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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Buffered Jump Securities due 2021
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$610,000
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$61.43
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Morgan Stanley Finance LLC
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May
2016
Pricing
Supplement No. 916
Registration
Statement Nos. 333-200365; 333-200365-12
Dated
May 25, 2016
Filed
pursuant to Rule 424(b)(2)
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Structured
Investments
Opportunities in U.S. Equities
Buffered Jump Securities Based on the Value of
the Dow Jones Industrial Average
SM
due May 28, 2021
Fully and Unconditionally
Guaranteed by Morgan Stanley
Principal at Risk
Securities
The Buffered Jump Securities,
which we refer to as the securities, offer the opportunity to earn a return based on the performance of the Dow Jones Industrial
Average
SM
. Unlike ordinary debt securities, the Buffered Jump Securities do not pay interest and provide for the minimum
payment at maturity of only 15% of the principal amount at maturity. At maturity, you will receive for each security that you
hold an amount in cash that will vary depending on the performance of the Dow Jones Industrial Average
SM
, as determined
on the valuation date. If the index appreciates at all over the term of the securities, you will receive for each security that
you hold at maturity a minimum of $250 in addition to the stated principal amount. If the index appreciates by more than 25% over
the term of the securities, you will receive for each security that you hold at maturity the stated principal amount plus an amount
based on the percentage increase of the index. However, if the index declines in value by more than 15% over the term of the securities
from its initial value, the payment due at maturity will be less, and possibly significantly less, than the stated principal amount
of the securities. These long-dated securities are for investors who seek an equity index-based return and who are willing to
risk their principal and forgo current income in exchange for the upside payment and buffer features that in each case apply to
a limited range of performance of the index.
You could lose up to 85% of the stated principal amount of the securities.
The securities are notes issued as part of MSFL’s Series A Global Medium-Term Notes program, and are fully and unconditionally
guaranteed by Morgan Stanley.
All payments are subject to
our credit risk. If we default on our 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
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Issuer:
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Morgan Stanley Finance LLC
(“MSFL”)
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Guarantor:
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Morgan Stanley
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Issue price:
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$1,000 per security
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Stated principal amount:
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$1,000 per security
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Pricing date:
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May 25, 2016
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Original issue date:
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May 31, 2016 (3 business days after the pricing
date)
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Maturity date:
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May 28, 2021
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Aggregate principal amount:
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$610,000
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Interest:
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None
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Underlying
index:
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Dow Jones Industrial Average
SM
(the
“index”)
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Payment at maturity:
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·
If
the final index value is greater than the initial index value:
$1,000 + the
greater
of (i) $1,000 × the index percent change and (ii) the upside payment
·
If
the final index value is less than or equal to the initial index value but greater than or equal to 15,173.784, which
is approximately 85% of the initial index value, meaning the value of the index has remained unchanged or has declined
by an amount less than or equal to the buffer amount of 15% from its initial value:
$1,000
·
If
the final index value is less than 15,173.784, which is approximately 85% of the initial index value, meaning the value
of the index has declined by more than the buffer amount of 15% from its initial value:
$1,000 ×
(index performance factor + 15%)
Because
the index performance factor will be less than 85% in this scenario, the payment at maturity will be less, and potentially
significantly less, than the stated principal amount of $1,000, subject to the minimum payment at maturity of $150 per
security.
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Upside payment:
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$250 per security (25% of the stated principal
amount)
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Index percent change:
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(final index value – initial index value)
/ initial index value
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Buffer amount:
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15%
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Index
performance factor:
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final index value / initial index value
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Initial index value:
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17,851.51, 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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May 25, 2021, subject to postponement for non-index
business days and certain market disruption events
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Maximum payment at maturity:
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None
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Minimum payment at maturity:
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$150 per security (15% of the stated principal
amount)
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CUSIP
/ ISIN:
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61766BAS0 / US61766BAS07
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Listing:
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The securities will not be listed on any securities
exchange.
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Agent:
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Morgan Stanley & Co. LLC (“MS &
Co.”), an affiliate of MSFL and 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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$924.00 per security. See “Investment Summary”
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
(1)
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Proceeds
to us
(2)
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Per security
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$1,000
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$37.50
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$962.50
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Total
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$610,000
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$22,875
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$587,125
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(1)
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The price to public
for investors purchasing the security in fee-based advisory accounts will be $970 per security.
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(2)
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Selected dealers and
their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission of $37.50 for each security
they sell; provided that dealers selling to investors purchasing the security in fee-based advisory accounts will receive a sales
commission of $7.50 per security. See “Supplemental information regarding plan of distribution; conflicts of interest.”
For additional information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying product supplement.
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(3)
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See “Use of proceeds
and hedging” on page 11.
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The securities involve risks
not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 5.
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 securities are not
deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency
or instrumentality, 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 Buffered Jump Securities” at the end of this document.
References to “we,”
“us,” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context
requires.
Product
Supplement for Jump Securities dated February 29, 2016
Index
Supplement dated February 29, 2016
Prospectus
dated February 16, 2016
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
Investment Summary
Buffered Jump Securities
Principal
at Risk Securities
The Buffered Jump Securities Based on the Value of the Dow Jones
Industrial Average
SM
due May 28, 2021 (the “securities”) can be used:
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§
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As an alternative to direct exposure to the index
that provides a minimum positive return of 25% if the index has appreciated at all over the term of the securities and offers an
uncapped 1 to 1 participation in the index appreciation of greater than 25%;
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§
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To enhance returns and potentially outperform the
index in a moderately bullish scenario; and
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§
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To obtain a buffer against a specified level of negative
performance in the index.
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The securities are exposed on a 1:1 basis to the percentage decline
of the final index value from the initial index value beyond the buffer amount of 15%.
Accordingly, 85% of your principal is
at risk (
e.g.
, a 50% depreciation in the index will result in the payment at maturity of $650 per security).
Maturity:
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Approximately 5 years
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Upside payment:
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$250 per security (25% of the stated principal amount)
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Buffer amount:
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15%
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Maximum payment at maturity:
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None
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Minimum payment at maturity:
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$150 per security. You could lose up to 85% of the stated principal amount of the securities.
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Interest:
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None
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The original issue price of each security is $1,000. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value of each security on the
pricing date is $924.00.
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 comprises both a debt component and a performance-based component linked to the underlying index. The estimated
value of the securities 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 securities?
In determining the economic terms of the securities, including
the upside payment, the buffer amount and the minimum 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 securities
would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying index, may vary from, and be lower
than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit
spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other
factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted
upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the securities
in the secondary market, absent changes in market conditions, including those related to the underlying index, and to our secondary
market credit spreads, it would do so based on values higher than the estimated value. We expect that those higher values will
also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a market in the
securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
Key Investment Rationale
This 5-year investment does not pay interest but offers a minimum
positive return of 25% if the index appreciates at all over the term of the securities and an uncapped 1-to-1 participation in
the index appreciation of greater than 25%. However, if the index declines in value by more than 15% as of the valuation date from
its initial index value, the payment due at maturity will be less, and possibly significantly less, than the stated principal amount
of the securities.
You could lose up to 85% of the stated principal amount of the securities.
Upside Scenario
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If
the final index value is
greater than the initial index value
, the payment at maturity for each security will be
equal to $1,000
plus
the
greater
of (i) $1,000
times
the index percent change and (ii) the upside payment
of $250 per security. There is no maximum payment at maturity on the securities.
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Par Scenario
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If the final index value is
less than or equal to the initial index value but greater than or equal to 85% of the initial index value
, which means that the index has
remained unchanged
or
has
depreciated
by no more than 15%
from its initial value
,
the payment at maturity will be $1,000 per security.
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Downside Scenario
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If the final index value is
less than 85% of the initial index value
, which means that the index has
depreciated
by an amount greater than the buffer amount of 15%
, you will lose 1% for every 1% decline beyond the buffer amount of 15%, subject to the minimum payment at maturity of $150 per security (e.g., a 50% depreciation in the index will result in a payment at maturity of $650 per security).
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
How the Buffered Jump Securities Work
Payoff Diagram
The payoff diagram below illustrates the payout on the securities
at maturity for a range of hypothetical percentage changes in the index. The diagram is based on the following terms:
Stated principal amount:
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$1,000 per security
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Upside payment:
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$250 per security (25% of the stated principal amount)
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Buffer amount:
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15%
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Maximum payment at maturity:
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None
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Minimum payment at maturity:
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$150 per security (15% of the stated principal amount)
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Buffered Jump Securities Payoff Diagram
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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 $1,000
plus
the greater of
(i) $1,000
times
the index percent change and (ii) the upside payment of $250. Under the terms of the securities, an investor
would receive a payment at maturity of $1,250 per security if the final index value has increased by no more than 25% from the
initial index value, and would receive $1,000
plus
an amount that represents a 1-to-1 participation in the appreciation
of the underlying index if the final index value has increased from the initial index value by more than 25%.
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|
§
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Par Scenario.
If the final index value is less than or equal to the initial index value but has decreased from the initial index value by an
amount less than or equal to the buffer amount of 15%, the investor would receive the $1,000 stated principal amount per security.
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§
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Downside Scenario.
If the final index value has decreased from the initial index value by an amount greater than the buffer amount of 15%, the payment
at maturity would be less than the stated principal amount of $1,000 by an amount that is proportionate to the percentage decrease
of the index beyond the buffer amount. However, under no circumstances will the payment due at maturity be less than $150 per security.
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|
o
|
For example, if the final index value declines by 90% from the initial index value, the payment at maturity would be $250 per
security (25% of the stated principal amount).
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement, index supplement and prospectus. We also urge you to consult
with your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
|
§
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The securities do not pay interest and provide
for the minimum payment at maturity of only 15% of your principal
. The terms of the securities differ from those of ordinary
debt securities in that we will not pay you any interest and will provide for the return of only 15% of the principal amount of
the securities at maturity. At maturity, you will receive for each $1,000 stated principal amount of securities that you hold an
amount in cash based upon the final index value. If the final index value is equal to the initial index value or has decreased
from the initial index value by an amount less than or equal to the buffer amount, you will receive only the principal amount of
$1,000 per security. If the final index value decreases from the initial index value by more than the buffer amount of 15%, you
will receive an amount in cash that is less than the $1,000 stated principal amount of each security by an amount proportionate
to the decline in the value of the index beyond the buffer amount, and you will lose money on your investment.
You could lose
up to 85% of the stated principal amount of the securities
. See “How the Buffered Jump Securities Work” above.
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|
§
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The market price of the securities may be influenced
by many unpredictable factors
. Several factors, many of which are beyond our control, will influence the value of the securities
in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary
market, including:
|
|
§
|
the
value of the index at any time,
|
|
§
|
the
volatility (frequency and magnitude of changes in value) of the index,
|
|
§
|
dividend
rates on the securities underlying the index,
|
|
§
|
interest
and yield rates in the market,
|
|
§
|
geopolitical conditions and economic, financial, political,
regulatory or judicial events that affect the component stocks of the index or securities markets generally and which may affect
the value of the index,
|
|
§
|
the
time remaining until the maturity of the securities,
|
|
§
|
the
composition of the index and changes in the constituent stocks of the index, and
|
|
§
|
any
actual or anticipated changes in our credit ratings or credit spreads.
|
Some or all of these factors will influence the price
you will receive if you sell your securities prior to maturity. Generally, the longer the time remaining to maturity, the more
the market price of the securities will be affected by the other factors described above. For example, you may have to sell your
securities at a substantial discount from the stated principal amount if at the time of sale the value of the index is at or below
the initial index value.
You cannot predict the future performance of the index
based on its historical performance. If the final index value declines by more than the buffer amount from the initial index value,
you will be exposed on a 1 to 1 basis to such decline in the final index value beyond the buffer amount. There can be no assurance
that the final index value will be greater than the initial index value so that you will receive at maturity an amount that is
greater than the $1,000 stated principal amount for each security you hold.
|
§
|
The securities are subject to our credit risk,
and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the securities
.
You are dependent on our ability to pay all amounts due on the securities at maturity and therefore you 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 market value of the securities.
|
|
§
|
As a finance subsidiary, MSFL has no independent
operations and will have no independent assets.
As a finance subsidiary, MSFL has no independent operations beyond the issuance
and administration of its securities
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
and will have no independent assets available for
distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution or similar
proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee by Morgan
Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan Stanley.
Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of securities
issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should be treated
pari passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued
securities.
|
§
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The amount payable on the securities is not linked
to the value of the 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 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 the payment at maturity been linked to the value of the index prior
to such drop. Although the actual value of the index on the stated maturity date or at other times during the term of the securities
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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|
§
|
The rate we are willing to pay for securities of
this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market credit spreads
and
advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the
securities in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities
to be less than the original issue price and will adversely affect secondary market prices.
Assuming no change in market conditions
or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities
in secondary market transactions will likely be significantly lower than the original issue price, because secondary market prices
will exclude the issuing, selling, structuring and hedging-related costs that are included in the original issue price and borne
by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any
dealer would charge in a secondary market transaction of this type as well as other factors.
|
The inclusion of the costs of issuing, selling, structuring
and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer make the economic terms
of the securities less favorable to you than they otherwise would be.
However, because the costs associated with issuing,
selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months following
the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market
conditions, including those related to the underlying index, and to our secondary market credit spreads, it would do so based on
values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account
statements.
|
§
|
The estimated value of the securities is determined
by reference to our pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum
secondary market price.
These pricing and valuation models are proprietary and rely in part on subjective views of certain
market inputs and certain assumptions about future events, which may prove to be incorrect. As a result, because there is no market-standard
way to value these types of securities, our models may yield a higher estimated value of the securities than those generated by
others, including other dealers in the market, if they attempted to value the securities. In addition, the estimated value on the
pricing date does not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase
your securities in the secondary market (if any exists) at any time. The value of your securities at any time after the date of
this 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 of the securities may be influenced by many unpredictable factors”
above.
|
|
§
|
The securities will not be listed on any securities
exchange and secondary trading may be limited
. The securities will not be listed on any securities exchange. Therefore, there
may be little or no secondary market for the securities. Morgan Stanley & Co. LLC, which we refer to as 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
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
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.
|
§
|
Investing in the securities is not equivalent to
investing in the index
. Investing in the securities is not equivalent to investing in the index or its component stocks. Investors
in the securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect
to stocks that constitute the index.
|
|
§
|
Adjustments to the index could adversely affect
the value of the securities
. The publisher of the index can add, delete or substitute the stocks underlying the 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 the index. Any of these actions
could adversely affect the value of the securities. The publisher of the index may discontinue or suspend calculation or publication
of the index at any time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute
a successor index that is comparable to the discontinued index. MS & Co. could have an economic interest that is different
than that of investors in the securities insofar as, for example, MS & Co. is permitted to consider indices that are calculated
and published by MS & Co. or any of its affiliates. If MS & Co. determines that there is no appropriate successor index,
the payout on the securities at maturity will be an amount based on the closing prices on the valuation date of the stocks underlying
the 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 last in effect prior to the discontinuance of the index.
|
|
§
|
The calculation agent, which is a subsidiary of
Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities.
As calculation
agent, MS & Co. has determined the initial index value and will determine the final index value, the index percent change or
the index performance factor, as applicable, and the payment that you will receive at maturity. 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 index closing 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. For further information regarding
these types of determinations, see “Description of Securities—Postponement of Valuation Date(s),” “—Discontinuance
of Any Underlying Index or Basket Index; Alteration of Method of Calculation,” “—Alternate Exchange Calculation
in case of an Event of Default” and “—Calculation Agent and Calculations” in the accompanying product supplement. In
addition, MS & Co. has determined the estimated value of the securities on the pricing date.
|
|
§
|
Hedging and trading activity by our affiliates
could potentially adversely affect the value of the securities
. One or more of our affiliates and/or third-party dealers have
carried out, and will continue to carry out, hedging activities related to the securities (and to other instruments linked to the
index or its component stocks), including trading in the stocks that constitute the index as well as in other instruments related
to the index. As a result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and
the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation date approaches. Some
of our affiliates also trade the stocks that constitute the index and other financial instruments related to the 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
index must close on the valuation date so that investors do not suffer a loss on their initial investment in the securities. Additionally,
such hedging or trading activities during the term of the securities, including on the valuation date, could decrease the value
of the index on the valuation date, and, accordingly, the amount of cash an investor will receive at maturity.
|
|
§
|
The U.S. federal income tax consequences of an
investment in the securities 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
Jump Securities (together the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of an
investment in the securities. If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative
treatment for the securities, the timing and character of income on the securities might differ significantly from the tax treatment
described in the Tax Disclosure Sections. For example, under one possible treatment, 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 and
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
recognize all income and gain in respect of the securities
as ordinary income. Additionally, as discussed under “United States Federal Taxation—FATCA Legislation” in the
accompanying product supplement for Jump Securities, the withholding rules commonly referred to as “FATCA” would apply
to the securities if they were recharacterized as debt instruments. The risk that financial instruments providing for buffers,
triggers or similar downside protection features, such as the securities, would be recharacterized as debt is greater than the
risk of recharacterization for comparable financial instruments that do not have such features. We do not plan to request a ruling
from the IRS regarding the tax treatment of the securities, and the IRS or a court may not agree with the tax treatment described
in the Tax Disclosure Sections.
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 securities, possibly
with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax
consequences of an investment in the securities, including possible alternative treatments, the issues presented by this notice
and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
Dow Jones Industrial
Average
SM
Summary
The Dow Jones Industrial Average
SM
is a price-weighted
index composed of 30 common stocks that is published by Dow Jones Indexes, the marketing name and a licensed trademark of CME Group
Index Services LLC, as representative of the broad market of U.S. industry. For additional information about the Dow Jones Industrial
Average
SM
, see the information set forth under “Dow Jones Industrial Average
SM
” in the accompanying
index supplement.
Information as of market close on May 25, 2016:
Bloomberg Ticker Symbol:
|
INDU
|
Current Index Closing Value:
|
17,851.51
|
52 Weeks Ago:
|
18,041.54
|
52 Week High (on 5/27/2015):
|
18,162.99
|
52 Week Low (on 2/11/2016):
|
15,660.18
|
The following graph sets forth the daily closing values of the
index for the period from January 1, 2008 through May 25, 2016. The related table sets forth the published high and low closing
values, as well as end-of-quarter closing values, of the index for each quarter in the same period. The closing value of the index
on May 25, 2016 was 17,851.51. We obtained the information in the table and graph below from Bloomberg Financial Markets, without
independent verification. The historical values of the index should not be taken as an indication of future performance, and no
assurance can be given as to the closing level of the index on the valuation date.
Dow Jones Industrial
Average
SM
Daily Index Closing
Values
January 1, 2008
to May 25, 2016
|
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
Dow Jones
Industrial Average
SM
|
High
|
Low
|
Period
End
|
2008
|
|
|
|
First Quarter
|
13,056.72
|
11,740.15
|
12,262.89
|
Second Quarter
|
13,058.20
|
11,346.51
|
11,350.01
|
Third Quarter
|
11,782.35
|
10,365.45
|
10,850.66
|
Fourth Quarter
|
10,831.07
|
7,552.29
|
8,776.39
|
2009
|
|
|
|
First Quarter
|
9,034.69
|
6,547.05
|
7,608.92
|
Second Quarter
|
8,799.26
|
7,761.60
|
8,447.00
|
Third Quarter
|
9,829.87
|
8,146.52
|
9,712.28
|
Fourth Quarter
|
10,548.51
|
9,487.67
|
10,428.05
|
2010
|
|
|
|
First Quarter
|
10,907.42
|
9,908.39
|
10,856.63
|
Second Quarter
|
11,205.03
|
9,774.02
|
9,774.02
|
Third Quarter
|
10,860.26
|
9,686.48
|
10,788.05
|
Fourth Quarter
|
11,585.38
|
10,751.27
|
11,577.51
|
2011
|
|
|
|
First Quarter
|
12,391.25
|
11,613.30
|
12,319.73
|
Second Quarter
|
12,810.54
|
11,897.27
|
12,414.34
|
Third Quarter
|
12,724.41
|
10,719.94
|
10,913.38
|
Fourth Quarter
|
12,294.00
|
10,655.30
|
12,217.56
|
2012
|
|
|
|
First Quarter
|
13,252.76
|
12,359.92
|
13,212.04
|
Second Quarter
|
13,279.32
|
12,101.46
|
12,880.09
|
Third Quarter
|
13,596.93
|
12,573.27
|
13,437.13
|
Fourth Quarter
|
13,610.15
|
12,542.38
|
13,104.14
|
2013
|
|
|
|
First Quarter
|
14,578.54
|
13,328.85
|
14,578.54
|
Second Quarter
|
15,409.39
|
14,537.14
|
14,909.60
|
Third Quarter
|
15,676.94
|
14,776.13
|
15,129.67
|
Fourth Quarter
|
16,576.66
|
14,776.53
|
16,576.66
|
2014
|
|
|
|
First Quarter
|
16,530.94
|
15,372.80
|
16,457.66
|
Second Quarter
|
16,947.08
|
16,026.75
|
16,826.60
|
Third Quarter
|
17,279.74
|
16,368.27
|
17,042.90
|
Fourth Quarter
|
18,053.71
|
16,117.24
|
17,823.07
|
2015
|
|
|
|
First Quarter
|
18,288.63
|
17,164.95
|
17,776.12
|
Second Quarter
|
18,312.39
|
17,596.35
|
17,619.51
|
Third Quarter
|
18,120.25
|
15,666.44
|
16,284.70
|
Fourth Quarter
|
17,918.15
|
16,272.01
|
17,425.03
|
2016
|
|
|
|
First Quarter
|
17,716.66
|
15,660.18
|
17,685.09
|
Second Quarter (through May 25, 2016)
|
18,096.27
|
17,435.40
|
17,851.51
|
License Agreement between Dow Jones Indexes and Morgan Stanley
“Dow Jones,” “Dow Jones Industrial Average,”
“Dow Jones Indexes” and “DJIA” are service marks of Dow Jones Trademark Holdings LLC and have been licensed
for use by Morgan Stanley. See “Dow Jones Industrial Average
SM
—License Agreement between Dow Jones Indexes
and Morgan Stanley” in the accompanying index supplement.
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
Additional Information About the Buffered Jump
Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional
provisions:
|
|
Denominations:
|
$1,000 and integral multiples thereof
|
Underlying index publisher:
|
Dow Jones Indexes
|
Postponement
of maturity date:
|
If the scheduled valuation date is not an index
business day or if a market disruption event occurs on that day so that the valuation date is postponed and falls less than
two business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the second
business day following that valuation date as postponed.
|
Minimum ticketing size:
|
$1,000 / 1 security
|
Tax considerations:
|
Although
there is uncertainty regarding the U.S. federal income tax consequences of an investment in the securities 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, each security 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 securities is respected and subject to the discussion in “United States Federal Taxation”
in the accompanying product supplement for Jump Securities, 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 securities prior to settlement, other than pursuant to a sale or
exchange.
|
|
§
|
Upon sale, exchange or settlement of the securities,
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 securities. Such gain or loss should be long-term capital gain or loss if the investor has held
the securities for more than one year, 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 securities, possibly with retroactive effect.
Both
U.S. and non-U.S. investors considering an investment in the securities should read the discussion under “Risk Factors”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement
for Jump Securities and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of
an investment in the securities, including possible alternative treatments, the issues presented by the aforementioned
notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
The
discussion in the preceding paragraphs under “Tax considerations” and the discussion contained in the section
entitled “United States Federal Taxation” in the accompanying product supplement for Jump Securities, insofar
as they purport to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute
the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment
in the securities.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation
agent:
|
Morgan Stanley & Co. LLC (“MS &
Co.”)
|
Use of proceeds and hedging:
|
The proceeds from the sale
of the securities will be used by us 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 2 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing
date, we hedged our anticipated exposure in connection with the securities by
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
|
entering into hedging transactions
with our affiliates and/or third party dealers. We expect our hedging counterparties to have taken positions in the stocks
constituting the index and in futures and/or options contracts on the index or its component stocks listed on major securities
markets. Such purchase activity could have increased the value of the index on the pricing date, and, therefore,
could have increased the value at or above which the index must close on the valuation date so that investors do not suffer
a loss on their initial investment in the securities. In addition, through our affiliates, we are likely to modify
our hedge position throughout the term of the securities, 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 securities, 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 securities or the payment you will receive at maturity. For
further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying
product supplement.
|
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 securities. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would
be consistent with the documents and instruments governing the Plan.
In addition, we and certain
of our affiliates, including MS & Co., may each be considered a “party in interest” within the meaning
of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the
“Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also
“Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans and parties
in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code would likely arise,
for example, if the securities are acquired by or with the assets of a Plan with respect to which MS & Co. or any
of its affiliates is a service provider or other party in interest, unless the securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction”
rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons,
unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of
Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief
for direct or indirect prohibited transactions resulting from the purchase or holding of the securities. Those class exemptions
are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions
involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment
funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain
transactions determined by independent qualified professional asset managers). In addition, ERISA Section 408(b)(17) and
Code Section 4975(d)(20) 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 securities.
Because we may be considered
a party in interest with respect to many Plans, the securities may not be purchased, held or disposed of by any Plan,
any entity whose underlying assets include “plan assets” by reason of any Plan’s investment in the entity
(a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase,
holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1,
84-14 or the service provider exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser,
including any fiduciary purchasing on behalf of a Plan, transferee or holder of the securities will be deemed to have
represented, in its corporate and its fiduciary capacity, by its purchase and holding of the securities that either (a)
it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or with “plan assets”
of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal, state, local
or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar
Law”) or (b) its purchase, holding and disposition are eligible for exemptive relief or such purchase, holding and
disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of
these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
|
purchasing the securities
on behalf of or with “plan assets” of any Plan consult with their counsel regarding the availability of exemptive
relief.
The securities are contractual
financial instruments. The financial exposure provided by the securities is not a substitute or proxy for, and is not
intended as a substitute or proxy for, individualized investment management or advice for the benefit of any purchaser
or holder of the securities. The securities have not been designed and will not be administered in a manner intended to
reflect the individualized needs and objectives of any purchaser or holder of the securities.
Each purchaser or holder
of any securities acknowledges and agrees that:
|
|
(i)
|
the purchaser or holder or
its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser or holder has
not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder
with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
|
|
(ii)
|
we and our affiliates have acted and will act
solely for our own account in connection with (A) all transactions relating to the securities and (B) all hedging transactions
in connection with our obligations under the securities;
|
|
(iii)
|
any and all assets and positions relating to
hedging transactions by us or our affiliates are assets and positions of those entities and are not assets and positions held
for the benefit of the purchaser or holder;
|
|
(iv)
|
our interests are adverse to the interests of
the purchaser or holder; and
|
|
(v)
|
neither we nor any of our affiliates is a fiduciary
or adviser of the purchaser or holder in connection with any such assets, positions or transactions, and any information that
we or any of our affiliates may provide is not intended to be impartial investment advice.
|
|
Each purchaser and holder
of the securities has exclusive responsibility for ensuring that its purchase, holding and disposition of the securities
do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any securities to
any Plan or plan subject to Similar Law is in no respect a representation by us or any of our affiliates or representatives
that such an investment meets all relevant legal requirements with respect to investments by plans generally or any particular
plan, or that such an investment is appropriate for plans generally or any particular plan.
However, individual retirement
accounts, individual retirement annuities and Keogh plans, as well as employee benefit plans that permit participants
to direct the investment of their accounts, will not be permitted to purchase or hold the securities if the account, plan
or annuity is for the benefit of an employee of Morgan Stanley, Morgan Stanley Wealth Management or a family member and
the employee receives any compensation (such as, for example, an addition to bonus) based on the purchase of the securities
by the account, plan or annuity.
|
Additional considerations:
|
Client accounts over which Morgan Stanley, Morgan
Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase
the securities, either directly or indirectly.
|
Supplemental
information regarding plan of distribution; conflicts of interest
:
|
Selected dealers, which
may include our affiliates, and their financial advisors will collectively receive from the agent a fixed sales commission
of $37.50 for each security they sell; provided that dealers selling to investors purchasing the security in fee-based
advisory accounts will receive a sales commission of $7.50 per security.
MS & Co. is an affiliate
of MSFL and a wholly owned subsidiary of Morgan Stanley, 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. See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and
Hedging” in the accompanying product supplement.
|
Validity of the securities:
|
In the opinion of Davis Polk & Wardwell LLP,
as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and
issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus)
and delivered against payment as contemplated herein, such securities will be valid and binding obligations of
|
Morgan Stanley Finance LLC
Buffered Jump Securities Based on the Value of the Dow Jones Industrial Average
SM
due May 28, 2021
Principal at Risk Securities
|
MSFL and the related guarantee
will be a valid and binding obligation 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 (i) the effect of fraudulent conveyance, fraudulent transfer
or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture
that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by
limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as
of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware
and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about
the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the
securities and the validity, binding nature and enforceability of the MSFL 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 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:
|
MSFL and Morgan Stanley
have filed a registration statement (including a prospectus, as supplemented by the product supplement for Jump Securities
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 Jump Securities, the
index supplement and any other documents relating to this offering that MSFL and Morgan Stanley have filed with the SEC
for more complete information about MSFL, 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, MSFL and/or Morgan
Stanley will arrange to send you the prospectus, the product supplement for Jump Securities and the index 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:
Product
Supplement for Jump Securities 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 Jump Securities, in the index supplement or in the prospectus.
|
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