Prospectus Filed Pursuant to Rule 424(b)(2) (424b2)
May 03 2016 - 5:14PM
Edgar (US Regulatory)
CALCULATION
OF REGISTRATION FEE
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Maximum Aggregate
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Amount of Registration
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Title of Each Class of Securities Offered
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Offering Price
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Fee
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Performance Leveraged Upside Securities
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$7,005,570
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$705.46
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due 2017
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April 2016
Pricing Supplement
No. 889
Registration Statement
No. 333-200365
Dated April 29, 2016
Filed pursuant to Rule
424(b)(2)
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Structured
Investments
Opportunities in International Equities
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
The PLUS are unsecured obligations of Morgan Stanley, will pay
no interest, do not guarantee any return of principal at maturity and have the terms described in the accompanying product supplement
for PLUS, index supplement and prospectus, as supplemented or modified by this document. At maturity, if the underlying index has
appreciated
in value, investors will receive the stated principal amount of their investment plus leveraged upside performance
of the underlying index, subject to the maximum payment at maturity. However, if the underlying index has
depreciated
in
value, investors will lose 1% for every 1% decline in the index value over the term of the securities. Under these circumstances,
the payment at maturity will be less than the stated principal amount and could be zero.
Accordingly, you may lose your entire
investment.
The PLUS are for investors who seek an equity index-based return and who are willing to risk their principal and
forgo current income and upside above the maximum payment at maturity in exchange for the leverage feature, which applies for a
limited range of upside performance of the underlying index.
Investors may lose their entire initial investment in the PLUS.
The PLUS are notes issued as part of Morgan Stanley’s Series F Global Medium-Term Notes program.
All payments are subject to the credit risk of Morgan Stanley.
If Morgan Stanley defaults on its obligations,
you could lose some or all of your investment. These PLUS are not secured
obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or
assets.
FINAL Terms
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Issuer:
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Morgan Stanley
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Maturity date:
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August 3, 2017
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Underlying index:
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EURO STOXX 50
®
Index
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Aggregate principal amount:
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$7,005,570
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Payment at maturity:
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If the final index value
is greater than the initial index value,
$10 + leveraged
upside payment
In no event will the
payment at maturity exceed the maximum payment at maturity.
If the final index value
is less than or equal to the initial index value,
$10 ×
index performance factor
Under these circumstances,
the payment at maturity will be less than or equal to the stated principal amount of $10.
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Leveraged upside payment:
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$10 × leverage factor × index percent increase
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Index percent increase:
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(final index value – initial index value) / initial index
value
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Initial index value:
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3,028.21, which is the index closing value on the pricing date
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Final index value:
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The index closing value on the valuation date
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Valuation date:
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July 31, 2017, subject to postponement for non-index business days
and certain market disruption events
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Leverage factor:
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300%
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Index performance factor:
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final index value / initial index value
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Maximum payment at maturity:
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$12.64 per PLUS (126.40% of the stated principal amount)
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Stated principal amount:
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$10 per PLUS
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Issue price:
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$10 per PLUS (see “Commissions and issue price” below)
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Pricing date:
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April 29, 2016
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Original issue date:
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May 5, 2016 (4 business days after the pricing date)
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CUSIP:
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61766A285
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ISIN:
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US61766A2859
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Listing:
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The PLUS will not be listed on any securities exchange.
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), a wholly
owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts
of interest.”
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Estimated value on the pricing date:
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$9.740 per PLUS. See “Investment Summary”
beginning on page 2.
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Commissions and issue price:
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Price to public
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Agent’s commissions and fees
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Proceeds to issuer
(3)
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Per PLUS
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$10
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$0.175
(1)
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$0.05
(2)
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$9.775
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Total
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$7,005,570
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$157,625.33
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$6,847,944.67
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(1)
Selected dealers, including Morgan Stanley Wealth Management (an affiliate of the agent), and their financial advisors
will collectively receive from the agent, MS & Co., a fixed sales commission of $0.175 for each PLUS they sell. See “Supplemental
information regarding plan of distribution; conflicts of interest.” For additional information, see “Plan of Distribution
(Conflicts of Interest)” in the accompanying product supplement for PLUS.
(2)
Reflects a structuring fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.05 for each PLUS.
(3)
See “Use of proceeds and hedging” on page 13.
The PLUS involve risks not
associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 7.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement,
index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The PLUS are not bank deposits and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
You should read this document together with the related
product supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Information About the PLUS” at the end of this document.
Product Supplement for PLUS dated February 29, 2016
Index Supplement dated February 29, 2016
Prospectus dated February 16, 2016
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Investment Summary
Performance Leveraged Upside Securities
Principal at Risk
Securities
The PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017 (the “PLUS”) can be used:
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§
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As an alternative to direct exposure to the underlying index that enhances returns for a certain range of positive performance
of the underlying index, subject to the maximum payment at maturity
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§
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To enhance returns and potentially outperform the underlying index in a moderately bullish scenario
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§
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To achieve similar levels of upside exposure to the underlying index as a direct investment, subject to the maximum payment
at maturity, while using fewer dollars by taking advantage of the leverage factor.The PLUS are exposed on a 1:1 basis to the negative
performance of the underlying index.
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Maturity:
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Approximately 1 year and 3 months
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Leverage factor:
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300% (applicable only if the final index value is greater than the initial index value)
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Maximum payment at maturity:
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$12.64 per PLUS (126.40% of the stated principal amount)
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Minimum payment at maturity:
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None. Investors may lose their entire initial investment in the PLUS.
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Coupon:
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None
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The original issue price of each PLUS is $10. This price includes
costs associated with issuing, selling, structuring and hedging the PLUS, which are borne by you, and, consequently, the estimated
value of the PLUS on the pricing date is less than $10. We estimate that the value of each PLUS on the pricing date is $9.740.
What goes into the estimated value on the pricing date?
In valuing the PLUS on the pricing date, we take into account
that the PLUS comprise both a debt component and a performance-based component linked to the underlying index. The estimated value
of the PLUS is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying
index, instruments based on the underlying index, volatility and other factors including current and expected interest rates, as
well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our conventional
fixed rate debt trades in the secondary market.
What determines the economic terms of the PLUS?
In determining the economic terms of the PLUS, including the
leverage factor and the maximum payment at maturity, we use an internal funding rate, which is likely to be lower than our secondary
market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne by you were
lower or if the internal funding rate were higher, one or more of the economic terms of the PLUS would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the PLUS?
The price at which MS & Co. purchases the PLUS in the secondary
market, absent changes in market conditions, including those related to the underlying index, may vary from, and be lower than,
the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit spread
as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other factors.
However, because the costs associated with issuing, selling, structuring and hedging the PLUS are not fully deducted upon issuance,
for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the PLUS in the secondary
market, absent changes in market conditions, including those related to the underlying index, and to our secondary market credit
spreads, it would do so based on values higher than the estimated value. We expect that those higher values will also be reflected
in your brokerage account statements.
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
MS & Co. may, but is not obligated to, make a market in the
PLUS, and, if it once chooses to make a market, may cease doing so at any time.
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Key Investment Rationale
The PLUS offer leveraged exposure to a certain range of positive
performance of the EURO STOXX 50
®
Index. In exchange for enhanced performance of 300% of the appreciation of the
underlying index, investors forgo performance above the maximum payment at maturity of $12.64 per PLUS. At maturity, if the underlying
index has appreciated in value, investors will receive the stated principal amount of their investment plus leveraged upside performance
of the underlying index, subject to the maximum payment at maturity. However, if the underlying index has depreciated in value,
investors will lose 1% for every 1% decline in the index value over the term of the securities. Under these circumstances, the
payment at maturity will be less than the stated principal amount and could be zero. Investors may lose their entire initial investment
in the PLUS. All payments on the PLUS are subject to the credit risk of Morgan Stanley.
Leveraged Performance
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The PLUS offer investors an opportunity to capture enhanced returns relative to a direct investment in the underlying index within a certain range of positive performance.
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Upside Scenario
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The underlying index increases in value, and, at maturity, you receive a full return of principal as well as 300% of the increase in the value of the underlying index, subject to the maximum payment at maturity of $12.64 per PLUS (126.40% of the stated principal amount). For example, if the final index value is 2% greater than the initial index value, the PLUS will provide a total return of 6% at maturity.
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Par Scenario
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The final index value is equal to the initial index value. In this case, you receive the stated principal amount of $10 at maturity.
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Downside Scenario
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The underlying index declines in value, and, at maturity, the PLUS redeem for less than the stated principal amount by an amount proportionate to the decline in the value of the underlying index over the term of the PLUS. For example, if the final index value is 30% less than the initial index value, the PLUS will redeem at maturity for a loss of 30% of principal at $7.00, or 70% of the stated principal amount. There is no minimum payment at maturity on the PLUS, and you could lose your entire investment.
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PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
How the PLUS Work
Payoff
Diagram
The payoff diagram below illustrates the payment at maturity
on the PLUS based on the following terms:
Stated principal amount:
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$10 per PLUS
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Leverage factor:
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300%
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Maximum payment at maturity:
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$12.64 per PLUS (126.40% of the stated principal amount).
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Minimum payment at maturity:
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None
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PLUS Payoff Diagram
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See the next page for a description of how the PLUS work.
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
How it works
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§
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Upside Scenario.
If the final index value is greater than the initial index value, the investor would receive the $10 stated principal amount
plus
300% of the appreciation of the underlying index over the term of the PLUS, subject to the maximum payment at maturity.
Under the terms of the PLUS, an investor will realize the maximum payment at maturity at a final index value of 108.80% of the
initial index value.
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§
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If the underlying index appreciates 2%, the investor would receive a 6% return, or $10.60 per PLUS.
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§
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If the underlying index appreciates 50%, the investor would receive only the maximum payment at maturity of $12.64 per PLUS,
or 126.40% of the stated principal amount.
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§
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Par Scenario.
If the final index value is equal to the initial index value, the
investor would receive the $10 stated principal amount.
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§
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Downside Scenario.
If the final index value is less than the initial index value,
the investor would receive an amount that is less than the $10 stated principal amount, based on a 1% loss of principal for each
1% decline in the underlying index. Under these circumstances, the payment at maturity will be less than the stated principal amount
per PLUS. There is no minimum payment at maturity on the PLUS.
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§
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If the underlying index depreciates 30%, the investor would lose 30% of the investor’s principal and receive only $7.00
per PLUS at maturity, or 70% of the stated principal amount.
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PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the PLUS. For further discussion of these and other risks, you should read the section entitled “Risk
Factors” in the accompanying product supplement for PLUS, index supplement and prospectus. We also urge you to consult your
investment, legal, tax, accounting and other advisers in connection with your investment in the PLUS.
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§
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The PLUS do not pay interest or guarantee return of any principal.
The terms of the PLUS differ from those of ordinary
debt securities in that the PLUS do not pay interest or guarantee the payment of any principal amount at maturity. If the final
index value is less than the initial index value, the payout at maturity will be an amount in cash that is less than the $10 stated
principal amount of each PLUS by an amount proportionate to the full decline in the value of the underlying index over the term
of the PLUS. There is no minimum payment at maturity on the PLUS, and, accordingly, you could lose your entire initial investment
in the PLUS.
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§
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The appreciation potential of the PLUS is limited by the maximum payment at maturity.
The appreciation potential of
the PLUS is limited by the maximum payment at maturity of $12.64 per PLUS (126.40% of the stated principal amount). Although the
leverage factor provides 300% exposure to any increase in the final index value over the initial index value, because the payment
at maturity will be limited to 126.40% of the stated principal amount for the PLUS, any increase in the final index value over
the initial index value by more than 8.80% of the initial index value will not further increase the return on the PLUS.
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§
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The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control,
will influence the value of the PLUS in the secondary market and the price at which MS & Co. may be willing to purchase or
sell the PLUS in the secondary market, including: the value, volatility (frequency and magnitude of changes in value) and dividend
yield of the underlying index, interest and yield rates, time remaining to maturity, geopolitical conditions and economic, financial,
political and regulatory or judicial events that affect the underlying index or equities markets generally and which may affect
the final index value of the underlying index and any actual or anticipated changes in our credit ratings or credit spreads. The
level of the underlying index may be, and has recently been, volatile, and we can give you no assurance that the volatility will
lessen. See “EURO STOXX 50
®
Index Overview” below. You may receive less, and possibly significantly
less, than the stated principal amount per PLUS if you try to sell your PLUS prior to maturity.
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§
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There are risks associated with investments in securities linked to the value of foreign equity securities.
The PLUS
are linked to the value of foreign equity securities. Investments in securities linked to the value of foreign equity securities
involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental
intervention in those markets and cross-shareholdings in companies in certain countries. Also, there is generally less publicly
available information about foreign companies than about U.S. companies that are subject to the reporting requirements of the United
States Securities and Exchange Commission, and foreign companies are subject to accounting, auditing and financial reporting standards
and requirements different from those applicable to U.S. reporting companies. The prices of securities issued in foreign markets
may be affected by political, economic, financial and social factors in those countries, or global regions, including changes in
government, economic and fiscal policies and currency exchange laws. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult
or impossible at times. Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United
States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency
and balance of payment positions.
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§
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The PLUS are subject to the credit risk of Morgan Stanley, and any actual or anticipated changes to its credit ratings or
credit spreads may adversely affect the market value of the PLUS.
You are dependent on Morgan Stanley’s ability to pay
all amounts due on the PLUS at maturity and therefore you are subject to the credit risk of Morgan Stanley. If Morgan Stanley defaults
on its obligations under the PLUS, your investment would be at risk and you could lose some or all of your investment. As a result,
the market value of the PLUS prior to maturity will be affected by changes in the market’s view of Morgan Stanley’s
creditworthiness. Any actual or anticipated decline in Morgan Stanley’s credit ratings or increase in the credit spreads
charged by the market for taking Morgan Stanley credit risk is likely to adversely affect the market value of the PLUS.
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§
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The amount payable on the PLUS is not linked to the value of the underlying index at any time other than the valuation date.
The final index value will be the index closing value on the valuation date, subject to postponement for non-index business days
and certain market disruption events. Even if the value of the underlying index appreciates prior to the valuation date but then
drops by the valuation date, the payment at maturity may be less, and may be significantly less, than it would have been had
|
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
the payment at maturity been linked
to the value of the underlying index prior to such drop. Although the actual value of the underlying index on the stated maturity
date or at other times during the term of the PLUS may be higher than the final index value, the payment at maturity will be based
solely on the index closing value on the valuation date.
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§
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Investing in the PLUS is not equivalent to investing in the underlying index.
Investing in the PLUS is not equivalent
to investing in the underlying index or its component stocks. Investors in the PLUS will not have voting rights or rights to receive
dividends or other distributions or any other rights with respect to the stocks that constitute the underlying index.
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§
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Adjustments to the underlying index could adversely affect the value of the PLUS.
The underlying index publisher may
add, delete or substitute the stocks constituting the underlying index or make other methodological changes that could change the
value of the underlying index. The underlying index publisher may discontinue or suspend calculation or publication of the underlying
index at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a successor index
that is comparable to the discontinued underlying index and is not precluded from considering indices that are calculated and published
by the calculation agent or any of its affiliates. If the calculation agent determines that there is no appropriate successor index,
the payment at maturity on the PLUS will be an amount based on the closing prices at maturity of the securities composing the underlying
index at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance
with the formula for calculating the underlying index last in effect prior to discontinuance of the underlying index.
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§
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The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the PLUS in the original issue price reduce the economic terms of the PLUS, cause
the estimated value of the PLUS to be less than the original issue price and will adversely affect secondary market prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS &
Co., may be willing to purchase the PLUS in secondary market transactions will likely be significantly lower than the original
issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are
included in the original issue price and borne by you and because the secondary market prices will reflect our secondary market
credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as
other factors.
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The inclusion of the costs of issuing, selling, structuring
and hedging the PLUS in the original issue price and the lower rate we are willing to pay as issuer make the economic terms of
the PLUS less favorable to you than they otherwise would be.
However, because the costs associated with issuing,
selling, structuring and hedging the PLUS are not fully deducted upon issuance, for a period of up to 6 months following the issue
date, to the extent that MS & Co. may buy or sell the PLUS in the secondary market, absent changes in market conditions, including
those related to the underlying index, and to our secondary market credit spreads, it would do so based on values higher than the
estimated value, and we expect that those higher values will also be reflected in your brokerage account statements.
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§
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The estimated value of the PLUS is determined by reference to our pricing and valuation models, which may differ from those
of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the PLUS than those generated by others, including other dealers in the market, if they attempted to value the
PLUS. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers, including
MS & Co., would be willing to purchase your PLUS in the secondary market (if any exists) at any time. The value of your PLUS
at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy, including our
creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable factors”
above.
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§
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The PLUS will not be listed on any securities exchange and secondary trading may be limited.
The PLUS will not be listed
on any securities exchange. Therefore, there may be little or no secondary market for the PLUS. MS & Co. may, but is not obligated
to, make a market in the PLUS and, if it once chooses to make a market, may cease doing so at any time. When it does make a market,
it will generally do so for transactions of routine secondary market size at prices based on its estimate of the current value
of the PLUS, taking into account its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed
sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able
to resell the PLUS. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the
|
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
PLUS easily. Since other broker-dealers
may not participate significantly in the secondary market for the PLUS, the price at which you may be able to trade your PLUS is
likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease
making a market in the PLUS, it is likely that there would be no secondary market for the PLUS. Accordingly, you should be willing
to hold your PLUS to maturity.
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§
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The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the PLUS.
As calculation
agent, MS & Co. has determined the initial index value, will determine the final index value and will calculate the amount
of cash you receive at maturity, if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation
agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence
of market disruption events and the selection of a successor index or calculation of the final index value in the event of a market
disruption event or discontinuance of the underlying index. These potentially subjective determinations may adversely affect the
payout to you at maturity, if any. For further information regarding these types of determinations, see “Description of PLUS—Postponement
of Valuation Date(s)” and “—Calculation Agent and Calculations” in the accompanying product supplement.
In addition, MS & Co. has determined the estimated value of the PLUS on the pricing date.
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|
§
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Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the PLUS.
One or more
of our subsidiaries and/or third-party dealers have carried out, and will continue to carry out, hedging activities related to
the PLUS (and possibly to other instruments linked to the underlying index or its component stocks), including trading in the stocks
that constitute the underlying index as well as in other instruments related to the underlying index. As a result, these entities
may be unwinding or adjusting hedge positions during the term of the PLUS, and the hedging strategy may involve greater and more
frequent dynamic adjustments to the hedge as the valuation date approaches. MS & Co. and some of our other subsidiaries also
trade the stocks that constitute the underlying index and other financial instruments related to the underlying index on a regular
basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the
pricing date could have increased the initial index value, and, therefore, could have increased the value at or above which the
underlying index must close on the valuation date so that investors do not suffer a loss on their initial investment in the PLUS.
Additionally, such hedging or trading activities during the term of the PLUS, including on the valuation date, could adversely
affect the value of the underlying index on the valuation date, and, accordingly, the amount of cash an investor will receive at
maturity, if any.
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§
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The U.S. federal income tax consequences of an investment in the PLUS are uncertain.
Please read the discussion under
“Additional provisions ― Tax considerations” in this document and the discussion under “United States Federal
Taxation” in the accompanying product supplement for PLUS (together the “Tax Disclosure Sections”) concerning
the U.S. federal income tax consequences of an investment in the PLUS. If the Internal Revenue Service (the “IRS”)
were successful in asserting an alternative treatment, the timing and character of income on the PLUS might differ significantly
from the tax treatment described in the Tax Disclosure Sections. For example, under one possible treatment, the IRS could seek
to recharacterize the PLUS as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue
discount on the PLUS every year at a “comparable yield” determined at the time of issuance and recognize all income
and gain in respect of the PLUS as ordinary income. Additionally, as discussed under “United States Federal Taxation—FATCA
Legislation” in the accompanying product supplement for PLUS, the withholding rules commonly referred to as “FATCA”
would apply to the PLUS if they were recharacterized as debt instruments. We do not plan to request a ruling from the IRS regarding
the tax treatment of the PLUS, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections.
|
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which
very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While
the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated
after consideration of these issues could materially and adversely affect the tax consequences of an investment in the PLUS, possibly
with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax
consequences of an investment in the PLUS, including possible alternative treatments, the issues presented by this notice and any
tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
EURO STOXX 50
®
Index Overview
The EURO STOXX 50
®
Index was created by STOXX
Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50
®
Index
began on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50
®
Index
is composed of 50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes stocks
selected from the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across all
market sectors. For additional information about the EURO STOXX 50
®
Index, see the information set forth under “EURO
STOXX 50
®
Index” in the accompanying index supplement.
Information as of market close on April 29, 2016:
Bloomberg Ticker Symbol:
|
SX5E
|
Current Index Value:
|
3,028.21
|
52 Weeks Ago:
|
3,617.11
|
52 Week High (on 5/21/2015):
|
3,688.72
|
52 Week Low (on 2/11/2016):
|
2,680.35
|
The following graph sets forth the daily index closing values
of the underlying index for each quarter in the period from January 1, 2011 through April 29, 2016. The related table sets forth
the published high and low closing values, as well as end-of-quarter closing values, of the underlying index for each quarter in
the same period. The index closing value of the underlying index on April 29, 2016 was 3,028.21. We obtained the information in
the table and graph below from Bloomberg Financial Markets without independent verification. The underlying index has at times
experienced periods of high volatility. You should not take the historical values of the underlying index as an indication of its
future performance, and no assurance can be given as to the index closing value of the underlying index on the valuation date.
EURO STOXX 50
®
Index
Daily
Index Closing Values
January 1, 2011 to April
29, 2016
|
|
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
EURO STOXX 50
®
Index
|
High
|
Low
|
Period End
|
2011
|
|
|
|
First Quarter
|
3,068.00
|
2,721.24
|
2,910.91
|
Second Quarter
|
3,011.25
|
2,715.88
|
2,848.53
|
Third Quarter
|
2,875.67
|
1,995.01
|
2,179.66
|
Fourth Quarter
|
2,476.92
|
2,090.25
|
2,316.55
|
2012
|
|
|
|
First Quarter
|
2,608.42
|
2,286.45
|
2,477.28
|
Second Quarter
|
2,501.18
|
2,068.66
|
2,264.72
|
Third Quarter
|
2,594.56
|
2,151.54
|
2,454.26
|
Fourth Quarter
|
2,659.95
|
2,427.32
|
2,635.93
|
2013
|
|
|
|
First Quarter
|
2,749.27
|
2,570.52
|
2,624.02
|
Second Quarter
|
2,835.87
|
2,511.83
|
2,602.59
|
Third Quarter
|
2,936.20
|
2,570.76
|
2,893.15
|
Fourth Quarter
|
3,111.37
|
2,902.12
|
3,109.00
|
2014
|
|
|
|
First Quarter
|
3,172.43
|
2,962.49
|
3,161.60
|
Second Quarter
|
3,314.80
|
3,091.52
|
3,228.24
|
Third Quarter
|
3,289.75
|
3,006.83
|
3,225.93
|
Fourth Quarter
|
3,277.38
|
2,874.65
|
3,146.43
|
2015
|
|
|
|
First Quarter
|
3,731.35
|
3,007.91
|
3,697.38
|
Second Quarter
|
3,828.78
|
3,424.30
|
3,424.30
|
Third Quarter
|
3,686.58
|
3,019.34
|
3,100.67
|
Fourth Quarter
|
3,506.45
|
3,069.05
|
3,267.52
|
2016
|
|
|
|
First Quarter
|
3,178.01
|
2,680.35
|
3,004.93
|
Second Quarter (through April 29, 2016)
|
3,151.69
|
2,871.57
|
3,028.21
|
License Agreement between STOXX Limited and Morgan Stanley
“EURO STOXX 50
®
” and “STOXX
®
”
are registered trademarks of STOXX Limited and have been licensed for use for certain purposes by Morgan Stanley. For more information,
see “EURO STOXX 50
®
Index” in the accompanying index supplement.
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Additional Information About the PLUS
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional
provisions
:
|
|
Underlying
index publisher:
|
STOXX Limited
|
Denominations:
|
$10 per PLUS and integral
multiples thereof
|
Interest:
|
None
|
Bull
market or bear market PLUS:
|
Bull market PLUS
|
Postponement
of maturity date:
|
If the scheduled valuation
date is not an index business day or if a market disruption event occurs on that day so that the valuation date as postponed
falls less than two business days prior to the scheduled maturity date, the maturity date of the PLUS will be postponed to
the second business day following that valuation date as postponed.
|
Minimum
ticketing size:
|
$1,000 / 100 PLUS
|
Tax
considerations:
|
Although there is uncertainty
regarding the U.S. federal income tax consequences of an investment in the PLUS due to the lack of governing authority,
in the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions,
a PLUS should be treated as a single financial contract that is an “open transaction” for U.S. federal income
tax purposes.
Assuming this treatment
of the PLUS is respected and subject to the discussion in “United States Federal Taxation” in the accompanying
product supplement for PLUS, the following U.S. federal income tax consequences should result based on current law:
·
A U.S. Holder should not be required to recognize taxable income over the term of the PLUS
prior to settlement, other than pursuant to a sale or exchange.
·
Upon sale, exchange or settlement of the PLUS, a U.S. Holder should recognize gain or loss
equal to the difference between the amount realized and the U.S. Holder’s tax basis in the PLUS. Such gain or loss should
be long-term capital gain or loss if the investor has held the PLUS for more than one year, and short-term capital gain or loss
otherwise.
In 2007, the U.S. Treasury
Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on the U.S.
federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in
particular on whether to require holders of these instruments to accrue income over the term of their investment. It also
asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded
status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if
any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding
tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which very
generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge.
While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other
guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of
an investment in the PLUS, possibly with retroactive effect.
Both U.S. and non-U.S.
investors considering an investment in the PLUS should read the discussion under “Risk Factors” in this document
and the discussion under “United States Federal Taxation” in the accompanying product supplement for PLUS
and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the
PLUS, including possible alternative treatments, the issues presented by the aforementioned notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
The discussion in the
preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying product supplement for PLUS, insofar as they purport to describe provisions
of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk &
Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the PLUS.
|
Trustee:
|
The Bank of New York Mellon
|
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Calculation
agent:
|
MS & Co.
|
Use
of proceeds and hedging:
|
The proceeds we receive
from the sale of the PLUS will be used for general corporate purposes. We will receive, in aggregate, $10 per PLUS issued,
because, when we enter into hedging transactions in order to meet our obligations under the PLUS, our hedging counterparty
will reimburse the cost of the agent’s commissions. The costs of the PLUS borne by you and described beginning on
page 2 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the PLUS.
On or prior to the pricing
date, we hedged our anticipated exposure in connection with the PLUS by entering into hedging transactions with our subsidiaries
and/or third party dealers. We expect our hedging counterparties to have taken positions in stocks of the underlying index
and in futures and/or options contracts on the underlying index or any component stocks of the underlying index listed
on major securities markets. Such purchase activity could have increased the value of the underlying index on the pricing
date, and, therefore, could have increased the value at or above which the underlying index must close on the valuation
date so that investors do not suffer a loss on their initial investment in the PLUS. In addition, through our subsidiaries,
we are likely to modify our hedge position throughout the term of the PLUS, including on the valuation date, by purchasing
and selling the stocks constituting the underlying index, futures or options contracts on the underlying index or its
component stocks listed on major securities markets or positions in any other available securities or instruments that
we may wish to use in connection with such hedging activities. As a result, these entities may be unwinding or adjusting
hedge positions during the term of the PLUS, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the valuation date approaches. We cannot give any assurance that our hedging activities will not affect
the value of the underlying index, and, therefore, adversely affect the value of the PLUS or the payment you will receive
at maturity, if any. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging”
in the accompanying product supplement for PLUS.
|
Benefit
plan investor considerations:
|
Each fiduciary of a pension,
profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s
particular circumstances before authorizing an investment in the PLUS. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would
be consistent with the documents and instruments governing the Plan.
In addition, we and certain
of our subsidiaries and affiliates, including MS & Co., may be considered a “party in interest” within
the meaning of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986,
as amended (the “Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh
plans (also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans
and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code would
likely arise, for example, if the PLUS are acquired by or with the assets of a Plan with respect to which MS & Co.
or any of its affiliates is a service provider or other party in interest, unless the PLUS are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction”
rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of
Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief
for direct or indirect prohibited transactions resulting from the purchase or holding of the PLUS. Those class exemptions
are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions
involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment
funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain
transactions determined by independent qualified professional asset managers). In addition, ERISA Section 408(b)(17) and
Section 4975(d)(20) of the Code may provide an exemption for the purchase and sale of securities and the related lending
transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary
authority or control or renders any investment advice with respect to the assets of the Plan involved in the transaction
and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in connection
with the transaction (the so-called “service provider” exemption). There can be no assurance that any of these
class or statutory exemptions will be available with respect to transactions involving the PLUS.
Because we may be considered
a party in interest with respect to many Plans, the PLUS may not be purchased, held or disposed of by any Plan, any entity whose
underlying assets include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset
Entity”) or any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is
eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider
exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing
on behalf of a Plan, transferee or holder of the PLUS will be deemed to have represented, in its corporate and its fiduciary capacity,
by its purchase and holding of the PLUS that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such PLUS
on behalf of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or
|
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
church plan that is subject to any federal, state, local or
non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar
Law”) or (b) its purchase, holding and disposition are eligible for exemptive relief or such purchase, holding and disposition
are not prohibited by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the PLUS on behalf of or with “plan assets” of any Plan consult with their counsel regarding
the availability of exemptive relief.
The PLUS are contractual financial instruments. The financial
exposure provided by the PLUS is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the PLUS. The PLUS have not been designed and will
not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder of the PLUS.
Each purchaser or holder of any PLUS acknowledges and agrees
that:
(i) the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the PLUS, (B) the purchaser or holder’s investment in the PLUS, or
(C) the exercise of or failure to exercise any rights we have under or with respect to the PLUS;
(ii) we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the
PLUS and (B) all hedging transactions in connection with our obligations under the PLUS;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the PLUS has exclusive responsibility
for ensuring that its purchase, holding and disposition of the PLUS do not violate the prohibited transaction rules of ERISA or
the Code or any Similar Law. The sale of any PLUS to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the PLUS if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the PLUS by the account, plan or annuity.
|
Additional
considerations:
|
Client accounts over which
Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not
permitted to purchase the PLUS, either directly or indirectly.
|
Supplemental
information regarding plan of distribution; conflicts of interest:
|
The agent may distribute
the PLUS through Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”), as selected dealer,
or other dealers, which may include Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley
AG. Morgan Stanley Wealth Management, MSIP and Bank Morgan Stanley AG are affiliates of Morgan Stanley. Selected dealers,
including Morgan Stanley Wealth Management, and their financial advisors will collectively receive from the agent, Morgan
Stanley & Co. LLC, a fixed sales commission of $0.175 for each PLUS they sell. In addition, Morgan Stanley Wealth
Management will receive a structuring fee of $0.05 for each PLUS.
MS & Co. is our wholly-owned
subsidiary and it and other subsidiaries of ours expect to make a profit by selling, structuring and, when applicable,
hedging the PLUS.
MS & Co. will conduct
this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc.,
which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate
and related conflicts of interest. MS & Co. or any of our other affiliates may not make sales in this offering to
any discretionary account. See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and
Hedging” in the accompanying product supplement for PLUS.
|
Validity
of the PLUS:
|
In the opinion of Davis
Polk & Wardwell LLP, as special counsel to Morgan Stanley, when the PLUS 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 PLUS will
|
PLUS Based on the Value of the EURO STOXX 50
®
Index due August 3, 2017
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
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 PLUS 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 February 16, 2016,
which is Exhibit 5-a to Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 filed by Morgan Stanley on February
16, 2016.
|
Contact:
|
Morgan Stanley Wealth Management
clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York,
New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative.
Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
|
Where
you can find more information:
|
Morgan Stanley has filed
a registration statement (including a prospectus, as supplemented by the product supplement for PLUS and the index supplement
) with the Securities and Exchange Commission, or SEC, for the offering to which this communication relates. You should
read the prospectus in that registration statement, the product supplement for PLUS, the index supplement and any other
documents relating to this offering that Morgan Stanley has filed with the SEC for more complete information about Morgan
Stanley and this offering. You may get these documents without cost by visiting EDGAR on the SEC web site at.www.sec.gov.
Alternatively, Morgan Stanley will arrange to send you the product supplement for PLUS, index supplement and prospectus
if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents
on the SEC web site at.www.sec.gov, as follows:
Product Supplement for PLUS dated February 29, 2016
Index Supplement dated February 29, 2016
Prospectus dated February 16, 2016
Terms used but not defined
in this document are defined in the product supplement for PLUS, in the index supplement or in the prospectus. As used
in this document, the “Company,” “we,” “us” and “our” refer to Morgan
Stanley.
“Performance Leveraged
Upside Securities
SM
” and “PLUS
SM
” are our service marks.
|
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