CALCULATION
OF REGISTRATION FEE
Title of Each Class of
Securities Offered
|
|
Maximum
Aggregate
Offering
Price
|
|
Amount
of Registration
Fee(1)
|
Trigger Performance Leveraged Upside Securities
due 2024
|
|
$250,000
|
|
$30.30
|
(1) The
maximum aggregate offering price relates to an additional $250,000 of Trigger PLUS offered and sold pursuant to this Amendment
No. 1 dated July 30, 2019 relating to Pricing Supplement No. 1,742 to Registration Statement Nos. 333-221595; 333-221595-01.
March 2019
Amendment No. 1 dated July 30,
2019 relating to
Pricing Supplement No. 1,742
Registration Statement Nos.
333-221595; 333-221595-01
Dated March 18, 2019
Filed pursuant to Rule 424(b)(2)
Morgan
Stanley Finance
LLC
Structured Investments
Opportunities in U.S. Equities
Trigger PLUS Based on the Value of an Equally
Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger
Performance Leveraged Upside Securities
SM
Fully
and Unconditionally Guaranteed by Morgan Stanley
Principal
at Risk Securities
The Trigger PLUS are unsecured obligations of Morgan Stanley
Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The Trigger PLUS will pay no interest,
do not guarantee any return of principal at maturity and have the terms described in the accompanying product supplement for PLUS,
index supplement and prospectus, as supplemented or modified by this document. At maturity, if the basket has
appreciated
in value, investors will receive the stated principal amount of their investment plus leveraged upside performance of the basket,
subject to the maximum payment at maturity. If the basket has
remained unchanged or depreciated
in value but the final basket
value is greater than or equal to the trigger level, investors will receive the stated principal amount of their investment. However,
if the basket has
depreciated
in value so that the final basket value is less than the trigger level, investors will lose
a significant portion or all of their investment, resulting in a 1% loss for every 1% decline in the basket value over the term
of the Trigger PLUS. Under these circumstances, the payment at maturity will be less than 60% of the principal amount and could
be zero. Accordingly, you may lose your entire investment. These long-dated
Trigger PLUS are for
investors who seek an equity-based return and who are willing to risk their principal and forgo current income and upside above
the maximum payment at maturity in exchange
for the upside leverage feature that applies for a limited range of upside performance
of the basket and the limited protection against loss that applies only if the final basket value is greater than or equal to the
trigger level. I
nvestors may lose their entire initial investment in the Trigger PLUS
. The Trigger PLUS are notes issued
as part of MSFL’s Series A Global Medium-Term Notes program.
The Trigger PLUS offered hereby constitute a further issuance
of, and will be consolidated with, the Trigger PLUS issued with the same terms as those offered hereby on March 21, 2019 (the “existing
Trigger PLUS”) and will form a single tranche with those existing Trigger PLUS. The Trigger PLUS offered hereby will have
the same CUSIP and ISIN as the existing Trigger PLUS and will trade, if at all, interchangeably with the existing Trigger PLUS.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These Trigger PLUS are not secured obligations and you will
not have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
FINAL TERMS
|
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Maturity date:
|
March 21, 2024
|
Original issue price:
|
$1,000 per Trigger PLUS
|
Stated principal amount:
|
$1,000 per Trigger PLUS
|
Pricing date:
|
July 30, 2019
|
Original issue date for the Trigger PLUS offered hereby:
|
August 1, 2019 (2 business days after the pricing date)
|
Original issue date for the existing Trigger PLUS:
|
March 21, 2019
|
Aggregate principal amount:
|
$250,000. The original issuance of the existing
Trigger PLUS equaled $19,961,000, of which $1,000,000 was retired; accordingly, the total aggregate principal amount of the Trigger
PLUS offered hereby and the currently outstanding existing Trigger PLUS will equal $19,211,000.
|
Interest:
|
None
|
Basket:
|
Basket component
|
Bloomberg
ticker symbol
|
Basket component weighting
|
Initial basket component value
|
Multiplier
|
|
Russell 2000
®
Index (the “RTY Index”)
|
RTY
|
50%
|
1,563.932
|
0.031970699
|
|
S&P 500
®
Index (the “SPX Index”)
|
SPX
|
50%
|
2,832.94
|
0.017649509
|
|
We refer to each of the RTY Index and the SPX Index as an underlying index and, together, as the underlying indices.
|
Payment at maturity
(per Trigger PLUS):
|
·
If
the final basket value is greater than the initial basket value: $1,000 + the leveraged upside payment
In no event will the payment
at maturity exceed the maximum payment at maturity.
|
|
·
If the final basket value is less than or equal to the initial basket value but is greater than or equal to the trigger level: $1,000
|
|
·
If
the final basket value is less than the trigger level: $1,000 × the basket performance factor
Under these circumstances, the payment
at maturity will be less than the stated principal amount of $1,000 and will represent a loss of more than 40%, and possibly all,
of your investment.
|
Leveraged upside payment:
|
$1,000 × leverage factor × basket percent increase
|
Leverage factor:
|
150%
|
Basket percent increase:
|
(final basket value – initial basket value) / initial basket value
|
Basket performance factor:
|
final basket value / initial basket value
|
Maximum payment at maturity:
|
$1,926 per Trigger PLUS (192.60% of the stated principal amount)
|
Trigger level:
|
60, which is 60% of the initial basket value
|
Initial basket value:
|
100, which is equal to the sum of the products of the initial basket component value of each basket component, as set forth under “Basket—Initial basket component value” above, and the applicable multiplier for such basket component, each of which was determined on the pricing date.
|
Final basket value:
|
The basket closing value on the valuation date.
|
Valuation date:
|
March 18, 2024, subject to postponement for non-index business days and certain market disruption events.
|
Basket closing value:
|
The basket closing value on any day is the sum of the products of the basket component closing value of each basket component and the applicable multiplier for such basket component on such date.
|
Basket component closing value:
|
In the case of each underlying index, the index closing value as published by the index publisher.
|
Multiplier:
|
The multiplier was set on the pricing date based on each basket component’s respective initial basket component value so that each basket component represents its applicable basket component weighting in the predetermined initial basket value. Each multiplier will remain constant for the term of the Trigger PLUS. See “Basket—Multiplier” above.
|
Listing:
|
The Trigger PLUS will not be listed on any securities exchange.
|
CUSIP / ISIN:
|
61768D3K9 / US61768D3K97
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information concerning plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
$1,043.20
per Trigger PLUS. See “Investment Summary” beginning on page 2.
|
Commissions and issue price:
|
|
Price to public
|
Agent’s commissions
(1)
|
Proceeds to us
(2)
|
Per Trigger PLUS
|
|
$1,000
|
$0
|
$1,000
|
Total
|
|
$250,000
|
$0
|
$250,000
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
MS & Co. will act
as the agent for this offering and will not receive a sales commission in connection with sales of the Trigger PLUS. See “Supplemental
information regarding plan of distribution; conflicts of interest.” For additional information, see “Plan of Distribution
(Conflicts of Interest)” in the accompanying product supplement for PLUS.
|
|
(2)
|
See “Use of proceeds
and hedging” on page 15.
|
The Trigger PLUS involve risks not associated
with an investment in ordinary debt securities. See “Risk Factors” beginning on page 5.
The Securities and Exchange Commission and
state securities regulators have not approved or disapproved these securities, or determined if this document or the accompanying
product supplement, index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The Trigger PLUS are not deposits or savings
accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
You should read this document together with
the related product supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please
also see “Additional Terms of the Trigger PLUS” and “Additional Information about the Trigger PLUS” at
the end of this document.
References to “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product Supplement for PLUS dated November 16, 2017
Index Supplement dated November 16, 2017
Prospectus dated November 16, 2017
Morgan Stanley Finance LLC
Trigger PLUS
Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal
at Risk Securities
Investment Summary
Trigger Performance Leveraged Upside Securities
Principal at Risk Securities
The Trigger PLUS Based on the Value of an Equally Weighted Basket
Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024 (the “Trigger
PLUS”) can be used:
|
§
|
As an alternative to direct exposure to the basket that enhances returns for a certain range
of positive performance of the basket, subject to the maximum payment at maturity
|
|
§
|
To enhance returns and potentially outperform the basket in a moderately bullish scenario
|
|
§
|
To provide limited protection against a loss of principal in the event of a decline in the value
of the basket as of the valuation date, but only if the final basket value is greater than or equal to the trigger level
|
Maturity:
|
5 years
|
Leverage factor:
|
150%
|
Maximum payment at maturity:
|
$1,926 per Trigger PLUS (192.60% of the stated principal amount)
|
Trigger level:
|
60% of the initial basket value
|
Minimum payment at maturity:
|
None. Investors may lose their entire initial investment in the Trigger PLUS.
|
Basket component weightings:
|
50% for the RTY Index and 50% for the SPX Index
|
Interest:
|
None
|
The Trigger PLUS offered hereby constitute a further issuance
of, and will be consolidated with, the Trigger PLUS issued with the same terms as those offered hereby on March 21, 2019 (the “existing
Trigger PLUS”) and will form a single tranche with those existing Trigger PLUS. The Trigger PLUS offered hereby will have
the same CUSIP and ISIN as the existing Trigger PLUS and will trade, if at all, interchangeably with the existing Trigger PLUS.
The stated principal amount of each Trigger PLUS is $1,000.
This price includes costs associated with issuing, selling, structuring and hedging the Trigger PLUS, which are borne by you.
We estimate that the value of each Trigger PLUS on the pricing date is $1,043.20.
What goes into the estimated value on the pricing date?
In valuing the Trigger PLUS on the pricing date, we take into
account that the Trigger PLUS comprise both a debt component and a performance-based component linked to the basket components.
The estimated value of the Trigger PLUS is determined using our own pricing and valuation models, market inputs and assumptions
relating to the basket components, instruments based on the basket components, 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 Trigger PLUS?
In determining the economic terms of the Trigger PLUS, including
the leverage factor, the trigger level and the maximum payment at maturity, 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 Trigger PLUS
would be more favorable to you.
What is the relationship
between the estimated value on the pricing date and the secondary market price of the Trigger PLUS?
The price at which MS & Co. purchases the Trigger PLUS in
the secondary market, absent changes in market conditions, including those related to the basket components, may vary from, and
be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market
credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and
other factors. However, because the costs associated with issuing, selling, structuring and hedging the Trigger PLUS are not fully
deducted upon issuance, for a period of up to 6 months following the original issue date for the existing Trigger PLUS, to the
extent that MS & Co. may buy or sell the Trigger PLUS in the secondary market, absent changes in market conditions, including
those related to the basket components, and to our secondary market credit spreads, it may do so based on values higher than the
estimated value. We expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a market in
the Trigger PLUS and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Key Investment Rationale
The Trigger PLUS offer leveraged exposure to a certain range
of positive performance of the basket, subject to the maximum payment at maturity. In exchange for the leverage feature, investors
are exposed to the risk of loss of a significant portion or all of their investment due to the trigger feature. At maturity, an
investor will receive an amount in cash based upon the value of the basket on the valuation date, subject to the maximum payment
at maturity. The Trigger PLUS are unsecured obligations of ours, and all payments on the Trigger PLUS are subject to our credit
risk.
Investors may lose their entire initial investment in the Trigger PLUS.
Leveraged Performance
|
The Trigger PLUS offer investors an opportunity to capture enhanced returns for a certain range of positive performance relative to a direct investment in the basket.
|
Trigger Feature
|
At maturity, even if the basket has declined in value over the term of the Trigger PLUS, you will receive your stated principal amount, but only if the final basket value is greater than or equal to the trigger level.
|
Upside Scenario
|
The basket increases in value, and, at maturity, the Trigger
PLUS redeem for the stated principal amount of $1,000 plus 150% of the basket percent increase, subject to the maximum payment
at maturity of $1,926 per Trigger PLUS (192.60% of the stated principal amount).
For example, if the final basket value is 10% greater than the
initial basket value, the Trigger PLUS will provide a total return of 15% at maturity.
|
Par Scenario
|
The final basket value is less than or equal to the initial basket value but is greater than or equal to the trigger level. In this case, you receive the stated principal amount of $1,000 at maturity even though the basket has declined in value.
|
Downside Scenario
|
The final basket value is less than the trigger level. In this case, the Trigger PLUS redeem for at least 40% less than the stated principal amount, and this decrease will be by an amount proportionate to the decline in the value of the basket over the term of the Trigger PLUS. Under these circumstances, the payment at maturity will be less than 60% of the stated principal amount and could be zero. There is no minimum payment at maturity on the Trigger PLUS, and you could lose your entire investment.
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
How the Trigger PLUS Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the Trigger PLUS based on the following terms:
Stated principal amount:
|
$1,000 per Trigger PLUS
|
Leverage factor:
|
150%
|
Maximum payment at maturity:
|
$1,926 per Trigger PLUS (192.60% of the stated principal amount)
|
Trigger level:
|
60% of the initial basket value
|
Trigger PLUS Payoff Diagram
|
|
How it works
|
§
|
Upside Scenario.
If the final basket
value is greater than the initial basket value, investors will receive the $1,000 stated principal amount plus 150% of the appreciation
of the basket over the term of the Trigger PLUS, subject to the maximum payment at maturity. Under the terms of the Trigger PLUS,
an investor will realize the maximum payment at maturity of $1,926 per Trigger PLUS (192.60% of the stated principal amount) at
a final basket value of approximately 161.733% of the initial basket value.
|
|
§
|
If the basket appreciates 10%, investors would receive a 15% return, or $1,150 per Trigger PLUS.
|
|
§
|
If the basket appreciates 100%, the investor would receive only the maximum payment at maturity
of $1,926 per Trigger PLUS, or 192.60% of the stated principal amount.
|
|
§
|
Par Scenario.
If the final basket
value is less than or equal to the initial basket value but is greater than or equal to the trigger level, investors will receive
the $1,000 stated principal amount.
|
|
§
|
If the basket depreciates 5%, investors will receive the $1,000 stated principal amount.
|
|
§
|
Downside Scenario.
If the final basket
value is less than the trigger level, investors will receive an amount that is significantly less than the $1,000 stated principal
amount, based on a 1% loss of principal for each 1% decline in the basket value.
|
|
§
|
If the basket depreciates 60%, investors will lose 60% of their principal and receive only $400
per Trigger PLUS at maturity, or 40% of the stated principal amount.
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk factors
for investors in the Trigger PLUS. For further discussion of these and other risks, you should read the section entitled “Risk
Factors” in the accompanying product supplement for PLUS, index supplement and prospectus. You should also consult with your
investment, legal, tax, accounting and other advisers in connection with your investment in the Trigger PLUS.
|
§
|
The Trigger PLUS do not pay interest or guarantee return of any principal.
The terms of
the Trigger PLUS differ from those of ordinary debt securities in that the Trigger PLUS do not pay interest or guarantee the payment
of any of the principal amount at maturity. If the final basket value is less than the trigger level (which is 60% of the initial
basket value), the payment at maturity will be an amount in cash that is at least 40% less than the $1,000 stated principal amount
of each Trigger PLUS, and this decrease will be by an amount proportionate to the full amount of the decline in the value of the
basket over the term of the Trigger PLUS, without any buffer. There is no minimum payment at maturity on the Trigger PLUS, and
you could lose your entire investment.
|
|
§
|
The appreciation potential of the Trigger PLUS is limited by the
maximum payment at maturity.
The appreciation potential of the Trigger PLUS is limited by the maximum payment at maturity of
$1,926
per Trigger PLUS, or
192.60%
of
the stated principal amount. Although the leverage factor provides 150% exposure to any increase in the final basket value over
the initial basket value, because the payment at maturity will be limited to
192.60%
of
the stated principal amount for the Trigger PLUS, any increase in the final basket value over the initial basket value by more
than approximately
61.733%
of the initial basket value will not further increase the
return on the Trigger PLUS.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors, many
of which are beyond our control, will influence the value of the Trigger PLUS in the secondary market and the price at which MS
& Co. may be willing to purchase or sell the Trigger PLUS in the secondary market, including: the value, volatility (frequency
and magnitude of changes in value) and dividend yield of the basket components, interest and yield rates, time remaining to maturity,
geopolitical conditions and economic, financial, political and regulatory or judicial events that affect the basket components
or equities markets generally and which may affect the final basket value, and any actual or anticipated changes to our credit
ratings or credit spreads. Generally, the longer the time remaining to maturity, the more the market price of the Trigger PLUS
will be affected by the other factors described above. The values of the basket components may be, and have recently been, volatile,
and we can give you no assurance that the volatility will lessen. See “Basket Overview” below. You may receive less,
and possibly significantly less, than the stated principal amount per Trigger PLUS if you try to sell your Trigger PLUS prior to
maturity.
|
|
§
|
The Trigger PLUS are subject to our credit risk, and any actual or anticipated changes to
our credit ratings or credit spreads may adversely affect the market value of the Trigger PLUS.
You are dependent on our ability
to pay all amounts due on the Trigger PLUS at maturity and therefore you are subject to our credit risk. The Trigger PLUS are not
guaranteed by any other entity. If we default on our obligations under the Trigger PLUS, your investment would be at risk and you
could lose some or all of your investment. As a result, the market value of the Trigger PLUS prior to maturity will be affected
by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase
in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the Trigger
PLUS.
|
|
§
|
As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its securities and will
have no independent assets available for distributions to holders of MSFL securities if they make claims in respect of such securities
in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available
under the related guarantee by Morgan Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated
obligations of Morgan Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the
guarantee. Holders of securities issued by MSFL should accordingly assume that in any such proceedings they would not have any
priority over and should be treated
pari passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley,
including holders of Morgan Stanley-issued securities.
|
|
§
|
The amount payable on the Trigger PLUS is not linked to the value
of the basket at any time other than the valuation date.
The final basket value will be based on the basket closing value on
the valuation date, subject to postponement for non-index business days and certain market disruption events. Even if the value
of the basket appreciates prior to the valuation date but then drops by the valuation date, the payment at maturity may be less,
and may be significantly less, than it would have been had the payment at maturity been linked to the value of the basket prior
to such drop. Although the actual value of the basket on the stated maturity date or at other times during the term of the Trigger
PLUS may be higher than the basket closing value on the valuation date, the payment at maturity will be based solely on the basket
closing value on the valuation date.
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
§
|
Changes in the value of the basket components may offset each other.
Value movements in
the basket components may not correlate with each other. At a time when one basket component increases in value, the value of the
other basket component may not increase as much, or may even decline. Therefore, in calculating the basket components’ performance
on the valuation date, an increase in the value of one basket component may be moderated, or wholly offset, by a lesser increase
or a decline in the value of the other basket component.
|
|
§
|
The Trigger PLUS are linked to the Russell 2000
®
Index and are subject
to risks associated with small-capitalization companies.
The Russell 2000
®
Index consists of stocks issued by
companies with relatively small market capitalization. These companies often have greater stock price volatility, lower trading
volume and less liquidity than large-capitalization companies and therefore the Russell 2000
®
Index may be more
volatile than indices that consist of stocks issued by large-capitalization companies. Stock prices of small-capitalization companies
are also more vulnerable than those of large-capitalization companies to adverse business and economic developments, and the stocks
of small-capitalization companies may be thinly traded. In addition, small capitalization companies are typically less well-established
and less stable financially than large-capitalization companies and may depend on a small number of key personnel, making them
more vulnerable to loss of personnel. Such companies tend to have smaller revenues, less diverse product lines, smaller shares
of their product or service markets, fewer financial resources and less competitive strengths than large-capitalization companies
and are more susceptible to adverse developments related to their products.
|
|
§
|
Investing in the Trigger PLUS is not equivalent to investing in the basket components.
Investing in the Trigger PLUS is not equivalent to investing directly in the basket components
or any of the component stocks of the basket components. As an investor in the Trigger PLUS, you will not have voting rights or
rights to receive dividends or other distributions or any other rights with respect to the basket components or any of the component
stocks of the basket components.
|
|
§
|
Adjustments to the underlying indices could adversely affect the value of the Trigger PLUS.
The publisher of each underlying index can add, delete or substitute the stocks constituting such index, and can make other methodological
changes that could change the value of such underlying index. In addition, an index publisher may discontinue or suspend calculation
or publication of the relevant underlying index at any time. In these circumstances, MS & Co., as the calculation agent, will
have the sole discretion to substitute a successor index for such index that is comparable to the discontinued index and is not
precluded from considering indices that are calculated and published by the calculation agent or any of its affiliates. If MS &
Co. determines that there is no appropriate successor index for such index, the payment at maturity on the Trigger PLUS will be
an amount based on the closing prices on the valuation date of the securities constituting such underlying index at the time of
such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance with the formula for
calculating such underlying index last in effect prior to discontinuance of such index.
|
|
§
|
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 Trigger PLUS in the original issue price reduce the economic terms of the Trigger PLUS 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 Trigger PLUS in secondary market transactions will likely be significantly
lower than the price at which you purchase the Trigger PLUS, because secondary market prices will exclude the issuing, selling,
structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary
market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary
market transaction of this type as well as other factors.
|
The inclusion
of the costs of issuing, selling, structuring and hedging the Trigger PLUS in the original issue price and the lower rate we are
willing to pay as issuer make the economic terms of the Trigger PLUS less favorable to you than they otherwise would be.
However,
because the costs associated with issuing, selling, structuring and hedging the Trigger PLUS are not fully deducted upon issuance,
for a period of up to 6 months following the original issue date for the existing Trigger PLUS, to the extent that MS & Co.
may buy or sell the Trigger PLUS in the secondary market, absent changes in market conditions, including those related to the
basket, and to our secondary market credit spreads, it may 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 Trigger PLUS 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 Trigger PLUS than those generated by
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
others,
including other dealers in the market, if they attempted to value the Trigger PLUS. In addition, the estimated value on the pricing
date does not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your
Trigger PLUS in the secondary market (if any exists) at any time. The value of your Trigger PLUS at any time after the date of
this document will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes
in market conditions. See also “The market price will be influenced by many unpredictable factors” above.
|
§
|
The Trigger PLUS will not be listed on any securities exchange and secondary trading may be
limited.
The Trigger PLUS will not be listed on any securities exchange. Therefore, there may be little or no secondary market
for the Trigger PLUS. MS & Co. may, but is not obligated to, make a market in the Trigger PLUS 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 Trigger PLUS, 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 Trigger PLUS. Even if there is a secondary
market, it may not provide enough liquidity to allow you to trade or sell the Trigger PLUS easily.
Since
other broker-dealers may not participate significantly in the secondary market for the Trigger PLUS, the price at which you may
be able to trade your Trigger PLUS 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 Trigger PLUS, it is likely that there would be no secondary market
for the Trigger PLUS.
Accordingly, you should be willing to hold your Trigger PLUS to maturity.
|
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will
make determinations with respect to the Trigger PLUS.
As calculation agent, MS & Co. has determined the initial basket
component values and the multipliers, will determine the final basket value, including whether the basket has decreased in value
to below the trigger level, and will calculate the basket percent increase or the basket performance factor, as applicable, and
the amount of cash, if any, you will receive at maturity. Moreover, certain determinations made by MS & Co., in its capacity
as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence
or non-occurrence of market disruption events and the selection of a successor index or calculation of the basket component closing
value in the event of a discontinuance of the relevant basket component. These potentially subjective determinations may adversely
affect the payout to you at maturity, if any. For further information regarding these types of determinations, see “Description
of PLUS—General Terms of PLUS” —Postponement of Valuation Date(s),” —Alternate Exchange Calculation
in case of an Event of Default,” —Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation”
and “—Calculation Agent and Calculations” in the accompanying product supplement. In addition, MS & Co. has
determined the estimated value of the Trigger PLUS on the pricing date.
|
|
§
|
Hedging and trading activity by our affiliates could potentially adversely affect the value
of the Trigger PLUS.
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 Trigger PLUS (and to other instruments linked to the underlying indices or component stocks
of
the underlying indices)
, including trading in the stocks that constitute
the
underlying indices
as well as in other instruments related to the basket components. As a result, these entities may be
unwinding or adjusting hedge positions during the term of the Trigger PLUS, and the hedging strategy may involve greater and more
frequent adjustments to the hedge as the valuation date approaches. Some of our affiliates also trade the stocks that constitute
the underlying indices
and other financial instruments related to the underlying indices
on a regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or
prior to the pricing date could have increased the initial basket component values, and, therefore, could have increased the values
at or above which the basket components must close on the valuation date so that investors do not suffer a significant loss on
their initial investment in the Trigger PLUS. Additionally, such hedging or trading activities during the term of the Trigger PLUS,
including on the valuation date, could potentially affect whether the basket closing value on the valuation date is below the trigger
level, and, therefore, whether an investor would receive significantly less than the stated principal amount of the Trigger PLUS
at maturity.
|
|
§
|
The U.S. federal income tax consequences of an investment in the Trigger PLUS are uncertain.
Please read the discussion under “Additional Information—Tax considerations” in this document and the discussion
under “United States Federal Taxation” in the accompanying product supplement for PLUS (together, the “Tax Disclosure
Sections”) concerning the U.S. federal income tax consequences of an investment in the Trigger PLUS. If the Internal Revenue
Service (the “IRS”) were successful in asserting an alternative treatment, the timing and character of income on the
Trigger PLUS might differ significantly from the tax treatment described in the Tax Disclosure Sections. For example, under one
possible treatment, the IRS could seek to recharacterize the Trigger PLUS as debt instruments. In that event, U.S. Holders would
be required to accrue into income original issue discount on the Trigger PLUS every year at a “comparable yield” determined
at the time of issuance and recognize all income and gain in respect of the Trigger PLUS as ordinary income. Additionally, as discussed
under “United States Federal Taxation—FATCA” in the accompanying product supplement for PLUS, the withholding
rules commonly referred to as “FATCA” would apply to the Trigger PLUS if
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
they
were recharacterized as debt instruments. However, recently proposed regulations (the preamble to which specifies that taxpayers
are permitted to rely on them pending finalization) eliminate the withholding requirement on payments of gross proceeds of a taxable
disposition. The risk that financial instruments providing for buffers, triggers or similar downside protection features, such
as the Trigger PLUS, 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
Trigger PLUS, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, 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 Trigger
PLUS, possibly with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal
income tax consequences of an investment in the Trigger PLUS, including possible alternative treatments, the issues presented by
this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Basket Overview
The basket consists of the Russell 2000
®
Index
(the “RTY Index”) and the S&P 500
®
Index (the “SPX Index”) and offers exposure to price
movements in U.S. equity markets.
Russell 2000
®
Index
The Russell 2000
®
Index is an index calculated,
published and disseminated by FTSE Russell, and measures the composite price performance of stocks of 2,000 companies (the “Russell
2000 Component Stocks”) incorporated in the U.S. and its territories. All 2,000 stocks are traded on a major U.S. exchange
and are the 2,000 smallest securities that form the Russell 3000
®
Index. The Russell 3000
®
Index
is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of the
U.S. equity market. The Russell 2000
®
Index consists of the smallest 2,000 companies included in the Russell 3000
®
Index and represents a small portion of the total market capitalization of the Russell 3000
®
Index. The Russell
2000
®
Index is designed to track the performance of the small capitalization segment of the U.S. equity market.
For additional information about the Russell 2000
®
Index, see the information set forth under “Russell 2000
®
Index” in the accompanying index supplement.
The “Russell 2000
®
Index” is a trademark
of FTSE Russell. For more information, see “Russell 2000
®
Index” in the accompanying index supplement.
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. See “S&P 500
®
Index” in the accompanying index
supplement.
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Information as of market close on March 18, 2019:
Basket Component Information as of March 18, 2019
|
Basket Component
|
Bloomberg Ticker Symbol
|
Current Basket Component Level
|
52 Weeks Ago
|
52 Week High
|
52 Week Low
|
RTY Index
|
RTY
|
1,563.932
|
1,570.562
|
(on 8/31/2018): 1,740.753
|
(on 12/24/2018): 1,266.925
|
SPX Index
|
SPX
|
2,832.94
|
2,712.92
|
(on 9/20/2018): 2,930.75
|
(on 12/24/2018): 2,351.10
|
The following graph is calculated as if the basket had an initial
value of 100 on January 1, 2014 (assuming that each basket component is weighted as described in “Basket” on the cover
page) and illustrates the effect of the offset and/or correlation among the basket components during such period. The graph does
not take into account the leverage factor or the trigger level, nor does it attempt to show your expected return on an investment
in the Trigger PLUS. The historical performance of the basket should not be taken as an indication of its future performance.
Basket Historical
Performance
January 1,
2014 to March 18, 2019
|
|
The following graphs set forth the daily closing values of each
of the basket components for the period from January 1, 2014 through March 18, 2019. The related tables set forth the published
high and low closing values as well as end-of-quarter closing values for each of the basket components for each quarter in the
same period. The closing values for each of the basket components on March 18, 2019 were: (i) in the case of the RTY Index, 1,563.932,
and (ii) in the case of the SPX Index, 2,832.94. We obtained the information in the tables and graphs below from Bloomberg Financial
Markets, without independent verification. The historical values of the basket components should not be taken as an indication
of their future performance, and no assurance can be given as to the basket closing value on the valuation date.
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Russell 2000
®
Index
January 1, 2014 to March 18, 2019
|
|
Russell 2000
®
Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,208.651
|
1,093.594
|
1,173.038
|
Second Quarter
|
1,192.964
|
1,095.986
|
1,192.964
|
Third Quarter
|
1,208.150
|
1,101.676
|
1,101.676
|
Fourth Quarter
|
1,219.109
|
1,049.303
|
1,204.696
|
2015
|
|
|
|
First Quarter
|
1,266.373
|
1,154.709
|
1,252.772
|
Second Quarter
|
1,295.799
|
1,215.417
|
1,253.947
|
Third Quarter
|
1,273.328
|
1,083.907
|
1,100.688
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
1,135.889
|
2016
|
|
|
|
First Quarter
|
1,114.028
|
953.715
|
1,114.028
|
Second Quarter
|
1,188.954
|
1,089.646
|
1,151.923
|
Third Quarter
|
1,263.438
|
1,139.453
|
1,251.646
|
Fourth Quarter
|
1,388.073
|
1,156.885
|
1,357.130
|
2017
|
|
|
|
First Quarter
|
1,413.635
|
1,345.598
|
1,385.920
|
Second Quarter
|
1,425.985
|
1,345.244
|
1,415.359
|
Third Quarter
|
1,490.861
|
1,356.905
|
1,490.861
|
Fourth Quarter
|
1,548.926
|
1,464.095
|
1,535.511
|
2018
|
|
|
|
First Quarter
|
1,610.706
|
1,463.793
|
1,529.427
|
Second Quarter
|
1,706.985
|
1,492.531
|
1,643.069
|
Third Quarter
|
1,740.753
|
1,653.132
|
1,696.571
|
Fourth Quarter
|
1,672.992
|
1,266.925
|
1,348.559
|
2019
|
|
|
|
First Quarter (through March 18, 2019)
|
1,590.062
|
1,330.831
|
1,563.932
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
S&P 500
®
Index
January 1, 2014 to March 18, 2019
|
|
S&P 500
®
Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
2015
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
|
Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
|
Fourth Quarter
|
2,271.72
|
2,085.18
|
2,238.83
|
2017
|
|
|
|
First Quarter
|
2,395.96
|
2,257.83
|
2,362.72
|
Second Quarter
|
2,453.46
|
2,328.95
|
2,423.41
|
Third Quarter
|
2,519.36
|
2,409.75
|
2,519.36
|
Fourth Quarter
|
2,690.16
|
2,529.12
|
2,673.61
|
2018
|
|
|
|
First Quarter
|
2,872.87
|
2,581.00
|
2,640.87
|
Second Quarter
|
2,786.85
|
2,581.88
|
2,718.37
|
Third Quarter
|
2,930.75
|
2,713.22
|
2,913.98
|
Fourth Quarter
|
2,925.51
|
2,351.10
|
2,506.85
|
2019
|
|
|
|
First Quarter (through March 18, 2019)
|
2,832.94
|
2,447.89
|
2,832.94
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Additional Terms of the Trigger
PLUS
Please read this information
in conjunction with the summary terms on the front cover of this document.
Additional Terms:
|
|
If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
|
Underlying index publishers:
|
With respect to the RTY Index, FTSE Russell, or any successor
thereof.
With respect to the SPX Index, S&P Dow Jones Indices
LLC, or any successor thereof.
|
Index closing value:
|
With respect to the RTY Index, the index closing value on any
index business day shall be determined by the calculation agent and shall equal the closing value of the RTY Index or any successor
index reported by Bloomberg Financial Services, or any successor reporting service the calculation agent may select, on such index
business day. In certain circumstances, the index closing value for the RTY Index will be based on the alternate calculation of
the RTY Index as described under “Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation”
in the accompanying product supplement. The closing value of the RTY Index reported by Bloomberg Financial Services may be lower
or higher than the official closing value of the RTY Index published by the underlying index publisher for the RTY Index.
With respect to the SPX Index, the index closing value
on any index business day shall be determined by the calculation agent and shall equal the official closing value of the SPX Index,
or any successor index as defined under “Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of
Calculation” in the accompanying product supplement, published at the regular official weekday close of trading on such
index business day by the underlying index publisher for the SPX Index, as determined by the calculation agent. In certain circumstances,
the index closing value for the SPX Index will be based on the alternate calculation of the SPX Index as described under “Discontinuance
of Any Underlying Index or Basket Index; Alteration of Method of Calculation” in the accompanying product supplement.
|
Postponement of maturity date:
|
If the valuation date for any basket component is postponed so that it falls less than two business days prior to the scheduled maturity date, the maturity date will be postponed to the second business day following the last valuation date as postponed.
|
Bull market or bear market Trigger PLUS:
|
Bull Market Trigger PLUS
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
Issuer notice to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the valuation 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 Trigger PLUS 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
Trigger PLUS 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 actual valuation date.
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 to be delivered with respect to each
stated principal amount of the Trigger PLUS, 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 Trigger PLUS to the trustee for delivery to
the depositary, as holder of the Trigger PLUS, on the maturity date.
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Additional Information about
the Trigger PLUS
Additional Information:
|
|
Minimum ticketing size:
|
$1,000 / 1 Trigger PLUS
|
Tax considerations:
|
Although there is uncertainty regarding the U.S. federal income tax consequences of an investment in the Trigger PLUS due to the lack of governing authority, in the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a Trigger PLUS should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
|
|
Assuming this treatment of the Trigger PLUS is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement for PLUS, the following U.S. federal income tax consequences should result based on current law:
|
|
§
A U.S. Holder should not be required to recognize taxable income over the term of the Trigger PLUS prior to settlement, other than pursuant to a sale or exchange.
|
|
§
Upon sale, exchange or settlement of the Trigger PLUS, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the Trigger PLUS. Such gain or loss should be long-term capital gain or loss if the investor has held the Trigger PLUS for more than one year, and short-term capital gain or loss otherwise.
|
|
In 2007,
the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on
the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in
particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks
for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status
of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which
income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these
instruments are or should be subject to the “constructive ownership” rule, 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 Trigger PLUS, possibly with retroactive effect.
As discussed
in the accompanying product supplement for PLUS, Section 871(m) of the Internal Revenue Code of 1986, as amended, and Treasury
regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding
tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S.
equities or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section
871(m) generally applies to securities that substantially replicate the economic performance of one or more Underlying Securities,
as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, 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 Trigger PLUS do not have a delta of one with respect to
any Underlying Security, our counsel is of the opinion that the Trigger PLUS 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 Trigger PLUS.
Both U.S.
and non-U.S. investors considering an investment in the Trigger PLUS should read the discussion under “Risk Factors”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for
PLUS and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the Trigger
PLUS, including possible alternative treatments, the issues presented by the aforementioned notice and any tax consequences arising
under the laws of any state, local or non-U.S. taxing jurisdiction.
The
discussion in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled
“United States Federal Taxation” in the accompanying product supplement for PLUS, insofar as they purport to describe
provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk
& Wardwell LLP regarding the material U.S. federal tax consequences of an investment in
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Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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the Trigger PLUS.
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Use of proceeds and hedging:
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The proceeds from the sale of the Trigger PLUS will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per Trigger PLUS issued. The costs of the Trigger PLUS borne by you and described beginning on page 2 above comprise the cost of issuing, structuring and hedging the Trigger PLUS.
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On or prior to the pricing date, we hedged our anticipated exposure in connection with the Trigger PLUS by entering into hedging transactions with our affiliates and/or third party dealers. We expect our hedging counterparties to have taken positions in the underlying indices and in futures or options contracts on the underlying indices or component stocks of
the underlying indices
listed on major securities markets. Such purchase activity could have increased the initial basket component values of the basket components, and, therefore, could have increased the values at or above which the basket components must close on the valuation date so that investors do not suffer a significant loss on their initial investment in the Trigger PLUS. In addition, through our affiliates, we are likely to modify our hedge position throughout the term of the Trigger PLUS, including on the valuation date, by purchasing and selling the stocks constituting
the underlying indices
, futures or options contracts on the underlying indices or component stocks of
the underlying indices
listed on major securities markets or positions in any other available securities or instruments that we may wish to use in connection with such hedging activities. As a result, these entities may be unwinding or adjusting hedge positions during the term of the Trigger PLUS, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation date approaches. We cannot give any assurance that our hedging activities will not affect the value of the basket component and, therefore, adversely affect the value of the Trigger PLUS or the payment you will receive at maturity, if any. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product supplement for PLUS.
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Benefit plan investor considerations:
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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 Trigger PLUS. 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 Section 4975 of the Code 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 Trigger PLUS 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 Trigger PLUS 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 Trigger PLUS. Those class exemptions are PTCE 96-23 (for certain transactions determined by
in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate
accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition,
ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code 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 Trigger PLUS.
Because we may be considered a party in interest with
respect to many Plans, the Trigger PLUS 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 Trigger PLUS will be
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Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
deemed to have represented, in its corporate and its fiduciary
capacity, by its purchase and holding of the Trigger PLUS that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing
such Trigger PLUS 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 Trigger
PLUS 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 Trigger PLUS on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The Trigger PLUS are contractual financial instruments. The financial
exposure provided by the Trigger PLUS 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 Trigger PLUS. The Trigger PLUS 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 Trigger PLUS.
Each purchaser or holder of any Trigger PLUS acknowledges and
agrees that:
(i)
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 Trigger PLUS, (B) the purchaser or holder’s investment in the Trigger
PLUS, or (C) the exercise of or failure to exercise any rights we have under or with respect to the Trigger PLUS;
(ii)
we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the Trigger
PLUS and (B) all hedging transactions in connection with our obligations under the Trigger PLUS;
(iii)
any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv)
our
interests are adverse to the interests of the purchaser or holder; and
(v)
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.
Each purchaser and holder of the Trigger PLUS has exclusive responsibility
for ensuring that its purchase, holding and disposition of the Trigger PLUS do not violate the prohibited transaction rules of
ERISA or the Code or any Similar Law. The sale of any Trigger PLUS 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 the Trigger PLUS
should consult and rely on their own counsel and advisers as to whether an investment in the Trigger PLUS 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 Trigger PLUS 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 Trigger PLUS by the account, plan or annuity.
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Additional considerations:
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Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the Trigger PLUS, either directly or indirectly.
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Supplemental information concerning plan of distribution; conflicts of interest:
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MS & Co. will act as the agent for this offering and will
not receive a sales commission in connection with sales of the Trigger PLUS.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the Trigger PLUS.
MS & Co. will conduct this offering in compliance
with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as
FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.
MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan
of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement
for PLUS.
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Validity of the Trigger PLUS:
|
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when
|
Morgan Stanley Finance LLC
Trigger PLUS Based on the Value of an Equally Weighted Basket Composed of the Russell 2000
®
Index and the S&P 500
®
Index due March 21, 2024
Trigger Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
the Trigger PLUS 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 Trigger PLUS 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 Trigger PLUS 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.
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Where you can find more information:
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Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for PLUS and the index supplement) with the Securities and Exchange Commission,
or SEC, for the offering to which this communication relates. You should read the prospectus in that registration statement, the
product supplement for PLUS, 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
without cost by visiting EDGAR on the SEC web site at
.
www.sec.gov. Alternatively, Morgan Stanley,
MSFL, any underwriter or any dealer participating in the offering will arrange to send you the product supplement for PLUS, index
supplement and prospectus if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov
.
as
follows:
Product Supplement for PLUS dated November 16, 2017
Index Supplement dated November 16, 2017
Prospectus dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement for PLUS, in the index supplement or in the prospectus.
“Performance Leveraged Upside Securities
SM
”
and “PLUS
SM
” are our service marks.
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