CALCULATION
OF REGISTRATION FEE
|
|
Maximum Aggregate
|
|
Amount of Registration
|
Title of Each Class of Securities Offered
|
|
Offering Price
|
|
Fee
|
Enhanced Buffered Jump Securities due 2021
|
|
$2,500,000
|
|
$289.75
|
February 2017
Pricing Supplement No.
1,355
Registration Statement
Nos. 333-200365; 333-200365-12
Dated February 22, 2017
Filed pursuant to Rule
424(b)(2)
M
organ
S
tanley
F
inance
LLC
Structured Investments
Opportunities in U.S. Equities
Enhanced Buffered Jump Securities Based on the
Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29,
2021
Fully and Unconditionally
Guaranteed by Morgan Stanley
Principal at Risk Securities
The Enhanced Buffered Jump Securities, which we refer to as the
securities, are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed
by Morgan Stanley. The securities have the terms described in the accompanying product supplement for Jump Securities, index supplement
and prospectus, as supplemented and modified by this document. The securities pay no interest and will instead pay an amount in
cash at maturity that may be greater than or less than the stated principal amount, depending on the closing values of the underlying
indices on
each of the averaging dates.
If the final index value of
each
underlying index, calculated based on the
closing value of such underlying index on each of the averaging dates,
is greater than or equal to
80% of its respective
initial index value, which we refer to as the respective downside threshold value, you will receive the stated principal amount
for each security that you hold at maturity plus the upside payment of $3.015 per security. However, if the final index value of
either
underlying index
is less than
its respective downside threshold value, you will be exposed to the decline
in the level of the worst performing underlying index beyond the buffer amount of 20%, and you will lose some or a significant
portion of your initial investment.
The payment at maturity may be significantly less than the stated principal amount, and
you could lose up to 80% of your investment.
Because the payment at maturity on the securities is based on the worst performing
of the underlying indices, a decline in either final index value below 80% of its respective initial index value will result in
a loss on your investment, even if the other underlying index has appreciated or has not declined as much. The securities are for
investors who seek an equity index-based return and who are willing to risk their principal, risk exposure to the worst performing
of two underlying indices and forgo current income and returns above the fixed upside payment in exchange for the upside payment
feature that applies only if the final index value of
each
underlying index is greater than or equal to its respective downside
threshold value. The securities are notes issued as part of MSFL’s Series A Global Medium-Term Notes Program.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These 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.
FINAL TERMS
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Issue price:
|
$10 per security
|
Stated principal amount:
|
$10 per security
|
Pricing date:
|
February 22, 2017
|
Original issue date:
|
February 27, 2017 (3 business days after the pricing date)
|
Maturity date:
|
March 29, 2021
|
Aggregate principal amount:
|
$2,500,000
|
Interest:
|
None
|
Underlying indices:
|
The S&P 500
®
Index (the “SPX Index”) and the Russell 2000
®
Index (the “RTY Index”)
|
Payment at maturity:
|
·
If
the final index value of
each
underlying index is
greater than or equal to
its respective downside threshold value:
$10 + the upside payment
·
If
the final index value of
either
underlying index is
less than
its respective downside threshold value, meaning the
value of
either
underlying index has declined by more than the buffer amount of 20% from its respective initial index value
to its respective final index value:
$10 × (index percent
change of the worst performing underlying index + 20%)
Because the index percent change of the
worst performing underlying index will be less than -20% in this scenario, the payment at maturity will be less, and potentially
significantly less, than the stated principal amount of $10.
|
Upside payment:
|
$3.015 per security (30.15% of the stated principal amount)
|
Index percent change:
|
With respect to each underlying index, (final index value - initial index value) / initial index value
|
Worst performing underlying index:
|
The underlying index that has declined the most, meaning that it has the lesser index percent change
|
Initial index value:
|
With respect to the SPX Index, 2,362.82, which is the index closing
value of such index on the pricing date
With respect to the RTY Index, 1,403.855, which is the index
closing value of such index on the pricing date
|
Downside threshold value:
|
With respect to the SPX Index, 1,890.256, which is 80% of the
initial index value for such index
With respect to the RTY Index, 1,123.084, which is 80% of the
initial index value for such index
|
Final index value:
|
With respect to each underlying index, the arithmetic average of the index closing value on each of the averaging dates
|
Averaging dates:
|
With respect to each underlying index, each index business day on which there is no market disruption event with respect to such underlying index during the approximately 3-month period from and including December 29, 2020 to and including March 22, 2021.
|
Buffer amount:
|
20%
|
Minimum payment at maturity:
|
$2.00 per security
|
CUSIP / ISIN:
|
61766V503 / US61766V5030
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”) , an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
$9.792 per security. See “Investment Summary” on page 2.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions and fees
|
Proceeds to us
(3)
|
Per security
|
$10
|
$0.05
(1)
|
|
|
|
$0.05
(2)
|
$9.90
|
Total
|
$2,500,000
|
$25,000
|
$2,475,000
|
(1) Selected dealers, including
Morgan Stanley Wealth Management (an affiliate of the agent), and their financial advisors will collectively receive from the
agent, MS & Co., a fixed sales commission of $0.05 for each security they sell. 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 Jump Securities.
(2) Reflects a structuring fee
payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.05 for each security.
(3) See “Use of proceeds
and hedging” on page 17.
The securities
involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page
7.
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 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.
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 Information About the Securities” 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 Jump Securities dated February 29, 2016
Index
Supplement dated January 30, 2017
Prospectus dated February 16, 2016
Morgan
Stanley Finance LLC
Enhanced
Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
Investment Summary
Principal at Risk Securities
The Enhanced Buffered Jump Securities Based on the Value of the
Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021 (the “securities”)
can be used:
|
§
|
As an alternative to direct exposure to the underlying indices that provides a fixed return of 30.15%, if the final index value
of
each
underlying index, as determined on each of the averaging dates, is greater than or equal to its respective downside
threshold value;
|
|
§
|
To enhance returns and potentially outperform the worst performing of the S&P 500
®
Index and the Russell
2000
®
Index in a moderately bullish or moderately bearish scenario;
|
|
§
|
To obtain a buffer against a specified level of negative performance in the worst performing underlying index.
|
The securities are exposed on a 1-to-1 basis
to the percentage decline of the final index value of the worst performing underlying index from its respective initial index value
beyond the buffer amount of 20%.
Accordingly, 80% of your principal is at risk.
Maturity:
|
Approximately 4 years and 1 month
|
Upside payment:
|
$3.015 per security (30.15% of the stated principal amount), payable only if the final index value of each underlying index is greater than or equal to its respective downside threshold value.
|
Buffer amount:
|
20%
|
Minimum payment at maturity:
|
$2.00 per security. You could lose up to 80% of the stated principal amount of the securities.
|
Interest:
|
None
|
The original 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 pricing date is less than $10. We estimate that the value of each security on the
pricing date is $9.792.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
indices. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying indices, instruments based on the underlying indices, 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 upside payment, the buffer amount and the downside threshold values, we use an internal funding rate, which is likely
to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and
hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the securities
would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying indices, 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,
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
because the costs associated with issuing, selling, structuring and hedging the securities are not fully
deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell
the securities in the secondary market, absent changes in market conditions, including those related to the underlying indices,
and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those
higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not
obligated to, make a market in the securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
Key Investment Rationale
The securities provide a return based on the performance of the
worst performing of the S&P 500
®
Index and the Russell 2000
®
Index. If the final index value
of each underlying index, as determined on each of the averaging dates, is greater than or equal to its respective downside threshold
value, you will receive the stated principal amount for each security that you hold at maturity plus the upside payment of $3.015
per security. However, if the final index value of
either
underlying index is
less than
its respective downside threshold
value, the payment due at maturity will be less, and possibly significantly less, than the stated principal amount of the securities.
You could lose up to 80% of the stated principal amount of the securities.
Upside Scenario
|
If the final index value of
each
underlying index is
greater than or equal to its respective downside threshold value,
the payment at maturity for each security will be equal to $10
plus
the upside payment of $3.015.
|
Downside Scenario
|
If the final index value of
either
underlying index
is
less than its respective downside threshold value
, you will lose 1% for every 1% decline in the value of the worst
performing underlying index from its initial index value beyond the buffer amount of 20% (e.g., a 50% depreciation in the worst
performing underlying index from the respective initial index value to the respective final index value will result in a payment
at maturity of $7.00 per security).
Because the payment at maturity of the securities is based on
the worst performing of the underlying indices, a decline in either underlying index below its respective downside threshold value
will result in a loss on your investment, even if the other underlying index has appreciated or has not declined as much. You could
lose up to 80% of your investment.
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to calculate
the payment at maturity on the securities. The following examples are for illustrative purposes only. The payment at maturity on
the securities is subject to our credit risk. The below examples are based on the following terms. The actual initial index values
and downside threshold values are set forth on the cover page of this document.
Stated Principal Amount:
|
$10 per security
|
Hypothetical Initial Index Value:
|
With respect to the SPX Index: 2,200
With respect to the RTY Index: 1,400
|
Hypothetical Downside Threshold Value:
|
With respect to the SPX Index: 1,760, which is 80% of its hypothetical
initial index value
With respect to the RTY Index: 1,120, which is 80% of its hypothetical
initial index value
|
Upside Payment:
|
$3.015 (30.15% of the stated principal amount)
|
Buffer Amount:
|
20%
|
Minimum Payment at Maturity:
|
$2.00 per security
|
Interest:
|
None
|
EXAMPLE 1: Both underlying indices appreciate substantially,
and investors therefore receive the stated principal amount
plus
the upside payment.
Final index value
|
|
SPX Index: 3,960
|
|
|
|
RTY Index: 2,660
|
Index percent change
|
|
SPX Index: (3,960 – 2,200) / 2,200 = 80%
RTY Index: (2,660 – 1,400) / 1,400 = 90%
|
Payment at maturity
|
=
|
$10 + upside payment
|
|
=
|
$10 + $3.015
|
|
=
|
$13.015
|
In example 1, the final index value for the SPX Index has increased
from its initial index value by 80%, and the final index value for the RTY Index has increased from its initial index value by
90%. Because the final index value of each underlying index is above its respective downside threshold value, investors receive
at maturity the stated principal amount
plus
the upside payment of $3.015. Investors receive $13.015 per security at maturity
and do not participate in the appreciation of either underlying index. Although both underlying indices have appreciated substantially,
the return on the securities is limited to the stated principal amount plus the fixed upside payment of $3.015.
EXAMPLE 2
:
The final index values of both underlying
indices are at or above their respective downside threshold values, and investors therefore receive the stated principal amount
plus
the upside payment.
Final index value
|
|
SPX Index:1,870
|
|
|
|
RTY Index: 1,260
|
Index percent change
|
|
SPX Index: (1,870 – 2,200) / 2,200 = -15%
RTY Index: (1,260 – 1,400) / 1,400 = -10%
|
Payment at maturity
|
=
|
$10 + upside payment
|
|
=
|
$10 + $3.015
|
|
=
|
$13.015
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
In example 2, the final index value for the SPX Index has decreased
from its initial index value by 15%, and the final index value for the RTY Index has decreased from its initial index value by
10%. Because the final index value of each underlying index is above its respective downside threshold value, investors receive
at maturity the stated principal amount
plus
the upside payment of $3.015. Although both underlying indices have depreciated,
investors receive $13.015 per security at maturity.
EXAMPLE 3
:
The final index value of one of the underlying
indices is less than its respective downside threshold value. Investors are therefore exposed to the negative performance of the
worst performing underlying index, and lose 1% for every 1% decline beyond the buffer amount of 20%.
Final index value
|
|
SPX Index: 2,640
|
|
|
|
RTY Index: 980
|
Index percent change
|
|
SPX Index: (2,640 – 2,200) / 2,200 = 20%
RTY Index: (980 – 1,400) / 1,400 = -30%
|
Payment at maturity
|
=
|
$10 × (index percent change of the worst performing underlying index + 20%)
|
|
=
|
$10 × (-30% + 20%)
|
|
=
|
$9.00
|
In example 3, the final index value for the SPX Index has increased
from its initial index value by 20%, and the final index value for the RTY Index has decreased from its initial index value by
30%. Because one of the underlying indices has declined below its respective downside threshold value, investors do not receive
the upside payment and are exposed to the negative performance of the RTY Index, which is the worst performing underlying index
in this example. Under these circumstances, investors lose 1% for every 1% decline in the value of the worst performing underlying
index beyond the buffer amount of 20%. In this example, investors receive a payment at maturity equal to $9.00 per security, resulting
in a loss of 10%.
EXAMPLE 4
:
The final index values of both underlying
indices are less than their respective downside threshold values. Investors are therefore exposed to the negative performance of
the worst performing underlying index, and will lose 1% for every 1% decline beyond the buffer amount of 20%.
Final index value
|
|
SPX Index: 440
|
|
|
|
RTY Index: 560
|
Index percent change
|
|
SPX Index: (440 – 2,200) / 2,200 = -80%
RTY Index: (560 – 1,400) / 1,400 = -60%
|
Payment at maturity
|
=
|
$10 × (index percent change of the worst performing underlying index + 20%)
|
|
=
|
$10 × (-80% + 20%)
|
|
=
|
$4.00
|
In example 4, the final index value for the SPX Index has decreased
from its initial index value by 80%, and the final index value for the RTY Index has decreased from its initial index value by
60%. Because one or more underlying indices have declined below their respective downside threshold values, investors do not receive
the upside payment and are exposed to the negative performance of the SPX Index, which is the worst performing underlying index
in this example. Under these circumstances, investors lose 1% for every 1% decline in the value of the worst performing underlying
index beyond the buffer amount of 20%. In this example, investors receive a payment at maturity equal to $4.00 per security, resulting
in a loss of 60%.
Because the payment at maturity of the securities is based
on the worst performing of the underlying indices, a decline in the final index value of either underlying index to below its respective
downside threshold value will result in a loss of some or a significant portion of your investment, even if the other underlying
index has appreciated or has not declined as much. You could lose up to 80% of your investment in the securities.
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement, index supplement and prospectus. You should also consult with
your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
|
§
|
The securities do not pay interest and provide for the minimum payment at maturity of only 20% of your principal.
The
terms of the securities differ from those of ordinary debt securities in that the securities do not pay interest and provide for
the minimum return of only 20% of the principal amount at maturity. At maturity, you will receive for each $10 stated principal
amount of securities that you hold an amount in cash based upon the final index value of each underlying index, as determined on
each of the averaging dates. If the final index value of
either
underlying index is less than 80% of its respective initial
index value, you will lose 1% of your principal for every 1% decline in the final index value of the worst performing underlying
index beyond the buffer amount of 20%.
You could lose up to 80% of the stated principal amount of the securities.
|
|
§
|
You are exposed to the price risk of both underlying indices.
Your return on the securities is not linked to a basket
consisting of both underlying indices. Rather, it will be based upon the independent performance of each underlying index. Unlike
an instrument with a return linked to a basket of underlying assets, in which risk is mitigated and diversified among all the components
of the basket, you will be exposed to the risks related to both underlying indices. Poor performance by either underlying index
over the term of the securities will negatively affect your return and will not be offset or mitigated by any positive performance
by the other underlying index. If the final index value of either underlying index declines to below 80% of its respective initial
index value, you will be exposed to the negative performance of the worst performing underlying index at maturity, even if the
other underlying index has appreciated or has not declined as much. Accordingly, your investment is subject to the price risk of
both underlying indices.
|
|
§
|
Because the securities are linked to the performance of the worst performing underlying index, you are exposed to greater
risk of sustaining a loss on your investment than if the securities were linked to just one underlying index.
The risk that
you will suffer a loss on your investment is greater if you invest in the securities as opposed to substantially similar securities
that are linked to the performance of just one underlying index. With two underlying indices, it is more likely that the final
index value of either underlying index will decline to below its respective downside threshold value than if the securities were
linked to only one underlying index. Therefore, it is more likely that you will suffer a loss on your investment.
|
|
§
|
Appreciation potential is fixed and limited.
Where the final index value of each underlying index is greater than or
equal to its respective downside threshold value, the appreciation potential of the securities is limited to the fixed upside payment
of $3.015 per security (30.15% of the stated principal amount), even if both underlying indices have appreciated substantially.
|
|
§
|
The amount payable at maturity is based on the arithmetic average of the closing values of the underlying indices on each
of the averaging dates during the approximately 3-month period from and including December 29, 2020 to and including March 22,
2021, and therefore the payment at maturity may be less than if it were based solely on the closing values on the final averaging
date.
The amount payable at maturity will be calculated by reference to the average of the closing values of the underlying
indices on the averaging dates during the period from and including December 29, 2020 to and including March 22, 2021. Therefore,
in calculating the final index values, positive performances of the underlying indices as of some averaging dates may be moderated,
or wholly offset, by lesser or negative performance as of other averaging dates. Similarly, the final index values, calculated
based on the closing values of the underlying indices on each of the averaging dates, may be less than the closing values of the
underlying indices 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 values of the underlying indices on the final averaging date. Investing in the securities is not the
same as investing in securities that offer 1-to-1 upside exposure to the performance of the underlying indices.
|
|
§
|
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. Morgan Stanley
& Co. LLC, which we refer to as MS & Co., may, but is not obligated to, make a
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
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.
|
§
|
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, including:
|
|
§
|
the values of the underlying indices at any time (including
in relation to their initial index values),
|
|
§
|
the volatility (frequency and magnitude of changes in
value) of the underlying indices,
|
|
§
|
dividend rates on the securities underlying the underlying
indices,
|
|
§
|
interest and yield rates in the market,
|
|
§
|
geopolitical conditions and economic, financial, political,
regulatory or judicial events that affect the component stocks of the underlying indices or securities markets generally and which
may affect the value of the underlying indices,
|
|
§
|
the time remaining until the maturity of the securities,
|
|
§
|
the composition of the underlying indices and changes
in the constituent stocks of the underlying indices, and
|
|
§
|
any actual or anticipated changes in our credit ratings
or credit spreads.
|
Some or all of these factors will
influence the price you will receive if you sell your securities prior to maturity. In particular, you may have to sell your securities
at a substantial discount from the stated principal amount if at the time of sale the value of either underlying index is near,
at or below its respective downside threshold value.
You cannot predict the future performance
of the underlying indices based on their historical performance. If the final index value of either underlying index is less than
80% of its respective initial index value, you will be exposed on a 1-to-1 basis to the decline in the final index value of the
worst performing underlying index beyond the buffer amount. There can be no assurance that the final index value of each underlying
index will be greater than 80% of its respective initial index value so that you will receive at maturity an amount that is greater
than the $10 stated principal amount for each security you hold.
|
§
|
The securities 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 securities.
You are dependent on our ability to pay all amounts due on the securities
at maturity 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 the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market
value of the securities.
|
|
§
|
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
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk 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 rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., are willing to purchase the securities in secondary market transactions will likely be significantly lower than the
original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well
as other factors.
|
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying indices, 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 pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price of the securities may be influenced
by many unpredictable factors” above.
|
|
§
|
The securities are linked to the Russell 2000
®
Index and are subject to risks associated with small-capitalization companies.
As the Russell 2000
®
Index is
one of the underlying indices, and the Russell 2000
®
Index consists of stocks issued by companies with relatively
small market capitalization, the securities are linked to the value of small-capitalization companies. 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 securities is not equivalent to investing in the underlying indices
. Investing in the securities is
not equivalent to investing in either underlying index or the component stocks of either underlying index. Investors in the securities
will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to stocks that
constitute the underlying indices.
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
|
§
|
Adjustments to the underlying indices could adversely affect the value of the securities.
The publisher of either underlying
index may add, delete or substitute the stocks underlying such index or make other methodological changes that could change the
value of such underlying index. Any of these actions could adversely affect the value of the securities. The publisher of such
underlying index may also discontinue or suspend calculation or publication of such underlying index at any time. In these circumstances,
MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable to the
discontinued underlying index. MS & Co. could have an economic interest that is different than that of investors in the securities
insofar as, for example, MS & Co. is permitted to consider indices that are calculated and published by MS & Co. or any
of its affiliates. If MS & Co. determines that there is no appropriate successor index, the payout on the securities at maturity
will be an amount based on the closing prices on the averaging dates of the stocks underlying the relevant 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 such discontinuance (depending also on the performance of the other underlying
index).
|
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. has determined the initial index values and the downside threshold values,
and will determine the final index values and the index percent changes, if applicable, and the payment that 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 index closing values in the event of a market disruption event or
discontinuance of an underlying index. These potentially subjective determinations may adversely affect the payout to
you at maturity. For further information regarding these types of determinations, see “Description of Securities—Postponement
of Valuation Date(s),” “—Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation,”
“—Alternate Exchange Calculation in case of an Event of Default” and “—Calculation Agent and Calculations”
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities
on the pricing date.
|
|
§
|
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 (and to other instruments linked to the underlying indices or their component stocks), including trading in the
stocks that constitute
the underlying indices
as well as in other instruments related
to the underlying indices. As a result, these entities may be unwinding or adjusting hedge positions during the term of the securities,
and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the averaging dates approach.
Some of our 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 index value
of an underlying index, and, therefore, could have increased the value at or above which such underlying index must close on the
averaging dates so that you do not suffer a loss on your initial investment in the securities (depending also on the performance
of the other underlying index). Additionally, such hedging or trading activities during the term of the securities, including on
the averaging dates, could adversely affect the value of either underlying index on the averaging dates, and, accordingly, the
amount of cash an investor will receive at maturity (depending also on the performance of the other underlying index).
|
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain
. Please read the discussion
under “Additional Provisions – Tax considerations” in this document and the discussion under “United States
Federal Taxation” in the accompanying product supplement for Jump Securities (together the “Tax Disclosure Sections”)
concerning the U.S. federal income tax consequences of an investment in the securities. 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 in the Tax Disclosure Sections. For example, under one possible treatment,
the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders would be required
to accrue into income original issue discount on the securities every year at a “comparable yield” determined at the
time of issuance and recognize all income and gain in respect of the securities as ordinary income. Additionally, as discussed
under “United States Federal Taxation—FATCA Legislation” in the accompanying product supplement for Jump
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
Securities,
the withholding rules commonly referred to as “FATCA” would apply to the securities if they were recharacterized as
debt instruments. 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 the Tax Disclosure Sec
tions.
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 securities, 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 securities, 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
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
S&P 500
®
Index Overview
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.
Information as of market close on February 22, 2017:
Bloomberg Ticker Symbol:
|
SPX
|
Current Index Value:
|
2,362.82
|
52 Weeks Ago:
|
1,945.50
|
52 Week High (on 2/21/2017):
|
2,365.38
|
52 Week Low (on 2/23/2016):
|
1,921.27
|
The following graph sets forth the daily closing values of the
SPX Index for the period from January 1, 2012 through February 22, 2017. The related table sets forth the published high and low
closing values, as well as end-of-quarter closing values, of the SPX Index for each quarter in the same period. The closing value
of the SPX Index on February 22, 2017 was 2,362.82. We obtained the information in the table and graph below from Bloomberg Financial
Markets, without independent verification. The SPX Index has at times experienced periods of high volatility, and you should not
take the historical values of the SPX Index as an indication of its future performance.
SPX Index Daily Closing Values
January 1, 2012 to February 22, 2017
|
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
S&P 500
®
Index
|
High
|
Low
|
Period End
|
2012
|
|
|
|
First Quarter
|
1,416.51
|
1,277.06
|
1,408.47
|
Second Quarter
|
1,419.04
|
1,278.04
|
1,362.16
|
Third Quarter
|
1,465.77
|
1,334.76
|
1,440.67
|
Fourth Quarter
|
1,461.40
|
1,353.33
|
1,426.19
|
2013
|
|
|
|
First Quarter
|
1,569.19
|
1,457.15
|
1,569.19
|
Second Quarter
|
1,669.16
|
1,541.61
|
1,606.28
|
Third Quarter
|
1,725.52
|
1,614.08
|
1,681.55
|
Fourth Quarter
|
1,848.36
|
1,655.45
|
1,848.36
|
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 (through February 22, 2017)
|
2,365.38
|
2,257.83
|
2,362.82
|
“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.
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
Russell 2000
®
Index Overview
The Russell 2000
®
Index is an index calculated,
published and disseminated by Russell Investments, 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.
Information as of market close on February 22, 2017:
Bloomberg Ticker Symbol:
|
RTY
|
Current Index Value:
|
1,403.855
|
52 Weeks Ago:
|
1,021.736
|
52 Week High (on 2/21/2017):
|
1,410.344
|
52 Week Low (on 2/23/2016):
|
1,012.151
|
The following graph sets forth the daily closing values of the
RTY Index for the period from January 1, 2012 through February 22, 2017. The related table sets forth the published high and low
closing values, as well as end-of-quarter closing values, of the RTY Index for each quarter in the same period. The closing value
of the RTY Index on February 22, 2017 was 1,403.855. We obtained the information in the table below from Bloomberg Financial Markets,
without independent verification. The RTY Index has at times experienced periods of high volatility, and you should not take the
historical values of the RTY Index as an indication of its future performance.
RTY Index Daily Closing Values
January 1, 2012 to February 22, 2017
|
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
Russell 2000
®
Index
|
High
|
Low
|
Period End
|
2012
|
|
|
|
First Quarter
|
846.129
|
747.275
|
830.301
|
Second Quarter
|
840.626
|
737.241
|
798.487
|
Third Quarter
|
864.697
|
767.751
|
837.450
|
Fourth Quarter
|
852.495
|
769.483
|
849.350
|
2013
|
|
|
|
First Quarter
|
953.068
|
872.605
|
951.542
|
Second Quarter
|
999.985
|
901.513
|
977.475
|
Third Quarter
|
1,078.409
|
989.535
|
1,073.786
|
Fourth Quarter
|
1,163.637
|
1,043.459
|
1,163.637
|
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 (through February 22, 2017)
|
1,410.344
|
1,345.744
|
1,403.855
|
The “Russell 2000
®
Index” is a trademark
of Russell Investments. For more information, see “Russell 2000
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
Additional Information About the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional
Provisions:
|
Averaging
dates:
|
If any
scheduled averaging date, including March 22, 2021, is not an index business day with respect to either underlying index or
if a market disruption event occurs on any averaging date with respect to either underlying index, such day will not be counted
for the purposes of calculating the final index value solely for such affected underlying index.
|
|
Minimum ticketing size:
|
$1,000 / 100 securities
|
Tax considerations:
|
Although
there is uncertainty regarding the U.S. federal income tax consequences of an investment in the securities due to the lack
of governing authority, in the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current
market conditions, each security should be treated as a single financial contract that is an “open transaction”
for U.S. federal income tax purposes.
|
|
Assuming
this treatment of the securities is respected and subject to the discussion in “United States Federal Taxation”
in the accompanying product supplement for Jump Securities, 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 securities prior to settlement, other
than pursuant to a sale or exchange.
|
|
§
Upon
sale, exchange or settlement of the securities, 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 securities. Such gain or loss should be long-term
capital gain or loss if the investor has held the securities 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 securities, possibly with retroactive effect.
As discussed in the accompanying
product supplement for Jump Securities, Section 871(m) of the Internal Revenue Code of 1986, as amended, and Treasury
regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty
rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial
instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”).
Subject to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic
performance of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations
(a “Specified Security”). However, the regulations exempt securities issued before January 1, 2018 that do
not have a delta of one with respect to any Underlying Security. Based on our determination that the securities do not
have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the securities should
not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our determination is not
binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may
depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying
Security. If withholding is required, we will not be required to pay any additional amounts with respect to the amounts
so withheld. You should consult your tax adviser regarding the potential application of Section 871(m) to the securities.
Both
U.S. and non-U.S. investors considering an investment in the securities should read the discussion under “Risk Factors”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement
for Jump Securities and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of
an investment in the securities, 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
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
|
supplement
for Jump Securities, insofar as they purport to describe provisions of U.S. federal income tax laws or legal conclusions with
respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences
of an investment in the securities.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
Morgan Stanley & Co. LLC (“MS
& Co.”)
|
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, $10.00 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.
On or prior to the pricing
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 stocks of the
underlying indices and in futures and options contracts on the underlying indices and any component stocks of the underlying
indices listed on major securities markets. Such purchase activity could have increased the initial index value of either
underlying index, and, therefore, could have increased the value at or above which such underlying index must close on
the averaging dates so that you do not suffer a loss on your initial investment in the securities (depending also on the
performance of the other underlying index). 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 stocks constituting
the underlying indices, futures or options contracts on the underlying indices or their component stocks 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 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 value of either
underlying index, and, therefore, adversely affect the value of the securities or the payment you will receive at maturity
(depending also on the performance of the other underlying index). For further information on our use of proceeds and
hedging, see “Use of Proceeds and Hedging” in the accompanying product supplement.
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Benefit plan investor considerations:
|
Each fiduciary of a pension,
profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (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 (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) of the Code may provide an exemption for the purchase and sale of securities and the related
lending transactions, provided that neither the issuer of the 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
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Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
|
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 are
eligible for exemptive relief or such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of
the Code or any Similar Law.
Due to the complexity of
these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the 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:
(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 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;
(ii) 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;
(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 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.
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.
|
Additional considerations:
|
Client accounts over which Morgan Stanley, Morgan Stanley Wealth
Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities,
either directly or indirectly.
|
Supplemental
information regarding plan of distribution; conflicts of interest
:
|
The agent may distribute
the securities through Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”), as selected dealer,
or other dealers, which may include Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley
AG. Morgan Stanley Wealth Management, MSIP and Bank Morgan Stanley AG are affiliates of ours. Selected dealers, including
Morgan Stanley Wealth Management, and their financial advisors will collectively receive from the agent, Morgan Stanley
& Co. LLC, a fixed sales commission of $0.05 for each security they sell. In addition, Morgan Stanley Wealth Management
will receive a structuring fee of $0.05 for each security.
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
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due March 29, 2021
Principal at Risk Securities
|
securities.
MS & Co. will conduct
this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc.,
which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate
and related conflicts of interest. MS & Co. or any of our other affiliates may not make sales in this offering to
any discretionary account. See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and
Hedging” in the accompanying product supplement.
|
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 February 16, 2016, which is Exhibit 5-a to Post-Effective Amendment
No. 1 to the Registration Statement on Form S-3 filed by Morgan Stanley on February 16, 2016.
|
Contact:
|
Morgan Stanley Wealth Management clients
may contact their local Morgan Stanley branch office or Morgan Stanley’s principal executive offices at 1585 Broadway,
New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage
representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
|
Where you can find more information:
|
Morgan Stanley and MSFL
have filed a registration statement (including a prospectus, as supplemented by the product supplement for Jump and the
index supplement) with the Securities and Exchange Commission, or SEC, for the offering to which this communication relates.
Before you invest, you should read the prospectus in that registration statement, the product supplement for Jump, 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, any
underwriter or any dealer participating in the offering will arrange to send you the prospectus, the product supplement
for Jump and the index supplement 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 Jump Securities dated February 29, 2016
Index Supplement dated January 30, 2017
Prospectus dated February 16, 2016
Terms used but not defined
in this document are defined in the product supplement for Jump, in the index supplement or in the prospectus.
|
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