange or market, (b) an imbalance of orders relating to such contracts
or funds or (c) a disparity in bid and ask quotes relating to such contracts or funds will constitute a suspension, absence or
material limitation of trading in futures or options contracts or exchange-traded funds related to such index and (4) a “suspension,
absence or material limitation of trading” on any relevant exchange or on the primary market on which futures or options
contracts or exchange-traded funds related to such index are traded will not include any time when such securities market is itself
closed for trading under ordinary circumstances.
Fixed to Floating Rate Securities due 2035
CMS Curve Range Accrual Securities
Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Discontinuance of an Index; Alteration of Method
of Calculation
If any underlying index publisher
discontinues publication of an index and such underlying index publisher or another entity (including MS & Co.) publishes
a successor or substitute index that the calculation agent determines, in its sole discretion, to be comparable to the discontinued
index (such index being referred to herein as the “successor index”), then any subsequent index closing value for
the discontinued index will be determined by reference to the published value of such successor index at the regular weekday close
of trading on any index business day that the index closing value for such index is to be determined, and, to the extent the index
closing value of the successor index differs from the index closing value of the relevant index at the time of such substitution,
proportionate adjustments will be made by the calculation agent to the initial index value, index reference level and barrier
level for such index.
Upon any selection by the calculation
agent of a successor index, the calculation agent will cause written notice thereof to be furnished to the trustee, to us and
to the depositary, as holder of the securities, within three business days of such selection. We expect that such notice will
be made available to you, as a beneficial owner of the securities, in accordance with the standard rules and procedures of the
depositary and its direct and indirect participants.
If any underlying index publisher
discontinues publication of an index or a successor index prior to, and such discontinuance is continuing on, any date on which
the index closing value for such index is to be determined and the calculation agent determines, in its sole discretion, that
no successor index is available at such time, then the calculation agent will determine the index closing value for such index
for such date. The index closing value of such index or such successor index will be computed by the calculation agent in accordance
with the formula for and method of calculating such index last in effect prior to such discontinuance, using the closing price
(or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the
closing price that would have prevailed but for such suspension or limitation) at the close of the principal trading session of
the relevant exchange on such date of each security most recently constituting such index without any rebalancing or substitution
of such securities following such discontinuance. Notwithstanding these alternative arrangements, discontinuance of the publication
of an index may adversely affect the value of the securities.
If at any
time, the method of calculating any index or any successor index, or the value thereof, is changed in a material respect, or if
any index or any successor index is in any other way modified so that such index does not, in the opinion of the calculation agent,
fairly represent the value of such index had such changes or modifications not been made, then, from and after such time, the
calculation agent will, at the close of business in New York City on each date on which the index closing value for such index
is to be determined, make such calculations and adjustments as, in the good faith judgment of the calculation agent, may be necessary
in order to arrive at a value of a stock index comparable to such index or such successor index, as the case may be, as if such
changes or modifications had not been made, and the calculation agent will calculate the index closing value with reference to
such index or such successor index, as adjusted. Accordingly, if the method of calculating any index or any successor index is
modified so that the value of such index is a fraction of what it would have been if it had not been modified (e.g., due to a
split in such index), then the calculation agent will adjust such index in order to arrive at a value of such index or such successor
index as if it had not been modified (e.g., as if such split had not occurred).
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