CALCULATION OF REGISTRATION FEE
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|
Maximum Aggregate
|
|
Amount of Registration
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Title of Each Class of Securities Offered
|
|
Offering Price
|
|
Fee
|
|
|
|
|
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Contingent Income Auto-Callable Securities due 2031
|
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$500,000
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$50.35
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May 2016
Pricing Supplement No. 915
Registration Statement Nos.
333-200365; 333-200365-12
Dated May 25, 2016
Filed pursuant to Rule 424(b)(2)
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S. and International Equities
Contingent Income Auto-Callable Securities due
May 30, 2031, With 2-year Initial Non-Call Period
Fully and Unconditionally Guaranteed by Morgan
Stanley
All Payments on the Securities Based on the
Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk
Securities
The securities are unsecured obligations of Morgan Stanley Finance
LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The securities have the terms described
in the accompanying product supplement, index supplement and prospectus, as supplemented or modified by this document. The securities
do not guarantee the repayment of principal and do not provide for the regular payment of interest after the first two years. For
the first two years, the securities will pay a fixed quarterly coupon at the rate specified below. Thereafter, the securities will
pay a contingent quarterly coupon
but only if
the index closing value of
each
of the Russell 2000
®
Index
and
the EURO STOXX 50
®
Index is
at or above
its respective
initial index value
on the
related observation date. If the index closing value of
either
underlying index is
less than
its
initial index
value
on any observation date after the first two years, we will pay no interest for the related quarterly period. However,
if the index closing value of each underlying index is
greater than or equal to
its respective
initial index value
on
an observation date after the first two years, investors will receive, in addition to the contingent quarterly coupon for that
quarterly period, any previously unpaid contingent quarterly coupons from prior observation dates. In addition, starting on the
second anniversary of the original issue date, the securities will be automatically redeemed if the index closing value of
each
underlying index is
greater than or equal to
its respective
initial index value on any quarterly redemption determination
date, for the early redemption payment equal to the sum of the stated principal amount plus the related quarterly coupon (including
any contingent quarterly coupon(s) with respect to any prior observation date(s) for which a contingent quarterly coupon was not
paid). At maturity, if the securities have not previously been redeemed and the final index value of
each
underlying index
is
greater than or equal to
the downside threshold level of 50% of the respective
initial index value
, the payment
at maturity will be the stated principal amount. If the final index value
of
each
underlying index is also
greater
than or equal to
its respective
initial index value
, investors will also receive the related contingent quarterly coupon
and any previously unpaid contingent quarterly coupons. If, however, the final index value of
either
underlying index is
less than
its downside threshold level, investors will be fully exposed to the decline in the worst performing underlying
index on a 1 to 1 basis and will receive a payment at maturity that is
less than
50% of the stated principal amount of the
securities and could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept the risk of losing their
entire initial investment and also the risk of not receiving any quarterly coupons after the first two years.
Because all payments
on the securities are based on the worst performing of the underlying indices, a decline beyond the respective initial index value
or respective downside threshold level, as applicable, of either underlying index will result in few or no contingent coupon payments
or a significant loss of your investment, even if the other underlying index has appreciated or has not declined as much. Because
the redemption determination dates will also be coupon observation dates, and because the threshold for both early redemption and
the payment of coupons will be the initial index value of each underlying index, if the securities are not automatically redeemed
following any redemption determination date, no contingent quarterly coupon will be payable with respect to that quarterly period.
These long-dated securities are for investors who are willing to risk their principal and seek an opportunity to earn interest
at a potentially above-market rate in exchange for the risk of receiving no quarterly coupons after the first two years, with no
possibility of being called out of the securities until after the initial 2-year non-call period. Investors will not participate
in any appreciation of either underlying index. The securities are notes issued as part of MSFL’s Series A Global Medium-Term
Notes program.
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
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Guarantor:
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Morgan Stanley
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Underlying indices:
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Russell 2000
®
Index (the “RTY Index”) and EURO STOXX 50
®
Index (the “SX5E Index”)
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Aggregate principal amount:
|
$500,000
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Stated principal amount:
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$1,000 per security
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Issue price:
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$1,000 per security (see “Commissions and issue price” below)
|
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 30, 2031
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Quarterly coupon:
|
Years 1-2: On each coupon payment date through May 2018, a fixed
coupon at an annual rate of 8.00% (corresponding to approximately $20.00 per quarter per security) is paid quarterly.
Years 3-15: Beginning with the August 2018 coupon payment date,
a
contingent
coupon plus any previously unpaid contingent quarterly coupons with respect to any prior observation dates
will be paid on the securities on each coupon payment date
but only if
the index closing value of
each
underlying
index is at or above its respective initial index value on the related observation date. If payable, the contingent quarterly coupon
will be an amount in cash per stated principal amount corresponding to a return of 8.00%
per annum
for each interest payment
period for each applicable observation date.
If the contingent quarterly coupon is not paid on any coupon
payment date after the first two years (because the index closing value of either underlying index is less than its respective
initial index value on the related observation date), such unpaid contingent quarterly coupon will be paid on a later coupon payment
date but only if the index closing value of each underlying index on such later observation date is greater than or equal to its
respective initial index value;
provided, however,
in the case of any such payment of a previously unpaid contingent quarterly
coupon, no additional interest shall accrue or be payable in respect of such unpaid contingent quarterly coupon from and after
the end of the original interest period for such unpaid contingent quarterly coupon. You will not receive such unpaid contingent
quarterly coupons if the index closing value of either underlying index is less than its respective initial index value on each
subsequent observation date. If the index closing value of either underlying index is less than its respective initial index value
on each observation date, you will not receive any quarterly coupons after the first two years.
Because the redemption determination dates will also be coupon
observation dates, and because the threshold for both early redemption and the payment of coupons will be the initial index value
of each underlying index, if the securities are not automatically redeemed following any redemption determination date, no contingent
quarterly coupon will be payable with respect to that quarterly period.
|
Payment at maturity:
|
If the securities have not been automatically redeemed prior
to maturity, that will necessarily mean that the index closing value of at least one underlying index was below its initial index
value on every quarterly observation date during years 3 through 15 of the term of the securities, and therefore no contingent
quarterly coupon payments will have been made in years 3 through 15 of the term of the securities. In such a case, the payment
at maturity will be determined as follows:
If the final index value of
each
underlying index is
greater
than or equal to
its respective downside threshold level, investors will receive the stated principal amount. If the final
index value of
each
underlying index is also
greater than or equal to
its respective
initial index value
,
investors will also receive the contingent quarterly coupon with respect to the final observation date and the previously unpaid
contingent quarterly coupons with respect to the prior observation dates.
If the final index value of
either
underlying index is
less than
its respective downside threshold level, investors will receive (i) the stated principal amount
multiplied
by
(ii) the index performance factor of the worst performing underlying index. Under these circumstances, the payment at maturity
will be less than 50% of the stated principal amount of the securities and could be zero.
|
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Terms continued on the following page
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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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$941.00 per security. See “Investment Summary” beginning on page 3.
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Commissions and issue price:
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Price to public
(1)
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Agent’s commissions
(2)
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Proceeds to us
(3)
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Per security
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$1,000
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$35
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$965
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Total
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$500,000
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$17,500
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$482,500
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(1)
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The price to public for investors purchasing the securities
in the 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, Morgan Stanley & Co. LLC, a fixed sales commission of $35 for each security they sell;
provided that dealers selling to investors purchasing the securities in fee-based advisory accounts will receive a sales commission
of $5 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
28.
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The
securities involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning
on page 13.
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 Securities” at the end of this document.
As used in this document, “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product Supplement for Auto-Callable Securities dated February 29, 2016
Index Supplement dated February 29, 2016
Prospectus dated February 16, 2016
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Terms continued from previous page:
|
Early redemption:
|
The securities are not subject to automatic early redemption
until the second anniversary of the original issue date.
Following the initial 2-year non-call period, if, on any redemption
determination date, beginning on the third scheduled business day preceding May 30, 2018, the index closing value of
each
underlying
index is
greater than or equal to
its respective initial index value, the securities will be automatically redeemed for
an early redemption payment on the related early redemption date. No further payments will be made on the securities once they
have been redeemed.
The securities will not be redeemed early on any early redemption
date if the index closing value of either underlying index is below the respective initial index value for such underlying index
on the related redemption determination date.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold
plus
(ii) the related quarterly coupon (including any contingent quarterly coupon(s) with respect to any prior observation date(s) for which a contingent quarterly coupon was not paid).
|
Redemption determination dates:
|
Quarterly, on the third scheduled business day preceding each scheduled early redemption date, beginning on the third scheduled business day preceding May 30, 2018, subject to postponement for non-index business days and certain market disruption events.
|
Early redemption dates:
|
Starting on May 30, 2018, quarterly, on the 30th day of each February, May, August and November (or, in the case of February, the last calendar day of such month);
provided
that if any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day
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Downside threshold level:
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With respect to the RTY Index: 570.512, which is 50% of its initial
index value
With respect to the SX5E Index: 1,530.80, which is 50% of its
initial index value
|
Initial index value:
|
With respect to the RTY Index: 1,141.024, which is its index
closing value on the pricing date
With respect to the SX5E Index: 3,061.60, which is its index
closing value on the pricing date
|
Final index value:
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With respect to each index, the respective index closing value on the final observation date
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Worst performing underlying:
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The underlying index with the larger percentage decrease from the respective initial index value to the respective final index value
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Index performance factor:
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Final index value
divided by
the initial index value
|
Coupon payment dates:
|
Quarterly, on the 30th day of each February, May, August and November (or, in the case of February, the last calendar day of such month), beginning August 30, 2016;
provided
that if any such day is not a business day, that coupon payment will be made on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day;
provided
further that the contingent quarterly coupon, if any, with respect to the final observation date will be paid on the maturity date
|
Observation dates:
|
The third scheduled business day preceding each scheduled coupon payment date, beginning with the August 30, 2018 coupon payment date, subject to postponement for non-index business days and certain market disruption events. We also refer to the third scheduled business day preceding the scheduled maturity date as the final observation date.
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CUSIP / ISIN:
|
61766BAR2 / US61766BAR24
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at
Risk Securities
Contingent Income Auto-Callable Securities due May 30, 2031,
With 2-year Initial Non-Call Period All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index (the “securities”) do not provide for the regular payment of interest
after the first two years. For the first two years, the securities will pay a fixed quarterly coupon at the rate specified
below. Thereafter, the securities will pay a contingent quarterly coupon
but only if
the index closing value of
each
underlying index is
at or above
its respective
initial index value
on the related observation date. If the index
closing value of
either
underlying index is
less than
its
initial index value
on any observation date after
the first two years, we will pay no interest for the related quarterly period. However, if the index closing value of each underlying
index is
greater than or equal to
its respective
initial index value
on an observation date, investors will receive,
in addition to the contingent quarterly coupon for that quarterly period, any previously unpaid contingent quarterly coupons from
prior observation dates. You will not receive such unpaid contingent quarterly coupon if the index closing value of
either
underlying index is
less than
its respective
initial index value
on each subsequent observation date. If the index
closing value of
either
underlying index is
less than
its respective
initial index value
on each observation
date, you will not receive any contingent quarterly coupon after the first two years. We refer to the quarterly coupons after the
first two years as contingent, because there is no guarantee that you will receive a coupon payment on any coupon payment date
after the first two years. Even if both underlying indices were to be at or above their respective initial index values on some
quarterly observation dates after the first two years, one or both underlying indices may fluctuate below the respective initial
index value(s) on others, and they may not both close at or above their respective initial index values on any subsequent observation
date, in which case you will not receive payment of any previously unpaid contingent quarterly coupons. In addition, if the securities
have not been automatically called prior to maturity and the final index value of
either underlying index
is
less than
50% of the respective initial index value, which we refer to as the downside threshold level, investors will be fully exposed
to the decline in the worst performing underlying index on a 1 to 1 basis, and will receive a payment at maturity that is less
than 50% of the stated principal amount of the securities and could be zero.
Accordingly,
investors in the securities
must be willing to accept the risk of losing their entire initial investment and also the risk of not receiving any contingent
quarterly coupons after the first two years.
Maturity:
|
Approximately 15 years
|
Quarterly coupon:
|
Years 1-2: On each coupon payment date through May 2018, a fixed
coupon at an annual rate of 8.00% (corresponding to approximately $20.00 per quarter per security) is paid quarterly.
Years 3-15: Beginning with the August 2018 coupon payment date,
a
contingent
coupon plus any previously unpaid contingent quarterly coupons with respect to any prior observation dates
will be paid on the securities on each coupon payment date
but only if
the index closing value of
each
underlying
index is at or above its respective initial index value on the related observation date. If payable, the contingent quarterly coupon
will be an amount in cash per stated principal amount corresponding to a return of 8.00%
per annum
for each interest payment
period for each applicable observation date.
If the contingent quarterly coupon is not paid on any coupon
payment date after the first two years (because the index closing value of either underlying index is less than its respective
initial index value on the related observation date), such unpaid contingent quarterly coupon will be paid on a later coupon payment
date but only if the index closing value of each underlying index on such later observation date is greater than or equal to its
respective initial index value. You will not receive such unpaid contingent quarterly coupon if the index closing value of either
underlying index is less than its respective initial index value on each subsequent observation date. If the index closing value
of either underlying index is less than its respective initial index value on each observation date, you will not receive any quarterly
coupon after the first two years.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Automatic early redemption on or after May 30, 2018:
|
Starting on May 30, 2018, if the index closing value of
each
underlying index is
greater than or equal to
its initial index value on any quarterly redemption determination date, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount
plus
the related quarterly coupon (including any contingent quarterly coupon(s) with respect to any prior observation date(s) for which a contingent quarterly coupon was not paid). No further payments will be made on the securities once they have been redeemed.
|
Payment at maturity:
|
If the securities have not been automatically redeemed prior
to maturity, that will necessarily mean that the index closing value of at least one underlying index was below its initial index
value on every quarterly observation date during years 3 through 15 of the term of the securities, and therefore no contingent
quarterly coupon payments will have been made in years 3 through 15 of the term of the securities. In such a case, the payment
at maturity will be determined as follows:
If the final index value of
each
underlying index is
greater
than or equal to
the respective downside threshold level, investors will receive at maturity the stated principal amount. If
the final index value of
each
underlying index is also
greater than or equal to
its respective
initial index value
,
investors will also receive the contingent quarterly coupon with respect to the final observation date and the previously unpaid
contingent quarterly coupons with respect to the prior observation dates.
If the final index value of
either
underlying index is
less than
its downside threshold level, investors will receive a payment at maturity equal to the stated principal amount
times
the index performance factor of the worst performing underlying index. Under these circumstances, the payment at maturity
will be less than 50% of the stated principal amount of the securities and could be zero. No quarterly coupon will be payable at
maturity, and investors will not receive payment of the previously unpaid contingent quarterly coupons.
Accordingly, investors
in the securities must be willing to accept the risk of losing their entire initial investment.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
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 $941.00.
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 comprise both a debt component and a performance-based component linked to the underlying indices. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying indices, instruments based on the underlying indices, volatility and other factors including current and expected interest
rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our
conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities, including
the quarterly coupon rate and the downside threshold levels, we use an internal funding rate, which is likely to be lower than
our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne
by you were lower or if the internal funding rate were higher, one or more of the economic terms of the securities would be more
favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying indices, may vary from, and be
lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market
credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type 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 indices,
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
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Key Investment Rationale
The securities provide for fixed quarterly coupon payments at
the rate specified herein for the first two years. Thereafter, the securities do not provide for the regular payment of interest
and instead will pay a contingent quarterly coupon
but only if
the index closing value of each underlying index is
at
or above
its respective
initial index value
on the related observation date. If the index closing value of
either
underlying index is
less than
the respective
initial index value
on any observation date after the first two
years, we will pay no interest for the related quarterly period. However, if the index closing value of
each
underlying
index is
greater than or equal to
its respective
initial index value
on an observation date, investors will receive,
in addition to the contingent quarterly coupon for that quarterly period, any previously unpaid contingent quarterly coupons from
prior observation dates. The securities are for investors who are willing to risk their principal and seek an opportunity to earn
interest at a potentially above-market rate in exchange for the risk of receiving no quarterly coupons after the first two years,
with no possibility of being called out of the securities until after the initial 2-year non-call period. Because the redemption
determination dates will also be coupon observation dates, and because the threshold for both early redemption and the payment
of coupons will be the initial index value of each underlying index, if the securities are not automatically redeemed following
any redemption determination date, no contingent quarterly coupon will be payable with respect to that quarterly period.
The following scenarios are for illustrative purposes only to
demonstrate how the coupon and the payment at maturity (if the securities have not previously been redeemed) are calculated, and
do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or may not be redeemed, the contingent
coupon may be payable in none of, or some but not all of, the quarterly periods after the first two years and the payment at maturity
may be less than 50% of the stated principal amount of the securities and may be zero.
Scenario 1: The securities are redeemed prior to maturity
|
Investors receive the 8.00% per annum fixed quarterly coupon
for each interest period during the first two years of the term of the securities.
Starting on May 30, 2018, when each underlying index closes at
or above its initial index value on a quarterly redemption determination date, the securities will be automatically redeemed for
the stated principal amount
plus
the related quarterly coupon (including any contingent quarterly coupon(s) with respect
to any prior observation date(s) for which a contingent quarterly coupon was not paid).
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
|
Investors receive the 8.00% per annum fixed quarterly coupon
for each interest period during the first two years of the term of the securities. This scenario assumes that, thereafter, each
underlying index closes below the respective initial index value on every quarterly redemption determination date. Consequently,
the securities are not automatically redeemed, and investors do not receive any contingent quarterly coupons after the first two
years. Because the securities were not automatically redeemed prior to maturity, the index closing value of at least one underlying
index must have been below the respective initial index value on every quarterly observation date during years 3 through 15 of
the term of the securities. Therefore, investors do not receive any coupon payments in years 3 through 15 of the term of the securities.
On the final observation date, each underlying index closes at
or above its downside threshold level. At maturity, investors will receive the stated principal amount. If the final index value
of each underlying index is also greater than or equal to its respective initial index value, investors will also receive the contingent
quarterly coupon with respect to the final observation date and the previously unpaid contingent quarterly coupons with respect
to the prior observation dates. Note that in order for this to occur, the final index values of
both
underlying indices
would have to be greater than or equal to their respective
initial index values
, although the index closing value of at
least one underlying index was below its initial index value on every prior quarterly observation date during years 3 through 15
of the term of the securities.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
|
Investors receive the 8.00% per annum fixed quarterly coupon
for each interest period during the first two years of the term of the securities. This scenario assumes that, thereafter, each
underlying index closes below the respective initial index value on every quarterly redemption determination date. Consequently,
the securities are not automatically redeemed, and investors do not receive any contingent quarterly coupons after the first two
years. Because the securities were not automatically redeemed prior to maturity, the index closing value of at least one underlying
index must have been below the respective initial index value on every quarterly observation date during years 3 through 15 of
the term of the securities. Therefore, investors do not receive any coupon payments in years 3 through 15 of the term of the securities.
On the final observation date, one or both underlying indices
close below the respective downside threshold level(s). At maturity, investors will receive an amount equal to the stated principal
amount multiplied by the index performance factor of the worst performing underlying index. Under these circumstances, the payment
at maturity will be less than 50% of the stated principal amount and could be zero. No coupon will be paid at maturity in this
scenario. Additionally, investors will not receive the contingent quarterly coupon with respect to the final observation date,
and will not receive payment of the previously unpaid contingent quarterly coupons from the prior observation dates.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the index closing values on each quarterly observation date, (2) the index closing values on each
quarterly redemption determination date (starting in May 2018) and (3) the final index values. Please see “Hypothetical Examples”
beginning on page 10 for illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Quarterly Coupons After
the First Two Years (Beginning with the August 2018 Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Starting
in May 2018)
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
For more information about the payout upon an early redemption
or at maturity in different hypothetical scenarios, see “Hypothetical Examples” starting on page 10.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity
if the securities have not been automatically redeemed early. The following examples are for illustrative purposes only. For the
first two years, you will receive a fixed quarterly coupon at a rate of 8.00% per annum regardless of the performance of the underlying
indices. Whether you receive a contingent quarterly coupon after the first two years will be determined by reference to the index
closing value of each underlying index on each quarterly observation date, and the amount you will receive at maturity, if any,
will be determined by reference to the final index value of each underlying index on the final observation date. The actual initial
index value and downside threshold level for each underlying index are set forth on the cover of this document. All payments on
the securities are subject to our credit risk. The numbers in the hypothetical examples below may have been rounded for the ease
of analysis. The below examples are based on the following terms:
Quarterly Coupon:
|
Years 1-2: On each coupon payment date through May 2018, a fixed
coupon at an annual rate of 8.00% (corresponding to approximately $20.00 per quarter per security*) is paid quarterly.
Years 3-15: Beginning with the August 2018 coupon payment date,
a
contingent
coupon plus any previously unpaid contingent quarterly coupons with respect to any prior observation dates
will be paid on the securities on each coupon payment date
but only if
the index closing value of
each
underlying
index is at or above its respective initial index value on the related observation date. If payable, the contingent quarterly coupon
will be an amount in cash per stated principal amount corresponding to a return of 8.00%
per annum
for each interest payment
period for each observation date (corresponding to approximately $20.00 per quarter per security*).
|
Automatic Early Redemption (starting in May 2018):
|
If the index closing value of
each
underlying index is greater than or equal to its
initial index value
on any quarterly redemption determination date, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount
plus
the related quarterly coupon (including any contingent quarterly coupon(s) with respect to any prior observation date(s) for which a contingent quarterly coupon was not paid).
|
Payment at Maturity (if the securities have not been automatically redeemed early):
|
If the final index value of
each
underlying index is
greater
than or equal to
its respective downside threshold level, investors will receive the stated principal amount. If the final
index value of
each
underlying index is also
greater than or equal to
its respective
initial index value
,
investors will also receive the contingent quarterly coupon with respect to the final observation date and the previously unpaid
contingent quarterly coupons with respect to the prior observation dates.
If the final index value of
either
underlying index is
less than
its respective downside threshold level, investors will receive (i) the stated principal amount
multiplied
by
(ii) the index performance factor of the worst performing underlying index. Under these circumstances, the payment at maturity
will be less than 50% of the stated principal amount of the securities and could be zero.
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Index Value:
|
With respect to the RTY Index: 1,200
With respect to the SX5E Index: 3,000
|
Hypothetical Downside Threshold Level:
|
With respect to the RTY Index: 600, which is 50% of the hypothetical
initial index value for such index
With respect to the SX5E Index: 1,500, which is 50% of the hypothetical
initial index value for such index
|
* The actual quarterly coupon will
be an amount determined by the calculation agent based on the number of days in the applicable payment period, calculated on a
30/360 basis. The hypothetical contingent quarterly coupon of $20.00 is used in these examples for ease of analysis.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date during years 3-15:
|
Index Closing Value
|
Contingent Quarterly Coupon
|
|
RTY Index
|
SX5E Index
|
|
Hypothetical Observation Date 1
|
1,500 (
at or above
the
initial index value)
|
3,800 (
at or above
the
initial index value)
|
$20.00
|
Hypothetical Observation Date 2
|
800 (
below
the initial index value)
|
3,400 (
at or above
the
initial index value)
|
$0
|
Hypothetical Observation Date 3
|
1,250 (
at or above
the
initial index value)
|
3,300 (
at or above
the
initial index value)
|
Contingent quarterly coupon with respect to hypothetical observation date 3 and the previously unpaid contingent quarterly coupon with respect to hypothetical observation date 2 = $20.00 + $20.00 = $40.00
|
Hypothetical Observation Date 4
|
900 (
below
the initial index value)
|
2,800 (
below
the initial index value)
|
$0
|
On hypothetical observation date 1, both the RTY Index and the
SX5E Index close at or above their respective initial index values. Therefore a contingent quarterly coupon of $20.00 is paid on
the relevant coupon payment date.
On hypothetical observation date 2, one underlying index closes
at or above its initial index value, but the other underlying index closes below its initial index value. Therefore, no contingent
quarterly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 3, both the RTY Index and the
SX5E Index close at or above their respective initial index values. Therefore a contingent quarterly coupon of $20.00 and the previously
unpaid contingent quarterly coupon with respect to hypothetical observation date 2 are paid on the relevant coupon payment date.
On hypothetical observation date 4, each underlying index closes
below its respective initial index value, and, accordingly, no contingent quarterly coupon is paid on the relevant coupon payment
date.
If the contingent quarterly coupon is not paid on any coupon
payment date (because the index closing value of either underlying index is less than its respective initial index value on the
related observation date), such unpaid contingent quarterly coupon will be paid on a later coupon payment date but only if the
index closing value of each underlying index on such later observation date is greater than or equal to its respective initial
index value. You will not receive such unpaid contingent quarterly coupons if the index closing value of either underlying index
is less than its respective initial index value on each subsequent observation date. If the index closing value of either underlying
index is less than its respective initial index value on each observation date, you will not receive any quarterly coupons after
the first two years.
How to calculate the payment at maturity (if
the securities have not been automatically redeemed):
Starting in May 2018, if the index closing value of each underlying
index is greater than or equal to its respective initial index value on any quarterly redemption determination date, the securities
will be automatically redeemed for an early redemption payment equal to (i) the stated principal amount for each security you hold
plus
(ii) the related quarterly coupon (including any contingent quarterly coupon(s) with respect to any prior observation
date(s) for which a contingent quarterly coupon was not paid).
The examples below illustrate how to calculate the payment at
maturity if the securities have not been automatically redeemed prior to maturity. If no early redemption has taken place prior
to the maturity date, that will necessarily mean that no contingent quarterly coupon payments will have been made in years 3 through
15 of the term of the securities.
|
Final Index Value
|
Payment at Maturity
|
|
RTY Index
|
SX5E Index
|
|
Example 1:
|
1,500 (
at or above the
downside threshold level
and
the
initial index value)
|
2,900 (
at or above the
downside threshold level
but
below
the initial index value)
|
The stated principal amount
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Example 2:
|
480 (
below
downside threshold level)
|
2,500 (
at or above the
downside threshold level)
|
$1,000 x index performance factor of the worst performing underlying index =
$1,000 x (480 / 1,200) = $400
|
Example 3:
|
800 (
at or above the
downside threshold level)
|
1,200 (
below
the downside threshold level)
|
$1,000 x (1,200 / 3,000) = $400
|
Example 4:
|
480 (
below
the downside threshold level)
|
900 (
below
the downside threshold level)
|
$1,000 x (900 / 3,000) = $300
|
Example 5:
|
240 (
below
the downside threshold level)
|
1,200 (
below
the downside threshold level)
|
$1,000 x (240 / 1,200) = $200
|
Example 6:
|
1,800 (
at or above
the downside threshold level and the initial index value)
|
3,200 (
at or above the
downside threshold level and the initial index value)
|
The stated principal amount + the contingent quarterly coupon with respect to the final observation date + the previously unpaid contingent quarterly coupons with respect to the prior observation dates. For more information, please see above under “How to determine whether a contingent quarterly coupon is payable with respect to an observation date.”
|
In example 1, the final index value of one underlying index is
above its respective downside threshold level and initial index value, while the final index value of the other underlying index
is above its respective downside threshold level but below its respective initial index value. Therefore, investors receive at
maturity only the stated principal amount of the securities. Investors do not receive the contingent quarterly coupon for the final
quarterly period, and do not receive the previously unpaid contingent quarterly coupons with respect to the prior observation dates.
Therefore, in this example, investors do not receive contingent quarterly coupon payments for any quarterly period during years
3 through 15 of the term of the securities.
In examples 2 and 3, the final index value of one underlying
index is at or above its downside threshold level, but the final index value of the other underlying index is below its downside
threshold level. Therefore, investors are exposed to the downside performance of the worst performing underlying index at maturity
and receive at maturity an amount equal to the stated principal amount
times
the index performance factor of the worst performing
underlying index. Moreover, investors do not receive the contingent quarterly coupon for the final quarterly period, and do not
receive the previously unpaid contingent quarterly coupons with respect to the prior observation dates. Therefore, in this example,
investors do not receive contingent quarterly coupon payments for any quarterly period during years 3 through 15 of the term of
the securities.
Similarly, in examples 4 and 5, the final index value of each
underlying index is below its respective downside threshold level, and investors receive at maturity an amount equal to the stated
principal amount
times
the index performance factor of the worst performing underlying index. In example 4, the RTY Index
has declined 60% from its initial index value to its final index value, while the SX5E Index has declined 70% from its initial
index value to its final index value. Therefore, the payment at maturity equals the stated principal amount
times
the index
performance factor of the SX5E Index, which is the worst performing underlying index in this example. In example 5, the RTY Index
has declined 80% from its initial index value to its final index value, while the SX5E Index has declined 60% from its initial
index value. Therefore, the payment at maturity equals the stated principal amount
times
the index performance factor of
the RTY Index, which is the worst performing underlying index in this example. Moreover, investors do not receive the contingent
quarterly coupon for the final quarterly period, and do not receive the previously unpaid contingent quarterly coupons with respect
to the prior observation dates. Therefore, in this example, investors do not receive contingent quarterly coupon payments for any
quarterly period during years 3 through 15 of the term of the securities.
In example 6, the final index values of both the RTY Index and
the SX5E Index are at or above their respective downside threshold levels and initial index values. Therefore, investors receive
at maturity the stated principal amount of the securities, and the contingent quarterly coupon with respect to the final observation
date and the previously unpaid contingent quarterly coupons with respect to the prior observation dates. Note that in order for
this to occur, the final index values of
both
underlying indices would have to be greater than or equal to their respective
initial index values
, although the index closing value of at least one underlying index was below its initial index value on
every prior quarterly observation date during years 3 through 15 of the term of the securities. Investors do not participate in
the appreciation of the underlying indices.
If the final index value of EITHER underlying index is below
its respective downside threshold level, you will be exposed to the downside performance of the worst performing underlying index
at maturity, and your payment at maturity will be less than $500 per security and could be zero.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Risk Factors
The following is a 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.
|
§
|
The securities do not guarantee the return of any
principal.
The terms of the securities differ from those of ordinary debt securities in that they do not guarantee the repayment
of any principal. If the securities have not been automatically redeemed prior to maturity, and if the final index value of either
underlying index is less than its downside threshold level of 50% of its initial index value, you will be exposed to the decline
in the index closing value of the worst performing underlying index, as compared to its initial index value, on a 1 to 1 basis,
and you will receive for each security that you hold at maturity an amount equal to the stated principal amount
times
the
index performance factor of the worst performing underlying index.
In this case, the payment at maturity will be less than 50%
of the stated principal amount and could be zero.
|
|
§
|
After the first two years, the securities do not
provide for the regular payment of interest.
The terms of the securities differ from those of ordinary debt securities in that
they do not provide for the regular payment of interest after the first two years. For the first two years, the securities will
pay a fixed quarterly coupon at the rate specified herein. Thereafter, the securities will pay a contingent quarterly coupon
but
only if
the index closing value of
each
underlying index is
at or above
its respective
initial index value
on the related observation date. If the index closing value of
either
underlying index is lower than its
initial
index value
on the relevant observation date for any interest period after the first two years, we will pay no coupon on the
applicable coupon payment date. However, if the contingent quarterly coupon is not paid on any coupon payment date because the
index closing value of either underlying index is less than its respective
initial index value
on the related observation
date, such unpaid contingent quarterly coupon will be paid on a later coupon payment date
but only if
the index closing
value of each underlying index on such later observation date is greater than or equal to its respective
initial index value
.
Therefore, you will not receive such unpaid contingent quarterly coupon if the index closing value of
either
underlying
index is less than its respective
initial index value
on each subsequent observation date.
If the index closing value
of either underlying index is less than its respective initial index value on each observation date, you will not receive any quarterly
coupon during years 3 through 15 of the term of the securities.
If you do not earn sufficient contingent quarterly coupons
over the term of the securities, the overall return on the securities may be less than the amount that would be paid on a conventional
debt security of the issuer of comparable maturity.
|
|
§
|
If the securities are not automatically redeemed
prior to the maturity date, you will have received no contingent quarterly coupon payments, during years 3 through 15 of the term
of the securities.
Because the redemption determination dates (other than the first redemption determination date) will also
be coupon observation dates, and because the threshold for both early redemption and the payment of coupons will be the initial
index value of each underlying index, if the securities are not automatically redeemed following any redemption determination date,
no contingent quarterly coupon will be payable with respect to that quarterly period. Therefore, if the securities are not automatically
redeemed prior to, and remain outstanding until, the maturity date, that will necessarily mean that you will have received no contingent
quarterly coupon payments during years 3 through 15 of the term of the securities. Under these circumstances, your only possibility
of receiving payments in respect of the missed coupon payments during those years will be if the index values of the underlying
indices recover during the last three months of the term of the securities such that
both
final index values are greater
than or equal to their respective
initial index values
. If this does not occur, you will have received no coupon payments
for 13 of the 15 years of the term of the securities.
|
|
§
|
You are exposed to the price risk of both underlying
indices, with respect to both the contingent quarterly coupons after the first two years, if any, and the payment at maturity,
if any.
Your return on the securities is not linked to a basket consisting of both underlying indices. Rather, it will be contingent
upon the independent performance of each underlying index. Unlike an instrument with a return linked to a basket of underlying
assets in which risk is mitigated and diversified among all the components of the basket, you will be exposed to the risks related
to both underlying indices. Poor performance by
either
underlying index during years 3 through 15 of the term of the securities
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
will negatively affect your return and will not be
offset or mitigated by any positive performance by the other underlying index. To receive
any
contingent quarterly coupons,
each
underlying index must close at or above its respective initial index value on the applicable observation date. In addition,
if the securities have not been automatically redeemed early and
either
underlying index has declined to below its respective
downside threshold level as of the final observation date, you will be
fully exposed
to the decline in the worst performing
underlying index over the term of the securities on a 1 to 1 basis, even if the other underlying index has appreciated or has not
declined as much. Under this scenario, the value of any such payment will be less than 50% of the stated principal amount and could
be zero. Accordingly, your investment is subject to the price risk of both underlying indices.
|
§
|
Because the securities are linked to the performance
of the worst performing underlying index, you are exposed to greater risks of receiving no contingent quarterly coupons and sustaining
a significant loss on your investment than if the securities were linked to just one index.
The risk that you will not receive
any contingent quarterly coupons, or that you will suffer a significant loss on your investment, is greater if you invest in the
securities as opposed to substantially similar securities that are linked to the performance of just one underlying index. With
two underlying indices, it is more likely that either underlying index will close below its initial index value on any observation
date, or below its downside threshold level on the final observation date, than if the securities were linked to only one underlying
index. Therefore, it is more likely that you will not receive any contingent quarterly coupons, or any previously unpaid coupons,
and that you will suffer a significant loss on your investment. In addition, because each underlying index must close at or above
its initial index value on a quarterly determination date in order for the securities to be called prior to maturity, the securities
are less likely to be called on any redemption determination date than if the securities were linked to just one underlying index.
|
|
§
|
The contingent quarterly coupon, if any, is based
on the value of each underlying index on only the related quarterly observation date at the end of the related interest period.
Whether the contingent quarterly coupon will be paid on any coupon payment date during years 3-15 will be determined at the
end of the relevant interest period based on the index closing value of each underlying index on the relevant quarterly observation
date. As a result, you will not know whether you will receive the contingent quarterly coupon on any coupon payment date until
near the end of the relevant interest period. Moreover, because the contingent quarterly coupon is based solely on the value of
each underlying index on quarterly observation dates, if the index closing value of either underlying index on any observation
date is below the initial index value for such index, you will receive no coupon for the related interest period, or any previously
unpaid coupons, even if the level of such underlying index was at or above its respective initial index value on other days during
that interest period and even if the index closing value of the other underlying index is at or above the initial index value for
such index.
|
|
§
|
Investors will not participate in any appreciation
in either underlying index.
Investors will not participate in any appreciation in either underlying index from the initial
index value for such index, and the return on the securities will be limited to the fixed quarterly coupons, and the contingent
quarterly coupons, if any, that are paid with respect to each observation date during years 3-15 on which the index closing value
of each underlying index is greater than or equal to its respective initial index value, if any.
|
|
§
|
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 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. We expect
that generally the level of interest rates available in the market and the value of each underlying index on any day, including
in relation to its respective initial index value and downside threshold level, will affect the value of the securities more than
any other factors. Other factors that may influence the value of the securities include:
|
|
o
|
the volatility (frequency and magnitude of changes in value) of the underlying indices,
|
|
o
|
whether the index closing value of either underlying index has been below its respective initial index value on any observation
date,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks
of the underlying indices or securities markets generally and which may affect the value of each underlying index,
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
o
|
dividend rates on the securities underlying the underlying indices,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the composition of the underlying indices and changes in the constituent stocks of such indices, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some or all of these factors will influence the price
that you will receive if you sell your securities prior to maturity. 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. In particular, if either underlying
index has closed below its initial index value, and especially if either underlying has closed near or below its downside threshold
level, the market value of the securities is expected to decrease substantially, and you may have to sell your securities at a
substantial discount from the stated principal amount of $1,000 per security.
You cannot predict the future performance of either
underlying index based on its historical performance. The value of either underlying index may decrease and be below the initial
index value for such index on each observation date so that you will receive no return on your investment after the first two years,
and one or both underlying indices may close below the respective downside threshold level(s) on the final observation date so
that you will lose more than 50% or all of your initial investment in the securities. There can be no assurance that the index
closing value of each underlying index will be at or above the respective initial index value on any observation date so that you
will receive a coupon payment on the securities for the applicable interest period, or that it will be at or above its respective
downside threshold level on the final observation date so that you do not suffer a significant loss on your initial investment
in the securities. See “Russell 2000
®
Overview” and “EURO STOXX 50
®
Index Overview”
below.
|
§
|
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, upon early redemption or on any coupon
payment date, and therefore you are subject to our credit risk. The securities are not guaranteed by any other entity. 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 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.
|
|
§
|
The securities are linked to the Russell 2000
®
Index and are subject to risks associated with small-capitalization companies.
As the Russell 2000
®
Index is
one of the underlying indices, and the Russell 2000
®
Index consists of stocks issued by companies with relatively
small market capitalization, the securities are linked to the value of small-capitalization companies. These companies often have
greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies and therefore the Russell
2000
®
Index may be more volatile than indices that consist of stocks issued by large-capitalization companies. Stock
prices of small-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business
and economic developments, and the
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
stocks of small-capitalization companies may be thinly
traded. In addition, small capitalization companies are typically less well-established and less stable financially than large-capitalization
companies and may depend on a small number of key personnel, making them more vulnerable to loss of personnel. Such companies tend
to have smaller revenues, less diverse product lines, smaller shares of their product or service markets, fewer financial resources
and less competitive strengths than large-capitalization companies and are more susceptible to adverse developments related to
their products.
|
§
|
There are risks associated with investments in
securities linked to the value of foreign equity securities.
As the EURO STOXX 50
®
Index is one of the underlying
indices, the securities 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.
|
|
§
|
Not equivalent to investing
in the underlying indices.
Investing in the securities is not equivalent to investing in either underlying index or the component
stocks of either underlying index. Investors in the securities will not participate in any positive performance of either underlying
index, and will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to
stocks that constitute either underlying index.
|
|
§
|
Reinvestment risk.
The term of your investment
in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities are redeemed
prior to maturity, you will receive no more contingent quarterly coupons and may be forced to invest in a lower interest rate environment
and may not be able to reinvest at comparable terms or returns. However, under no circumstances will the securities be redeemed
in the first two years of the term of the securities.
|
|
§
|
The securities will not be listed on any securities
exchange and secondary trading may be limited. Accordingly, you should be willing to hold your securities for the entire 15-year
term of the securities.
The securities will not be listed on any securities exchange. Therefore, there may be little or no
secondary market for the securities. MS & Co. may, but is not obligated to, make a market in the securities and, if it once
chooses to make a market, may cease doing so at any time. When it does make a market, it will generally do so for transactions
of routine secondary market size at prices based on its estimate of the current value of the securities, taking into account its
bid/offer spread, our credit spreads, market volatility, the notional size of the proposed sale, the cost of unwinding any related
hedging positions, the time remaining to maturity and the likelihood that it will be able to resell the securities. Even if there
is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Since other broker-dealers
may not participate significantly in the secondary market for the securities, the price at which you may be able to trade your
securities is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co.
were to cease making a market in the securities, it is likely that there would be no secondary market for the securities. Accordingly,
you should be willing to hold your securities to maturity.
|
|
§
|
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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
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 indices, 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 notes 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 will be influenced by many unpredictable factors” above.
|
|
§
|
Hedging and trading activity by our affiliates
could potentially 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 underlying
indices or their component stocks), including trading in the stocks that constitute the underlying indices as well as in other
instruments related to the underlying indices. As a result, these entities may be unwinding or adjusting hedge positions during
the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as
the final observation date approaches. Some of our afilliates also trade the stocks that constitute the underlying indices and
other financial instruments related to the underlying indices 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
of an underlying index, and, therefore, could have increased (i) the value at or above which such underlying index must close on
the redemption determination dates so that the securities are redeemed prior to maturity for the early redemption payment (depending
also on the performance of the other underlying index), (ii) the value at or above which such underlying index must close on the
observation dates in order for you to earn a contingent quarterly coupon (depending also on the performance of the other underlying
index) and (iii) the downside threshold level for such underlying index, which is the value at or above which such underlying index
must close on the final observation date so that you are not exposed to the negative performance of the worst performing underlying
index at maturity (depending also on the performance of the other underlying index). Additionally, such hedging or trading activities
during the term of the securities could affect the value of an underlying index on the redemption determination dates and the observation
dates, and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent quarterly coupon on the
securities and the amount of cash you receive at maturity, if any (depending also on the performance of the other underlying 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 the downside threshold level for each underlying index, and will determine
whether you receive a contingent quarterly coupon on each coupon payment date after the first two years and/or at maturity, whether
you receive any
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
previously unpaid contingent quarterly coupons, whether
the securities will be redeemed on any early redemption date and the payment 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 index closing value in the event of a market disruption event or discontinuance of an 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 Auto-Callable Securities—Postponement of Determination Dates,"
"—Alternate Exchange Calculation in Case of an Event of Default,” "—Discontinuance of Any Underlying
Index; Alternation of Method of Calculation” 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.
|
§
|
Adjustments to the underlying
indices could
adversely affect the value of the securities.
The publisher of each underlying index may add, delete or substitute the component
stocks of such underlying index or make other methodological changes that could change the value of such underlying index. Any
of these actions could adversely affect the value of the securities. The publisher of each underlying index may also discontinue
or suspend calculation or publication of such underlying 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 on any observation date, the determination of whether a contingent quarterly coupon
will be payable on the securities on the applicable coupon payment date, and/or the amount payable at maturity, will be based on
the value of such underlying index, based on the closing prices of the stocks constituting such underlying index at the time of
such discontinuance, without rebalancing or substitution, computed by MS & Co. as calculation agent in accordance with the
formula for calculating such underlying index last in effect prior to such discontinuance, as compared to the initial index value
or downside threshold level, as applicable (depending also on the performance of the other underlying index).
|
|
§
|
The U.S. federal income tax consequences of an
investment in the securities are uncertain.
There is no direct legal authority as to the proper treatment of the securities
for U.S. federal income tax purposes, and, therefore, significant aspects of the tax treatment of the securities are uncertain.
|
Please read the discussion under “Additional
Provisions—Tax considerations” in this document concerning the U.S. federal income tax consequences of an investment
in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract that provides
for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your regular method
of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with the capital
loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse tax consequences
to holders of the securities because the deductibility of capital losses is subject to limitations. We do not plan to request a
ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities, and the IRS or
a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative treatment
for the securities, the timing and character of income or loss on the securities might differ significantly from the tax treatment
described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities as debt instruments.
In that event, U.S. Holders would be required to accrue into income original issue discount on the securities every year at a “comparable
yield” determined at the time of issuance (as adjusted based on the difference, if any, between the actual and the projected
amount of any contingent payments on the securities) and recognize all income and gain in respect of the securities as ordinary
income. The risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the
securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments
that do not have such features.
Non-U.S. Holders should note that we currently intend to withhold on any coupon paid to Non-U.S.
Holders generally at a rate of 30%, or at a reduced rate specified by an applicable income tax treaty under an “other income”
or similar provision, and will not be required to pay any additional amounts with respect to amounts withheld.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
In 2007, the U.S. Treasury Department and the IRS
released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar
instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts described
in the notice, it is possible that any Treasury regulations or other guidance issued after consideration of these issues could
materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. The
notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and timing of
income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax. Both
U.S. and Non-U.S. Holders (as defined below) should consult their tax advisers regarding the U.S. federal income tax consequences
of an investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax
consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Russell 2000
®
Index Overview
The Russell 2000
®
Index is an index calculated,
published and disseminated by Russell Investments, and measures the composite price performance of stocks of 2,000 companies (the
“Russell 2000 Component Stocks”) incorporated in the U.S. and its territories. All 2,000 stocks are traded on a major
U.S. exchange and are the 2,000 smallest securities that form the Russell 3000
®
Index. The Russell 3000
®
Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of
the U.S. equity market. The Russell 2000
®
Index consists of the smallest 2,000 companies included in the Russell
3000
®
Index and represents a small portion of the total market capitalization of the Russell 3000
®
Index. The Russell 2000
®
Index is designed to track the performance of the small capitalization segment of the U.S.
equity market. For additional information about the Russell 2000
®
Index, see the information set forth under “Russel
2000
®
Index” in the accompanying index supplement.
Information as of market close on May 25, 2016:
Bloomberg Ticker Symbol:
|
RTY
|
52 Week High (on 6/23/2015):
|
1,295.799
|
Current Index Value:
|
1,141.024
|
52 Week Low (on 2/11/2016):
|
953.715
|
52 Weeks Ago:
|
1,238.756
|
|
|
The following graph sets forth the daily index closing values
of the RTY Index for the period from January 1, 2006 through May 25, 2016. The related table sets forth the published high and
low index closing values, as well as end-of-quarter index closing values, of the RTY Index for each quarter for the period from
January 1, 2011 through May 25, 2016. The index closing value of the RTY Index on May 25, 2016 was 1,141.024. We obtained the information
in the table below from Bloomberg Financial Markets, without independent verification. The RTY Index has experienced periods of
high volatility, and you should not take the historical values of the RTY Index as an indication of its future performance.
RTY
Index Daily Index Closing Values
January
1, 2006 to May 25, 2016
|
|
* The red solid line in the graph
indicates the downside threshold level of 570.512, which is 50% of the initial index value.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Russell
2000
®
Index
|
High
|
Low
|
Period
End
|
2011
|
|
|
|
First Quarter
|
843.549
|
773.184
|
843.549
|
Second Quarter
|
865.291
|
777.197
|
827.429
|
Third Quarter
|
858.113
|
643.421
|
644.156
|
Fourth Quarter
|
765.432
|
609.490
|
740.916
|
2012
|
|
|
|
First Quarter
|
846.129
|
747.275
|
830.301
|
Second Quarter
|
840.626
|
737.241
|
798.487
|
Third Quarter
|
864.697
|
767.751
|
837.450
|
Fourth Quarter
|
852.495
|
769.483
|
849.350
|
2013
|
|
|
|
First Quarter
|
953.068
|
872.605
|
951.542
|
Second Quarter
|
999.985
|
901.513
|
977.475
|
Third Quarter
|
1,078.409
|
989.535
|
1,073.786
|
Fourth Quarter
|
1,163.637
|
1,043.459
|
1,163.637
|
2014
|
|
|
|
First Quarter
|
1,208.651
|
1,093.594
|
1,173.038
|
Second Quarter
|
1,192.964
|
1,095.986
|
1,192.964
|
Third Quarter
|
1,208.150
|
1,101.676
|
1,101.676
|
Fourth Quarter
|
1,219.109
|
1,049.303
|
1,204.696
|
2015
|
|
|
|
First Quarter
|
1,266.373
|
1,154.709
|
1,252.772
|
Second Quarter
|
1,295.799
|
1,215.417
|
1,253.947
|
Third Quarter
|
1,273.328
|
1,083.907
|
1,100.688
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
1,135.889
|
2016
|
|
|
|
First Quarter
|
1,114.028
|
953.715
|
1,114.028
|
Second Quarter (through May 25, 2016)
|
1,154.149
|
1,092.785
|
1,141.024
|
License Agreement between Russell Investments and Morgan Stanley
The “Russell 2000
®
Index” is a trademark
of Russell Investments and has been licensed for use by Morgan Stanley. For more information, see “Russell 2000
®
Index—License Agreement between Russell Investments and Morgan Stanley” in the accompanying index supplement.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
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 May 25, 2016:
Bloomberg Ticker Symbol:
|
SX5E
|
52 Week High (on 7/20/2015):
|
3,686.58
|
Current Index Value:
|
3,061.60
|
52 Week Low (on 2/11/2016):
|
2,680.35
|
52 Weeks Ago:
|
3,655.41
|
|
|
The following graph sets forth the daily index closing values
of the SX5E Index for the period from January 1, 2006 through May 25, 2016. The related table sets forth the published high and
low index closing values, as well as end-of-quarter index closing values, of the SX5E Index for each quarter for the period from
January 1, 2011 through May 25, 2016. The index closing value of the SX5E Index on May 25, 2016 was 3,061.60. We obtained the information
in the table and graph below from Bloomberg Financial Markets, without independent verification. The SX5E Index has experienced
periods of high volatility, and you should not take the historical values of the SX5E Index as an indication of its future performance.
SX5E
Index Daily Index Closing Values
January 1, 2006 to May 25, 2016
|
|
* The red solid line in the graph indicates the downside threshold level of 1,530.80,
which is 50% of the initial index value.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
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 May 25, 2016)
|
3,151.69
|
2,871.57
|
3,061.60
|
License Agreement between STOXX Limited and Morgan Stanley
“EURO STOXX
®
” 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.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 30, 2031, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Russell 2000
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities