CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities Offered
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Maximum Aggregate Offering Price
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|
Amount of Registration Fee
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Leveraged Buffered ETF-Linked
Notes due 2019
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$655,000
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$75.91
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PROSPECTUS Dated February 16, 2016
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Pricing Supplement No. 1,839 to
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PRODUCT SUPPLEMENT Dated February 29, 2016
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Registration Statement Nos. 333-200365; 333-200365-12
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INDEX SUPPLEMENT Dated January 30, 2017
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Dated September 20, 2017
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Rule 424(b)(2)
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Morgan Stanley
Finance LLC
STRUCTURED
INVESTMENTS
Opportunities
in International Equities
$655,000
Leveraged
Buffered
iShares
®
MSCI Emerging Markets
ETF-Linked
Notes due September
30, 2019
Fully and Unconditionally
Guaranteed by Morgan Stanley
Principal at Risk
Securities
The notes are
unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan
Stanley. The notes will not bear interest.
The amount that you will be paid on your notes
on the stated maturity date (September 30, 2019, subject to postponement) is based on the performance of the iShares
®
MSCI Emerging Markets ETF as measured from the trade date (September 20, 2017) to and including the determination date (September
25, 2019, subject to postponement). If the final underlier level on the determination date is greater than the initial underlier
level, the return on your notes will be positive, subject to the maximum settlement amount ($1,245.48 for each $1,000 face amount
of your notes). If the underlier declines by up to 15.00% from the initial underlier level, you will receive the face amount of
your notes.
However, if the underlier declines by more than 15.00% from the initial underlier level, the return on your
notes will be negative. You could lose your entire investment in the notes.
The notes are
notes issued as part of MSFL’s Series A Global Medium-Term Notes program.
All payments are
subject to our credit risk. If we default on our obligations, you could lose some or all of your investment. These notes are not
secured obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset
or assets.
To
determine your payment at maturity, we will calculate the underlier return, which is the percentage increase or decrease in the
final underlier level from the initial underlier level. On the stated maturity date, for each $1,000 face amount of your notes,
you will receive an amount in cash equal to:
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●
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if the underlier return is positive (the final underlier level is greater than the initial underlier level), the sum of (i)
$1,000 plus (ii) the
product
of (a) $1,000
times
(b) 170%
times
(c) the underlier return, subject to the maximum
settlement amount;
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|
●
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if the underlier return is
zero
or
negative
but
not below
-15.00% (the final underlier level is
equal
to
or
less
than the initial underlier level but not by more than 15.00%), $1,000; or
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|
●
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if the underlier return is
negative
and is
below
-15.00% (the final underlier level is
less than
the initial
underlier level by more than 15.00%), the
sum
of (i) $1,000
plus
(ii) the
product
of (a) approximately 1.1765
times
(b) the
sum
of the underlier return
plus
15.00%
times
(c) $1,000.
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Under these circumstances, you will lose some or all
of your investment.
You should read the additional disclosure herein so
that you may better understand the terms and risks of your investment.
The estimated value on the trade date is $985.00
per note. See “Estimated Value” on page 2.
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Price
to public
|
Agent’s
commissions
(1)
|
Proceeds
to us
(2)
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Per note
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$1,000
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$0
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$1,000
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Total
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$655,000
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$0
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$ 655,000
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(1) Morgan Stanley & Co. LLC (“MS &
Co.”) will sell all of the notes that it purchases from us to an unaffiliated dealer at the original issue price of 100.00%,
or $1,000 per face amount of notes. Such dealer will sell the notes to investors at the same price without a discount or commission.
Investors that purchase and hold the notes in fee-based accounts may be charged fees based on the amount of assets held in those
accounts, including the notes. For more information see “Summary Information—Supplemental information regarding plan
of distribution; conflicts of interest” on page 7.
(2) See “Use
of proceeds and hedging” beginning on page 5.
The notes involve risks not
associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 11.
The Securities and Exchange
Commission and state securities regulators have not approved or disapproved these notes, or determined if this document or the
accompanying product supplement, index supplement and prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The notes are not deposits
or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
You should read this document
together with the related product supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks
below. Please also see “Key Terms” on page 3.
MORGAN STANLEY
About Your Prospectus
The notes are notes issued as part of MSFL’s Series A Global
Medium-Term Notes program. This prospectus includes this pricing supplement and the accompanying documents listed below. This pricing
supplement constitutes a supplement to the documents listed below and should be read in conjunction with such documents:
●
Prospectus dated February 16, 2016
●
Product Supplement dated February 29, 2016
●
Index Supplement dated January 30, 2017
The information in this pricing supplement supersedes
any conflicting information in the documents listed above. In addition, some of the terms or features described in the listed
documents may not apply to your notes.
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ESTIMATED
VALUE
The Original Issue Price of each note is $1,000. This
price includes costs associated with issuing, selling, structuring and hedging the notes, which are borne by you, and, consequently,
the estimated value of the notes on the Trade Date is less than $1,000. We estimate that the value of each note on the Trade Date
is $985.00.
What goes into the estimated value on the Trade
Date?
In valuing the notes on the Trade Date, we take into
account that the notes comprise both a debt component and a performance-based component linked to the Underlier. The estimated
value of the notes is determined using our own pricing and valuation models, market inputs and assumptions relating to the Underlier,
instruments based on the Underlier, 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 notes?
In determining the economic terms of the notes, including
the Upside Participation Rate, the Cap Level, the Maximum Settlement Amount and the Buffer Amount, 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 notes would be more favorable to you.
What is the relationship between the estimated
value on the Trade Date and the secondary market price of the notes?
The price at which MS & Co. purchases the notes
in the secondary market, absent changes in market conditions, including those related to the Underlier, may vary from, and be lower
than, the estimated value on the Trade 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 notes are not fully deducted
upon issuance, for a period of up to 3 months following the issue date, to the extent that MS & Co. may buy or sell the notes
in the secondary market, absent changes in market conditions, including those related to the Underlier, 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 notes, and, if it once chooses to make a market, may cease doing so at any time.
SUMMARY
INFORMATION
The Leveraged Buffered iShares
®
MSCI Emerging
Markets ETF-Linked Notes, which we refer to as the notes, are unsecured obligations of MSFL and are fully and unconditionally guaranteed
by Morgan Stanley. The notes will pay no interest, do not guarantee any return of principal at maturity and have the terms described
in the accompanying product supplement, index supplement and prospectus, as supplemented or modified by this document. The notes
are notes issued as part of MSFL’s Series A Global Medium-Term Notes program.
Capitalized terms used but not defined herein have the meanings
assigned to them in the accompanying product supplement and prospectus. All references to “Buffer Rate,” “Cash
Settlement Amount,” “Closing Level,” “Determination Date,” “Face Amount,” “Final
Underlier Level,” “Initial Underlier Level,” “Share Adjustment Factor,” “Maximum Settlement
Amount,” “Original Issue Price,” “Stated Maturity Date,” “Trade Date,” “Underlier,”
“Underlying Index,” “Underlier Return” and “Upside Participation Rate” herein shall be deemed
to refer to “downside factor,” “payment at maturity,” “share closing price,” “valuation
date,” “stated principal amount,” “final share price,” “initial share price,” “adjustment
factor,” “maximum payment at maturity,” “issue price,” “maturity date,” “pricing
date,” “underlying shares” (or “ETF shares”), “share underlying index,” “share
return” and “leverage factor,” respectively, as used in the accompanying product supplement. All references to
“Underlier” shall be deemed to refer to “underlying shares” or “ETF shares” as used in the
accompanying product supplement.
References to “we,” “us” and “our”
refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
If the terms described herein are inconsistent with
those described in the accompanying product supplement or prospectus, the terms described herein shall control.
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Key
Terms
Issuer:
Morgan Stanley Finance LLC
Guarantor:
Morgan Stanley
Underlier:
Shares of the iShares
®
MSCI Emerging Markets ETF
Underlying Index:
MSCI Emerging Markets Index
SM
Notes:
The accompanying product supplement
refers to the notes as the “PLUS.”
Specified currency:
U.S. dollars (“$”)
Face Amount:
Each note will have a Face Amount
of $1,000; $655,000 in the aggregate for all the notes; the aggregate Face Amount of notes may be increased if the issuer, at its
sole option, decides to sell an additional amount of the notes on a date subsequent to the date hereof.
Denominations:
$1,000 and integral multiples thereof
Purchase at amount
other than Face Amount:
The amount we will pay you on the Stated Maturity Date for your notes
will not be adjusted based on the issue price you pay for your notes, so if you acquire notes at a premium (or discount) to the
Face Amount and hold them to the Stated Maturity Date, it could affect your investment in a number of ways. The return on your
investment in such notes will be lower (or higher) than it would have been had you purchased the notes at the Face Amount. Also,
the Buffer Level would not offer the same measure of protection to your investment as would be the case if you had purchased the
notes at the Face Amount. Additionally, the Cap Level would be triggered at a lower (or higher) percentage return than indicated
below, relative to your initial investment. See “Risk Factors—If You Purchase Your Notes At A Premium To The Face Amount,
The Return On Your Investment Will Be Lower Than The Return On Notes Purchased At The Face Amount, And The Impact Of Certain Key
Terms Of The Notes Will Be Negatively Affected” beginning on page 12 of this document.
Cash Settlement Amount (on the Stated Maturity
Date):
For each $1,000 Face Amount of notes, we will pay you on the Stated Maturity Date an amount in cash equal to:
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·
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if the Final Underlier Level is
greater than
or
equal to
the Cap Level, the Maximum Settlement Amount;
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·
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if the Final Underlier Level is
greater than
the Initial Underlier Level but
less than
the Cap Level, the
sum
of (i) $1,000
plus
(ii) the
product
of (a) $1,000
times
(b) the Upside Participation Rate
times
(c)
the Underlier Return;
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·
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if the Final Underlier Level is
equal to
or
less than
the Initial Underlier Level but
greater than
or
equal to
the Buffer Level, $1,000; or
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·
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if the Final Underlier Level is
less than
the Buffer Level, the
sum
of (i) $1,000
plus
(ii) the
product
of (a) $1,000
times
(b) the Buffer Rate
times
(c) the
sum
of the Underlier Return and the Buffer Amount.
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You will lose some or all of
your investment at maturity if the Final Underlier Level is less than the Buffer Level. Any payment of the Cash Settlement Amount
is subject our credit risk.
Initial Underlier Level:
$45.64
Final Underlier Level:
The Closing Level of the Underlier
on the Determination Date
times
the Share Adjustment Factor on such date, except in the limited circumstances described
under “Description of PLUS—Postponement of Valuation Date(s)” on page S-44 of the accompanying product supplement,
and subject to adjustment as provided under “Description of PLUS—Discontinuance of Any ETF Shares and/or Share Underlying
Index; Alteration of Method of Calculation” on page S-48 of the accompanying product supplement.
Underlier Return:
The
quotient
of (1) the
Final Underlier Level
minus
the Initial Underlier Level
divided
by (2) the Initial Underlier Level, expressed as
a percentage
Upside Participation Rate:
170%
Cap Level:
$52.230416, which is 114.44% of the Initial
Underlier Level
Maximum Settlement Amount:
$1,245.48
for each $1,000 Face Amount of notes
Buffer Level:
$38.794, which is 85% of the Initial Underlier
Level
Buffer Amount:
15%
Buffer Rate:
The
quotient
of the Initial Underlier
Level
divided
by the Buffer Level, which equals approximately 117.65%
Trade Date:
September 20, 2017
Original Issue Date (Settlement Date):
September 27, 2017
(5 Business Days after the Trade Date)
Determination Date:
September 25, 2019, subject to postponement
as described in the accompanying product supplement on page S-44 under “Description of PLUS—Postponement of Valuation
Date(s).”
Stated Maturity Date:
September 30, 2019 (3 Business Days
after the Determination Date), subject to postponement as described below.
Postponement of Stated Maturity Date:
If the scheduled
Determination Date is not a Trading Day or if a market disruption event occurs on that day so that the Determination Date as postponed
falls less than two Business Days prior to the scheduled Stated Maturity Date, the maturity date of the notes will be postponed
to the second Business Day following that Determination Date as postponed.
No interest or dividends:
The notes will not pay interest
or dividends.
No listing:
The notes will not be listed on any securities
exchange.
No redemption:
The notes will not be subject to any redemption
right.
Closing Level:
As described under “Description of
PLUS—Some Definitions—share closing price” on page S-40 of the accompanying product supplement.
Share Adjustment Factor
: As described under “Description
of PLUS—Some Definitions—adjustment factor” on page S-36 of the accompanying product supplement, and subject
to adjustment in the case of certain events as described under “Description of PLUS—Antidilution Adjustments for PLUS
linked to Exchange-Traded Funds” on page S-46 of the accompanying product supplement.
Business Day:
As described under “Description of
PLUS—Some Definitions—business day” on page S-37 of the accompanying product supplement.
Trading Day:
As described under “Description of
PLUS—Some Definitions—trading day” on page S-41 of the accompanying product supplement.
Market disruption event:
As described under “Description
of PLUS—Some Definitions—market disruption event” on page S-37 of the accompanying product supplement.
Use of proceeds and hedging:
The proceeds from the sale
of the notes will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per note issued. The costs
of the notes borne by you and described on page 2 comprise the cost of issuing, structuring and hedging the notes.
On or prior to the Trade Date, we hedged our anticipated exposure
in connection with the notes, by entering into hedging transactions with our affiliates and/or third party dealers. We expect our
hedging counterparties to have taken positions in the Underlier and in futures and options contracts on the Underlier, and any
component stocks of the Underlying Index listed on major securities markets. Such purchase activity could have increased the level
of the Underlier on the Trade Date, and therefore could have increased the level at or above which the Underlier must close on
the Determination Date so that investors do not suffer a loss on their initial investment in the notes. In addition, through our
affiliates, we are likely to modify our hedge position throughout the term of the notes, including on the Determination Date, by
purchasing and selling the Underlier, futures or options contracts on the Underlier or component stocks of the Underlying Index
listed on major securities markets or positions in any other available securities or instruments that we may wish to use in connection
with such hedging activities. As a result, these entities may be unwinding or adjusting hedge positions during the term of the
notes, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the Determination Date
approaches. We cannot give any assurance that our hedging activities will not affect the level of the Underlier, and, therefore,
adversely affect the value of the notes or the payment you will receive at maturity, if any. For further information on our use
of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product supplement.
Benefit Plan Investor Considerations:
Each fiduciary of
a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s
particular circumstances before authorizing an investment in the notes. Accordingly, among other factors, the fiduciary should
consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with
the documents and instruments governing the Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (also “Plans”). ERISA Section 406 and Code Section 4975 generally
prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning
of ERISA or the Code would likely arise, for example, if the notes are acquired by or with the assets of a Plan with respect to
which MS & Co. or any of its affiliates is a service provider or other party in interest, unless the notes are acquired pursuant
to an exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction”
rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the notes. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Section 4975(d)(20) of the Code may provide an exemption for the purchase and sale of securities and the related
lending transactions, provided that neither the issuer of the notes nor any of its affiliates has or exercises any discretionary
authority or control or renders any investment
advice with respect to the assets of the Plan involved in the
transaction and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in
connection with the transaction (the so-called “service provider” exemption). There can be no assurance that any of
these class or statutory exemptions will be available with respect to transactions involving the notes.
Because we may be considered a party in interest with respect
to many Plans, the notes may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include “plan
assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person investing
“plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief, including
relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding or disposition
is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or holder of the
notes will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the notes
that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such notes on behalf of or with “plan assets”
of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S.
law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”)
or (b) its purchase, holding and disposition are eligible for exemptive relief or such purchase, holding and disposition are not
prohibited by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the notes on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The notes are contractual financial instruments. The financial
exposure provided by the notes is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the notes. The notes have not been designed and will
not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder of the notes.
Each purchaser or holder of any notes acknowledges and agrees
that:
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(i)
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the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the
purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of
the purchaser or holder with respect to (A) the design and terms of the notes, (B) the purchaser or holder’s investment in
the notes, or (C) the exercise of or failure to exercise any rights we have under or with respect to the notes;
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(ii)
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we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to
the notes and (B) all hedging transactions in connection with our obligations under the notes;
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(iii)
|
any and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those
entities and are not assets and positions held for the benefit of the purchaser or holder;
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(iv)
|
our interests are adverse to the interests of the purchaser or holder; and
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(v)
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neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets,
positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment
advice.
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Each purchaser and holder of the notes has exclusive responsibility
for ensuring that its purchase, holding and disposition of the notes do not violate the prohibited transaction rules of ERISA or
the Code or any Similar Law. The sale of any notes to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be
permitted to purchase or hold the notes if the account, plan
or annuity is for the benefit of an employee of Morgan Stanley or Morgan Stanley Wealth Management or a family member and the employee
receives any compensation (such as, for example, an addition to bonus) based on the purchase of the notes by the account, plan
or annuity.
Additional considerations:
Client accounts over which
Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted
to purchase the notes, either directly or indirectly.
Supplemental information regarding plan of distribution; conflicts
of interest:
MS & Co., acting as our agent, will sell all of the notes that it purchases from us to an unaffiliated dealer
at the original issue price of 100.00%, or $1,000 per Face Amount of notes. Such dealer will sell the notes to investors at the
same price without a discount or commission. MS & Co., the agent for this offering, is our affiliate. Because MS & Co.
is both our affiliate and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), the underwriting
arrangements for this offering must comply with the requirements of FINRA Rule 5121 regarding a FINRA member firm’s distribution
of the securities of an affiliate and related conflicts of interest. In accordance with FINRA Rule 5121, MS & Co. may not make
sales in offerings of the notes to any of its discretionary accounts without the prior written approval of the customer.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the notes.
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 notes of an affiliate and related conflicts of interest. MS & Co. or any of
our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement.
Settlement:
We expect to deliver the notes against payment
for the notes on the Original Issue Date, which will be the fifth scheduled Business Day following the Trade Date. Under Rule 15c6-1
of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle in two Business
Days, unless the parties to a trade expressly agree otherwise. Accordingly, if the Original Issue Date is more than two Business
Days after the Trade Date, purchasers who wish to transact in the notes more than two Business Days prior to the Original Issue
Date will be required to specify alternative settlement arrangements to prevent a failed settlement.
Trustee:
The Bank of New York Mellon
Calculation Agent:
MS & Co.
CUSIP no.:
61768CQP5
ISIN:
US61768CQP58
HYPOTHETICAL
EXAMPLES
The following table and
chart are provided for purposes of illustration only. They should not be taken as an indication or prediction of future investment
results and are intended merely to illustrate the impact that the various hypothetical Closing Levels of the Underlier on the Determination
Date could have on the Cash Settlement Amount.
The examples below are
based on a range of Final Underlier Levels that are entirely hypothetical; no one can predict what the level of the Underlier will
be on any day during the term of the notes, and no one can predict what the Final Underlier Level will be on the Determination
Date. The Underlier has at times experienced periods of high volatility — meaning that the level of the Underlier has changed
considerably in relatively short periods — and its performance cannot be predicted for any future period.
The information in the
following examples reflects hypothetical rates of return on the notes assuming that they are purchased on the Original Issue Date
at the Face Amount and held to the Stated Maturity Date. The value of the notes at any time after the Trade Date will vary based
on many economic and market factors, including interest rates, the volatility of the Underlier, our creditworthiness and changes
in market conditions, and cannot be predicted with accuracy. Any sale prior to the Stated Maturity Date could result in a substantial
loss to you.
Key
Terms and Assumptions
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|
Face
Amount:
|
$1,000
|
Upside
Participation Rate:
|
170.00%
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Cap
Level:
|
114.440% of the Initial Underlier Level
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Maximum
Settlement Amount:
|
$1,245.48 per $1,000 Face Amount of notes (124.548% of the Face Amount)
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Minimum
Cash Settlement Amount:
|
None
|
Buffer
Level:
|
85% of the Initial Underlier Level
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Buffer
Rate:
|
Approximately 117.65%
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Buffer
Amount:
|
15.00%
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·
Neither
a market disruption event nor a non-Trading Day occurs on the Determination Date.
·
No
discontinuation of the Underlier, no change of the policies of the Underlier’s investment adviser and no alteration of the
method by which the Underlying Index is calculated.
·
Notes
purchased on the Original Issue Date at the Face Amount and held to the Stated Maturity Date.
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The actual performance of the Underlier over the term of the
notes, as well as the Cash Settlement Amount, if any, may bear little relation to the hypothetical examples shown below or to the
historical levels of the Underlier shown elsewhere in this document. For information about the historical levels of the Underlier
during recent periods, see “The Underlier” below.
The levels in the left column of the table below represent hypothetical
Final Underlier Levels and are expressed as percentages of the Initial Underlier Level. The amounts in the right column represent
the hypothetical Cash Settlement Amount, based on the corresponding hypothetical Final Underlier Level (expressed as a percentage
of the Initial Underlier Level), and are expressed as percentages of the Face Amount of notes (rounded to the nearest one-thousandth
of a percent). Thus, a hypothetical Cash Settlement Amount of 100% means that the value of the cash payment that we would deliver
for each $1,000 Face Amount of notes on the Stated Maturity Date would equal 100% of the Face Amount of notes, based on the corresponding
hypothetical Final Underlier Level (expressed as a percentage of the Initial Underlier Level) and the assumptions noted above.
The numbers appearing in the table and chart below may have been rounded for ease of analysis.
Hypothetical Final Underlier Level
|
Hypothetical Cash Settlement Amount
|
(as Percentage of Initial Underlier Level)
|
(as Percentage of Face Amount)
|
200.000%
|
124.548%
|
175.000%
|
124.548%
|
150.000%
|
124.548%
|
125.000%
|
124.548%
|
115.000%
|
124.548%
|
114.440%
|
124.548%
|
110.000%
|
117.000%
|
105.000%
|
108.500%
|
103.000%
|
105.100%
|
100.000%
|
100.000%
|
95.000%
|
100.000%
|
90.000%
|
100.000%
|
85.000%
|
100.000%
|
80.000%
|
94.118%
|
75.000%
|
88.235%
|
50.000%
|
58.824%
|
25.000%
|
29.412%
|
0.000%
|
0.000%
|
If, for example, the Final Underlier Level were determined to
be 25.000% of the Initial Underlier Level, the Cash Settlement Amount would be approximately 29.412% of the Face Amount of notes,
as shown in the table above. As a result, if you purchased your notes on the Original Issue Date at the Face Amount and held them
to the Stated Maturity Date, you would lose approximately 70.588% of your investment. If you purchased your notes at a premium
to the Face Amount, you would lose a correspondingly higher percentage of your investment.
If the Final Underlier Level were determined to be 150.000% of
the Initial Underlier Level, the Cash Settlement Amount would be capped at the Maximum Settlement Amount (expressed as a percentage
of the Face Amount), or 124.548% of each $1,000 Face Amount of notes, as shown in the table above. As a result, if you purchased
the notes on the Original Issue Date at the Face Amount and held them to the Stated Maturity Date, you would not benefit from any
increase in the Final Underlier Level above the Cap Level of 114.440% of the Initial Underlier Level.
Payoff Diagram
The following chart shows a graphical illustration of the hypothetical
Cash Settlement Amount (expressed as a percentage of the Face Amount of notes), if the Final Underlier Level (expressed as a percentage
of the Initial Underlier Level) were any of the hypothetical levels shown on the horizontal axis. The chart shows that any hypothetical
Final Underlier Level (expressed as a percentage of the Initial Underlier Level) of less than the Buffer Level of 85% (the section
left of the 85% marker on the horizontal axis) would result in a hypothetical Cash Settlement Amount of less than 100% of the Face
Amount of notes (the section below the 100% marker on the vertical axis), and, accordingly, in a loss of principal to the holder
of the notes. The chart also shows that any hypothetical Final Underlier Level (expressed as a percentage of the Initial Underlier
Level) of greater than 114.440% (the section right of the Cap Level of 114.440% marker on the horizontal axis) would result in
a capped return on your investment and a Cash Settlement Amount equal to the Maximum Settlement Amount.
Hypothetical Payoff Diagram
|
|
RISK
FACTORS
The following is a non-exhaustive list of certain key risk factors for investors in the notes. For further discussion of these and other risks, you should read the section entitled “Risk Factors” in the accompanying product supplement and prospectus. We also urge you to consult your investment, legal, tax, accounting and other advisers in connection with your investment in the notes.
|
The Notes Do Not Pay Interest Or Guarantee
The Return Of Any Of Your Principal
The terms of the notes differ from those of ordinary debt notes
in that the notes do not pay interest and do not guarantee any return of principal at maturity. If the Final Underlier Level has
declined by an amount greater than the Buffer Amount of 15% from the Initial Underlier Level, you will receive for each note that
you hold a Cash Settlement Amount that is less than the Face Amount of each note by an amount proportionate to the decline in the
level of the Underlier below 85% of the Initial Underlier Level times the Buffer Rate of approximately 117.65%. As there is no
minimum Cash Settlement Amount on the notes, you could lose your entire initial investment.
Also, the market price of your notes prior to the Stated Maturity
Date may be significantly lower than the purchase price you pay for your notes. Consequently, if you sell your notes before the
Stated Maturity Date, you may receive significantly less than the amount of your investment in the notes.
The Appreciation Potential Of The Notes
Is Limited By The Maximum Settlement Amount
The appreciation potential of the notes is limited by the Maximum
Settlement Amount of
$1,245.48
per note, or
124.548% of the Face Amount. Although the Upside Participation Rate provides 170% exposure to any increase in the Final Underlier
Level over the Initial Underlier Level, because the Cash Settlement Amount will be limited to 124.548% of the Face Amount for the
notes, any increase in the Final Underlier Level over the Initial Underlier Level by more than 14.44% of the Initial Underlier
Level will not further increase the return on the notes.
There Are Risks Associated With Investments
In Notes Linked To The Value Of Foreign (And Especially Emerging Markets) Equity Securities
The Underlier tracks the performance of the Underlying Index,
which is linked to the value of foreign equity securities. Investments in securities linked to the value of foreign equity securities
involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental
intervention in those markets and cross-shareholdings in companies in certain countries. Also, there is generally less publicly
available information about foreign companies than about U.S. companies that are subject to the reporting requirements of the United
States Securities and Exchange Commission, and foreign companies are subject to accounting, auditing and financial reporting standards
and requirements different from those applicable to U.S. reporting companies. The prices of securities issued in foreign markets
may be affected by political, economic, financial and social factors in those countries, or global regions, including changes in
government, economic and fiscal policies and currency exchange laws. In addition, the stocks included in the Underlying Index and
that are generally tracked by the Underlier have been issued by companies in various emerging markets countries, which pose further
risks in addition to the risks associated with investing in foreign equity markets generally. Countries with emerging markets may
have relatively unstable governments, may present the risks of nationalization of businesses, restrictions on foreign ownership
and prohibitions on the repatriation of assets, and may have less protection of property rights than more-developed countries.
The economies of countries with emerging markets may be based on only a few industries, may be highly vulnerable to changes in
local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making
prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries may differ favorably
or unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payment positions.
The Level Of The Underlier Is Subject
To Currency Exchange Risk
Because the level of the Underlier is related to the U.S. dollar
value of its constituent stocks, holders of the notes will be exposed to currency exchange rate risk with respect to each of the
currencies in which such component securities trade. Exchange rate movements for a particular currency are volatile and are the
result of numerous factors including the supply of, and the demand for, those currencies, as well as relevant government policy,
intervention or actions, but are also influenced significantly from time to time by political or economic developments, and by
macroeconomic factors and speculative actions related to the relevant region. An investor’s net exposure will depend on the
extent to which the currencies of the component securities strengthen or weaken against the U.S. dollar and the relative weight
of each currency. If, taking into account such weighting, the dollar strengthens against the currencies of the component securities
of the Underlier, the level of the Underlier will be adversely affected and the Cash Settlement Amount may be reduced.
Of particular importance to potential currency exchange risk
are:
|
·
|
existing and expected rates of inflation;
|
|
·
|
existing and expected interest rate levels;
|
|
·
|
the balance of payments; and
|
|
·
|
the extent of governmental surpluses or deficits in the countries represented in the Underlying Index and the United States.
|
All of these factors are in turn sensitive to the monetary, fiscal
and trade policies pursued by the governments of various countries represented in the Underlier, the United States and other countries
important to international trade and finance.
If You Purchase Your Notes At A Premium
To The Face Amount, The Return On Your Investment Will Be Lower Than The Return On Notes Purchased At The Face Amount, And The
Impact Of Certain Key Terms Of The Notes Will Be Negatively Affected
The Cash Settlement Amount will not be adjusted based on the
issue price you pay for the notes. If you purchase notes at a price that differs from the Face Amount of notes, then the return
on your investment in such notes held to the Stated Maturity Date will differ from, and may be substantially less than, the return
on notes purchased at the Face Amount. If you purchase your notes at a premium to the Face Amount and hold them to the Stated Maturity
Date, the return on your investment in the notes will be lower than it would have been had you purchased the notes at the Face
Amount or at a discount to the Face Amount. In addition, the impact of the Buffer Level and the Cap Level on the return on your
investment will depend upon the price you pay for your notes relative to the Face Amount. For example, if you purchase your notes
at a premium to the Face Amount, the Cap Level will reduce your potential percentage return on the notes to a greater extent than
would have been the case for notes purchased at the Face Amount or at a discount to the Face Amount. Similarly, the Buffer Level
will provide less protection of the investment amount for notes purchased at a premium to the Face Amount than for notes purchased
at the Face Amount or a discount to the Face Amount.
The Market Price Will Be Influenced By
Many Unpredictable Factors
Several factors, many of which are beyond our control, will influence
the value of the notes in the secondary market and the price at which MS & Co. may be willing to purchase or sell the notes
in the secondary market, including: the level of the Underlier, volatility (frequency and magnitude of changes in value) of the
Underlier and dividend yields of the Underlier and of the stocks composing the Underlying Index, interest and yield rates, time
remaining to maturity, geopolitical conditions and economic, financial, political and regulatory or judicial events that affect
the Underlier or equities markets generally and which may affect the Final Underlier Level of the Underlier, the exchange rates
relative to the U.S. dollar with respect to each of the currencies in which the shares comprising the Underlying Index trade, the
occurrence of certain events affecting the Underlier that may or may not require an adjustment to the Share Adjustment Factor,
and any actual or anticipated changes in our credit ratings or credit spreads. The level of the Underlier may be, and has been,
volatile, and we can give you no assurance that the volatility will lessen. See “The Underlier” below. You may receive
less, and possibly significantly less, than the Face Amount per note if you try to sell your notes prior to maturity.
The
Notes Are Subject To Our Credit Risk, And Any Actual Or Anticipated Changes To Our Credit Ratings Or Credit Spreads May Adversely
Affect The Market Value Of The Notes
You are dependent on our
ability to pay all amounts due on the notes at maturity, and therefore you are subject to our credit risk. If we default on our
obligations under the notes, your investment would be at risk and you could lose some or all of your investment. As a result, the
market value of the notes prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any
actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit
risk is likely to adversely affect the market value of the notes.
As
A Finance Subsidiary, MSFL Has No Independent Operations And Will Have No Independent Assets
As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of the notes if they make claims in respect of such notes in a bankruptcy, resolution or
similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
the notes should accordingly assume that in any such proceedings they could not have any priority over and should be treated
pari
passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued
securities.
The Amount Payable On The Notes Is Not
Linked To The Level Of The Underlier At Any Time Other Than The Determination Date
The Final Underlier Level will be based on the Closing Level
on the Determination Date, subject to adjustment for non-Trading Days and certain market disruption events. Even if the level of
the Underlier appreciates prior to the Determination Date but then drops by the Determination Date, the Cash Settlement Amount
may be less, and may be significantly less, than it would have been had the Cash Settlement Amount been linked to the level of
the Underlier prior to such drop. Although the actual level of the Underlier on the Stated Maturity Date or at other times during
the term of the notes may be higher than the Final Underlier Level, the Cash Settlement Amount will be based solely on the Closing
Level on the Determination Date.
Investing In The Notes Is Not Equivalent
To Investing In The Underlier Or The Stocks Composing The Underlying Index
Investing in the notes is not equivalent to investing in the
Underlier, the Underlying Index or the stocks that constitute the Underlying Index. Investors in the notes will not have voting
rights or rights to receive dividends or other distributions or any other rights with respect to the Underlier or the stocks that
constitute the Underlying Index.
Adjustments To The Underlier Or To The
Underlying Index Could Adversely Affect The Value Of The Notes
As the investment adviser to the Underlier, BlackRock Fund Advisors
(the “Investment Adviser”), seeks investment results that correspond generally to the price and yield performance,
before fees and expenses, of the Underlying Index. Pursuant to its investment strategy or otherwise, the Investment Adviser may
add, delete or substitute the stocks composing the Underlier. Any of these actions could adversely affect the price of the Underlier
and, consequently, the value of the notes. MSCI Inc. (“MSCI”) is responsible for calculating and maintaining the Underlying
Index. MSCI may add, delete or substitute the stocks constituting the Underlying Index
or make
other methodological changes that could change the value of the Underlying Index.
MSCI may discontinue or suspend calculation
or publication of the
Underlying Index
at any time. In these circumstances, the calculation
agent will have the sole discretion to substitute a successor index that is comparable to the discontinued
Underlying
Index
and is permitted to consider indices that are calculated and published by the calculation agent or any of its affiliates.
The Performance And Market Price Of The
Underlier, Particularly During Periods Of Market Volatility, May Not Correlate With The Performance Of The Underlying Index, The
Performance Of
The Component Securities Of The Underlying
Index Or The Net Asset Value Per Share Of The Underlier
The Underlier does not fully replicate the Underlying Index and
may hold securities that are different than those included in the Underlying Index. In addition, the performance of the Underlier
will reflect additional transaction costs and fees that are not included in the calculation of the Underlying Index. All
of these factors may lead to a lack of correlation between the performance of the Underlier and the Underlying Index. In
addition, corporate actions (such as mergers and spin-offs) with respect to the equity securities underlying the Underlier may
impact the variance between the performances of the Underlier and the Underlying Index. Finally, because the shares of the
Underlier are traded on an exchange and are subject to market supply and investor demand, the market price of one share of
the Underlier may differ from the net asset value per share of the Underlier.
In particular, during periods of market volatility, or unusual
trading activity, trading in the securities underlying the Underlier may be disrupted or limited, or such securities may be unavailable
in the secondary market. Under these circumstances, the liquidity of the Underlier may be adversely affected, market participants
may be unable to calculate accurately the net asset value per share of the Underlier, and their ability to create and redeem shares
of the Underlier may be disrupted. Under these circumstances, the market price of shares of the Underlier may vary substantially
from the net asset value per share of the Underlier or the level of the Underlying Index.
For all of the foregoing reasons, the performance of the Underlier
may not correlate with the performance of the Underlying Index, the performance of the component securities of the Underlying Index
or the net asset value per share of the Underlier. Any of these events could materially and adversely affect the price of
the shares of the Underlier and, therefore, the value of the notes. Additionally, if market volatility or these events were
to occur on the Determination Date, the calculation agent would maintain discretion to determine whether such market volatility
or events have caused a market disruption event to occur, and such determination would affect the payment at maturity of the notes.
If the calculation agent determines that no market disruption event has taken place, the payment at maturity would be based
solely on the published closing price per share of the Underlier on the Determination Date, even if the Underlier’s shares
are underperforming the Underlying Index or the component securities of the Underlying Index and/or trading below the net asset
value per share of the Underlier.
There Are Risks Associated With The Underlier
Although the Underlier’s shares are listed for trading
on NYSE Arca, Inc. (the “NYSE Arca”) and a number of similar products have been traded on the NYSE Arca or other securities
exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of the
Underlier or that there will be liquidity in the trading market.
In addition, the Underlier is subject to management risk, which
is the risk that the Investment Adviser’s investment strategy, the implementation of which is subject to a number of constraints,
may not produce the intended results. For example, the Investment adviser may select up to 10% of the Underlier’s assets
to be invested in shares of equity securities that are not included in the Underlying Index. The Underlier is also not actively
managed and may be affected by a general decline in market segments relating to the Underlying Index. The Investment Adviser invests
in securities included in, or representative of, the Underlying Index regardless of their investment merits. The Investment Adviser
does not attempt to take defensive positions in declining markets.
In addition, the Underlier is subject to custody risk, which
refers to the risk in the process of clearing and settling trades and to the holding of securities by local banks, agents and depositories.
Low trading volumes and volatile prices in less-developed markets make trades harder to complete and settle, and governments or
trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation.
The less developed a country’s securities market is, the greater the likelihood of custody issues.
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
Notes In The Original Issue Price Reduce The Economic Terms Of
The Notes, Cause The Estimated Value Of
The Notes To Be Less Than The Original Issue Price And Will Adversely Affect Secondary Market Prices
Assuming no change in market conditions or any other relevant
factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the notes 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 notes in the Original Issue Price and the lower rate we are willing to pay as issuer make the economic terms of the
notes less favorable to you than they otherwise would be.
However, because the costs associated with issuing, selling,
structuring and hedging the notes are not fully deducted upon issuance, for a period of up to 3 months following the issue date,
to the extent that MS & Co. may buy or sell the notes in the secondary market, absent changes in market conditions, including
those related to the Underlier, and to our secondary market credit spreads, it would do so based on values higher than the estimated
value, and we expect that those higher values will also be reflected in your brokerage account statements.
The Estimated Value Of The Notes Is Determined
By Reference To Our Pricing And Valuation Models, Which May Differ From Those Of Other Dealers And Is Not A Maximum Or Minimum
Secondary Market Price
These pricing and valuation models are proprietary and rely in
part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be incorrect.
As a result, because there is no market-standard way to value these types of securities, our models may yield a higher estimated
value of the notes than those generated by others, including other dealers in the market, if they attempted to value the notes.
In addition, the estimated value on the Trade Date does not represent a minimum or maximum price at which dealers, including MS
& Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value of your notes
at any time after the date hereof 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.
The Antidilution Adjustments The Calculation
Agent Is Required To Make Do Not Cover Every Event That Could Affect The Underlier
MS & Co., as calculation agent, will adjust the amount payable
at maturity for certain events affecting the Underlier. However, the calculation agent will not make an adjustment for every event
that could affect the Underlier. If an event occurs that does not require the calculation agent to adjust the adjustment factor,
the market price of the notes may be materially and adversely affected.
The Notes Will Not Be Listed On Any Securities
Exchange And Secondary Trading May Be Limited
The notes will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the notes. MS & Co. may, but is not obligated to, make a market in the notes
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 notes, 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 notes. Even if
there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Since other broker-dealers
may not participate significantly in the secondary market for the notes, the price at which you may be able to trade your notes
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 notes, it is likely that there would be no secondary market for the notes. Accordingly, you should be willing
to hold your notes to maturity.
The Calculation Agent, Which Is A Subsidiary
Of Morgan Stanley And An Affiliate Of MSFL, Will Make Determinations With Respect To The Notes
As calculation agent, MS & Co. has determined the Initial
Underlier Level, will determine the Final Underlier Level and will calculate the Cash Settlement Amount you receive at maturity,
if any. Moreover, certain determinations made by MS & Co. in its capacity as calculation agent, may require it to exercise
discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events
and antidilution events, the selection of a successor index or calculation of the Final Underlier Level in the event of a market
disruption event or discontinuance of the Underlier and the amount due and payable upon any acceleration of the notes. These potentially
subjective determinations may adversely affect the Cash Settlement Amount at maturity, if any. For further information regarding
these types of determinations, see “Description of PLUS—Postponement of Valuation Date(s),” “—Antidilution
Adjustments for PLUS linked to Exchange-Traded Funds,” “—Discontinuance of Any ETF Shares and/or Share Underlying
Index; Alteration of Method of Calculation,” “—Alternate Exchange Calculation in case of an Event of Default”
and “—Calculation Agent and Calculations” in the accompanying product supplement. In addition, MS & Co. has
determined the estimated value of the notes on the Trade Date.
Hedging And Trading Activity By Our Affiliates
Could Potentially Adversely Affect The Value Of The Notes
One or more of our affiliates and/or third-party dealers have
carried out, and will continue to carry out, hedging activities related to the notes, including trading in the Underlier and in
other instruments related to the Underlier or the Underlying Index. As a result, these entities may be unwinding or adjusting hedge
positions during the term of the notes, and the hedging strategy may involve greater and more frequent dynamic adjustments to the
hedge as the Determination Date approaches. Some of our affiliates also trade the Underlier or the stocks that constitute the Underlying
Index and other financial instruments related to the Underlying Index on a regular basis as part of their general broker-dealer
and other businesses. Any of these hedging or trading activities on or prior to the Trade Date could have increased the Initial
Underlier Level, and, therefore, could have increased the level at or above which the Underlier must close on the Determination
Date so that investors do not suffer a loss on their initial investment in the notes. Additionally, such hedging or trading activities
during the term of the notes, including on the Determination Date, could adversely affect the level of the Underlier on the Determination
Date, and, accordingly, the Cash Settlement Amount an investor will receive at maturity, if any. Furthermore, if the dealer from
which you purchase notes is to conduct trading and hedging activities for us in connection with the notes, that dealer may profit
in connection with such trading and hedging activities and such profit, if any, will be in addition to the compensation that the
dealer receives for the sale of the notes to you. You should be aware that the potential to earn a profit in connection with hedging
activities may create a further incentive for the dealer to sell the notes to you, in addition to the compensation they would receive
for the sale of the notes.
We May Sell An Additional Aggregate Face
Amount Of Notes At A Different Issue Price
At our sole option, we may decide to sell an additional aggregate
Face Amount of notes subsequent to the date hereof. The issue price of the notes in the subsequent sale may differ substantially
(higher or lower) from the issue price you paid as provided on the cover of this document.
Past Performance is No Guide to Future
Performance
The actual performance of the Underlier over the term of the
notes, as well as the amount payable at maturity, may bear little relation to the historical Closing Levels of the Underlier or
to the hypothetical return examples set forth herein. We cannot predict the future performance of the Underlier.
The U.S. Federal Income Tax Consequences
Of An Investment In The Notes Are Uncertain.
Please read the discussion under “Tax
Considerations” in this document and the discussion under “United States Federal Taxation” in the accompanying
product supplement (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of
an investment in the notes. As discussed in the Tax Disclosure Sections, there is a substantial risk that the “constructive
ownership” rule could apply, in which case all or a portion of any long-term capital gain recognized by a U.S. Holder could
be recharacterized as ordinary income and an interest charge could be imposed. If the Internal Revenue Service (the “IRS”)
were successful in asserting an alternative treatment, the timing and character of income on the notes might differ significantly
from the tax treatment described in the Tax Disclosure
Sections. For example, under one possible treatment,
the IRS could seek to recharacterize the notes as debt instruments. In that event, U.S. Holders would be required to accrue into
income original issue discount on the notes every year at a “comparable yield” determined at the time of issuance and
recognize all income and gain in respect of the notes as ordinary income. Additionally, as discussed under “United States
Federal Taxation—FATCA Legislation” in the accompanying product supplement, the withholding rules commonly referred
to as “FATCA” would apply to the notes if they were recharacterized as debt instruments. The risk that financial instruments
providing for buffers, triggers or similar downside protection features, such as the notes, would be recharacterized as debt is
greater than the risk of recharacterization for comparable financial instruments that do not have such features. We do not plan
to request a ruling from the IRS regarding the tax treatment of the notes, and the IRS or a court may not agree with the tax treatment
described in the Tax Disclosure Sections.
In 2007, the U.S. Treasury Department and the
IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and
similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, as
discussed in this document. While the notice requests comments on appropriate transition rules and effective dates, any Treasury
regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences
of an investment in the notes, possibly with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the notes, including possible alternative treatments, the
potential application of the constructive ownership rule, the issues presented by this notice and any tax consequences arising
under the laws of any state, local or non-U.S. taxing jurisdiction.
THE UNDERLIER
The iShares
®
MSCI Emerging Markets ETF is an exchange-traded
fund that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
MSCI Emerging Markets Index
SM
. The iShares
®
MSCI Emerging Markets ETF is managed by iShares
®
,
Inc. (“iShares”), a registered investment company that consists of numerous separate investment portfolios, including
the iShares
®
MSCI Emerging Markets ETF. Information provided to or filed with the Commission by iShares pursuant
to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission file numbers 033-97598
and 811-09102, respectively, through the Commission’s website at www.sec.gov.
The iShares
®
MSCI Emerging Markets ETF uses a
representative sampling strategy to try to achieve its investment objective, which means that the iShares
®
MSCI
Emerging Markets ETF is not required to purchase all of the securities represented in the MSCI Emerging Markets Index
SM
.
Instead, the iShares
®
MSCI Emerging Markets ETF may purchase a subset of the securities in the MSCI Emerging Markets
Index
SM
in an effort to hold a portfolio of securities with generally the same risk and return characteristics as the
MSCI Emerging Markets Index
SM
. Under normal market conditions, the iShares
®
MSCI Emerging Markets ETF
generally invests substantially all, but at least 90%, of its total assets in the securities comprising the MSCI Emerging Markets
Index
SM
. In addition, the iShares
®
MSCI Emerging Markets ETF may invest in equity securities not included
in the MSCI Emerging Markets Index
SM
, cash and cash equivalents or money market instruments, such as repurchase agreements
and money market funds (including money market funds advised by the Investment Adviser).
In addition, information may be obtained from other publicly
available sources including, but not limited to, the Investment Adviser’s website (including information regarding (i) fees
paid to the Investment Adviser, (ii) returns of the iShares
®
MSCI Emerging Markets ETF and the MSCI Emerging Markets
Index
SM
for certain periods, (iii) the iShares
®
MSCI Emerging Markets ETF’s and the MSCI Emerging
Markets Index
SM
top constituents and their respective weightings, (iv) the iShares
®
MSCI Emerging Markets
ETF’s industry/sector weightings and (v) the iShares
®
MSCI Emerging Markets ETF’s country weightings).
We are not incorporating by reference into this document the website or any material it includes. Neither the issuer nor the agent
makes any representation that such publicly available information regarding the iShares
®
MSCI Emerging Markets ETF
is accurate or complete.
Information as of market close on September 20, 2017:
Bloomberg
Ticker Symbol:
|
EEM UP
|
Current Share
Price:
|
$45.64
|
52 Weeks Ago:
|
$36.82
|
52 Week High
(on 9/19/2017):
|
$45.85
|
52 Week Low
(on 12/22/2016):
|
$34.08
|
The following graph sets forth the daily Closing Levels of the
Underlier for each quarter in the period from January 1, 2012 through September 20, 2017. The Closing Level of the Underlier on
September 20, 2017 was $45.64. We obtained the information in the graph below from Bloomberg Financial Markets, without independent
verification. The Underlier has at times experienced periods of high volatility. The actual performance of the Underlier over the
term of the notes, as well as the amount payable at maturity, may bear little relation to the historical Closing Levels of the
Underlier or to the hypothetical return examples set forth herein. We cannot predict the future performance of the Underlier. You
should not take the historical levels of the Underlier as an indication of its future performance, and no assurance can be given
as to the Closing Level of the Underlier on the Determination Date.
iShares
®
MSCI
Emerging Markets ETF
Daily Underlier Closing Levels
January 1, 2012 to September
20, 2017
|
|
This document relates only to the notes referenced hereby
and does not relate to the Underlier. We have derived all disclosures contained in this document regarding iShares from the publicly
available documents described above. In connection with the offering of the notes, neither we nor the agent has participated in
the preparation of such documents or made any due diligence inquiry with respect to iShares. Neither we nor the agent makes any
representation that such publicly available documents or any other publicly available information regarding iShares is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the level of the
Underlier (and therefore the level of the Underlier at the time we priced the notes) have been publicly disclosed. Subsequent disclosure
of any such events or the disclosure of or failure to disclose material future events concerning iShares could affect the value
received at maturity with respect to the notes and therefore the value of the notes.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the Underlier.
We and/or our affiliates may presently or from time to time engage
in business with iShares. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to iShares, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more
of our affiliates may publish research reports with respect to the Underlier. The statements in the preceding two sentences are
not intended to affect the rights of investors in the notes under the securities laws. As a purchaser of the notes, you should
undertake an independent investigation of iShares as in your judgment is appropriate to make an informed decision with respect
to an investment linked to the Underlier.
iShares
®
is a registered trademark of BlackRock
Institutional Trust Company, N.A. (“BTC”). The notes are not sponsored, endorsed, sold, or promoted by BTC. BTC makes
no representations or warranties to the owners of the notes or any member of the public regarding the advisability of investing
in the notes. BTC has no obligation or liability in connection with the operation, marketing, trading or sale of the notes.
The MSCI Emerging Markets Index
SM
.
The MSCI
Emerging Markets Index
SM
is a stock index calculated, published and disseminated daily by MSCI Inc. and is intended
to provide performance
benchmarks for certain emerging equity markets including Brazil,
Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines,
Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The MSCI Emerging Markets Index
SM
is described in “MSCI Emerging Markets Index
SM
” and “MSCI Global Investable Market Indices Methodology”
in the accompanying index supplement.
TAX CONSIDERATIONS
Although there is uncertainty regarding the U.S. federal income
tax consequences of an investment in the notes due to the lack of governing authority, in the opinion of our counsel, Davis Polk
& Wardwell LLP, under current law, and based on current market conditions, a note should be treated as a single financial contract
that is an “open transaction” for U.S. federal income tax purposes.
Assuming this treatment of the notes is respected and subject
to the discussion in “United States Federal Taxation” in the accompanying product supplement, the following U.S. federal
income tax consequences should result based on current law:
|
·
|
A U.S. Holder should not be required to recognize taxable income over
the term of the notes prior to settlement, other than pursuant to a sale or exchange.
|
|
·
|
Upon sale, exchange or settlement of the notes, a U.S. Holder should
recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the notes.
Subject to the discussion below concerning the potential application of the “constructive ownership” rule, such gain
or loss should be long-term capital gain or loss if the investor has held the notes for more than one year, and short-term capital
gain or loss otherwise.
|
Because the notes are linked to shares of an exchange-traded
fund, although the matter is not clear, there is a substantial risk that an investment in the notes will be treated as a “constructive
ownership transaction” under Section 1260 of the Internal Revenue Code of 1986, as amended (the “Code”). If this
treatment applies, all or a portion of any long-term capital gain of the U.S. Holder in respect of the notes could be recharacterized
as ordinary income (in which case an interest charge will be imposed). Due to the lack of governing authority, our counsel is unable
to opine as to whether or how Section 1260 of the Code applies to the notes. U.S. investors should read the section entitled “United
States Federal Taxation—Tax Consequences to U.S. Holders—Possible Application of Section 1260 of the Code” in
the accompanying product supplement for additional information and consult their tax advisers regarding the potential application
of the “constructive ownership” rule.
In 2007, the U.S. Treasury Department and the Internal Revenue
Service (the “IRS”) released a notice requesting comments on the U.S. federal income tax treatment of “prepaid
forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments
to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character
of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime;
the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which
the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors
should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership”
rule, as discussed above. While the notice requests comments on appropriate transition rules and effective dates, any Treasury
regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences
of an investment in the notes, possibly with retroactive effect.
As discussed in the accompanying product supplement, Section
871(m) of the Code and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a
lower applicable treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain
financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”).
Subject to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance
of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, the regulations exempt securities issued before January 1, 2018 that do not have a delta of one with
respect to any Underlying Security. Based on our determination that the notes do not have a delta of one with respect to any Underlying
Security, our counsel is of the opinion that the notes should not be Specified Securities and, therefore, should not be subject
to Section 871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including
whether you enter into other transactions with respect to an Underlying Security. If withholding is required, we will not be required
to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser regarding the potential
application of Section 871(m) to the notes.
Both U.S. and non-U.S. investors considering an investment
in the notes should read the discussion under “Risk Factors” in this document and the discussion under “United
States Federal Taxation” in the accompanying product supplement and consult their tax advisers regarding all aspects of the
U.S. federal income tax consequences of an investment in the notes, including possible alternative treatments, the potential application
of the constructive ownership rule, the issues presented by the aforementioned notice and any tax consequences arising under the
laws of any state, local or non-U.S. taxing jurisdiction.
The discussion in the preceding paragraphs under “Tax
considerations” and the discussion contained in the section entitled “United States Federal Taxation” in the
accompanying product supplement, insofar as they purport to describe provisions of U.S. federal income tax laws or legal conclusions
with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences
of an investment in the notes.
CONTACT
Morgan Stanley clients may contact their local Morgan Stanley
branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776).
All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured
Investment Sales at (800) 233-1087.
WHERE
YOU CAN FIND MORE INFORMATION
Morgan Stanley has filed a registration statement (including
a prospectus, as supplemented by the product supplement and the index supplement) with the Securities and Exchange Commission,
or SEC, for the offering to which this communication relates. You should read the prospectus in that registration statement, the
product supplement, the index supplement and any other documents relating to this offering that Morgan Stanley has filed with the
SEC for more complete information about Morgan Stanley and this offering. You may get these documents without cost by visiting
EDGAR on the SEC web site at.www.sec.gov. Alternatively, Morgan Stanley will arrange to send you the product supplement, index
supplement and prospectus if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at www.sec.gov.as
follows:
Product Supplement dated February 29, 2016
Index Supplement dated January 30, 2017
Prospectus dated February 16, 2016
Terms used but not defined in this document are defined in the
product supplement, in the index supplement or in the prospectus.
VALIDITY
OF THE NOTES
In the opinion of Davis
Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the notes offered by this pricing supplement have
been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying
prospectus) and delivered against payment as contemplated herein, such notes will be valid and binding obligations of MSFL and
the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject
to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and
equitable principles of general applicability
(including, without limitation,
concepts of good faith, fair dealing and the lack of bad faith),
provided
that such counsel expresses no opinion as to (i)
the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above
and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent
transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee.
This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of
the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions
about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the
notes and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as
stated in the letter of such counsel dated February 16, 2016, which is Exhibit 5-a to Post-Effective Amendment No. 1 to the Registration
Statement on Form S-3 filed by Morgan Stanley on February 16, 2016.
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