Pricing
Supplement
To prospectus dated February 16, 2016 and
product supplement for knock-out notes dated March 7, 2016
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Pricing Supplement
No. 1,424
Registration Statement
No. 333-200365
Dated March 24, 2017; Rule 424(b)(2)
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Morgan Stanley
$5,205,000
Market Plus Notes Linked to the STOXX Europe
600
®
Index due September 26, 2018
Principal at Risk Securities
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General
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The securities are designed for investors who seek exposure to the performance of the STOXX Europe 600
®
Index.
Investors should be willing to forgo interest and dividend payments, and, if the Final Index Value is less than the Initial Index
Value by more than 28.10%, be willing to lose a significant portion or all of their principal. If the Final Index Value is not
less than the Initial Index Value by more than 28.10%, investors will receive a return reflecting the greater of (a) the Underlying
Index Return and (b) the Contingent Minimum Return of 0% at maturity. However, if the Final Index Value is less than the Initial
Index Value by more than 28.10%, investors will be fully exposed to the negative performance of the Underlying Index over the term
of the securities, and will lose a significant portion or all of their investment.
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Unsecured obligations of Morgan Stanley maturing September 26, 2018
†
.
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Minimum purchase of $10,000. Minimum denominations of $1,000 and integral multiples thereof.
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The securities priced on March 24, 2017 and are expected to settle on March 29, 2017.
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All payments are subject to the credit risk of Morgan Stanley. If Morgan Stanley defaults on its obligations, you could
lose some or all of your investment. These securities are not secured obligations and you will not have any security interest in,
or otherwise have any access to, any underlying reference asset or assets.
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Key Terms
Issuer:
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Morgan Stanley
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Underlying Index:
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STOXX Europe 600
®
Index
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Knock-Out Event:
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A Knock-Out Event occurs if the Final Index Value is less than the Initial Index Value by an amount greater than the Knock-Out Buffer Amount. Therefore, a Knock-Out Event will occur if the Final Index Value is less than the Knock-Out Level.
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Knock-Out Buffer Amount:
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28.10%
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Knock-Out Level:
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270.711, which is approximately 71.90% of the Initial Index Value
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Payment at Maturity:
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If a Knock-Out Event HAS NOT occurred
, you will receive a cash payment at maturity per security equal to $1,000 plus a return equal to $1,000
times
the greater of (i) the Contingent Minimum Return and (ii) the Underlying Index Return. Since the Contingent Minimum Return is 0%, you will receive only the repayment of your principal at maturity, without any positive return on your investment, if the Underlying Index declines in value but without triggering a Knock-Out Event. For additional clarification, please see “What is the Return on the Securities at Maturity Assuming a Range of Performance for the Underlying Index?” beginning on page 3.
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If a Knock-Out Event HAS occurred
, you will receive a cash payment at maturity that will reflect the percentage depreciation in the value of the Underlying Index over the term of the securities on a 1-to-1 basis. Under these circumstances, your payment at maturity per $1,000 principal amount security will be calculated as follows: $1,000 + ($1,000 x Underlying Index Return)
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If a Knock-Out Event has occurred, you will lose more than 28.10% of your investment. There is no minimum payment at maturity, and you could lose your entire investment.
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Contingent Minimum Return:
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0%
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Underlying Index Return:
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Final Index
Value – Initial Index Value
Initial
Index Value
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Initial Index Value:
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376.51, which is the Index Closing Value on the Pricing Date
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Final Index Value:
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The arithmetic average of the Index Closing Values on each of the five Averaging Dates.
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Averaging Dates:
†
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September 17, 2018, September 18, 2018, September 19, 2018, September 20, 2018 and September 21, 2018.
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Maturity Date:
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September 26, 2018
†
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Pricing Date:
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March 24, 2017
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Issue Date:
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March 29, 2017 (3 business days after the Pricing Date)
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Listing:
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The securities will not be listed on any securities exchange.
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Estimated value on the Pricing Date:
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$985.50 per security. See “Additional Terms Specific To The Securities” on page 2.
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CUSIP / ISIN:
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61761J3Z0 / US61761J3Z01
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†
Subject to postponement
for non-index business days or in the event of a market disruption event and as described under “Description of Notes —
Postponement of Valuation Date(s) or Review Date(s)” in the accompanying product supplement for knock-out notes.
Investing in the securities involves a number of risks. See
“Risk Factors” beginning on page S-22 of the accompanying product supplement and “Selected Risk Considerations”
beginning on page 7 of this pricing supplement.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of the securities or passed upon the accuracy or the adequacy of
this pricing supplement or the accompanying product supplement for knock-out notes and prospectus. Any representation to the contrary
is a criminal offense.
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Price to Public
(1)
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Fees and Commissions
(1)(2)
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Proceeds to Issuer
(3)
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Per security
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$1,000
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$12.50
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$987.50
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Total
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$5,205,000
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$65,062.50
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$5,139,937.50
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(1)
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J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A.
will act as placement agents for the securities. The placement agents will forgo fees for sales to certain fiduciary accounts.
The total fees represent the amount that the placement agents receive from sales to accounts other than such fiduciary accounts.
The placement agents will receive a fee from the Issuer or one of its affiliates that will not exceed $12.50 per $1,000 principal
amount of securities.
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(2)
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Please see “Supplemental Plan of Distribution;
Conflicts of Interest” in this pricing supplement for information about fees and commissions.
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(3)
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See “Use of Proceeds and Hedging” on page
9.
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The agent for this offering,
Morgan Stanley & Co. LLC (“MS & Co.”), is our wholly-owned subsidiary. See “Supplemental Plan of Distribution;
Conflicts of Interest” below.
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.
Morgan Stanley
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March 24, 2017
Additional Terms Specific to the
Securities
You should read this pricing supplement together with
the prospectus dated February 16, 2016, as supplemented by the product supplement for knock-out notes dated March 7, 2016.
This
pricing supplement, together with the documents listed below, contains the terms of the securities, supplements the preliminary
terms related hereto dated March 21, 2017, and supersedes all other prior or contemporaneous oral statements as well as any other
written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation,
sample structures, fact sheets, brochures or other educational materials of ours.
You should carefully consider, among other
things, the matters set forth in “Risk Factors” in the accompanying product supplement for knock-out notes, as the
securities involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax,
accounting and other advisers in connection with your investment in the securities.
You may access these documents on the SEC website
at
.
ww
.
w.sec.gov as follows
(or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
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Prospectus dated February 16, 2016:
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https://www.sec.gov/Archives/edgar/data/895421/000095010316011142/dp63500_424b2-base.htm
Terms used in this pricing supplement are defined
in the product supplement for knock-out notes or in the prospectus. As used in this pricing supplement, the “Company,”
“we,” “us” or “our” refer to Morgan Stanley.
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 $985.50.
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
Index. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the Underlying Index, instruments based on the Underlying Index, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the Knock-Out Buffer Amount, the Knock-Out Level and the Contingent Minimum Return, we use an internal funding rate,
which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling,
structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic
terms of the securities would be more favorable to you.
What is the relationship between the estimated
value on the Pricing Date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities
in the secondary market, absent changes in market conditions, including those related to the Underlying Index, may vary from, and
be lower than, the estimated value on the Pricing Date, because the secondary market price takes into account our secondary market
credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and
other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully
deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell
the securities in the secondary market, absent changes in market conditions, including those related to the Underlying Index, and
to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those higher
values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a
market in the securities, and, if it once chooses to make a market, may cease doing so at any time.
What is the Return on the Securities
at Maturity Assuming a Range of Performance for the Underlying Index?
The following table and graph illustrate the
hypothetical return at maturity on the securities. The “Return on Securities” as used in this pricing supplement is
the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000 principal amount security
to $1,000. The hypothetical returns set forth below assume an Initial Index Value of 400.00 and a Knock-Out Level of 287.60 (which
is 71.90% of the hypothetical Initial Index Value) and reflect the Contingent Minimum Return of 0%. The actual Initial Index Value
and Knock-Out Level are set forth on the cover page of this pricing supplement. If a Knock-Out Event occurs, your investment will
be fully exposed to the decline in the Underlying Index over the term of the securities. The hypothetical returns set forth below
are for illustrative purposes only and may not reflect the actual returns applicable to a purchaser of the securities.
Final Index Value
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Underlying Index Return
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Return on Securities
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640.00
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60.00%
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60.00%
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600.00
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50.00%
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50.00%
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560.00
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40.00%
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40.00%
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520.00
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30.00%
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30.00%
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480.00
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20.00%
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20.00%
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440.00
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10.00%
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10.00%
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420.00
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5.00%
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5.00%
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400.00
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0%
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0%
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380.00
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-5.00%
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0%
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360.00
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-10.00%
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0%
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320.00
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-20.00%
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0%
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287.60
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-28.10%
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0%
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284.00
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-29.00%
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-29.00%
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240.00
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-40.00%
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-40.00%
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160.00
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-60.00%
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-60.00%
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80.00
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-80.00%
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-80.00%
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0
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-100.00%
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-100.00%
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Hypothetical Examples
of Amounts Payable at Maturity
The following examples illustrate how the returns
on the securities set forth in the table on the previous page are calculated.
Example 1: The value of the Underlying Index decreases
from the Initial Index Value of 400 to a Final Index Value of 240
. Because the Final Index Value is less than the Knock-Out
Level, a Knock-Out Event has occurred. Therefore, the investor does
not
receive the benefit of the Contingent Minimum Return
of 0% and is therefore exposed to the negative performance of the Underlying Index on a 1-to-1 basis. The investor receives a payment
at maturity based on the Underlying Index Return of –40%, which is significantly less than the stated principal amount, calculated
as follows:
$1,000 +
($1,000 x –40%) = $600
Example 2: The value of the Underlying Index increases
from the Initial Index Value of 400 to a Final Index Value of 480.
Because the Underlying Index Return of 20% is greater than
the Contingent Minimum Return of 0%, the investor receives a payment at maturity per $1,000 principal amount security, calculated
as follows:
$1,000 + ($1,000 x 20%) = $1,200
Example 3: The value of the Underlying Index decreases
from the Initial Index Value of 400 to a Final Index Value of 380
. Because the Final Index Value is greater than or equal to
the Knock-Out Level, a Knock-Out Event has not occurred. Because the Underlying Index Return of -5.00% is less than the Contingent
Minimum Return of 0%, the investor receives the benefit of the Contingent Minimum Return and therefore receives a payment at maturity
per $1,000 principal amount security, calculated as follows:
$1,000 + ($1,000 x 0%) = $1,000
Selected Purchase Considerations
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APPRECIATION POTENTIAL; NO GUARANTEED RETURN OF ANY PRINCIPAL
— The securities
provide the opportunity to participate in the appreciation of the Underlying Index at maturity.
If a Knock-Out Event HAS
NOT occurred
, meaning that the Final Index Value is greater than or equal to the Knock-Out Level, because of the Contingent
Minimum Return, you will receive at maturity no less than the $1,000 principal amount for each security, and you will participate
in any appreciation of the Underlying Index over the term of the securities. Since the Contingent Minimum Return is 0%, you will
receive only the repayment of your principal at maturity, without any positive return on your investment, if the Underlying Index
declines in value but without triggering a Knock-Out Event.
However, if a Knock-Out Event HAS occurred
, meaning that
the Final Index Value is less than the Knock-Out Level, you will lose a significant portion or all of your investment based on
a 1% loss for every 1% decline in the Final Index Value, as compared to the Initial Index Value. Because the securities are our
unsecured obligations, payment of any amount at maturity is subject to our ability to pay our obligations as they become due.
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SECURITIES LINKED TO THE STOXX EUROPE 600
®
INDEX
— The STOXX Europe 600
®
Index consists
of the 600 largest companies by free-float market capitalization traded on the major exchanges of 18 European countries. The STOXX
Europe 600
®
Index is calculated in euros and is reported by Bloomberg under the ticker symbol “SXXP.”
The STOXX Europe 600
®
Index was created by STOXX Limited, a joint venture between Deutsche Börse AG and SIX
Group AG. Publication of the STOXX Europe 600
®
Index began on June 15, 1998, based on an initial STOXX Europe 600
®
Index value of 100 at December 31, 1991. For additional information about the STOXX Europe 600
®
Index, see the description
of the Underlying Index in “Annex A: The STOXX Europe 600
®
Index” below.
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TAX TREATMENT
– You should review carefully the section entitled “United States Federal Taxation”
in the accompanying product supplement for knock-out notes. Although there is uncertainty regarding the U.S. federal income tax
consequences of an investment in the securities due to the lack of governing authority, in the opinion of our counsel, Davis Polk
& Wardwell LLP, under current law, and based on current market conditions, a security should be treated as a single financial
contract that is an “open transaction” for U.S. federal income tax purposes. Assuming this treatment of the securities
is respected, your gain or loss on the securities should be treated as long-term capital gain or loss if you have held the securities
for more than one year, and short-term capital gain or loss otherwise, even if you are an initial purchaser of securities at a
price that is below the principal amount of the securities. The Internal Revenue Service (the “IRS”) or a court, however,
may not respect this characterization or treatment of the securities, in which case the timing and character of any income or loss
on the securities could be significantly and adversely affected. For example, under one possible treatment, the IRS could seek
to recharacterize the securities as debt instruments. In that event, you would be required to accrue into income original issue
discount on the securities every year at a “comparable yield” determined at the time of issuance and recognize all
income and gain in respect of the securities as ordinary income. Additionally, as discussed under “United States Federal
Taxation—FATCA Legislation” in the accompanying product supplement for knock-out notes the withholding rules commonly
referred to as “FATCA” would apply to the securities if they were recharacterized as debt instruments.
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In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses on whether to require holders of these instruments to accrue income over the term of
their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect
to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such
as exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the
degree, if any, to which any income (including any mandated accruals) realized by non-U.S. holders should be subject to withholding
tax; and whether these investments are or should be subject to the “constructive ownership” rule, which very generally
can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice
requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after
consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly
with retroactive effect.
As discussed in the accompanying product supplement
for knock-out notes, Section 871(m) of the Internal Revenue Code of 1986, as amended, and Treasury regulations promulgated thereunder
(“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend equivalents
paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices that include
U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m) generally applies to
securities that substantially replicate the economic performance of one or more Underlying Securities, as determined based on tests
set forth in the applicable Treasury regulations (a “Specified Security”). However, the regulations exempt securities
issued before January 1, 2018 that do not have a delta of one with respect to any Underlying Security. Based on our determination
that the securities do not have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the
securities should not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our determination is not binding
on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your
particular circumstances, including whether you enter into other
transactions with respect to an Underlying
Security. If withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld.
You should consult your tax adviser
regarding the treatment of the securities, including possible alternative characterizations, the issues presented by the 2007 notice,
the potential application of Section 871(m) and any tax consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction.
The discussion in the preceding paragraphs
under “Tax Treatment” and the section entitled “United States Federal Taxation” in the accompanying product
supplement for knock-out notes, insofar as they purport to describe provisions of U.S. federal income tax laws or legal conclusions
with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences
of an investment in the securities.
Selected
Risk Considerations
An investment in the securities involves significant
risks. Investing in the securities is not equivalent to investing directly in the Underlying Index or any of the component stocks
of the Underlying Index. These risks are explained in more detail in the “Risk Factors” section of the accompanying
product supplement for knock-out notes dated March 7, 2016.
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YOUR INVESTMENT IN THE SECURITIES MAY RESULT IN A LOSS —
The terms of the securities
differ from those of ordinary debt securities in that we do not guarantee to pay you any of the principal amount of the securities
at maturity and do not pay you interest on the securities. If the Final Index Value is less than the Knock-Out Level, a Knock-Out
Event will have occurred, you will lose the benefit of the Contingent Minimum Return and you will be fully exposed to any depreciation
in the Final Index Value as compared to the Initial Index Value on a 1-to-1 basis.
If a Knock-Out Event has occurred, the Payment
at Maturity on each security will be significantly less than the principal amount of the securities and could be zero. Consequently,
the entire principal amount of your investment is at risk.
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THE SECURITIES DO NOT PAY INTEREST –
Unlike ordinary debt securities, the securities
do not pay interest and do not guarantee any return of principal at maturity.
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NO DIVIDEND PAYMENTS OR VOTING RIGHTS
– As a holder of the securities, you will
not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities composing
the Underlying Index would have.
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THE SECURITIES ARE SUBJECT TO THE CREDIT RISK OF MORGAN STANLEY, AND ANY ACTUAL OR ANTICIPATED
CHANGES TO ITS CREDIT RATINGS OR CREDIT SPREADS MAY ADVERSELY AFFECT THE MARKET VALUE OF THE SECURITIES
– You are dependent
on Morgan Stanley’s ability to pay all amounts due on the securities at maturity, and therefore you are subject to the credit
risk of Morgan Stanley. If Morgan Stanley defaults on its 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 Morgan Stanley's creditworthiness. Any actual or anticipated decline in Morgan Stanley’s
credit ratings or increase in the credit spreads charged by the market for taking Morgan Stanley credit risk is likely to adversely
affect the market value of the securities.
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MANY ECONOMIC AND MARKET FACTORS WILL IMPACT THE VALUE OF THE SECURITIES
— The
value of the securities will be affected by a number of economic and market factors that may either offset or magnify each other,
including:
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the value, especially in relation to the Knock-Out
Level, and the actual or expected volatility, of the Underlying Index;
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the time to maturity of the securities;
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the dividend rates on the common stocks underlying
the Underlying Index;
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interest and yield rates in the market generally;
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geopolitical conditions and a variety of economic,
financial, political, regulatory or judicial events; and
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our creditworthiness, including actual or anticipated
downgrades in our credit ratings or credit spreads.
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Some or all of these factors will
influence the price that you will receive if you sell your securities prior to maturity. For example, you may have to sell your
securities at a substantial discount from the stated principal amount if a Knock-Out Event is likely to occur in light of the then-current
level of the Underlying Index.
You cannot predict the future performance
of the Underlying Index based on its historical performance. We cannot guarantee that a Knock-Out Event will not occur so that
you will not suffer a significant loss on your initial investment in the securities. You can review the historical values of the
Underlying Index in “Historical Information” below.
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THE RATE WE ARE WILLING TO PAY FOR SECURITIES OF THIS TYPE, MATURITY AND ISSUANCE SIZE IS
LIKELY TO BE LOWER THAN THE RATE IMPLIED BY OUR SECONDARY MARKET CREDIT SPREADS AND ADVANTAGEOUS TO US. BOTH THE LOWER RATE AND
THE INCLUSION OF COSTS ASSOCIATED WITH ISSUING, SELLING, STRUCTURING AND HEDGING THE SECURITIES IN THE ORIGINAL ISSUE PRICE REDUCE
THE ECONOMIC TERMS OF THE SECURITIES, CAUSE THE ESTIMATED VALUE OF THE SECURITIES TO BE LESS THAN THE ORIGINAL ISSUE PRICE AND
WILL ADVERSELY AFFECT SECONDARY MARKET PRICES
– Assuming no change in market conditions or any other relevant factors,
the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities in secondary market transactions
will likely be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling,
structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary
market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary
market transaction of this type as well as other factors.
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The inclusion of the costs of
issuing, selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as
issuer make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the Underlying Index, and to our secondary market credit spreads, it would do
so based on
values higher than the estimated
value, and we expect that those higher values will also be reflected in your brokerage account statements.
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THE ESTIMATED VALUE OF THE SECURITIES IS DETERMINED BY REFERENCE TO OUR PRICING AND VALUATION
MODELS, WHICH MAY DIFFER FROM THOSE OF OTHER DEALERS AND IS NOT A MAXIMUM OR MINIMUM SECONDARY MARKET PRICE
– These pricing
and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about
future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities,
our models may yield a higher estimated value of the securities than those generated by others, including other dealers in the
market, if they attempted to value the securities. In addition, the estimated value on the Pricing Date does not represent a minimum
or maximum price at which dealers, including MS & Co., would be willing to purchase your securities in the secondary market
(if any exists) at any time. The value of your securities at any time after the date of this document will vary based on many factors
that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “Many economic
and market factors will impact the value of the securities” above.
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LACK OF LIQUIDITY
– The securities will not be listed on any securities exchange.
Therefore, there may be little or no secondary market for the securities. Morgan Stanley & Co. LLC (“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 not to make 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.
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POTENTIAL CONFLICTS
– We and our affiliates play a variety of roles in connection
with the issuance of the securities, including acting as calculation agent and hedging our obligations under the securities. In
performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to
your interests as an investor in the securities.
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Additionally, some of our subsidiaries
also trade financial instruments related to the Underlying Index on a regular basis as part of their general broker-dealer and
other businesses. Any of these hedging or trading activities on or prior to the Pricing Date could potentially affect the Initial
Index Value. We will not have any obligation to consider your interests as a holder of the securities in taking any corporate action
that might affect the value of the Underlying Index and the securities. In addition, MS & Co. has determined the estimated
value of the securities on the Pricing Date.
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HEDGING AND TRADING ACTIVITY BY OUR SUBSIDIARIES COULD POTENTIALLY ADVERSELY AFFECT THE VALUE
OF THE SECURITIES
– One or more of our subsidiaries and/or third-party dealers have carried out, and will continue to
carry out, hedging activities related to the securities (and to other instruments linked to the Underlying Index or its component
stocks), including trading in the stocks that constitute the Underlying Index as well as in other instruments related to the Underlying
Index. As a result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging
strategy may involve greater and more frequent dynamic adjustments to the hedge as the Averaging Dates approach. Some of our subsidiaries
also trade the stocks that constitute the Underlying Index and other financial instruments related to the Underlying Index on a
regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior
to the Pricing Date could have increased the Initial Index Value, and, therefore, could have increased the value at or above which
the Final Index Value must be so that a Knock-Out Event does not occur which would cause investors to suffer a significant loss
on their initial investment in the securities.
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