Prospectus Filed Pursuant to Rule 424(b)(2) (424b2)
May 30 2019 - 3:16PM
Edgar (US Regulatory)
CALCULATION
OF REGISTRATION FEE
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Maximum Aggregate
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Amount of Registration
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Title of Each Class of Securities Offered
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Offering Price
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Fee
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Trigger Absolute Return Step Securities
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$2,000,000
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$242.40
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due 2024
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Pricing Supplement No. 2,027
Registration Statement Nos. 333-221595;
333-221595-01
Dated May 28, 2019
Filed Pursuant to Rule 424(b)(2)
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Morgan
Stanley Finance LLC $2,000,000 Trigger Absolute Return Step Securities
Linked to the S&P 500
®
Index due May 31, 2024
Fully and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
Investment Description
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These Trigger Absolute Return Step Securities (the “Securities”)
are unsecured and unsubordinated debt securities issued by Morgan Stanley Finance LLC (“MSFL”), fully and unconditionally
guaranteed by Morgan Stanley, with returns linked to the performance of the S&P 500
®
Index (the “Underlying”).
If the Final Level, which will be the arithmetic average of the Closing Levels of the Underlying on each of the five Averaging
Dates, is greater than or equal to the Step Barrier, MSFL will pay the Principal Amount at maturity plus a return equal to the
greater of (i) the Step Return of 32.10% and (ii) the Underlying Return. The Underlying Return will reflect the performance of
the Underlying from the Initial Level to the Final Level. If the Final Level is less than the Step Barrier but greater than or
equal to the Downside Threshold, MSFL will pay the full Principal Amount at maturity and pay a return equal to the absolute value
of the Underlying Return (the “Contingent Absolute Return”). However, if the Final Level is less than the Downside
Threshold, MSFL will pay significantly less than the full Principal Amount at maturity, if anything, resulting in a loss of principal
that is proportionate to the negative Underlying Return. These long-dated Securities are for investors who seek an equity index-based
return and who are willing to risk a loss on their principal and forgo current income in exchange for the Step Return and the Contingent
Absolute Return features and the contingent repayment of principal, which applies only if the Final Level is not less than the
Downside Threshold, each as applicable at maturity.
Investing in the Securities involves significant risks. You will not receive
interest or dividend payments during the term of the Securities. You may lose a significant portion or all of your Principal Amount.
The Contingent Absolute Return, any contingent repayment of principal and the Step Return apply only if you hold the Securities
to maturity.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These Securities are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
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Features
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q
Enhanced
Growth Potential with a Step Return Feature:
If the Final Level is greater than or equal to the Step Barrier, MSFL will pay
the Principal Amount at maturity plus pay a return equal to the greater of (i) the Step Return of 32.10% and (ii) the Underlying
Return. If the Final Level is less than the Downside Threshold, investors will be exposed to the negative Underlying Return at
maturity.
q
Contingent
Absolute Return at Maturity:
If the Final Level is less than the Step Barrier and the Final Level is not less than the Downside
Threshold, MSFL will pay the Principal Amount at maturity and pay the Contingent Absolute Return. However, if the Final Level
is less than the Downside Threshold, MSFL will pay significantly less than the full Principal Amount, if anything, resulting in
a loss of principal that is proportionate to the negative Underlying Return. The Contingent Absolute Return and any contingent
repayment of principal apply only if you hold the Securities to maturity. Any payment on the Securities, including any repayment
of principal, is subject to our creditworthiness.
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Trade Date
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May 28, 2019
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Settlement Date
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May 31, 2019
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Averaging Dates*
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May 21, 2024, May 22, 2024, May 23, 2024, May 24, 2024 and May 28, 2024
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Maturity Date*
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May 31, 2024
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* Subject to postponement
in the event of a Market Disruption Event or for non-Index Business Days. See “Postponement of Averaging Dates and Maturity
Date” under “Additional Terms of the Securities.”
The Securities are
significantly riskier than conventional debt INSTRUMENTS. the terms of the securities may not obligate US TO REPAY THE FULL PRINCIPAL
AMOUNT OF THE SECURITIES. the Securities CAN have downside MARKET risk SIMILAR TO the Underlying, WHICH CAN RESULT IN A LOSS OF
A SIGNIFICANT PORTION OR ALL OF YOUR INVESTMENT at maturity. This MARKET risk is in addition to the CREDIT risk INHERENT IN PURCHASING
OUR DEBT OBLIGATIONS.
You should not PURCHASE the Securities
if you do not understand or are not comfortable with the significant risks INVOLVED in INVESTING IN the Securities. THE SECURITIES
WILL NOT BE LISTED ON ANY SECURITIES EXCHANGE.
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER ‘‘KEY
RISKS’’ BEGINNING ON PAGE 5 OF THIS PRICING SUPPLEMENT IN CONNECTION WITH YOUR PURCHASE OF THE SECURITIES. EVENTS RELATING
TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY AFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR SECURITIES.
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Security Offering
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We are offering Trigger Absolute Return Step Securities
linked to the S&P 500
®
Index. The Securities are not subject to a predetermined maximum gain and, accordingly,
any return at maturity will be determined by the performance of the Underlying. The Securities are offered at a minimum investment
of 100 Securities at the Price to Public listed below.
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Underlying
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Initial
Level
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Step
Return
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Step
Barrier
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Downside
Threshold
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CUSIP
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ISIN
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S&P 500
®
Index
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2,802.39
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32.10%
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2,802.39, which is 100% of the Initial Level
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2,101.79, which is approximately 75% of the Initial Level
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61768Y596
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US61768Y5969
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See “Additional
Information about Morgan Stanley, MSFL and the Securities” on page 3. The Securities will have the terms set forth in the
accompanying prospectus, prospectus supplement and index supplement and this pricing supplement.
Neither
the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these Securities or passed
upon the adequacy or accuracy of this pricing supplement or the accompanying prospectus supplement, index supplement and prospectus.
Any representation to the contrary is a criminal offense. The Securities are not deposits or savings accounts and are not insured
by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations of,
or guaranteed by, a bank.
Estimated value on the Trade Date
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$9.513 per Security. See “Additional Information about Morgan Stanley, MSFL and the Securities” on page 3.
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Price
to Public
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Underwriting
Discount
(1)
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Proceeds
to Us
(2)
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Per Security
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$10.00
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$0.35
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$9.65
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Total
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$2,000,000
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$70,000
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$1,930,000
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(1)
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UBS Financial
Services Inc., acting as dealer, will receive from Morgan Stanley & Co. LLC, the
agent, a fixed sales commission of $0.35 for each Security it sells. For more information,
please see “Supplemental Plan of Distribution; Conflicts of Interest” on
page 22 of this pricing supplement.
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(2)
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See “Use
of Proceeds and Hedging” on page 21.
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The agent for this offering, Morgan Stanley & Co. LLC, is
our affiliate and a wholly owned subsidiary or Morgan Stanley. See “Supplemental Plan of Distribution; Conflicts of Interest”
on page 22 of this pricing supplement.
Morgan Stanley
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UBS Financial Services Inc.
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Additional Information about Morgan Stanley, MSFL and the Securities
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Morgan Stanley and MSFL have filed a registration
statement (including a prospectus, as supplemented by a prospectus supplement and an index supplement) with the SEC for the offering
to which this communication relates. In connection with your investment, you should read the prospectus in that registration statement,
the prospectus supplement, the index supplement and any other documents relating to this offering that Morgan Stanley and MSFL
have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering. You may get these documents
for free by visiting EDGAR on the SEC website at
.
www.sec.gov. Alternatively, Morgan Stanley,
MSFL, any underwriter or any dealer participating in this offering will arrange to send you the prospectus, the prospectus supplement
and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access the accompanying prospectus
supplement, index supplement and prospectus on the SEC website at
.
www.sec.gov as follows:
References to “MSFL” refer to
only MSFL, references to “Morgan Stanley” refer to only Morgan Stanley and references to “we,” “our”
and “us” refer to MSFL and Morgan Stanley collectively. In this document, the “Securities” refers to the
Trigger Absolute Return Step Securities that are offered hereby. Also, references to the accompanying “prospectus,”
“prospectus supplement” and “index supplement” mean the prospectus filed by MSFL and Morgan Stanley dated
November 16, 2017, the prospectus supplement filed by MSFL and Morgan Stanley dated November 16, 2017 and the index supplement
filed by MSFL and Morgan Stanley dated November 16, 2017, respectively.
You should rely only on the information incorporated
by reference or provided in this pricing supplement or the accompanying prospectus supplement, index supplement and prospectus.
We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the information in this pricing supplement or the accompanying
prospectus supplement, index supplement and prospectus is accurate as of any date other than the date on the front of this document.
The Issue Price of each Security is $10.
This price includes costs associated with issuing, selling, structuring and hedging the Securities, which are borne by you, and,
consequently, the estimated value of the Securities on the Trade Date is less than $10. We estimate that the value of each Security
on the Trade Date is $9.513.
What goes into the estimated value on
the Trade Date?
In valuing the Securities on the Trade Date,
we take into account that the Securities comprise both a debt component and a performance-based component linked to the Underlying.
The estimated value of the Securities is determined using our own pricing and valuation models, market inputs and assumptions relating
to the Underlying, instruments based on the Underlying, 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 Step Return, the Step Barrier and the Downside Threshold, 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 Trade Date and the secondary market price of the Securities?
The price at which MS & Co. purchases
the Securities in the secondary market, absent changes in market conditions, including those related to the Underlying, 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 Securities are not
fully deducted upon issuance, for a period of up to 12 months following the Settlement 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,
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. currently intends, 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.
Investor Suitability
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The Securities may be suitable for you if:
¨
You
fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
¨
You
can tolerate a loss of all or a substantial portion of your Principal Amount and are willing to make an investment that may have
the same downside market risk as the Underlying.
¨
You
are willing to hold the Securities to maturity, as set forth on the cover of this pricing supplement, and accept that there may
be little or no secondary market for the Securities.
¨
You
are willing and able to accept that the Final Level will be the arithmetic average of the Closing Levels of the Underlying on each
of the five Averaging Dates and that the Final Level of the Underlying may therefore be less than its level at or near maturity.
¨
You
understand and accept the risks associated with the Underlying.
¨
You
believe the Underlying will appreciate over the term of the Securities and you are willing to invest in the Securities based on
the Step Return of 32.10%.
¨
You
understand and accept that your potential positive return from the Contingent Absolute Return feature is limited by the Downside
Threshold.
¨
You
can tolerate fluctuations of the price of the Securities prior to maturity that may be similar to or exceed the downside fluctuations
in the level of the Underlying.
¨
You
do not seek current income from your investment and are willing to forgo dividends paid on the stocks included in the Underlying.
¨
You
are willing to assume our credit risk, and understand that if we default on our obligations you may not receive any amounts due
to you including any repayment of principal.
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The Securities may not be suitable for you if:
¨
You
do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial
investment.
¨
You
cannot tolerate a loss of all or a substantial portion of your Principal Amount, and you are not willing to make an investment
that may have the same downside market risk as the Underlying.
¨
You
require an investment designed to provide a full return of principal at maturity.
¨
You
are unable or unwilling to hold the Securities to maturity, as set forth on the cover of this pricing supplement, or you seek an
investment for which there will be an active secondary market.
¨
You
are unwilling and unable to accept that the Final Level will be the arithmetic average of the Closing Levels of the Underlying
on each of the five Averaging Dates and that the Final Level of the Underlying may therefore be less than its level at or near
maturity.
¨
You
do not understand and accept the risks associated with the Underlying.
¨
You
believe that the level of the Underlying will decline during the term of the Securities and is likely to close below the Downside
Threshold on the Averaging Dates.
¨
You
are unwilling to invest in the Securities based on the Step Return of 32.10%.
¨
You
do not understand and accept that your potential positive return from the Contingent Absolute Return feature is limited by the
Downside Threshold.
¨
You
prefer the lower risk, and therefore accept the potentially lower returns, of conventional debt securities with comparable maturities
issued by us or another issuer with a similar credit rating.
¨
You
seek current income from your investment or prefer to receive the dividends paid on the stocks included in the Underlying.
¨
You
are not willing or are unable to assume the credit risk associated with us, for any payment on the Securities, including any repayment
of principal.
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The investor suitability considerations identified
above are not exhaustive. Whether or not the Securities are a suitable investment for you will depend on your individual circumstances,
and you should reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have
carefully considered the suitability of an investment in the Securities in light of your particular circumstances. You should also
review “Key Risks” on page 5 of this pricing supplement and “Risk Factors” beginning on page 7 of the accompanying
prospectus for risks related to an investment in the Securities. For additional information about the Underlying, see the information
set forth under “The S&P 500
®
Index” on page 15.
Issuer
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Morgan Stanley Finance LLC
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Guarantor
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Morgan Stanley
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Issue Price (per Security)
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$10.00 per Security
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Principal Amount
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$10.00 per Security
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Term
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5 years
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Underlying
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S&P 500
®
Index
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Downside Threshold
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2,101.79, which is approximately 75% of the Initial Level.
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Payment at Maturity (per Security)
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If the Final Level is greater than or equal to the
Step Barrier
, MSFL will pay you an amount calculated as follows:
$10 + [$10 × (the greater of (i) the Step
Return and (ii) the Underlying Return)]
If the Final Level is less than the Step Barrier
and the Final Level is greater than or equal to the Downside Threshold,
MSFL will pay you a cash payment of:
$10 + ($10 x Contingent Absolute Return)
If the Final Level is less than the Downside Threshold,
MSFL will pay you an amount calculated as follows:
$10 + ($10
×
Underlying Return)
In this case, the Contingent Absolute Return will
not apply, and you will lose a significant portion or all of your Principal Amount in an amount proportionate to the negative Underlying
Return.
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Underlying Return
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Final Level –
Initial Level
Initial Level
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Step Return
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32.10%
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Contingent Absolute Return
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The absolute value of the Underlying Return. For example, if the Underlying Return is -5.00%, the Contingent Absolute Return will be 5.00%.
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Initial Level
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2,802.39, which is the Closing Level of the Underlying on the Trade Date.
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Final Level
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The arithmetic average of the Closing Levels of the Underlying on each of the five Averaging Dates.
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Step Barrier
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2,802.39, which is 100% of the Initial Level
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Trade Date
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May 28, 2019
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Settlement Date
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May 31, 2019
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Averaging Dates*
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May 21, 2024, May 22, 2024, May 23, 2024, May 24, 2024 and May 28, 2024
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Maturity Date*
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May 31, 2024
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CUSIP / ISIN
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61768Y596 / US61768Y5969
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Calculation Agent
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Morgan Stanley & Co. LLC
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* Subject to postponement in the event of a Market Disruption Event or for non-Index Business Days. See “Postponement of Averaging Dates and Maturity Date” under “Additional Terms of the Securities.”
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The Closing Level of the Underlying (Initial Level) is observed, the Downside Threshold is determined and the Step Return is set.
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The Final Level and Underlying Return are calculated based on
the Closing Levels of the Underlying on the five Averaging Dates
If the Final Level is greater than or equal to the Step Barrier
,
MSFL will pay you a cash payment per Security equal to:
$10 + [$10 × (the greater of (i) the Step Return and (ii)
the Underlying Return)]
If the Final Level is less than the Step Barrier and greater
than or equal to the Downside Threshold
, MSFL will pay you a cash payment per Security equal to:
$10 + (10 x Contingent Absolute Return)
If the Final Level is less than the Downside Threshold
,
MSFL will pay you a cash payment at maturity equal to:
$10 + ($10 × Underlying Return)
Under these circumstances,
the Contingent Absolute Return will not apply, and you will lose a significant portion, and could lose all, of your Principal Amount.
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INVESTING IN THE SECURITIES
INVOLVES SIGNIFICANT RISKS. YOU MAY LOSE YOUR ENTIRE PRINCIPAL AMOUNT. ANY PAYMENT ON THE SECURITIES IS SUBJECT TO OUR CREDITWORTHINESS.
IF WE WERE TO DEFAULT ON OUR PAYMENT OBLIGATIONS, YOU MAY NOT RECEIVE ANY AMOUNTS OWED TO YOU UNDER THE SECURITIES AND YOU COULD
LOSE YOUR ENTIRE INVESTMENT.
An investment in the Securities
involves significant risks. Some of the risks that apply to the Securities are summarized here, but we urge you to also read the
“Risk Factors” section of the accompanying prospectus. You should also consult your investment, legal, tax, accounting
and other advisers in connection with your investment in the Securities.
|
¨
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The Securities do not guarantee any return of principal
– The terms of the Securities
differ from those of ordinary debt securities in that MSFL is not necessarily obligated to repay any of the Principal Amount at
maturity. If the Final Level is less than the Downside Threshold (which is 75% of the Initial Level), the Contingent Absolute Return
will not apply, you will be exposed to the full negative Underlying Return and the payout owed at maturity by MSFL will be an amount
in cash that is at least 25% less than the $10 Principal Amount of each Security, resulting in a loss proportionate to the decrease
in the value of the Underlying from the Initial Level to the Final Level. There is no minimum payment at maturity on the Securities,
and, accordingly, you could lose all of your Principal Amount in the Securities
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|
¨
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You may incur a loss on your investment if you sell your Securities prior to maturity
–
The Downside Threshold is observed on the Averaging Dates, the Contingent Absolute Return and any contingent repayment of principal
apply only at maturity. If you are able to sell your Securities in the secondary market prior to maturity, you may have to sell
them at a loss relative to your initial investment even if the Closing Level of the Underlying is above the Downside Threshold
at that time.
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¨
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The Step Return applies only if you hold the Securities to maturity –
You should
be willing to hold your Securities to maturity. If you are able to sell your Securities prior to maturity in the secondary market,
the price you receive will likely not reflect the full economic value of the Step Return or the Securities themselves, and the
return you realize may be less than the Underlying's return even if such return is positive. You can receive the full benefit of
the Step Return from MSFL only if you hold your Securities to maturity.
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¨
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The potential for a positive return if the Underlying depreciates is limited –
Any
positive return on the Securities if the Underlying depreciates will be limited by the Downside Threshold, because the Contingent
Absolute Return feature will apply only if the Final Level is greater than or equal to the Downside Threshold. If the Final Level
is less than the Downside Threshold, you will not receive a Contingent Absolute Return and will instead lose a substantial portion
or all of your investment
|
|
¨
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The Securities are subject to our credit risk, and any actual or anticipated changes to our
credit ratings or our credit spreads may adversely affect the market value of the Securities
– You are dependent on our
ability to pay all amounts due on the Securities at maturity, if any, and therefore you are subject to our credit risk. If we default
on our obligations under the Securities, your investment would be at risk and you could lose some or all of your investment. As
a result, the market value of the Securities prior to maturity will be affected by changes in the market’s view of our creditworthiness.
Any actual or anticipated decline in our credit ratings or increase in our credit spreads charged by the market for taking our
credit risk is likely to adversely affect the market value of the Securities.
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¨
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As a finance subsidiary, MSFL has no independent operations
and will have no independent assets
– As a finance subsidiary, MSFL has no independent operations beyond the issuance
and administration of its securities and will have no independent assets available for distributions to holders of MSFL securities
if they make claims in respect of such securities in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries
by such holders will be limited to those available under the related guarantee by Morgan Stanley and that guarantee will rank
pari
passu
with all other unsecured, unsubordinated obligations of Morgan Stanley. Holders will have recourse only to a single claim
against Morgan Stanley and its assets under the guarantee. Holders of securities issued by MSFL should accordingly assume that
in any such proceedings they would not have any priority over and should be treated
pari passu
with the claims of other
unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued securities.
|
|
¨
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The Securities do not pay interest
– MSFL will not pay any interest with respect to the Securities over the term of the Securities.
|
|
¨
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The market price of the Securities may
be influenced by many unpredictable factors
–
Several
factors, many of which are beyond our control, will influence the value of the Securities in the secondary market and the price
at which MS & Co. may be willing to purchase or sell the Securities in the secondary market (if at all), including:
|
|
o
|
the value of the Underlying at any time,
|
|
o
|
the volatility (frequency and magnitude of changes
in value) of the Underlying,
|
|
o
|
dividend rates on the securities included in the Underlying,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
geopolitical conditions and economic, financial, political,
regulatory or judicial events that affect the Underlying or stock markets generally and which may affect the Final Level,
|
|
o
|
the time remaining until the Securities mature, and
|
|
o
|
any actual or anticipated changes in our credit ratings
or credit spreads.
|
Some or all
of these factors will influence the terms of the Securities at the time of issuance and the price that you will receive if you
are able to sell your Securities prior to maturity, as the Securities are comprised of both a debt component and a performance-based
component linked to the Underlying, and these are the types of factors that also generally affect the values of debt securities
and derivatives linked to the Underlying. Generally, the longer the time remaining to maturity, the more the market price of the
Securities will be affected by the other factors described above. For example, you may have to sell your Securities at a substantial
discount from the principal amount of $10 per Security if the value of the Underlying at the time of sale is at, below or moderately
above its Initial Level, and especially if it is near or below the Downside Threshold, or if market interest rates rise. You cannot
predict the future performance of the Underlying based on its historical performance.
|
t
|
The probability that the Final Level
will be less than the Downside Threshold will depend on the volatility of the Underlying
–
“Volatility”
refers to the frequency and magnitude of changes in the level of the Underlying. Higher expected volatility with respect to the
Underlying as of the Trade Date generally indicates a greater chance as of that date that the Final Level will be less than the
Downside Threshold, which would result in a loss of a significant portion or all of your investment at maturity. However, the Underlying’s
volatility can change significantly over the term of the Securities. The level of the Underlying could fall sharply, resulting
in a significant loss of principal. You should be willing to accept the downside market risk of the Underlying and the potential
loss of a significant portion or all of your investment at maturity.
|
|
¨
|
The amount payable on the Securities is
not linked to the level of the Underlying at any time other than the Averaging Dates
–
The
Final Level will be the arithmetic average of the Closing Levels of the Underlying on each of the five Averaging Dates, subject
to postponement for non-Index Business Days and certain Market Disruption Events. Even if the level of the Underlying appreciates
prior to the Averaging Dates but then drops by the Averaging Dates, the Payment at Maturity may be significantly less than it would
have been had the Payment at Maturity been linked to the level of the Underlying prior to such drop. Although the actual level
of the Underlying on the stated Maturity Date or at other times during the term of the Securities may be higher than the Final
Level, the Payment at Maturity will be based solely on the arithmetic average of the Closing Levels of the Underlying on each of
the Averaging Dates as compared to the Initial Level.
|
|
¨
|
The amount payable on the Securities is
based on the arithmetic average of the Closing Levels of the Underlying on each of the five Averaging Dates, and therefore the
payment at maturity may be less than if it were based solely on the Closing Level of the Underlying on the final Averaging Date
–
The amount payable at maturity will be calculated by reference to the average of the Closing Levels of the Underlying
on each of the five Averaging Dates. Therefore, in calculating the Final Level, positive performance of the Underlying as of some
Averaging Dates may be moderated, or wholly offset, by lesser or negative performance as of other Averaging Dates. Similarly, the
Final Level, calculated based on the Closing levels of the Underlying on each of the five Averaging Dates, may be less than the
Closing Level of the Underlying on the final Averaging Date, and as a result, the payment at maturity you receive may be less than
if it were based solely on the Closing Level of the Underlying on the final Averaging Date.
|
|
¨
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Investing in the Securities is not equivalent
to investing in the Underlying or the stocks composing the Underlying
– Investing in the Securities is not equivalent
to investing in the Underlying or the stocks that constitute the Underlying. Investors in the Securities will not have voting rights
or rights to receive dividends or other distributions or any other rights with respect to the stocks that constitute the Underlying.
Additionally, the Underlying is not a “total return” Underlying, which, in addition to reflecting the market prices
of the stocks that constitute the Underlying, would also reflect dividends paid on such stocks. The return on the Securities will
not include such a total return feature.
|
|
¨
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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 Issue Price reduce the economic terms of the Securities, cause the estimated value of the Securities to be less
than the Issue Price and will adversely affect secondary market prices
–
Assuming
no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may
be willing to purchase the Securities in secondary market transactions will likely be significantly lower than the Issue Price,
because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the
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 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 Settlement 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, and to our secondary market credit
spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected
in your brokerage account statements.
|
¨
|
The estimated value of the Securities is
determined by reference to our pricing and valuation models, which may differ from those of other dealers and is not a maximum
or minimum secondary market price
–
These pricing and
valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions
|
about
future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities,
our models may yield a higher estimated value of the Securities than those generated by others, including other dealers in the
market, if they attempted to value the Securities. In addition, the estimated value on the Trade 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 of the Securities may be influenced by many unpredictable factors” above.
|
¨
|
Adjustments to the Underlying could adversely
affect the value of the Securities
–
The Underlying Publisher
of the Underlying is responsible for calculating and maintaining the Underlying. The Underlying Publisher may add, delete or substitute
the stocks constituting the Underlying or make other methodological changes required by certain corporate events relating to the
stocks constituting the Underlying, such as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends,
that could change the value of the Underlying. The Underlying Publisher may discontinue or suspend calculation or publication of
the Underlying at any time. In these circumstances, the Calculation Agent will have the sole discretion to substitute a Successor
Underlying that is comparable to the discontinued Underlying, and is permitted to consider indices that are calculated and published
by the Calculation Agent or any of its affiliates. Any of these actions could adversely affect the value of the Underlying and,
consequently, the value of the Securities.
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|
¨
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The Securities will not be listed on any
securities exchange and secondary trading may be limited
–
The
Securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the Securities.
MS & Co. currently intends, 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.
|
|
¨
|
Hedging and trading activity by our affiliates
could potentially adversely affect the value of the Securities
–
One
or more of our affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related
to the Securities, including trading in the constituent stocks of the Underlying, in futures or options contracts on the Index
or the constituent stocks of the Underlying, as well as in other instruments related to the Underlying. As a result, these entities
may be unwinding or adjusting hedge positions during the term of the Securities, and the hedging strategy may involve greater and
more frequent dynamic adjustments to the hedge as the Averaging Dates approach. MS & Co. and some of our other affiliates also
trade the constituent stocks of the Underlying, in futures or options contracts on the constituent stocks of the Underlying, as
well as in other instruments related to the Underlying, 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 Level of the Underlying,
and, therefore, could have increased the Downside Threshold, which is the level at or above which the Underlying must close on
the Averaging Dates so that investors do not suffer a significant loss on their initial investment in the Securities. Additionally,
such hedging or trading activities during the term of the Securities, including on the Averaging Dates, could adversely affect
the Closing Level of the Underlying on the Averaging Dates, and, accordingly, the amount of cash payable at maturity, if any.
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¨
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Potential conflict of interest
–
As Calculation Agent, MS & Co. has determined the Initial Level, the Downside Threshold and the Step Return, will determine
the Final Level and whether any Market Disruption Event has occurred and will calculate the amount payable at maturity, if any.
Moreover, certain determinations made by MS & Co., in its capacity as Calculation Agent, may require it to exercise discretion
and make subjective judgments, such as with respect to the occurrence or non-occurrence of Market Disruption Events and the selection
of a Successor Underlying or calculation of the Final Level in the event of a discontinuance of the Underlying or a Market Disruption
Event. These potentially subjective determinations may adversely affect the payout to you at maturity, if any. For further information
regarding these types of determinations, see “Additional Terms of the Securities—Postponement of Averaging Dates and
Maturity Date,” “—Discontinuance of the Underlying; Alteration of Method of Calculation” and “—Calculation
Agent and Calculations” below. In addition, MS & Co. has determined the estimated value of the Securities on the Trade
Date.
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¨
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Potentially inconsistent research, opinions
or recommendations by Morgan Stanley, UBS or our or their respective affiliates
–
Morgan
Stanley, UBS and our or their respective affiliates may publish research from time to time on financial markets and other matters
that may influence the value of the Securities, or express opinions or provide recommendations that are inconsistent with purchasing
or holding the Securities. Any research, opinions or recommendations expressed by Morgan Stanley, UBS or our or their respective
affiliates may not be consistent with each other and may be modified from time to time without notice. Investors should make their
own independent investigation of the merits of investing in the Securities and the Underlying to which the Securities are linked.
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¨
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Uncertain Tax Treatment
– Please note that the discussions in this pricing supplement
concerning the U.S. federal income tax consequences of an investment in the Securities supersede the discussions contained in the
accompanying prospectus supplement.
|
Subject to the discussion under
“What Are the Tax Consequences of the Securities” in this pricing supplement, although there is uncertainty regarding
the U.S. federal income tax consequences of an investment in the Securities due to the lack of governing authority, in the opinion
of our counsel, Davis Polk & Wardwell LLP (“our counsel”), under current law, and based on current market conditions,
each Security should be treated as a single financial contract that is an “open transaction” for U.S. federal income
tax purposes.
If the Internal Revenue Service
(the “IRS”) were successful in asserting an alternative treatment for the Securities, the timing and character of income
on the Securities might differ significantly from the tax treatment described herein. For example, under one possible treatment,
the IRS could seek to recharacterize the Securities as debt instruments. In that event, U.S. Holders (as defined below) would be
required to accrue into income original issue discount on the Securities every year at a “comparable yield” determined
at the time of issuance and recognize all income and gain in respect of the Securities as ordinary income. The risk that financial
instruments providing for buffers, triggers or similar downside protection features, such as the Securities, would be recharacterized
as debt is greater than the risk of recharacterization for comparable financial instruments that do not have such features. We
do not plan to request a ruling from the IRS regarding the tax treatment of the Securities, and the IRS or a court may not agree
with the tax treatment described in this pricing supplement.
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. Holders (as defined below)
should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership”
rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest
charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other
guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment
in the Securities, possibly with retroactive effect.
Both U.S. and Non-U.S. Holders
should read carefully the discussion under “What Are the Tax Consequences of the Securities” in this pricing supplement
and consult their tax advisers regarding all aspects of the U.S. federal tax consequences of an investment in the Securities as
well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Scenario Analysis and Examples at Maturity
|
These examples are
based on hypothetical terms. The actual terms are set forth on the cover of this pricing supplement.
The below scenario analysis
and examples are provided for illustrative purposes only and are hypothetical. They do not purport to be representative of every
possible scenario concerning increases or decreases in the level of the Underlying relative to the Initial Level. We cannot predict
the Closing Levels of the Underlying on any of the five Averaging Dates. You should not take the scenario analysis and these examples
as an indication or assurance of the expected performance of the Underlying. The numbers appearing in the examples below have been
rounded for ease of analysis. The following scenario analysis and examples illustrate the payment at maturity for a $10.00 security
on a hypothetical offering of the Securities, with the following assumptions
*
:
Investment term:
|
5 years
|
Hypothetical Initial Level:
|
2,600
|
Hypothetical Downside Threshold:
|
1,950 (75% of the hypothetical Initial Level)
|
Step Return:
|
32.10%
|
Hypothetical Step Barrier:
|
2,600, which is 100% of the hypothetical Initial Level
|
*
The actual Initial
Level, Downside Threshold and Step Barrier are specified on the cover of this pricing supplement.
Example 1
—
The level
of the Underlying
increases
from an Initial Level of 2,600 to a Final Level of 2,990.
The Final Level is greater than
or equal to the Step Barrier but the Underlying Return is less than the Step Return of
32.10%
:
Underlying Return = (2,990
– 2,600) / 2,600 = 15.00%
Payment at Maturity = $10
+ [$10 x the greater of (i) 32.10% and (ii) 15.00%] = $13.21
Because the Final Level, as determined on the
five Averaging Dates, is greater than or equal to the Step Barrier but the Underlying Return is less than the Step Return of 32.10%,
the Payment at Maturity is equal to $13.21 per $10.00 Principal Amount of Securities, resulting in a total return on the Securities
of 32.10%.
Example 2
—
The level
of the Underlying
increases
from an Initial Level of 2,600 to a Final Level of 4,550.
The Final Level is greater than
or equal to the Step Barrier and the Underlying Return is greater than the Step Return of
32.10%
:
Underlying Return = (4,550
– 2,600) / 2,600 = 75.00%
Payment at Maturity = $10
+ [$10 x the greater of (i) 32.10% and (ii) 75.00%] = $17.50
Because the Final Level, as determined on the
five Averaging Dates, is greater than or equal to the Step Barrier and the Underlying Return is greater than the Step Return of
32.10%, the Payment at Maturity is equal to $17.50 per $10.00 Principal Amount of Securities, resulting in a total return on the
Securities of 75.00%.
Example 3
—
The level of the Underlying
decreases
from an Initial Level of 2,600 to a Final Level of 2,210.
The Final Level is less than the Step Barrier but
greater than or equal to the Downside Threshold:
Underlying Return = (2,210
– 2,600) / 2,600 = -15.00%
Payment at Maturity = $10
+ ($10 x Contingent Absolute Return)
Payment at Maturity = ($10
+ ($10 x 15.00%)
= $11.50
Because the Final Level, as determined on the
five Averaging Dates, is less than the Step Barrier but greater than or equal to the Downside Threshold, the Contingent Absolute
Return will apply and MSFL will pay you a Payment at Maturity equal to $11.50 per $10.00 Principal Amount of Securities, resulting
in a 15.00% percent return on the Securities.
Example 4
—
The level of the Underlying
decreases
from an Initial Level of 2,600 to a Final Level of 1,560.
The Underlying Return is less than the Downside
Threshold and expressed as a formula:
Underlying Return = (1,560
– 2,600) / 2,600 = -40.00%
Payment at Maturity = $10
+ ($10
×
-40.00%) = $6.00
Because the Final Level, as determined on the
five Averaging Dates, is less than the Downside Threshold, the Contingent Absolute Return will not apply and the Securities will
be fully exposed to any decline in the level of the Underlying. Therefore, the Payment at Maturity is equal to $6.00 per $10.00
Principal Amount of Securities, resulting in a total loss on the Securities of 40.00%.
If the Final Level, as determined on the
five Averaging Dates, is below the Downside Threshold, the Contingent Absolute Return will not apply, the Securities will be fully
exposed to any decline in the Underlying, and you will lose more than 25%, and possibly all, of your Principal Amount at maturity.
Scenario Analysis – Hypothetical
Payment at Maturity for each $10.00 Principal Amount of Securities.
Performance
of the Underlying*
|
Performance
of the Securities
|
Final
Level
|
Underlying
Return
|
Payment
at Maturity
|
Return
on Securities Purchased at $10.00
(1)
|
5,200
|
100.00%
|
$20.00
|
100.00%
|
4,940
|
90.00%
|
$19.00
|
90.00%
|
4,680
|
80.00%
|
$18.00
|
80.00%
|
4,420
|
70.00%
|
$17.00
|
70.00%
|
4,160
|
60.00%
|
$16.00
|
60.00%
|
3,900
|
50.00%
|
$15.00
|
50.00%
|
3,640
|
40.00%
|
$14.00
|
40.00%
|
3,434.60
|
32.10%
|
$13.21
|
32.10%
|
3,380
|
30.00%
|
$13.21
|
32.10%
|
3,120
|
20.00%
|
$13.21
|
32.10%
|
2,860
|
10.00%
|
$13.21
|
32.10%
|
2,600
|
0.00%
|
$13.21
|
32.10%
|
2,340
|
-10.00%
|
$11.00
|
10.00%
|
2,080
|
-20.00%
|
$12.00
|
20.00%
|
1,950
|
-25.00%
|
$12.50
|
25.00%
|
1,924
|
-26.00%
|
$7.40
|
-26.00%
|
1,820
|
-30.00%
|
$7.00
|
-30.00%
|
1,560
|
-40.00%
|
$6.00
|
-40.00%
|
1,300
|
-50.00%
|
$5.00
|
-50.00%
|
1,040
|
-60.00%
|
$4.00
|
-60.00%
|
780
|
-70.00%
|
$3.00
|
-70.00%
|
520
|
-80.00%
|
$2.00
|
-80.00%
|
260
|
-90.00%
|
$1.00
|
-90.00%
|
0
|
-100.00%
|
$0.00
|
-100.00%
|
*.
The Underlying excludes cash dividend
payments on stocks included in the Underlying.
(1) The “Return on Securities”
is the number, expressed as a percentage, that results from comparing the Payment at Maturity per $10 Principal Amount Security
to the purchase price of $10 per Security.
What are the tax consequences of the Securities?
|
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 pricing supplement and is superseded by the following discussion.
The following summary is a general discussion
of the principal U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the
Securities. This discussion applies only to investors in the Securities who:
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t
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purchase the Securities in the original offering; and
|
|
t
|
hold the Securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
|
t
|
certain financial institutions;
|
|
t
|
certain dealers and traders in securities or commodities;
|
|
t
|
investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
|
|
t
|
U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
|
|
t
|
partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
|
|
t
|
regulated investment companies;
|
|
t
|
real estate investment trusts; or
|
|
t
|
tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
|
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the Securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the Securities to you.
In addition, we will not attempt to ascertain
whether any issuer of any shares to which a Security relates (such shares hereafter referred to as “Underlying Shares”)
is treated as a “passive foreign investment company” (“PFIC”) within the meaning of Section 1297 of the
Code or as a “U.S. real property holding corporation” (“USRPHC”) within the meaning of Section 897 of the
Code. If any issuer of Underlying Shares were so treated, certain adverse U.S. federal income tax consequences might apply, to
a U.S. Holder in the case of a PFIC and to a Non-U.S. Holder (as defined below) in the case of a USRPHC, upon the sale, exchange
or settlement of the Securities. You should refer to information filed with the Securities and Exchange Commission or other governmental
authorities by the issuers of the Underlying Shares and consult your tax adviser regarding the possible consequences to you if
any issuer is or becomes a PFIC or USRPHC.
As the law applicable to the U.S. federal income
taxation of instruments such as the Securities is technical and complex, the discussion below necessarily represents only a general
summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum
tax consequences or consequences resulting from the Medicare tax on investment income.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date of this pricing supplement,
changes to any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the
purchase of the Securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws
to their particular situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Although there is uncertainty regarding the
U.S. federal income tax consequences of an investment in the Securities due to the lack of governing authority, in the opinion
of our counsel, under current law, and based on current market conditions, each Security should be treated as a single financial
contract that is an “open transaction” for U.S. federal income tax purposes.
Due to the absence of statutory, judicial
or administrative authorities that directly address the treatment of the Securities or instruments that are similar to the Securities
for U.S. federal income tax purposes, no assurance can be given that the Internal Revenue Service (the “IRS”) or a
court will agree with the tax treatment described herein. Accordingly, you should consult your tax adviser regarding all aspects
of the U.S. federal tax consequences of an
investment in the Securities (including
possible alternative treatments of the Securities). Unless otherwise stated, the following discussion is based on the treatment
of the Securities as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Security that is, for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
|
|
t
|
a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia; or
|
|
t
|
an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
Tax Treatment of the Securities
Assuming the treatment of the Securities as
set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Treatment Prior to Settlement.
A U.S. Holder should not be required to recognize taxable income over the term of the Securities prior to settlement, other than
pursuant to a sale or exchange as described below.
Tax Basis
. A U.S. Holder’s tax
basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Sale, Exchange or Settlement of the Securities
.
Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain or loss equal to the difference between
the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Securities sold, exchanged
or settled. Subject to the discussion above regarding the possible application of Section 1297 of the Code, any gain or loss recognized
upon the sale, exchange or settlement of the Securities should be long-term capital gain or loss if the U.S. Holder has held the
Securities for more than one year at such time, and short-term capital gain or loss otherwise.
Possible Alternative Tax Treatments of
an Investment in the Securities
Due to the absence of authorities that directly
address the proper tax treatment of the Securities, no assurance can be given that the IRS will accept, or that a court will uphold,
the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning
the Securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the Securities, the timing and character
of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the Securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of the contingent payment on
the Securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
Securities would generally be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent
of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter. 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.
Other alternative federal income tax treatments
of the Securities are also possible, which, if applied, could significantly affect the timing and character of the income or loss
with respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the
U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. 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; and whether these instruments are or should be subject
to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital
gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective
dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the Securities, possibly with retroactive effect. U.S. Holders should consult their
tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities, including possible alternative
treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of
the payment on the Securities at maturity and the payment of proceeds from a sale, exchange or other disposition of the Securities,
unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies
with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an
additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that
the required information is timely furnished to the IRS. In addition, information returns may be filed with the IRS in connection
with the payment on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless
the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are
a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that is, for U.S.
federal income tax purposes:
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an individual who is classified as a nonresident alien;
|
|
t
|
a foreign corporation; or
|
|
t
|
a foreign estate or trust.
|
The term “Non-U.S. Holder” does
not include any of the following holders:
|
t
|
a holder who is an individual present in the United States for 183
days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income
tax purposes;
|
|
t
|
certain former citizens or residents of the United States; or
|
|
t
|
a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
|
Such holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the Securities.
Tax Treatment upon Sale, Exchange or
Settlement of the Securities
In
general.
Assuming the treatment of the Securities as set forth above is respected, and subject to the discussions below concerning
backup withholding and the possible application of Section 871(m) of the Code and the discussion above concerning the possible
application of Section 897 of the Code, a Non-U.S. Holder of the Securities generally will not be subject to U.S. federal income
or withholding tax in respect of amounts paid to the Non-U.S. Holder.
Subject to the discussions regarding the possible
application of Sections 871(m) and 897 of the Code and FATCA, if all or any portion of a Security were recharacterized as a debt
instrument, any payment made to a Non-U.S. Holder with respect to the Securities would not be subject to U.S. federal withholding
tax, provided that:
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the Non-U.S. Holder does not own, directly or by attribution, ten percent
or more of the total combined voting power of all classes of Morgan Stanley stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation related,
directly or indirectly, to Morgan Stanley through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest under Section
881(c)(3)(A) of the Code, and
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the certification requirement described below has been fulfilled with
respect to the beneficial owner.
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Certification Requirement.
The certification
requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Security (or a financial institution
holding a Security on behalf of the beneficial owner) furnishes to the applicable withholding agent an IRS Form W-8BEN (or other
appropriate form) on which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
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. Among the issues addressed in the notice is the degree, if any, to which any income with respect to instruments
such as the Securities should be subject to U.S. withholding tax. It is possible that any Treasury regulations or other guidance
promulgated after consideration of this issue could materially and adversely affect the withholding tax consequences of ownership
and disposition of the Securities, possibly on a retroactive basis. Non-U.S. Holders should note that we currently do not intend
to withhold on any payment made with respect to the Securities to Non-U.S. Holders (subject to compliance by such holders with
the certification requirement described above and to the discussions regarding Sections 871(m) and 897 of the Code and FATCA).
However, in the event of a change of law or any formal or informal
guidance by the IRS, the U.S. Treasury Department
or Congress, we may decide to withhold on payments made with respect to the Securities to Non-U.S. Holders, and we will not be
required to pay any additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult their tax
advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the Securities, including the possible
implications of the notice referred to above.
Section 871(m) Withholding Tax on Dividend
Equivalents
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, pursuant to an IRS
notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have a delta of one with respect
to any Underlying Security. Based on our determination that the Securities do not have a delta of one with respect to any Underlying
Security, our counsel is of the opinion that the Securities should not be Specified Securities and, therefore, should not be subject
to Section 871(m).
Our determination is not binding on the IRS,
and the IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances,
including whether you enter into other transactions with respect to an Underlying Security. If withholding is required, we will
not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser regarding
the potential application of Section 871(m) to the Securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the
property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for
example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers),
should note that, absent an applicable treaty exemption, the Securities may be treated as U.S. situs property subject to U.S. federal
estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their
tax advisers regarding the U.S. federal estate tax consequences of an investment in the Securities.
Backup Withholding and Information Reporting
Information returns may be filed with the IRS
in connection with the payment on the Securities at maturity as well as in connection with the payment of proceeds from a sale,
exchange or other disposition of the Securities. A Non-U.S. Holder may be subject to backup withholding in respect of amounts paid
to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person
for U.S. federal income tax purposes or otherwise establishes an exemption. Compliance with the certification procedures described
above under “―Tax Treatment upon Sale, Exchange or Settlement of the Securities – Certification Requirement”
will satisfy the certification requirements necessary to avoid backup withholding as well. The amount of any backup withholding
from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA”
generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect
to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied.
An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income. If the Securities were recharacterized as debt instruments, FATCA would apply
to any payment of amounts treated as interest and to payments of gross proceeds of the disposition (including upon retirement)
of the Securities. However, under recently proposed regulations (the preamble to which specifies that taxpayers are permitted to
rely on them pending finalization), no withholding will apply on payments of gross proceeds. If withholding were to apply to the
Securities, we would not be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders
should consult their tax advisers regarding the potential application of FATCA to the Securities.
The discussion in the preceding paragraphs
under “What Are the Tax Consequences of the Securities,” insofar as it purports to describe provisions of U.S. federal
income tax laws or legal conclusions with respect thereto, constitutes the full opinion of Davis Polk & Wardwell LLP regarding
the material U.S. federal income tax consequences of an investment in the Securities.
The S&P 500
®
Index
|
The S&P 500
®
Index,
which is calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500
component companies selected to provide a performance benchmark for the U.S. equity markets. The calculation of the
S&P 500
®
Index is based on the relative value of the float adjusted aggregate market capitalization of
the 500 component companies as of a particular time as compared to the aggregate average market capitalization of 500 similar companies
during the base period of the years 1941 through 1943. For additional information about the S&P 500
®
Index,
see the information set forth under “S&P 500
®
Index” in the accompanying index supplement.
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 500
®
,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. For more information, see “S&P 500
®
Index”
in the accompanying index supplement.
|
Historical Information
|
The following table sets forth the published high and low Closing
Levels, as well as the end-of-quarter Closing Levels, of the S&P 500
®
Index for each quarter in the period from
January 1, 2014 through May 28, 2019. The Closing Level of the S&P 500
®
Index on May 28, 2019 was 2,802.39.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical
Closing Levels of the S&P 500
®
Index should not be taken as an indication of future performance, and no assurance
can be given as to the Closing Level of the S&P 500
®
Index on any of the five Averaging Dates.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
1,878.04
|
1,741.89
|
1,872.34
|
4/1/2014
|
6/30/2014
|
1,962.87
|
1,815.69
|
1,960.23
|
7/1/2014
|
9/30/2014
|
2,011.36
|
1,909.57
|
1,972.29
|
10/1/2014
|
12/31/2014
|
2,090.57
|
1,862.49
|
2,058.90
|
1/1/2015
|
3/31/2015
|
2,117.39
|
1,992.67
|
2,067.89
|
4/1/2015
|
6/30/2015
|
2,130.82
|
2,057.64
|
2,063.11
|
7/1/2015
|
9/30/2015
|
2,128.28
|
1,867.61
|
1,920.03
|
10/1/2015
|
12/31/2015
|
2,109.79
|
1,923.82
|
2,043.94
|
1/1/2016
|
3/31/2016
|
2,063.95
|
1,829.08
|
2,059.74
|
4/1/2016
|
6/30/2016
|
2,119.12
|
2,000.54
|
2,098.86
|
7/1/2016
|
9/30/2016
|
2,190.15
|
2,088.55
|
2,168.27
|
10/1/2016
|
12/31/2016
|
2,271.72
|
2,085.18
|
2,238.83
|
1/1/2017
|
3/31/2017
|
2,395.96
|
2,257.83
|
2,362.72
|
4/1/2017
|
6/30/2017
|
2,453.46
|
2,328.95
|
2,423.41
|
7/1/2017
|
9/30/2017
|
2,519.36
|
2,409.75
|
2,519.36
|
10/1/2017
|
12/31/2017
|
2,690.16
|
2,529.12
|
2,673.61
|
1/1/2018
|
3/31/2018
|
2,872.87
|
2,581.00
|
2,640.87
|
4/1/2018
|
6/30/2018
|
2,786.85
|
2,581.88
|
2,718.37
|
7/1/2018
|
9/30/2018
|
2,930.75
|
2,713.22
|
2,913.98
|
10/1/2018
|
12/31/2018
|
2,925.51
|
2,351.10
|
2,506.85
|
1/1/2019
|
3/31/2019
|
2,854.88
|
2,447.89
|
2,834.40
|
4/1/2019
|
5/28/2019*
|
2,945.83
|
2,802.39
|
2,802.39
|
* Available information
for the indicated period includes data for less than the entire calendar quarter, and, accordingly, the “Quarterly High,”
“Quarterly Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the S&P 500
®
Index from January 1, 2008 through May 28, 2019, based on information from Bloomberg.
Past performance of the S&P 500
®
Index is not indicative of the future performance of the S&P 500
®
Index.
Additional Terms of the Securities
|
If the terms contained in this pricing supplement
differ from those contained in the prospectus supplement, index supplement or prospectus, the terms contained in this pricing supplement
will control.
Some Definitions
We have defined some of the terms that we
use frequently in this pricing supplement below:
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“Closing Level” means, on any
Index Business Day for the Underlying, the closing value of the Underlying, or any Successor Underlying (as defined under “—Discontinuance
of the Underlying; Alteration of Method of Calculation” below) published at the regular weekday close of trading on that
Index Business Day by the Underlying Publisher. In certain circumstances, the Closing Level will be based on the alternate calculation
of the Underlying as described under “—Discontinuance of the Underlying; Alteration of Method of Calculation.”
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“Underlying Publisher” means S&P
Dow Jones Indices LLC or any successor thereto.
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“Index Business Day” means a day,
for the Underlying, as determined by the Calculation Agent, on which trading is generally conducted on each of the Relevant Exchange(s)
for the Underlying, other than a day on which trading on such exchange(s) is scheduled to close prior to the time of the posting
of its regular final weekday closing price.
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“Market Disruption Event” means:
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(i) the
occurrence or existence of any of:
(a) a suspension,
absence or material limitation of trading of stocks then constituting 20 percent or more of the value of the Underlying (or the
Successor Underlying (as defined below under “—Discontinuance of the Underlying; Alteration of Method of Calculation”))
on the Relevant Exchange for such securities for more than two hours of trading or during the one-half hour period preceding the
close of the principal trading session on such Relevant Exchange, or
(b) a breakdown
or failure in the price and trade reporting systems of any Relevant Exchange as a result of which the reported trading prices for
stocks then constituting 20 percent or more of the value of the Underlying (or the Successor Underlying) during the last one-half
hour preceding the close of the principal trading session on such Relevant Exchange are materially inaccurate, or
(c) the suspension,
material limitation or absence of trading on any major U.S. securities market for trading in futures or options contracts or exchange-traded
funds related to the Underlying (or the Successor Underlying) for more than two hours of trading or during the one-half hour period
preceding the close of the principal trading session on such market,
in each case as
determined by the Calculation Agent in its sole discretion; and
(ii) a
determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with
respect to the Securities.
For the purpose of determining
whether a Market Disruption Event exists at any time, if trading in a security included in the Underlying is materially suspended
or materially limited at that time, then the relevant percentage contribution of that security to the value of the Underlying shall
be based on a comparison of (x) the portion of the value of the Underlying attributable to that security relative to (y) the overall
value of the Underlying, in each case immediately before that suspension or limitation.
For the purpose
of determining whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will
not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the Relevant Exchange
or market, (2) a decision to permanently discontinue trading in the relevant futures or options contract or exchange-traded fund
will not constitute a Market Disruption Event, (3) a suspension of trading in futures or options contracts or exchange-traded funds
on the Underlying by the primary securities market trading in such contracts or funds by reason of (a) a price change exceeding
limits set by such securities exchange or market, (b) an imbalance of orders relating to such contracts or funds, or (c) a disparity
in bid and ask quotes relating to such contracts or funds will constitute a suspension, absence or material limitation of trading
in futures or options contracts or exchange-traded funds related to the Underlying and (4) a “suspension, absence or material
limitation of trading” on any Relevant Exchange or on the primary market on which futures or options contracts or exchange-traded
funds related to the Underlying are traded will not include any time when such securities market is itself closed for trading under
ordinary circumstances.
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“Relevant Exchange” means, with
respect to the Underlying, the primary exchange(s) or market(s) of trading for (i) any security then included in the Underlying,
or any Successor Underlying, and (ii) any futures or options contracts related to the Underlying or to any security then included
in the Underlying.
|
Postponement of Averaging Dates and Maturity
Date
If any scheduled Averaging Date is not an
Index Business Day or if a Market Disruption Event with respect to the Underlying occurs on any such date, the Closing Level for
such date will be determined on the immediately succeeding Index Business Day on which no Market Disruption Event shall have occurred.
Each succeeding Averaging Date will then be the next Index Business Day following the preceding Averaging Date as postponed. The
Closing Level with respect to any scheduled Averaging Date will not be determined on a date later than the fifth scheduled Index
Business Day after the scheduled Averaging Date, and if such date is not an Index Business Day or if there is a Market Disruption
Event on such date, the Calculation Agent will determine the Closing Level of the Underlying on such date in accordance with the
formula for calculating such Underlying last in effect prior to the commencement of the Market Disruption Event (or prior to the
non-Index Business Day), without rebalancing or substitution, using the closing price (or, if trading in the relevant securities
has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but
for such suspension, limitation or non-Index Business Day) on such date of each security most recently constituting the Underlying.
If the final Averaging Date is postponed
and falls less than two business days prior to the scheduled Maturity Date, the Maturity Date will be the second business day following
the final Averaging Date as postponed.
Alternate Exchange Calculation in case
of an Event of Default
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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the lowest amount that a Qualified Financial Institution would charge to effect this assumption or undertaking, plus
|
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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.
|
During the Default Quotation Period for the Securities, which
we describe below, the holders of the Securities and/or we may request a Qualified Financial Institution to provide a quotation
of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the
other party in writing of the quotation. The amount referred to in the first bullet point above will equal the lowest—or,
if there is only one, the only—quotation obtained, and as to which notice is so given, during the Default Quotation Period.
With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds,
to the assumption or undertaking by the Qualified Financial Institution providing the quotation and notify the other party in writing
of those grounds within two business days after the last day of the Default Quotation Period, in which case that quotation will
be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to MSFL or Morgan Stanley, then depending
on applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount.
If the maturity of the Securities is accelerated because of an
event of default as described above, we shall, or shall cause the Calculation Agent to, provide written notice to the Trustee at
its New York office, on which notice the Trustee may conclusively rely, and to the Depositary of the Acceleration Amount and the
aggregate cash amount due, if any, with respect to the Securities as promptly as possible and in no event later than two business
days after the date of such acceleration.
Default Quotation Period
The Default Quotation Period is the period beginning on the day
the Acceleration Amount first becomes due and ending on the third business day after that day, unless:
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no quotation of the kind referred to above is obtained, or
|
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|
every quotation of that kind obtained is objected to within five business days after the due date as described above.
|
If either of these two events occurs, the Default Quotation Period
will continue until the third business day after the first business day on which prompt notice of a quotation is given as described
above. If that quotation is objected to as described above within five business days after that first business day, however, the
Default Quotation Period will continue as described in the prior sentence and this sentence.
In any event, if the Default Quotation Period and the subsequent
two business day objection period have not ended before the final Averaging Date, then the Acceleration Amount will equal the principal
amount of the Securities.
Qualified Financial Institutions
For the purpose of determining the Acceleration Amount at any
time, a Qualified Financial Institution must be a financial institution organized under the laws of any jurisdiction in the United
States or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date
of issue and rated either:
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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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P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating
agency.
|
Discontinuance of the Underlying; Alteration
of Method of Calculation
If the Underlying Publisher of the Underlying
discontinues publication of the Underlying and the Underlying Publisher or another entity (including MS & Co.) publishes a
successor or substitute index that the Calculation Agent determines, in its sole discretion, to be comparable to the discontinued
Underlying (such index being referred to herein as a “Successor Underlying”), then any subsequent Closing Level of
the Underlying will be determined by reference to the published value of such Successor Underlying at the regular weekday close
of trading on any Index Business Day that the Closing Level is to be determined, and, to the extent the Closing Level of the Successor
Underlying differs from the Closing Level of the Underlying at the time of such substitution, proportionate adjustments will be
made by the Calculation Agent to the Initial Level, Step Barrier and Downside Threshold.
Upon any selection by the Calculation Agent
of a Successor Underlying, the Calculation Agent will cause written notice thereof to be furnished to the Trustee, to us and to
the Depositary, as holder of the Securities, within three business days of such selection. We expect that such notice will be made
available to you, as a beneficial owner of such Securities, in accordance with the standard rules and procedures of the Depositary
and its direct and indirect participants.
If the Underlying Publisher discontinues publication
of the Underlying prior to, and such discontinuance is continuing on, any Averaging Date and the Calculation Agent determines,
in its sole discretion, that no Successor Underlying is available at such time, then the Calculation Agent will determine the Closing
Level of the Underlying for such date. The Closing Level of the Underlying will be computed by the Calculation Agent in accordance
with the formula for and method of calculating the Underlying last in effect prior to such discontinuance, using the closing price
(or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the
closing price that would have prevailed but for such suspension or limitation) at the close of the principal trading session of
the Relevant Exchange on such date of each security most recently constituting the Underlying without any rebalancing or substitution
of such securities following such discontinuance. Notwithstanding these alternative arrangements, discontinuance of the publication
of the Underlying may adversely affect the value of the Securities.
If at any time the method of calculating the
Underlying or Successor Underlying, or the value thereof, is changed in a material respect, or if the Underlying or Successor Underlying
is in any other way modified so that such index does not, in the opinion of the Calculation Agent, fairly represent the value of
such index had such changes or modifications not been made, then, from and after such time, the Calculation Agent will, at the
close of business in New York City on each date on which the Closing Level is to be determined, make such calculations and adjustments
as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock index comparable
to the Underlying or Successor Underlying, as the case may be, as if such changes or modifications had not been made, and the Calculation
Agent will calculate the Closing Level with reference to the Underlying or Successor Underlying, as adjusted. Accordingly, if the
method of calculating the Underlying or Successor Underlying is modified so that the value of such index is a fraction of what
it would have been if it had not been modified (e.g., due to a split in the index), then the Calculation Agent will adjust such
index in order to arrive at a value of the Underlying or Successor Underlying as if it had not been modified (e.g., as if such
split had not occurred).
Trustee
The “Trustee” for each offering
of notes issued under our Senior Debt Indenture, including the Securities, will be The Bank of New York Mellon, a New York banking
corporation.
Agent
The “agent” is MS & Co.
Calculation Agent and Calculations
The “Calculation Agent” for
the Securities will be MS & Co. As Calculation Agent, MS & Co. will determine, among other things, the Initial Level, the
Downside Threshold, the Step Return, the Final Level, the Underlying Return and the Payment at Maturity.
All determinations made by the Calculation
Agent will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all
purposes and binding on you, the Trustee and us.
All calculations with respect to the Payment
at Maturity, if any, will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., .876545
would be rounded to .87655); all dollar amounts related to determination of the amount of cash payable per Security will be rounded
to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to .7655); and
all dollar amounts paid on the aggregate number of Securities will be rounded to the nearest cent, with one-half cent rounded upward.
Because the Calculation Agent is our affiliate,
the economic interests of the Calculation Agent and its affiliates may be adverse to your interests, as an owner of the Securities,
including with respect to certain determinations and judgments that the Calculation Agent must make in determining the Final Level
or whether a Market Disruption Event has occurred. See “—Discontinuance of the Underlying; Alteration of Method of
Calculation,” and the definition of Market Disruption Event. MS & Co. is obligated to carry out its duties and functions
as Calculation Agent in good faith and using its reasonable judgment.
Issuer Notice to Registered Security
Holders, the Trustee and the Depositary
In the event that the
Maturity Date of the Securities is postponed due to a postponement of the final Averaging Date, the Issuer shall give notice of
such postponement and, once it has been determined, of the date to which the Maturity Date has been rescheduled (i) to each registered
holder of the Securities by mailing notice of such postponement by first class mail, postage prepaid, to such registered holder’s
last address as it shall appear upon the registry books, (ii) to the Trustee by facsimile confirmed by mailing such notice to the
Trustee by first class mail, postage prepaid, at its New York office and (iii) to The Depository Trust Company (the “Depositary”)
by telephone or facsimile confirmed by mailing such notice to the Depositary by first class mail, postage prepaid. Any notice that
is mailed to a registered holder of the Securities in the manner herein provided shall be conclusively presumed to have been duly
given to such registered holder, whether or not such registered holder receives the notice. The Issuer shall give such notice as
promptly as possible, and in no case later than (i) with respect to notice of postponement of the Maturity Date, the Business Day
immediately preceding the scheduled Maturity Date and (ii) with respect to notice of the date to which the Maturity Date has been
rescheduled, the Business Day immediately following the final Averaging Date as postponed.
The Issuer shall, or shall
cause the Calculation Agent to, (i) provide written notice to the Trustee and to the Depositary of the amount of cash, if any,
to be delivered with respect to each stated principal amount of the Securities, on or prior to 10:30 a.m. (New York City time)
on the Business Day preceding the Maturity Date, and (ii) deliver the aggregate cash amount due with respect to the Securities,
if any, to the Trustee for delivery to the Depositary, as holder of the Securities, on the Maturity Date.
Additional Information About the Securities
|
Use of Proceeds and Hedging
The proceeds from the sale of the Securities
will be used by us for general corporate purposes. We will receive, in aggregate, $10 per Security issued, because, when we enter
into hedging transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost
of the Agent’s commissions. The costs of the Securities borne by you and described on page 2 above comprise the Agent’s
commissions and the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying
prospectus.
On or prior to the Trade Date, we hedged our
anticipated exposure in connection with the Securities, by entering into hedging transactions with our affiliates and/or third-party
dealers. We expect our hedging counterparties to have taken positions in the constituent stocks of the Underlying and in futures
or options contracts on the Underlying or the constituent stocks of the Underlying. Such purchase activity could have increased
the Initial Level of the Underlying, and, therefore, could have increased the Downside Threshold, which is the level at or above
which the Underlying must close on the Averaging Dates so that you do not suffer a significant loss on your initial investment
in the Securities. In addition, through our affiliates, we are likely to modify our hedge position throughout the term of the Securities,
including on the Averaging Dates, by purchasing and selling the constituent stocks of the Underlying, futures or options contracts
on the Underlying or the constituent stocks of the Underlying, as well as other instruments related to the Underlying that we may
wish to use in connection with such hedging activities, including by purchasing or selling any such securities or instruments on
the Averaging Dates. As a result, these entities may be unwinding or adjusting hedge positions during the term of the Securities,
and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the Averaging Dates approach.
We cannot give any assurance that our hedging activities will not affect the level of the Underlying, and, therefore, adversely
affect the value of the Securities or the amount payable at maturity, if any.
Benefit Plan Investor Considerations
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the Securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions
between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the Securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the Securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the Securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and the related lending transactions,
provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control
or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further that the
Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called
“service provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available
with respect to transactions involving the Securities.
Because we may be considered a party in interest with respect
to many Plans, the Securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the Securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the Securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such Securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the
Code (“Similar Law”) or (b)
its purchase, holding and disposition of these Securities will not constitute or result in a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code or violate 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 Securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The Securities are contractual financial instruments. The financial
exposure provided by the Securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the Securities. The Securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the Securities.
Each purchaser or holder of any Securities acknowledges and agrees
that:
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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 Securities, (B) the purchaser or holder’s investment
in the Securities, or (C) the exercise of or failure to exercise any rights we have under or with respect to the Securities;
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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 Securities and (B) all hedging transactions in connection with our obligations under the Securities;
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(iii)
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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)
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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 Securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the Securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any Securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these Securities should consult
and rely on their own counsel and advisers as to whether an investment in these Securities is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the Securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley 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 Securities by the account, plan or annuity.
Supplemental Plan of Distribution; Conflicts of Interest
MS & Co. is the agent for this offering.
We have agreed to sell to MS & Co., and MS & Co. has agreed to purchase, all of the Securities at the issue price less
the underwriting discount indicated on the cover of this document. UBS Financial Services Inc., acting as dealer, will receive
from MS & Co. a fixed sales commission of $0.35 for each Security it sells.
MS & Co. is our affiliate 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 Securities.
MS & Co. will conduct this offering in
compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“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.
In order to facilitate the offering of the
Securities, the agent may engage in transactions that stabilize, maintain or otherwise affect the price of the Securities. Specifically,
the agent may sell more Securities than it is obligated to purchase in connection with the offering, creating a naked short position
in the Securities, for its own account. The agent must close out any naked short position by purchasing the Securities in the open
market. A naked short position is more likely to be created if the agent is concerned that there may be downward pressure on the
price of the Securities in the open market after pricing that could adversely affect investors who purchase in the offering. As
an additional means of facilitating the offering, the agent may bid for, and purchase, the Securities or the constituent stocks
of the Underlying in the open market to stabilize the price of the Securities. Any of these activities may raise or maintain the
market price of the Securities above independent market levels or prevent or retard a decline in the market price of the Securities.
The agent is not required to engage in these activities, and may end any of these activities at
any time. An affiliate of the agent has
entered into a hedging transaction with us in connection with this offering of Securities. See “—Use of Proceeds and
Hedging” above.
Validity
of the Securities
In
the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the Securities offered by this
pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture
(as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such Securities will be valid
and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable
in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights
generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts
of good faith, fair dealing and the lack of bad faith),
provided
that such counsel expresses no opinion as to (i) the effect
of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii)
any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer
or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee.
This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of
the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions
about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the
Securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all
as stated in the letter of such counsel dated November 16, 2017, which is Exhibit 5-a to the Registration Statement on Form S-3
filed by Morgan Stanley on November 16, 2017.
Form of Securities
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, the Depositary and will be registered
in the name of a nominee of the Depositary. The Depositary’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 the Depositary. In this pricing supplement, all references to payments or
notices to you will mean payments or notices to the Depositary, as the registered holder of the Securities, for distribution to
participants in accordance with the Depositary’s procedures. For more information regarding the Depositary and book entry
notes, please read “Form of Securities—The Depositary” in the accompanying prospectus supplement and “Securities
Offered on a Global Basis Through the Depositary” in the accompanying prospectus.
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