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Share Name | Share Symbol | Market | Type |
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Morgan Stanley | NYSE:MS | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.815 | 0.88% | 93.465 | 94.42 | 93.28 | 93.34 | 1,092,310 | 15:35:21 |
The information in this pricing supplement is not complete and may be changed. We may not deliver these securities until a final pricing supplement is delivered. This pricing supplement and the accompanying prospectus and prospectus supplement do not constitute an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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PROSPECTUS Dated November 19, 2014
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Pricing Supplement No. 172 to
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PROSPECTUS SUPPLEMENT Dated November 19, 2014
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Registration Statement No. 333-200365
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Dated March , 2015
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Rule 424(b)(2)
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The stated principal amount and original issue price of each security is $1,000.
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If, on any determination date, the determination index value or the final index value, as applicable, is greater than or equal to 75% of the initial index value, which we refer to as the coupon barrier level, we will pay a contingent quarterly coupon on the related contingent payment date at the following annual rates:
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·
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with respect to each quarterly determination date from and including June 26, 2015 to and including March 27, 2017: 7.00% (corresponding to approximately $17.50 per quarter per security)
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·
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with respect to each quarterly determination date from and including June 26, 2017 to and including March 26, 2021: 8.00% (corresponding to approximately $20.00 per quarter per security)
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·
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with respect to each quarterly determination date from and including June 28, 2021 to and including March 26, 2025: 10.00% (corresponding to approximately $25.00 per quarter per security)
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If, on any determination date, the determination index value or the final index value, as applicable, is less than the coupon barrier level, no contingent quarterly coupon will be paid with respect to that determination date. It is possible that the underlying commodity index will remain below the coupon barrier level for extended periods of time or even throughout the entire term of the securities so that you will receive few or no contingent quarterly coupons during that period.
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The determination dates are June 26, 2015, September 28, 2015, December 28, 2015, March 28, 2016, June 27, 2016, September 26, 2016, December 27, 2016, March 27, 2017, June 26, 2017, September 26, 2017, December 26, 2017, March 26, 2018, June 26, 2018, September 26, 2018, December 26, 2018, March 26, 2019, June 26, 2019, September 26, 2019, December 26, 2019, March 26, 2020, June 26, 2020, September 28, 2020, December 28, 2020, March 26, 2021, June 28, 2021, September 27, 2021, December 27, 2021, March 28, 2022, June 27, 2022, September 26, 2022, December 27, 2022, March 27, 2023, June 26, 2023, September 26, 2023, December 26, 2023, March 26, 2024, June 26, 2024, September 26, 2024, December 26, 2024 and March 26, 2025, subject to postponement for non-index business days and certain market disruption events. We refer to March 26, 2025 as the final determination date.
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The contingent payment date with respect to each determination date other than the final determination date is the third business day after the related determination date. The payment of the contingent quarterly coupon, if any, with respect to the final determination date will be made on the maturity date.
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If the determination index value is greater than or equal to the initial index value on any determination date occurring on or after March 26, 2018 to but excluding the final determination date, the securities will be automatically redeemed for the early redemption payment on the third business day following the related determination date. The early redemption payment will equal (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the related determination date.
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At maturity, if the securities have not previously been redeemed, you will receive for each security that you hold an amount of cash equal to:
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if the final index value is greater than or equal to the downside threshold level, the stated principal amount, and, if the final index value is also greater than or equal to the coupon barrier level, the contingent quarterly coupon with respect to the final determination date, or
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if the final index value is less than the downside threshold level, (i) the stated principal amount times (ii) the index performance factor.
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The index performance factor is the final index value divided by the initial index value.
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The determination index value is the index closing value on any determination date other than the final determination date.
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The initial index value is the index closing value on March 26, 2015, which we refer to as the pricing date.
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The final index value is the index closing value on the final determination date.
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Investing in the securities is not equivalent to investing directly in the S&P GSCI™ Crude Oil Index - Excess Return or the commodities futures contracts that underlie the S&P GSCI™ Crude Oil Index - Excess Return.
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The maturity date and each contingent payment date may be postponed as a result of the postponement of the related determination date due to non-index business days or certain market disruption events. No adjustment will be made to any contingent quarterly coupon paid on a postponed date.
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The securities will not be listed on any securities exchange.
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The estimated value of the securities on the pricing date is approximately $931.90 per security, or within $25.00 of that estimate. See “Summary of Pricing Supplement” beginning on PS-3.
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The CUSIP number for the securities is 61762GDG6. The ISIN for the securities is US61762GDG64.
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You should read the more detailed description of the securities in this pricing supplement. In particular, you should review and understand the descriptions in “Summary of Pricing Supplement” and “Description of Notes.”
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Price to Public(1)
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Fees and Commissions(2)
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Proceeds to Issuer(3)
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Per security
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$1,000
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$
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$
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Total
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$
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$
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$
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(1)
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The price to public for investors purchasing the securities in fee-based advisory accounts will be $970 per security.
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(2)
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Selected dealers and their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission of $ 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 $ 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 prospectus supplement.
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(3)
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See “Use of Proceeds and Hedging” on page PS-36.
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Each security costs $1,000
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We, Morgan Stanley, are offering Contingent Income Auto-Callable Step-Up Securities due March 31, 2025, With 3-year Initial Non-Call Period, Based on the Performance of the S&P GSCI™ Crude Oil Index - Excess Return, which we refer to as the securities. The stated principal amount and issue price of each security is $1,000.
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The original issue 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 will be less than $1,000. We estimate that the value of each security on the pricing date will be approximately $931.90, or within $25.00 of that estimate. Our estimate of the value of the securities as determined on the pricing date will be set forth in the final pricing supplement.
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 commodity index. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying commodity index, instruments based on the underlying commodity 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 contingent quarterly coupon rate, the coupon barrier level and the downside threshold level, 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 Morgan Stanley & Co. LLC, which we refer to as MS & Co., purchases the securities in the secondary market, absent changes in market conditions, including those related to the underlying commodity index, may vary from, and be
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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 12 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 commodity 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.
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You will receive a contingent quarterly coupon only if the determination index value or the final index value, as applicable, is greater than or equal to the coupon barrier level
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You will receive a contingent quarterly coupon on each contingent payment date but only if the determination index value or the final index value, as applicable, is greater than or equal to the coupon barrier level of 75% of the initial index value on the related determination date. If payable, the contingent quarterly coupon will be paid at the following annual rates:
· with respect to each quarterly determination date from and including June 26, 2015 to and including March 27, 2017: 7.00% (corresponding to approximately $17.50 per quarter per security)
· with respect to each quarterly determination date from and including June 26, 2017 to and including March 26, 2021: 8.00% (corresponding to approximately $20.00 per quarter per security)
· with respect to each quarterly determination date from and including June 28, 2021 to and including March 26, 2025: 10.00% (corresponding to approximately $25.00 per quarter per security)
If, however, the determination index value or the final index value, as applicable, is less than the coupon barrier level on any determination date, you will not receive a contingent quarterly coupon on the related contingent payment date. It is possible that the underlying commodity index could remain below the coupon barrier level on each of the determination dates so that you will receive no contingent quarterly coupons during the entire term of the securities. You will not participate in any appreciation in the underlying commodity index, and the return on the securities will be limited to the contingent quarterly coupons, if any.
We refer to the contingent quarterly coupons on the securities as contingent because there is no guarantee that you will receive a payment on any contingent payment date during the entire term of the securities. Even if the underlying commodity index were to be at or above the coupon barrier level on some determination dates, it may decline below the coupon barrier level on others.
The initial index value is , which is the index closing value of the underlying commodity index on March 26, 2015, which we refer to as the pricing date.
The coupon barrier level is , which is 75% of the initial index value.
The downside threshold level is , which is 50% of the initial index value.
The determination dates are June 26, 2015, September 28, 2015, December 28, 2015, March 28, 2016, June 27, 2016, September 26, 2016, December 27, 2016, March 27,
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2017, June 26, 2017, September 26, 2017, December 26, 2017, March 26, 2018, June 26, 2018, September 26, 2018, December 26, 2018, March 26, 2019, June 26, 2019, September 26, 2019, December 26, 2019, March 26, 2020, June 26, 2020, September 28, 2020, December 28, 2020, March 26, 2021, June 28, 2021, September 27, 2021, December 27, 2021, March 28, 2022, June 27, 2022, September 26, 2022, December 27, 2022, March 27, 2023, June 26, 2023, September 26, 2023, December 26, 2023, March 26, 2024, June 26, 2024, September 26, 2024, December 26, 2024 and March 26, 2025, subject to postponement for non-index business days and certain market disruption events. We also refer to March 26, 2025 as the final determination date. The contingent payment dates are the third business day after each determination date other than the final determination date. The payment of the contingent quarterly coupon, if any, with respect to the final determination date will be made on the maturity date.
The maturity date and each contingent payment date may be postponed as a result of the postponement of the related determination date due to non-index business days or certain market disruption events. No adjustment will be made to any contingent quarterly coupon paid on a postponed date.
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The securities do not guarantee repayment of any principal at maturity
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Unlike ordinary debt securities, the securities do not guarantee the repayment of any of the principal at maturity. As described more fully below, if the securities have not been automatically redeemed prior to maturity and the final index value has declined below 50% of the initial index value, you will be exposed to that decline on a 1 to 1 basis and your payment at maturity will represent a loss of at least 50% on your initial investment and may be zero. There is no minimum payment at maturity on the securities. Accordingly, you could lose your entire initial investment in the securities.
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After the first three years, the securities will be automatically redeemed if the determination index value on any of the quarterly determination dates is greater than or equal to the initial index value
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If the determination index value on any determination date occurring on or after March 26, 2018 to but excluding the final determination date is greater than or equal to the initial index value, the securities will be automatically redeemed for the early redemption payment on the third business day following the related determination date. The early redemption payment will be an amount of cash equal to (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the related determination date. No further payments will be made on the securities once they have been redeemed.
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Each determination date is subject to postponement for non-index business days and certain market disruption events as described under “Description of Securities—Determination Dates.”
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If the securities are not redeemed prior to maturity, the payment at maturity will vary depending on the final index value
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At maturity, if the securities have not previously been redeemed, you will receive for each $1,000 stated principal amount of securities that you hold an amount of cash that will vary depending on the final index value and will be equal to:
• if the final index value is greater than or equal to the downside threshold level, the stated principal amount, and, if the final index value is also greater than or equal to the coupon barrier level, the contingent quarterly coupon with respect to the final determination date, or
• if the final index value is less than the downside threshold level, (i) the stated principal amount times (ii) the index performance factor.
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where,
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index performance factor
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=
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final index value
initial index value
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final index value
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=
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the official settlement price of the underlying commodity index, as published by the index publisher or its successor, on the final determination date, subject to postponement for non-index business days and certain market disruption events.
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initial index value
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=
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the official settlement price of the underlying commodity index, as published by the index publisher or its successor, on the pricing date.
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If the final index value is less than the downside threshold level of 50% of the initial index value, you will be exposed to that decline on a 1 to 1 basis and your payment at maturity will represent a loss of at least 50% on your initial investment and may be zero.
All payments on the securities are subject to the credit risk of Morgan Stanley.
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Beginning on PS-8, we have provided examples titled “Hypothetical Payouts on the Securities,” which explain in more detail the possible payouts on the securities on each determination date and at maturity assuming a variety of hypothetical index closing values for each determination date, including the final determination date. The table does not show every situation that can occur.
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You can review the historical values of the underlying commodity index in the section of this pricing supplement called “Description of Securities—Historical Information” starting on PS-34. You cannot predict the future value of the underlying commodity index based on its historical values.
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Investing in the securities is not equivalent to investing directly in the underlying commodity index or the commodities futures contracts that underlie the underlying commodity index.
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You will not participate in any appreciation in the value of the underlying commodity index, and the return on the securities will be limited to the contingent quarterly coupons, if any
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You will not participate in any appreciation in the value of the underlying commodity index from the initial index value, and the return on the securities will be limited to the contingent quarterly coupons that are paid with respect to each determination date on which the determination index value or the final index value, as applicable, is greater than or equal to the coupon barrier level. In addition, the automatic early redemption feature may limit the term of your investment to as short as three years. If the securities are redeemed prior to maturity, you will receive no more coupon payments, and you may not be able to reinvest at comparable terms or returns.
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Postponement of maturity date
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If, due to a market disruption event or otherwise, the final determination date is postponed so that the final determination date falls less than two business days prior to the scheduled maturity date, the maturity date will be the second business day following the final determination date as postponed. See “Description of Securities—Maturity Date.”
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Morgan Stanley Capital Group Inc. will be the calculation agent
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We have appointed our affiliate Morgan Stanley Capital Group Inc., which we refer to as MSCG, to act as calculation agent for The Bank of New York Mellon, a New York banking corporation, the trustee for our senior notes. As calculation agent, MSCG will determine the initial index value, the coupon barrier level, the downside threshold level, the determination index value, the final index value, whether the securities will be redeemed following any determination date, whether the contingent quarterly coupon will be paid on any contingent payment date, whether a
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market disruption event has occurred and the payment that you will receive upon early redemption or at maturity, if any.
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Morgan Stanley & Co. LLC will be the agent; conflicts of interest
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The agent for the offering of the securities, MS & Co., will conduct this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Description of Securities—Supplemental Information Concerning Plan of Distribution; Conflicts of Interest.”
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You may revoke your offer to purchase the securities prior to our acceptance
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We are using this pricing supplement to solicit from you an offer to purchase the securities. You may revoke your offer to purchase the securities at any time prior to the time at which we accept such offer by notifying the relevant agent. We reserve the right to change the terms of, or reject any offer to purchase, the securities prior to their issuance. In the event of any material changes to the terms of the securities, we will notify you.
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Where you can find more information on the securities
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The securities are senior unsecured securities issued as part of our Series F medium-term note program. You can find a general description of our Series F medium-term note program in the accompanying prospectus supplement dated November 19, 2014 and prospectus dated November 19, 2014. We describe the basic features of this type of security in the section of the prospectus supplement called “Description of Notes—Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or Indices” and in the section of the prospectus called “Description of Debt Securities—Fixed Rate Debt Securities.”
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For a detailed description of the terms of the securities, you should read the section of this pricing supplement called “Description of Securities.” You should also read about some of the risks involved in investing in the securities in the section of this pricing supplement called “Risk Factors.” The tax and accounting treatment of investments in commodity-linked securities such as the securities may differ from that of investments in ordinary debt securities. See the section of this pricing supplement called “Description of Securities—United States Federal Taxation.” We urge you to consult with your investment, legal, tax, accounting and other advisers with regard to any proposed or actual investment in the securities.
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How to reach us
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You may contact your local Morgan Stanley branch office or call us at (800) 233-1087.
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Contingent Quarterly Coupon:
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A contingent quarterly coupon is paid quarterly but only if the determination index value or the final index value, as applicable, is greater than or equal to the coupon barrier level on the related determination date. If payable, the contingent quarterly coupon will be paid at the following annual rates:
· with respect to each quarterly determination date from and including June 26, 2015 to and including March 27, 2017: 7.00% (corresponding to approximately $17.50 per quarter per security)
· with respect to each quarterly determination date from and including June 26, 2017 to and including March 26, 2021: 8.00% (corresponding to approximately $20.00 per quarter per security)
· with respect to each quarterly determination date from and including June 28, 2021 to and including March 26, 2025: 10.00% (corresponding to approximately $25.00 per quarter per security)
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Automatic Early Redemption (starting in March 2018):
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Beginning on March 26, 2018, if the determination index value of the underlying commodity index is greater than or equal to the initial index value on any quarterly determination date, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent quarterly coupon with respect to the related determination date. No further payments will be made on the securities once they have been redeemed.
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Payment at Maturity (if the securities have not been automatically redeemed early):
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If the final index value is greater than or equal to the downside threshold level, investors will receive the stated principal amount, and, if the final index value is also greater than or equal to the coupon barrier level, investors will also receive the contingent quarterly coupon with respect to the final determination date.
If the final index value of the underlying commodity index is less than the downside threshold level, investors will receive (i) the stated principal amount multiplied by (ii) the index performance factor of the underlying commodity 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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Stated Principal Amount:
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$1,000
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Hypothetical Initial Index Value:
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300
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Hypothetical Coupon Barrier Level:
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225, which is 75% of the hypothetical initial index value
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Hypothetical Downside Threshold Level:
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150, which is 50% of the hypothetical initial index value
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Hypothetical Determination Index Value
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Contingent Quarterly Coupon
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Hypothetical Determination Date 1
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280 (at or above the coupon barrier level)
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Paid at the applicable rate
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Hypothetical Determination Date 2
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200 (below the coupon barrier level)
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$0
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Hypothetical Determination Date 3
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185 (below the coupon barrier level)
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$0
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Hypothetical Determination Date 4
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275 (at or above the coupon barrier level)
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Paid at the applicable rate
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Hypothetical Final Index Value
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Payment at Maturity
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Example 1:
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200 (at or above the downside threshold level but below the coupon barrier level)
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The stated principal amount
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Example 2:
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120 (below the downside threshold level)
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$1,000 x index performance factor of the underlying commodity index =
$1,000 x (120 / 300) = $400
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Example 3:
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90 (below the downside threshold level)
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$1,000 x (90 / 300) = $300
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Example 4:
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290 (at or above the downside threshold level and the coupon barrier level)
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The stated principal amount + the contingent quarterly coupon with respect to the final determination date. For more information, please see above under “How to determine whether a contingent quarterly coupon is payable with respect to a determination date.”
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The securities do not guarantee the return of any principal at maturity
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The terms of the securities differ from those of ordinary debt securities in that we do not guarantee the payment of regular interest or the return of any principal at maturity. Instead, if the securities have not been automatically redeemed prior to maturity, and if the final index value is less than the downside threshold level, you will be exposed to the decline in the value of the underlying commodity index, as compared to the initial index value, on a 1 to 1 basis, and the payment at maturity will represent a loss of at least 50% on your initial investment and may be zero. There is no minimum payment at maturity on the securities. Accordingly, you could lose your entire initial investment in the securities.
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The securities do not provide for regular interest payments
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The terms of the securities differ from those of ordinary debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon only if the determination index value or final index value, as applicable, is at or above 75% of the initial index value, which we refer to as the coupon barrier level, on the related determination date. If, on the other hand, the determination index value or final index value, as applicable, is lower than the coupon barrier level on the relevant determination date, we will pay no coupon on the applicable contingent payment date. It is possible that the index closing value of the underlying commodity index will remain below the coupon barrier level for extended periods of time or even throughout the entire term of the securities so that you will receive few or no contingent quarterly coupons during that period. 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.
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The contingent quarterly coupon, if any, is based only on the value of the underlying commodity index on the related quarterly determination date at the end of the related interest period
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Whether the contingent quarterly coupon will be paid on any contingent payment date will be determined at the end of the relevant interest period, based on the determination index value of the underlying commodity index on the relevant quarterly determination date. As a result, you will not know whether you will receive the contingent quarterly coupon on any contingent payment date until near the end of the relevant interest period. Moreover, because the contingent quarterly coupon is based solely on the value of the underlying commodity index on quarterly determination dates, if the determination index value of the underlying commodity index on any determination date is below the coupon barrier level, you will receive no coupon for the related interest period, even if the level of the underlying commodity index was at or above the coupon barrier level on other days during that interest period.
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Investors will not participate in any appreciation in the underlying commodity index
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Investors will not participate in any appreciation of the underlying commodity index from the initial index value, and the return on the securities will be limited to the contingent quarterly coupons, if any, that are paid with respect to each determination date on which the determination index value of the underlying commodity index is greater than or equal to the coupon barrier level.
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The automatic early redemption feature may
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The term of your investment in the securities may be limited to as short as three years by the automatic early redemption feature of the securities. If the securities are
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limit the term of your investment to approximately three years. If the securities are redeemed early, you may not be able to reinvest at comparable terms or returns.
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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. In addition, if the securities are redeemed prior to maturity, you may not receive the benefit of the step-up in annual rates in the later part of the term of the securities. However, under no circumstances will the securities be redeemed in the first three years of the term of the securities.
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The market price will be influenced by many unpredictable factors
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Several factors, some of which are beyond our control, will influence the value of the securities in the secondary market and the price at which Morgan Stanley & Co. LLC, which we refer to as 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 the underlying commodity index on any day, including in relation to the initial index value, the coupon barrier level and the 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:
• the volatility (frequency and magnitude of changes in value) of the underlying commodity index;
• the price of the index contracts that underlie the underlying commodity index and the volatility of such prices;
• trends of supply and demand for the index contracts that underlie the underlying commodity index;
• interest and yield rates in the market;
• geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the commodities markets generally and which may affect the value of the underlying commodity index;
• the time remaining until the next determination date and the maturity of the securities; and
• 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 the underlying commodity index has closed below the coupon barrier level, and especially if the underlying commodity index has closed near or below the 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 the underlying commodity index based on its historical performance. The value of the underlying commodity index may decrease and be below the coupon barrier level on each determination date so that you will receive no return on your investment, and the underlying commodity index may close below the downside threshold level on the final determination date so that you lose more than 50% or all of your initial investment in the securities. There can be no assurance that the determination index value will be at or above the coupon barrier level on any determination 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 the downside threshold level on the final determination date so that you do not suffer a significant loss on your initial investment in the securities. See “Description of the
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Securities—S&P GSCI™ Crude Oil Index - Excess Return” below.
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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
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You are dependent on Morgan Stanley’s ability to pay all amounts due on the securities at maturity or on any contingent payment date, and therefore you are subject to the credit risk of Morgan Stanley. The securities are not guaranteed by any other entity. 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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An investment in the securities will expose you to concentrated risks relating to crude oil
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The underlying commodity index is composed entirely of crude oil futures contracts included in the S&P GSCITM–ER. An investment in the securities may therefore bear risks similar to a securities investment concentrated in a single underlying sector. The price of crude oil futures is primarily affected by the global demand for and supply of crude oil, but is also influenced significantly from time to time by speculative actions and by currency exchange rates. Demand for refined petroleum products by consumers, as well as the agricultural, manufacturing and transportation industries, affects the price of crude oil. Crude oil’s end-use as a refined product is often as transport fuel, industrial fuel and in-home heating fuel. Potential for substitution in most areas exists, although considerations including relative cost often limit substitution levels. Because the precursors of demand for petroleum products are linked to economic activity, demand will tend to reflect economic conditions. Demand is also influenced by government regulations, such as environmental or consumption policies. In addition to general economic activity and demand, prices for crude oil are affected by political events, labor activity and, in particular, direct government intervention (such as embargos) or supply disruptions in major oil producing regions of the world. Such events tend to affect oil prices worldwide, regardless of the location of the event. Supply for crude oil may increase or decrease depending on many factors. These include production decisions by the Organization of Petroleum Exporting Countries (OPEC) and other crude oil producers. In the event of sudden disruptions in the supplies of oil, such as those caused by war, natural events, accidents or acts of terrorism, prices of oil futures contracts could become extremely volatile and unpredictable. Also, sudden and dramatic changes in the futures market may occur, for example, upon a cessation of hostilities that may exist in countries producing oil, the introduction of new or previously withheld supplies into the market or the introduction of substitute products or commodities. The price of crude oil futures has experienced very severe price fluctuations over the recent past and there can be no assurance that this extreme price volatility will not continue in the future.
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Higher future prices of the index commodity relative to its current prices may adversely affect the value of the underlying commodity index and the value of the securities
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The S&P GSCITM–ER, on which the underlying commodity index is based, is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for delivery of the underlying physical commodity. As the futures contracts that compose the underlying commodity index approach expiration, they are replaced by contracts that have a later expiration. Thus, for example, a contract purchased and held in September may specify an October expiration. As time passes, the contract expiring in October is replaced by a contract for delivery in November. This process is referred to as “rolling.” If the market for these contracts is (putting aside other considerations) in “backwardation,” where the prices are lower in the distant delivery months than in the nearer delivery months, the sale of the October contract would take place at a price that is higher than the price of the November contract, thereby creating a “roll yield.” However, crude oil and certain other commodities included in the S&P GSCITM–ER have historically traded in “contango” markets. Contango markets are those in which the prices of contracts are higher in the distant delivery months than in the nearer delivery months. The presence of contango and absence of backwardation in the crude oil markets generally results in negative “roll yields,” which would adversely affect the value of the underlying commodity index, and, accordingly, the value of the securities.
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An investment linked to commodity futures contracts is not equivalent to an investment linked to the spot prices of physical commodities
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The underlying commodity index has returns based on the change in price of futures contracts included in such underlying commodity index, not the change in the spot price of actual physical commodities to which such futures contracts relate. The price of a futures contract reflects the expected value of the commodity upon delivery in the future, whereas the price of a physical commodity reflects the value of such commodity upon immediate delivery, which is referred to as the spot price. Several factors can result in differences between the price of a commodity futures contract and the spot price of a commodity, including the cost of storing such commodity for the length of the futures contract, interest costs related to financing the purchase of such commodity and expectations of supply and demand for such commodity. While the changes in the price of a futures contract are usually correlated with the changes in the spot price, such correlation is not exact. In some cases, the performance of a commodity futures contract can deviate significantly from the spot price performance of the related underlying commodity, especially over longer periods of time. Accordingly, investments linked to the return of commodities futures contracts may underperform similar investments that reflect the spot price return on physical commodities.
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Suspensions or disruptions of market trading in commodity and related futures markets could adversely affect the price of the securities
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The commodity markets are subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the markets, the participation of speculators and government regulation and intervention. In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices which may occur during a single business day. These limits are generally referred to as “daily price fluctuation limits” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “limit price.” Once the limit price has been reached in a particular contract, no trades may be made at a different price. Limit prices have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices. These circumstances could adversely affect the value of the underlying commodity index, and, therefore, the value of the securities.
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Adjustments to the underlying commodity index could adversely affect the value of the securities
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The publisher of the underlying commodity index may add, delete or substitute the commodity contracts constituting the underlying commodity index or make other methodological changes that could change the value of the underlying commodity index. The underlying commodity index publisher may discontinue or suspend calculation or publication of the underlying commodity index at any time. Any of these actions could adversely affect the value of the securities. Where the underlying commodity index is discontinued, the calculation agent will have the sole discretion to substitute a successor index that is comparable to the underlying commodity index and will be permitted to consider indices that are calculated and published by the calculation agent or any of its affiliates.
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Investing in the securities is not equivalent to investing in the underlying commodity index
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Investing in the securities is not equivalent to investing in the underlying commodity index or the futures contracts that underlie the underlying commodity index.
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Legal and regulatory changes could adversely affect the return on and value of your securities
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Futures contracts and options on futures contracts, including those related to the index commodities, are subject to extensive statutes, regulations, and margin requirements. The Commodity Futures Trading Commission, commonly referred to as the “CFTC,” and the exchanges on which such futures contracts trade, are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily limits and the suspension of trading. Furthermore, certain exchanges have regulations that limit the amount of fluctuations in futures contract prices that may occur during a single five-minute trading period. These limits could adversely affect the market prices of relevant futures and options contracts and forward contracts. The regulation of commodity transactions in the U.S. is subject to ongoing modification by government and judicial action. In addition, various non-U.S. governments have expressed concern regarding the disruptive effects of speculative trading in the commodity markets and the need to regulate the derivative markets in general. The effect on the value of the securities of any future regulatory change is impossible to predict, but could be substantial and adverse to the interests of holders of the securities.
For example, the Dodd-Frank Act, which was enacted on July 21, 2010, requires the CFTC to establish limits on the amount of positions that may be held by any person in certain commodity futures contracts and swaps, futures and options that are economically equivalent to such contracts. While the effects of these or other regulatory developments are difficult to predict, when adopted, such rules may have the effect of making the markets for commodities, commodity futures contracts, options on futures contracts and other related derivatives more volatile and over time potentially less liquid. Such restrictions may force market participants, including us and our affiliates, or such market participants may decide, to sell their positions in such futures contracts and other instruments subject to the limits. If this broad market selling were to occur, it would likely lead to declines, possibly significant declines, in commodity prices, in the price of such commodity futures contracts or instruments and potentially, the value of the securities.
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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
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Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as other factors.
The inclusion of the costs of issuing, selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 12 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 commodity 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
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These pricing and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value of your securities at any time after the date of this pricing supplement will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable factors” above.
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The securities will not be listed on any securities exchange and secondary trading may be limited
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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.
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Hedging and trading activity by our
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One or more of our subsidiaries and/or third-party dealers expect to carry out hedging activities related to the securities (and possibly to other instruments linked
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subsidiaries could potentially adversely affect the value of the securities
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to the underlying commodity index), including trading in swaps or futures contracts on the underlying commodity index and on commodities that underlie the underlying commodity index. Some of our subsidiaries also trade in financial instruments related to the underlying commodity index or the prices of the commodities or contracts that underlie the underlying commodity index on a regular basis as part of their general commodity trading and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial index value, and, as a result, increase (i) the level at or above which the underlying commodity index must close on any determination date after the first three years so that the securities are redeemed prior to maturity for the early redemption payment, (ii) the coupon barrier level, which is the level at or above which the underlying commodity index must close on each determination date in order for you to earn a contingent quarterly coupon, and (iii) the downside threshold level, which is the level at or above which the underlying commodity index must close on the final determination date so that you are not exposed to the negative performance of the underlying commodity index at maturity. Additionally, our hedging activities, as well as our other trading activities, during the term of the securities could potentially affect the value of the underlying commodity index on the determination dates, and, accordingly, whether the securities are automatically redeemed prior to maturity, whether we pay a contingent quarterly coupon on the securities and the amount of cash you receive at maturity, if any.
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The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the securities
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As calculation agent, Morgan Stanley Capital Group Inc. (“MSCG”) will determine the initial index value, the coupon barrier level, the downside threshold level, the determination index value, the final index value, the contingent quarterly coupon, if any, due to you with respect to each determination date, whether the securities will be redeemed following any determination date, whether a market disruption event has occurred, and, if the securities are not redeemed prior to maturity, the amount of cash, if any, you will receive at maturity. Moreover, certain determinations made by MSCG, in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of the final index value in the event of a discontinuance of the underlying commodity 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 Securities—Determination Dates,” “—Discontinuance of the Underlying Commodity Index; Alteration of Method of Calculation” and “—Alternate Exchange Calculation in case of an Event of Default,” and “—Calculation Agent and Calculations” herein. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.
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The U.S. federal income tax consequences of an investment in the securities are uncertain
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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 “United States Federal Taxation” in this free writing prospectus 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
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deductibility of capital losses is subject to limitations. We do not plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities, and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference, if any, between the actual and the projected amount of any contingent payments on the securities) and recognize all income and gain in respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not have such features. Non-U.S. Holders should note that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision, and will not be required to pay any additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts described in the notice, it is possible that any Treasury regulations or other guidance issued after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax. Both U.S. and Non-U.S. Holders (as defined below) should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
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Aggregate Principal Amount
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$
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Pricing Date
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March 26, 2015
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Original Issue Date (Settlement Date)
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March 31 2015 (3 Business Days after the Pricing Date).
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Maturity Date
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March 31, 2025, subject to postponement as described in the following paragraph.
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Specified Currency
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U.S. dollars
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Stated Principal Amount
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$1,000 per Security
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Original Issue Price
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$1,000 per Security
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CUSIP Number
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61762GDG6
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ISIN
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US61762GDG64
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Denominations
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$1,000 and integral multiples thereof
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Underlying Commodity Index
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S&P GSCI™ Crude Oil Index – Excess Return (the “Index”). For more information on the Underlying Commodity Index, see “––The S&P GSCI™ Crude Oil Index - Excess Return” below.
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Index Publisher
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S&P Dow Jones Indices LLC and any successor publisher thereof (“S&P”).
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Contingent Quarterly Coupon
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The Contingent Quarterly Coupon payable on this Security on each Contingent Payment Date for the related Interest Period will be payable at the following annual rates for the related Interest Period (computed on the basis of a year of 360 days and twelve 30-day months):
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·
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from and including the Original Issue Date to but excluding the scheduled Contingent Payment Date related to the March 27, 2017 Determination Date: 7.00%;
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·
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from and including the scheduled Contingent Payment Date related to the March 27, 2017 Determination Date to but excluding the scheduled Contingent Payment Date
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·
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from and including the scheduled Contingent Payment Date related to the March 26, 2021 Determination Date to but excluding the Maturity Date: 10.00%,
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provided that a Contingent Quarterly Coupon will be payable for such Interest Period only if the Determination Index Value or the Final Index Value, as applicable, of the Underlying Commodity Index is at or above the Coupon Barrier Level on the related Determination Date.
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Interest Period
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The quarterly period from and including the Original Issue Date (in the case of the first Interest Period) or the previous scheduled Contingent Payment Date, as applicable, to but excluding the following scheduled Contingent Payment Date, with no adjustment for any postponement thereof.
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Determination Index Value
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The Index Closing Value on any Determination Date other than the final Determination Date.
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Early Redemption
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If, on any Determination Date occurring on or after March 26, 2018 to but excluding the final Determination Date, the Determination Index Value is greater than or equal to the Initial Index Value, we will redeem the Securities, in whole and not in part, for the Early Redemption Payment on the third Business Day following such Determination Date (as may be postponed under “––Determination Dates” below).
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Early Redemption Payment
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The Early Redemption Payment will equal for each $1,000 Stated Principal Amount of Securities that you hold (i) the Stated Principal Amount plus (ii) the Contingent Quarterly Coupon with respect to the related Determination Date.
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Contingent Payment Dates
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With respect to each Determination Date other than the final Determination Date, the third Business Day after the related Determination Date. The payment of the Contingent Quarterly
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Record Date
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For each Contingent Payment Date, the date one Business Day prior to such Contingent Payment Date.
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Payment at Maturity
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If the Securities have not been automatically redeemed prior to maturity, you will receive for each $1,000 Stated Principal Amount of Securities that you hold an amount in cash equal to:
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•
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if the Final Index Value is greater than or equal to the Downside Threshold Level, the Stated Principal Amount, and, if the Final Index Value is also greater than or equal to the Coupon Barrier Level, the Contingent Quarterly Coupon with respect to the final Determination Date; or
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•
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if the Final Index Value is less than the Downside Threshold Level, (i) the Stated Principal Amount times (ii) the Index Performance Factor.
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Coupon Barrier Level
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, which is 75% of the Initial Index Value
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Downside Threshold Level
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, which is 50% of the Initial Index Value
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Index Performance Factor
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A fraction, the numerator of which is the Final Index Value and the denominator of which is the Initial Index Value, as described by the following formula:
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Index Performance Factor
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=
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Final Index Value
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Initial Index Value
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Index Closing Value
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The Index Closing Value on any Index Business Day will be determined by the Calculation Agent and will equal the official settlement price of the Underlying Commodity Index as published by the Index Publisher, or any Successor Index (as defined under “—Discontinuance of the Underlying Commodity Index; Alteration of Method of Calculation”). In certain circumstances, the Index Closing Value will be based on the alternate calculation of the Underlying Commodity Index described under “—Discontinuance of the Underlying Commodity Index; Alteration of Method of Calculation.”
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Initial Index Value
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, which is the Index Closing Value on the Pricing Date, provided that if the Pricing Date is not an Index Business Day or if a Market Disruption Event occurs on that date, the Initial Index Value will be, subject to the succeeding paragraph below, the Index Closing Value on the next Index Business Day on which no Market Disruption Event occurs.
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If the Initial Index Value as finally published by the Index Publisher, as determined by the Calculation Agent, differs from the Initial Index Value specified in this pricing supplement, we will include the definitive Initial Index Value in an amended pricing supplement.
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Final Index Value
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The Index Closing Value on the final Determination Date, as determined by the Calculation Agent.
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Determination Dates
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June 26, 2015, September 28, 2015, December 28, 2015, March 28, 2016, June 27, 2016, September 26, 2016, December 27, 2016, March 27, 2017, June 26, 2017, September 26, 2017, December 26, 2017, March 26, 2018, June 26, 2018, September 26, 2018, December 26, 2018, March 26, 2019, June 26, 2019, September 26, 2019, December 26, 2019, March 26, 2020, June 26, 2020, September 28, 2020, December 28, 2020, March 26, 2021, June 28, 2021, September 27, 2021, December 27, 2021, March 28, 2022, June 27, 2022, September 26, 2022, December 27, 2022, March 27, 2023, June 26, 2023, September 26, 2023, December 26, 2023, March 26, 2024, June 26, 2024, September 26, 2024, December 26, 2024 and March 26, 2025, subject to postponement for non-Index Business Days and certain Market Disruption Events. We also refer to March 26, 2025 as the final Determination Date.
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Market Disruption Event
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Market Disruption Event means, with respect to the Underlying Commodity Index or any index contract, any of a Price Source Disruption, Trading Disruption, Disappearance of Commodity Reference Price, Tax Disruption, Material Change in Formula or Material Change in Content, in each case, as determined by the Calculation Agent.
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Price Source Disruption
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Price Source Disruption means (a) with respect to the Underlying Commodity Index, either (i) the temporary failure of the Index Publisher to announce or publish the official settlement price of the Index (or the price of any Successor Index, if applicable) or the information necessary for determining such price (or the price of any Successor Index, if applicable) or (ii) the temporary discontinuance or unavailability of the Underlying Commodity Index, and (b) with respect to any Index Contract, the temporary or permanent failure of any Relevant Exchange to announce or publish the relevant price for such Index Contract.
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Reference Price
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Disappearance of Commodity Reference Price means (a) with respect to the Underlying Commodity Index, the disappearance or permanent discontinuance or unavailability of the official settlement price of the Underlying Commodity Index, notwithstanding the availability of the price source or the status of trading in the Index Contracts or futures contracts related to the Index Contracts, and (b) with respect to any Index Contract, either (i) the failure of trading to commence, or the permanent discontinuance of trading, in such Index Contract or futures contracts related to such Index Contract on the Relevant Exchange for such Index Contract or (ii) the disappearance of, or of trading in, such Index Contract.
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Trading Disruption
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Trading Disruption means, with respect to any Index Contract, the material suspension of, or the material limitation imposed on, trading in an Index Contract or futures contracts related to such Index Contract on the Relevant Exchange for such Index Contract.
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Material Change in Formula
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Material Change in Formula means the occurrence since the date of this pricing supplement of a material change in the formula for, or the method of calculating, the official settlement price of the Underlying Commodity Index.
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Material Change in Content
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Material Change in Content means the occurrence since the date of this pricing supplement of a material change in the content, composition or constitution of the Underlying Commodity Index or relevant futures contracts.
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Tax Disruption
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With respect to any index contract, Tax Disruption means the imposition of, change in or removal of an excise, severance, sales, use, value-added, transfer, stamp, documentary, recording or similar tax on, or measured by reference to, such index contract (other than a tax on, or measured by reference to overall gross or net income) by any government or taxation authority after the date of this pricing supplement, if the direct effect of such imposition, change or removal is to raise or lower the price of such index
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Business Day
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Any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York.
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Index Business Day
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Any day on which the official settlement price of the Underlying Commodity Index is scheduled to be published by the Index Publisher or its successor.
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Relevant Exchange
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Relevant Exchange means the principal exchange or trading market for any contract or commodity then included in the Underlying Commodity Index or any Successor Index.
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Trading Day
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Trading Day means a day, as determined by the Calculation Agent, that is a day on which the Relevant Exchange is open for trading during its regular trading session, notwithstanding any such Relevant Exchange closing prior to its scheduled closing time.
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Index; Alteration of Method of Calculation
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If, following the Original Issue Date, the Index Publisher discontinues publication of the Underlying Commodity Index and the Index Publisher or another entity (including MSCG or MS & Co.) publishes a successor or substitute index that MSCG, as the Calculation Agent, determines, in its sole discretion, to be comparable to the discontinued Underlying Commodity Index (such index being referred to herein as a “Successor Index”), then any subsequent Index Closing Value will be determined by reference to the published value of such Successor Index at the regular weekday close of trading on the Index Business Day that any Index Closing Value is to be determined.
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If the Index Publisher changes its method of calculating the Underlying Commodity Index in any material respect that the Calculation Agent determines, in its sole discretion, not to be a Material Change in Formula, the Calculation Agent may make adjustments necessary in order to arrive at a calculation of value comparable to the Underlying Commodity Index as if such changes or modifications had not been made and calculate any Index Closing Value in accordance with such adjustments. Notwithstanding these alternative arrangements, discontinuance of the publication of the Underlying Commodity Index may adversely affect the value of the Securities.
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Certificated Note
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Book Entry. The Securities will be issued in the form of one or more fully registered global securities which will be deposited with, or on behalf of, DTC and will be registered in the name of a nominee of DTC. DTC’s nominee will be the only registered holder of the Securities. Your beneficial interest in the Securities will be evidenced solely by entries on the books of the securities intermediary acting on your behalf as a direct or indirect participant in DTC. In this pricing supplement, all references to actions taken by “you” or to be taken by “you” refer to actions taken or to be taken by DTC and its participants acting on your behalf, and all references to payments or notices to you will mean payments or notices to DTC, as the registered holder of the Securities, for distribution to participants in accordance with DTC’s procedures. For more information regarding DTC and book entry notes, please read “Forms of Securities—The Depositary” and “Forms of Securities—Global Securities—Registered Global Securities” in the accompanying prospectus.
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Senior Note or Subordinated Note
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Senior
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Trustee
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The Bank of New York Mellon, a New York banking corporation
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Agent
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MS & Co. and its successors
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Calculation Agent
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MSCG and its successors.
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in Case of an Event of Default
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If an Event of Default with respect to the Securities shall have occurred and be continuing, the amount declared due and payable upon any acceleration of the Securities (the “Acceleration Amount”) will be an amount, determined by the Calculation Agent in its sole discretion, that is equal to the cost of having a Qualified Financial Institution, of the kind and selected as described below, expressly assume all our payment and other obligations with respect to the Securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations providing substantially equivalent economic value to you with respect to the Securities. That cost will equal:
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•
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the lowest amount that a Qualified Financial Institution would charge to effect this assumption or undertaking, plus
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•
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the reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the Securities in preparing any documentation necessary for this assumption or undertaking.
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•
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no quotation of the kind referred to above is obtained, or
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•
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every quotation of that kind obtained is objected to within five Business Days after the due date as described above.
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•
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A-2 or higher by Standard & Poor’s Ratings Services or any successor, or any other comparable rating then used by that rating agency, or
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•
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P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating agency.
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The S&P GSCI™ Crude Oil Index
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We have derived all information contained in this pricing supplement regarding the Underlying Commodity Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information, and we have not participated in the preparation of, or verified, such publicly available information. Such information reflects the policies of, and is subject to change by, the S&P. The Index was developed, and is calculated, maintained and published by S&P.
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·
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The contract must be in respect of a physical commodity and not a financial commodity.
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·
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The contract must (a) have a specified expiration or term or provide in some other manner for delivery or settlement at a specified time, or within a specified period, in the future; and (b) at any given point in time, be available for trading at least five months prior to its expiration or such other date or time period specified for delivery or settlement; and (c) be traded on a trading facility which allows market participants to execute spread transactions, through a single order entry, between the pairs of contract expirations included in the S&P GSCI™ that, at any given point in time, will be involved in rolls to be effected pursuant to the S&P GSCI™.
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|
·
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The commodity must be the subject of a contract that is (a) denominated in U.S. dollars and (b) traded on or through an exchange, facility or other platform (referred to as a trading facility) that has its principal place of business or operations in a country which is a member of the Organization for Economic Cooperation and Development and that meets other criteria relating to the availability of market price quotations and trading volume information, acceptance of bids and offers from multiple participants or price providers and accessibility by a sufficiently broad range of participants.
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|
·
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The price of the relevant contract that is used as a reference or benchmark by market participants (referred to as the daily contract reference price) generally must have been available on a continuous basis for at least two years prior to the proposed date of inclusion in the S&P GSCI™.
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|
·
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At and after the time a contract is included in the S&P GSCI™, the daily contract reference price for such contract must be published between 10:00 AM. and 4:00 P.M., Eastern time, on each business day relating to such contract by the trading facility on or through which it is traded.
|
|
·
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For a contract to be eligible for inclusion in the S&P GSCI™, volume data with respect to such contract must be available for at least the three months immediately preceding the date on which the determination is made.
|
|
·
|
Contracts must also satisfy volume trading requirements and certain percentage dollar weight requirements to be eligible for inclusion in the S&P GSCI™.
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|
·
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The contracts currently included in the S&P GSCI™ are all futures contracts traded on the NYMEX, the ICE Futures, the Chicago Mercantile Exchange, the Chicago Board of Trade, the Coffee, Sugar & Cocoa Exchange, Inc., the New York Cotton Exchange, the Kansas City
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and Morgan Stanley
|
S&P and Morgan Stanley have entered into a non-exclusive license agreement providing for the license to Morgan Stanley, and certain of its affiliated or subsidiary companies, in exchange for a fee, of the right to use the Underlying Commodity Index, which is owned and published by S&P, in connection with securities, including the Securities.
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“Standard & Poor’s®,” “S&P®” and “S&P GSCITM” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Morgan Stanley. The Securities have not been passed on by the Corporations as to their legality or suitability. The Securities are not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE SECURITIES.
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The following table sets forth the published high and low Index Closing Values, as well as end-of-quarter Index Closing Values, of the Underlying Commodity Index for each quarter in the period from January 1, 2010 through February 24, 2015. The related graph shows the daily Index Closing Values for the Underlying Commodity Index in the same period. The Index Closing Value on February 24, 2015 was 263.3917. We obtained the
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S&P GSCI™ Crude Oil Index - Excess Return
High and Low Index Closing Values and
End-of-Quarter Index Closing Values
January 1, 2010 through February 24, 2015
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|||
High
|
Low
|
Period End
|
|
2010
|
|||
First Quarter
|
580.7973
|
494.2745
|
575.7510
|
Second Quarter
|
596.9223
|
444.4116
|
480.7402
|
Third Quarter
|
521.3389
|
449.7758
|
494.2388
|
Fourth Quarter
|
553.5523
|
490.9833
|
552.7660
|
2011
|
|||
First Quarter
|
607.1437
|
503.8268
|
607.1437
|
Second Quarter
|
644.4647
|
506.8806
|
533.7882
|
Third Quarter
|
556.0875
|
438.3955
|
438.3955
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Fourth Quarter
|
567.1342
|
418.8559
|
545.2173
|
2012
|
|||
First Quarter
|
601.9905
|
530.5137
|
562.3674
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Second Quarter
|
576.7051
|
419.0127
|
458.2227
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Third Quarter
|
529.9358
|
451.6967
|
491.8431
|
Fourth Quarter
|
493.3903
|
448.5244
|
481.9584
|
2013
|
|||
First Quarter
|
511.6316
|
468.0970
|
502.6795
|
Second Quarter
|
505.8752
|
448.0953
|
495.0573
|
Third Quarter
|
572.0864
|
502.3888
|
533.9717
|
Fourth Quarter
|
543.2078
|
480.0819
|
510.6378
|
2014
|
|||
First Quarter
|
545.7297
|
475.5971
|
530.6062
|
Second Quarter
|
571.2074
|
520.3681
|
563.4010
|
Third Quarter
|
563.2406
|
496.6154
|
498.5767
|
Fourth Quarter
|
497.7563
|
293.2265
|
293.2265
|
2015
|
|||
First Quarter (through February 24, 2015)
|
293.2265
|
241.7061
|
263.3917
|
|
S&P GSCI™ Crude Oil Index - Excess Return
Daily Index Closing Values
January 1, 2010 through February 24, 2015
|
Use of Proceeds and Hedging
|
The proceeds we receive from the sale of the Securities will be used for general corporate purposes. We will receive, in aggregate, $1,000 per Security issued, because, when we enter into hedging transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Securities borne by you and described beginning on page 3 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Securities.
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Plan of Distribution; Conflicts of Interest
|
Under the terms and subject to the conditions contained in the U.S. distribution agreement referred to in the prospectus supplement under “Plan of Distribution (Conflicts of Interest),” the Agent, acting as principal for its own account, has agreed to purchase, and we have agreed to sell, the aggregate principal amount of Securities set forth on the cover of this pricing supplement. The Agent proposes initially to offer the Securities directly to the public at the public offering price set forth on the cover page of this pricing supplement. Selected dealers, which may include our affiliates, and their financial advisors will collectively receive from the Agent a fixed sales commission of $ 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 $ per Security. After the initial offering of the Securities, the Agent may vary the offering price and other selling terms from time to time.
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Benefit Plan Investor Considerations
|
Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which we refer to as a “plan,” should consider the fiduciary standards of ERISA in the context of the plan’s particular circumstances before authorizing an investment in these Securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the plan.
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United States Federal Taxation
|
Prospective investors should note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus supplement does not apply to the Securities issued under this document and is superseded by the following discussion.
|
1 Year Morgan Stanley Chart |
1 Month Morgan Stanley Chart |
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