CALCULATION
OF REGISTRATION FEE
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Maximum Aggregate
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Amount of Registration
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Title of Each Class of Securities Offered
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Offering Price
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Fee
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Buffered Performance Leveraged Upside
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$2,000,000
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$249.00
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Securities due 2022
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November
2017
Pricing
Supplement No. 2,010
Registration Statement Nos. 333-200365; 333-200365-12
Dated November 10, 2017
Filed pursuant to Rule 424(b)(2)
M
organ
S
tanley
F
inance
LLC
STRUCTURED INVESTMENTS
Opportunities in U.S. Equities
Buffered PLUS Based on the Value of the Worst
Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Fully
and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
The Buffered PLUS are unsecured obligations of Morgan Stanley
Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The Buffered PLUS will pay no
interest, provide a minimum payment at maturity of only 12% of the stated principal amount and have the terms described in the
accompanying product supplement for PLUS, index supplement and prospectus, as supplemented or modified by this document. The payment
at maturity on the Buffered PLUS will be based on the value of the worst performing of the S&P 500
®
Index and
the Russell 2000
®
Index, which we refer to as the underlying indices. The final average index value for each underlying
index, which will be used to determine the worst performing underlying index and to calculate the payment at maturity, will be
equal to the arithmetic average of the index closing value on each of the averaging dates, as further described below. At maturity,
if the final average index values of
both
underlying indices are
greater than or equal to
their respective downside
threshold values, each of which is equal to 88% of the initial index value of such underlying index, investors will receive the
stated principal amount of their investment plus a leveraged upside return based on the performance of the worst performing underlying
index relative to its respective downside threshold value, subject to the maximum payment at maturity. However, if
either
underlying index has declined to below its respective downside threshold value, investors will lose 1% for every 1% decline beyond
the specified buffer amount, subject to the minimum payment at maturity of 12% of the stated principal amount. Investors may lose
up to 88% of the stated principal amount of the Buffered PLUS. Because the payment at maturity of the Buffered PLUS 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 of some or a significant portion of your investment, even if the other underlying index has appreciated
or has not declined as much. These long-dated Buffered PLUS 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 upside
above the maximum payment at maturity in exchange for the upside leverage and buffer features that in each case apply to a limited
range of performance of the underlying indices. The Buffered PLUS 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 Buffered 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.
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FINAL TERMS
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Issuer:
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Morgan Stanley Finance LLC
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Guarantor:
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Morgan Stanley
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Maturity date:
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November 16, 2022
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Underlying indices:
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S&P 500
®
Index (the “SPX Index”) and Russell
2000
®
Index (the “RTY Index”)
|
|
Aggregate principal amount:
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$2,000,000
|
|
Payment at maturity per Buffered
PLUS:
|
If the final average index
value of
each underlying index
is
greater than or equal to
its respective downside threshold value,
$10 + leveraged
upside payment
In no event will the
payment at maturity exceed the maximum payment at maturity.
If the final average 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 12% from its respective initial index
value to its respective final average index value:
$10 x (index
performance factor of the worst performing underlying index + 12%)
Because the index performance
factor of the worst performing underlying index will be less than -12% in this scenario, the payment at maturity will
be less, and potentially significantly less, than the stated principal amount of $10, subject to the minimum payment at
maturity of $1.20 per Buffered PLUS.
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Leveraged upside payment:
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$10 × leverage factor × index strike return of the worst performing
underlying index
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Leverage factor:
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155%
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Maximum payment at maturity:
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$16.20 per Buffered PLUS (162% of the stated principal amount)
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Index strike return:
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With respect to each underlying index, (final average index value – downside
threshold value) / initial index value
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Worst performing underlying index:
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The underlying index with the lesser index performance
factor
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Index performance factor
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With respect to each underlying index, final average index value / initial index
value
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Initial index value:
|
With respect to the SPX
Index, 2,582.30, which is the index closing value of such index on the pricing date
With respect to the RTY
Index, 1,475.275, which is the index closing value of such index on the pricing date
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Final average index value:
|
With respect to each underlying index, the arithmetic average of the index closing
value of such index on each of the averaging dates
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Averaging dates:
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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
August 12, 2022 to and including November 11, 2022.
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Buffer amount:
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12%
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Minimum payment at maturity
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$1.20 per Buffered PLUS
|
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Downside threshold value:
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With respect to the SPX
Index, 2,272.424, which is 88% of the initial index value of such index
With respect to the RTY
Index, 1,298.242, which is 88% of the initial index value of such index
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Stated principal amount /
Issue price:
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$10 per Buffered PLUS (see “Commissions and issue price” below)
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Pricing date:
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November 10, 2017
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Original issue date:
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November 15, 2017 (3 business days after the pricing date)
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CUSIP / ISIN:
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61768K265 / US61768k2657
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Listing:
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The Buffered PLUS will not be listed on any securities exchange.
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Agent:
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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.”
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Estimated value on the pricing date:
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$9.647 per Buffered PLUS. See “Investment Summary” beginning
on page 2.
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Commissions and
issue price:
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Price to public
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Agent’s
commissions and fees
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Proceeds to us
(3)
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Per
Buffered PLUS
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$10
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$0.05
(1)
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$0.05
(2)
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$9.90
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Total
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$2,000,000
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$20,000
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$1,980,000
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(1)
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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 Buffered PLUS 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 PLUS.
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(2)
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Reflects a structuring
fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.05
for each Buffered PLUS.
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(3)
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See “Use
of proceeds and hedging” on page 18.
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The Buffered PLUS involve
risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 8.
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 Buffered 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
Information About the Buffered PLUS” at the end of this document.
As used in this document, “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 February 29, 2016
Index
Supplement dated January 30, 2017
Prospectus
dated February 16, 2016
Morgan
Stanley Finance LLC
Buffered PLUS
Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due
November 16, 2022
Principal
at Risk Securities
Investment Summary
The Buffered PLUS Based on the Value of the Worst Performing
of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022 (the “Buffered
PLUS”) can be used:
|
|
§
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As an alternative to direct exposure to the underlying indices that enhances returns for a certain
range of performance of the worst performing underlying index if the final average index value of each underlying index is greater
than or equal to its respective downside threshold value, subject to the maximum payment at maturity
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§
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To potentially outperform the worst performing of the S&P 500
®
Index and the
Russell 2000
®
Index in a moderately bullish or moderately bearish environment by taking advantage of the leverage
factor
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|
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§
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To obtain a buffer against a specified level of negative performance in the worst performing
underlying index.
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Maturity:
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Approximately 5 years
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Leverage factor:
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155% (applicable only if the final average index value of each underlying index is greater than its respective downside threshold value).
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Maximum payment at maturity:
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$16.20 per Buffered PLUS (162% of the stated principal amount)
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Buffer amount:
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12%, with 1-to-1 downside exposure below the buffer
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Minimum payment at maturity:
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$1.20 per Buffered PLUS (12% of the stated principal amount). Investors may lose up to 88% of the stated principal amount of the Buffered PLUS.
|
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Coupon:
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None
|
The original issue price of each Buffered PLUS
is $10. This price includes costs associated with issuing, selling, structuring and hedging the Buffered PLUS, which are borne
by you, and, consequently, the estimated value of the Buffered PLUS on the pricing date is less than $10. We estimate that the
value of each Buffered PLUS on the pricing date is $9.647.
What goes into the estimated value on the pricing date?
In valuing the Buffered PLUS on the pricing
date, we take into account that the Buffered PLUS comprise both a debt component and a performance-based component linked to the
underlying indices. The estimated value of the Buffered PLUS 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 Buffered PLUS?
In determining the economic terms of the Buffered
PLUS, including the leverage factor, the maximum payment at maturity 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 Buffered 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 Buffered PLUS?
The price at which MS & Co. purchases the
Buffered PLUS 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, because the costs associated with issuing, selling, structuring and hedging the Buffered
PLUS 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 Buffered PLUS in the secondary market, absent changes in market conditions, including those related to
the underlying indices, and to our
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
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 Buffered PLUS, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
Key Investment Rationale
The Buffered PLUS offer leveraged exposure to the worst performing
of the S&P 500
®
Index and the Russell 2000
®
Index to the extent that the final average index
value of such index is greater than or equal to its respective downside threshold value, subject to the maximum payment at maturity.
The final average index value for each underlying index, which will be used to determine the worst performing underlying index
and to calculate the payment at maturity, will be equal to the arithmetic average of the index closing value on each of the averaging
dates. At maturity, if the final average index value of each underlying index is greater than or equal to its respective downside
threshold value, investors will receive the stated principal amount of their investment plus a leveraged upside return based on
the performance of the worst performing underlying index relative to its downside threshold value, subject to the maximum payment
at maturity. However, if either of the underlying indices depreciates in value beyond its respective downside threshold value,
the investor will lose 1% for every 1% decline beyond the specified buffer amount, subject to the minimum payment at maturity.
Investors may lose up to 88% of the stated principal amount of the Buffered PLUS.
|
Leveraged Performance Up to a Cap
|
The Buffered PLUS offer investors an opportunity to receive a leveraged upside return based on the performance of the worst performing underlying index relative to its respective downside threshold value, subject to the maximum payment at maturity, if the final average index value of
each
underlying index is
greater than or equal
to
its respective
downside threshold value
.
|
|
Upside Scenario
|
The final average index values of
both
underlying indices are
greater than or equal to
their respective
downside threshold values
and, at maturity, the Buffered PLUS redeem for the stated principal amount of $10 plus 155% of the index strike return of the worst performing underlying index, subject to the maximum payment at maturity of $16.20 per Buffered PLUS (162% of the stated principal amount).
|
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Downside Scenario
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Either
underlying index declines in value by more than
12%, and the Buffered PLUS redeem for less than the stated principal amount, by an amount that is proprotionate to the percentage
decrease of the worst performing underlying index from its respective initial index value, plus the buffer amount of 12%. (Example:
if the worst performing underlying index decreases in value by 35%, the Buffered PLUS will redeem for $7.70, or 77.00% of the stated
principal amount.) The minimum payment at maturity is $1.20 per Buffered PLUS.
Because the payment at maturity of the Buffered PLUS 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 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 88% of your investment.
|
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to calculate
the payment at maturity on the Buffered PLUS. The following examples are for illustrative purposes only. The actual initial index
value and downside threshold value for each underlying index are set forth on the cover page of this pricing supplement. The payment
at maturity on the Buffered PLUS is subject to our credit risk. The below examples are based on the following terms:
|
Stated principal amount:
|
$10 per Buffered PLUS
|
|
Leverage factor:
|
155%
|
|
Maximum payment at maturity:
|
$16.20 per Buffered PLUS (162% of the stated principal amount)
|
|
Hypothetical downside threshold value:
|
With respect to the SPX Index: 1,760, 88% of the respective hypothetical
initial index value
With respect to the RTY Index: 880, 88% of the respective hypothetical
initial index value
|
|
Hypothetical initial index value:
|
With respect to the SPX Index: 2,000
With respect to the RTY Index: 1,000
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Buffer amount:
|
12%
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Minimum payment at maturity:
|
$1.20 per Buffered PLUS
|
EXAMPLE 1: Both underlying indices appreciate significantly
and so investors receive only the maximum payment at maturity.
|
Final average index value
|
|
SPX Index: 3,560
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|
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RTY Index: 1,680
|
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Index strike return
|
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SPX Index: (3,560 – 1,760) / 2,000 = 90%
RTY Index: (1,680 – 880) / 1,000 = 80%
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Payment at maturity
|
=
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$10 + leveraged upside payment, subject to the maximum payment at maturity
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|
|
=
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$10 + ($10 × leverage factor × index strike return of the worst performing underlying index), subject to the maximum payment at maturity
|
|
|
=
|
$10 + ($10 × 155% × 80%), subject to the maximum payment at maturity
|
|
|
=
|
maximum payment at maturity of $16.20 per Buffered PLUS
|
In example 1, the final average index values of both the SPX
Index and the RTY Index are significantly greater than their respective downside threshold values. The SPX Index has an index strike
return of 90%, while the RTY Index has an index strike return of 80%. Therefore, investors receive at maturity the stated principal
amount
plus
155% of the index strike return of the worst performing underlying index, subject to the maximum payment at
maturity of $16.20 per Buffered PLUS. Under the terms of the Buffered PLUS, investors will realize the maximum payment at maturity
at a final average index value of the worst performing underlying index of 128% of its respective initial index value. Therefore,
in this example, investors receive only the maximum payment at maturity of $16.20 per stated principal amount, even though both
underlying indices have appreciated significantly.
EXAMPLE 2
:
The final average index values of both underlying
indices are greater than or equal to their respective downside threshold values, and investors receive the stated principal amount
plus
the leveraged upside payment, calculated based on the index strike return of the worst performing underlying index.
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
|
Final average index value
|
|
SPX Index: 1,960
|
|
|
|
|
RTY Index: 1,280
|
|
Index strike return
|
|
SPX Index: (1,960 – 1,760) / 2,000 = 10%
RTY Index: (1,280 – 880) / 1,000 = 40%
|
|
Payment at maturity
|
=
|
$10 + leveraged upside payment, subject to the maximum payment at maturity
|
|
|
=
|
$10 + ($10 × leverage factor × Index strike return of the worst performing underlying index), subject to the maximum payment at maturity
|
|
|
=
|
$10 + ($10 × 155% × 10%), subject to the maximum payment at maturity
|
|
|
=
|
$11.55
|
In example 2, the final average index values of both the SPX
Index and the RTY Index are greater than their downside threshold values. The SPX Index has an index strike return of 10%, while
the RTY Index has an index strike return of 40%. Therefore, investors receive at maturity the stated principal amount
plus
155%
of the index strike return of the worst performing underlying index, which is the SPX Index in this example. Investors receive
$11.55 per Buffered PLUS at maturity.
EXAMPLE 3: One underlying index appreciates while the other
declines over the term of the Buffered PLUS, and the final average index value of the worst performing underlying index is less
than its respective downside threshold value. 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 12%.
|
Final average index value
|
|
SPX Index: 2,400
|
|
|
|
|
RTY Index: 400
|
|
Index performance factor
|
|
SPX Index: 2,400 / 2,000 = 120%
RTY Index: 400 / 1,000 = 40%
|
|
Payment at maturity
|
=
|
$10 × (index performance factor of the worst performing index + 12%)
|
|
|
=
|
$10 x (40% + 12%)
|
|
|
=
|
$520
|
In example 3, the final average index value of the SPX Index
is greater than its downside threshold value, while the final average index value of the RTY Index has declined below its downside
threshold value. The SPX Index has appreciated while the RTY Index has depreciated by 60%. Under these circumstances, investors
will receive an amount that is less than the stated principal amount by an amount that is proportionate to the percentage decrease
of the value of the worst performing underlying index from its initial index value,
plus
the buffer amount of 12%. In this
example, investors receive a payment at maturity equal to $520 per Buffered PLUS, resulting in a loss of 48%.
EXAMPLE 4
:
Both underlying indices decline below their
respective downside threshold values, and 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 12%.
|
Final average index value
|
|
SPX Index: 600
|
|
|
|
|
RTY Index: 400
|
|
Index performance factor
|
|
SPX Index: 600 / 2,000 = 30%
RTY Index: 400 / 10 = 40%
|
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
|
Payment at maturity
|
=
|
$10 × (index performance factor of the worst performing index + 12%)
|
|
|
=
|
$10 × (30% + 12%)
|
|
|
=
|
$420
|
In example 4, the final average index values of both the SPX
Index and the RTY Index are less than their respective downside threshold values. The SPX Index has declined by 70% while the RTY
Index has declined by 60%. Therefore, investors are exposed to the negative performance of the SPX Index, which is the worst performing
underlying index in this example. Investors receive a payment at maturity of $420.
Because the payment at maturity of the Buffered PLUS 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 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 88% of your investment in the Buffered PLUS.
In addition, the final average index value for each underlying
index, which will be used to determine the worst performing underlying index and to calculate the payment at maturity, will be
equal to the arithmetic average of the index closing value on each of the averaging dates. See “Risk Factors—The amount
payable on the Buffered PLUS 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 August 12, 2022 to and including November 11, 2022,
and therefore the payment at maturity may be less than if it were based solely on the closing values on the final averaging date.”
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the Buffered 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. We also urge you to
consult your investment, legal, tax, accounting and other advisers in connection with your investment in the Buffered PLUS.
|
|
§
|
The Buffered PLUS do not pay interest and provide a minimum payment
at maturity of only 12% of your principal.
The terms of the Buffered PLUS differ from those of ordinary debt securities
in that the Buffered PLUS do not pay interest, and provide a minimum payment at maturity of only 12% of the principal amount at
maturity. At maturity, you will receive for each $10 stated principal amount of Buffered PLUS that you hold an amount in cash based
upon the final average index value of each underlying index. The final average index value for each underlying index, which will
be used to determine the worst performing underlying index and to calculate the payment at maturity, will be equal to the arithmetic
average of the index closing value on each of the averaging dates. If the final average index value of either underlying index
is less than 88% of its respective initial index value, you will receive for each Buffered PLUS that you hold a payment at maturity
that is less than the stated principal amount of each Buffered PLUS by an amount proportionate to the decline in the closing value
of the worst performing underlying index from its initial index value, plus $1.20 per Buffered PLUS.
Accordingly, investors
may lose up to 88% of the stated principal amount of the Buffered PLUS.
|
|
|
§
|
The appreciation potential of the Buffered PLUS is limited by the maximum payment at maturity.
The appreciation potential
of the Buffered PLUS is limited by the maximum payment at maturity of $16.20 per Buffered PLUS, or 162% of the stated principal
amount. Although the leverage factor provides leveraged upside returns if the final average index value of each underlying index
is above its respective downside threshold value, because the payment at maturity will be limited to 162% of the stated principal
amount for the Buffered PLUS, any increase in the final average index value of the worst performing underlying index over its initial
index value by more than 28% of its initial index value will not further increase the return on the Buffered PLUS.
|
|
|
§
|
You are exposed to the price risk of both underlying indices.
Your return on the Buffered PLUS 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 Buffered PLUS will negatively affect your return and will not be offset or mitigated by any positive performance
by the other underlying index. If the final average index value of either underlying index declines to below 88% 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 Buffered PLUS are linked to the performance of the worst performing underlying index, you are exposed to greater
risk of sustaining a significant loss on your investment than if the Buffered PLUS 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 Buffered PLUS as opposed to substantially
similar Buffered PLUS that are linked to the performance of just one underlying index. With two underlying indices, it is more
likely that the final average index value of either underlying index will decline to below its respective downside threshold value
than if the Buffered PLUS were linked to only one underlying index. Therefore, it is more likely that you will suffer a loss on
your investment.
|
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors will influence the value of the Buffered
PLUS in the secondary market and the price at which MS & Co. may be willing to purchase or sell the Buffered PLUS in the secondary
market, including the value, volatility and dividend yield of the underlying indices, interest and yield rates, time remaining
to maturity, geopolitical conditions and economic, financial, political and regulatory or judicial events and any actual or anticipated
changes in our credit ratings or credit spreads.
Generally,
the longer the time remaining to maturity, the more the market price of the Buffered PLUS will be affected by the other factors
described above.
The levels of the underlying indices may be, and have recently been, extremely volatile, and we can give
you no assurance that the volatility will lessen. See “S&P 500
®
Index Overview” and “Russell
2000
®
Index Overview” below.
|
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
You
may receive less, and possibly significantly less, than the stated principal amount per Buffered PLUS if you try to sell your
Buffered PLUS prior to maturity.
|
|
§
|
The Buffered 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 Buffered PLUS.
You are dependent on our ability to pay all amounts due
on the Buffered PLUS at maturity and therefore you are subject to our credit risk. If we default on our obligations under the Buffered
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
Buffered 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 Buffered 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 Buffered PLUS 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 Buffered PLUS 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.
|
|
|
§
|
The amount payable on the Buffered PLUS 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 August 12, 2022 to and including November
11, 2022, 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 August 12, 2022 to and including November 11, 2022. Therefore,
in calculating the final average index value of each underlying index, positive performance of such underlying index as of some
averaging dates may be moderated, or wholly offset, by lesser or negative performance as of other averaging dates. Similarly, the
final average index value of each underlying index, calculated based on the closing values of such underlying index on each of
the averaging dates, may be less than the closing values of such underlying index 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 Buffered PLUS is not the same as investing in securities that offer 1-to-1 upside exposure
to the performance of the underlying indices.
|
|
|
§
|
Investing in the Buffered PLUS is not equivalent to investing in either underlying index.
Investing in the Buffered
PLUS is not equivalent to investing in either underlying index or the component stocks of either underlying index. Investors in
the Buffered PLUS will not have voting rights or rights to receive dividends or other distributions or any other rights with respect
to stocks that constitute either underlying index.
|
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
|
|
§
|
Adjustments to the underlying indices could adversely affect the value of the Buffered PLUS.
The publisher of either
underlying index may add, delete or substitute the stocks constituting such underlying index or make other methodological changes
that could change the value of such underlying index. The publisher of either underlying index may discontinue or suspend calculation
or publication of such underlying index at any time. In these circumstances, the calculation agent will have the sole discretion
to substitute a successor index that is comparable to the discontinued underlying index and will be permitted to consider indices
that are calculated and published by the calculation agent or any of its affiliates.
|
|
|
§
|
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 Buffered PLUS in the original issue price reduce the economic terms of the Buffered
PLUS, cause the estimated value of the Buffered PLUS to be less than the original issue price and will adversely affect secondary
market prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers,
including MS & Co., may be willing to purchase the Buffered PLUS 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 Buffered PLUS in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the Buffered PLUS less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the Buffered PLUS 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 Buffered PLUS 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 Buffered PLUS will not be listed on any securities exchange and secondary trading may be limited.
The Buffered PLUS
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the Buffered PLUS. MS
& Co. may, but is not obligated to, make a market in the Buffered PLUS. Even if there is a secondary market, it may not provide
enough liquidity to allow you to trade or sell the Buffered PLUS easily. Because we do not expect that other broker-dealers will
participate significantly in the secondary market for the Buffered PLUS, the price at which you may be able to trade your Buffered
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
not to make a market in the Buffered PLUS, it is likely that there would be no secondary market for the Buffered PLUS. Accordingly,
you should be willing to hold your Buffered PLUS to maturity.
|
|
|
§
|
The estimated value of the Buffered 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 Buffered PLUS than those generated by others, including other dealers in the market, if they
attempted to value the Buffered 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 Buffered PLUS in the secondary market (if any
exists) at any time. The value of your Buffered 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.
|
|
|
§
|
Hedging and trading activity by our affiliates could potentially adversely affect the value of the Buffered 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 Buffered PLUS (and to other instruments linked to the underlying indices or its component stocks), including trading in
the stocks that constitute the underlying indices as well as in other instruments related to the
|
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
underlying
indices. As a result, these entities may be unwinding or adjusting hedge positions during the term of the Buffered PLUS, and the
hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the averaging dates approach. MS &
Co. and some of our other affiliates also trade the 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 level at or above which such underlying index must close on the averaging dates so that
investors do not suffer a loss on their initial investment in the Buffered PLUS (depending also on the performance of the other
underlying index). Additionally, such hedging or trading activities during the term of the Buffered PLUS, including on the averaging
dates, could adversely affect the closing value of 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 calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the Buffered PLUS.
As calculation agent, MS & Co. has determined the initial index values and the downside threshold
values, will determine the final average index values and will calculate the amount of cash 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 final average index value in the event of a market disruption event or discontinuance of
the underlying indices. These potentially subjective determinations may adversely affect the payout to you at maturity. For further
information regarding these types of determinations, see “Description of PLUS—Postponement of Valuation Date(s)”
and “—Calculation Agent and Calculations” and related definitions in the accompanying product supplement. In
addition, MS & Co. has determined the estimated value of the Buffered PLUS on the pricing date.
|
|
|
§
|
The U.S. federal income tax consequences of an investment in the Buffered PLUS 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 PLUS (together, the “Tax Disclosure Sections”) concerning
the U.S. federal income tax consequences of an investment in the Buffered PLUS. If the Internal Revenue Service (the “IRS”)
were successful in asserting an alternative treatment, the timing and character of income on the Buffered 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 Buffered PLUS as debt instruments. In that event, U.S. Holders would be required to accrue into income original
issue discount on the Buffered PLUS every year at a “comparable yield” determined at the time of issuance and recognize
all income and gain in respect of the Buffered PLUS as ordinary income. Additionally, as discussed under “United States Federal
Taxation—FATCA Legislation” in the accompanying product supplement for PLUS, the withholding rules commonly referred
to as “FATCA” would apply to the Buffered PLUS if they were recharacterized as debt instruments. The risk that financial
instruments providing for buffers, triggers or similar downside protection features, such as the Buffered 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 Buffered 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 Buffered
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 Buffered PLUS, including
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
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
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
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 November 10, 2017:
|
Bloomberg Ticker Symbol:
|
SPX
|
|
Current Index Value:
|
2,582.30
|
|
52 Weeks Ago:
|
2,167.48
|
|
52 Week High (on 11/8/2017):
|
2,594.38
|
|
52 Week Low (on 11/14/2016):
|
2,164.20
|
The following graph sets forth the daily closing values of the
SPX Index for the period from January 1, 2012 through November 10, 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 November 10, 2017 was 2,582.30. 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 November 10, 2017
|
|
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
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
|
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 (through November 10, 2017)
|
2,594.38
|
2,529.12
|
2,582.30
|
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 500
®
,” “Standard & Poor’s 500” and “500” are trademarks of
S&P Dow Jones LLC. See “S&P 500
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
Russell 2000
®
Index Overview
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 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 November 10, 2017:
|
Bloomberg Ticker Symbol:
|
RTY
|
|
Current Index Value:
|
1,475.275
|
|
52 Weeks Ago:
|
1,251.608
|
|
52 Week High (on 10/5/2017):
|
1,512.088
|
|
52 Week Low (on 11/10/2016):
|
1,251.608
|
The following graph sets forth the daily closing values of the
RTY Index for the period from January 1, 2012 through November 10, 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 November 10, 2017 was 1,475.275. We obtained the information in the table and graph 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 November 10, 2017
|
|
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
|
Russell
2000
®
Index
|
High
|
Low
|
Period
End
|
|
2012
|
|
|
|
|
First Quarter
|
846.13
|
747.28
|
830.30
|
|
Second Quarter
|
840.63
|
737.24
|
798.49
|
|
Third Quarter
|
864.70
|
767.75
|
837.45
|
|
Fourth Quarter
|
852.49
|
769.48
|
849.35
|
|
2013
|
|
|
|
|
First Quarter
|
953.07
|
872.60
|
951.54
|
|
Second Quarter
|
999.99
|
901.51
|
977.48
|
|
Third Quarter
|
1,078.41
|
989.47
|
1,073.79
|
|
Fourth Quarter
|
1,163.64
|
1,043.46
|
1,163.64
|
|
2014
|
|
|
|
|
First Quarter
|
1,208.651
|
1,093.594
|
1,173.038
|
|
Second Quarter
|
1,192.960
|
1,095.986
|
1,192.960
|
|
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 (through November 10, 2017)
|
1,512.088
|
1,475.019
|
1,475.275
|
The “Russell 2000
®
Index” is a trademark
of FTSE Russell. For more information, see “Russell 2000
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
Additional Information About the Buffered PLUS
Please read this information in conjunction with the summary
terms on the front cover of this document.
|
Additional Provisions:
|
|
|
Underlying index publishers:
|
With respect to the SPX
Index, S&P Dow Jones Indices LLC
With respect to the RTY
Index, FTSE Russell
|
|
Denominations:
|
$10 per Buffered PLUS and integral multiples thereof
|
|
Interest:
|
None
|
|
Bull market or bear market
PLUS:
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Bull market PLUS
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Averaging dates:
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If any scheduled averaging date, including November 11, 2022, 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 average index value solely for such
affected underlying index.
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Minimum ticketing size:
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$1,000 / 100 Buffered PLUS
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Tax considerations:
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Although
there is uncertainty regarding the U.S. federal income tax consequences of an investment in the Buffered 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 Buffered PLUS should be treated as a single financial contract that is an “open transaction”
for U.S. federal income tax purposes.
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Assuming
this treatment of the Buffered 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:
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§
A
U.S. Holder should not be required to recognize taxable income over the term of the Buffered PLUS prior to settlement, other
than pursuant to a sale or exchange.
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§
Upon
sale, exchange or settlement of the Buffered 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 Buffered PLUS. Such gain or loss should be long-term
capital gain or loss if the investor has held the Buffered PLUS for more than one year, and short-term capital gain or loss
otherwise.
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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
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Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
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could
materially and adversely affect the tax consequences of an investment in the Buffered 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, 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 Buffered PLUS do
not have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the Buffered 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 Buffered PLUS.
Both
U.S. and non-U.S. investors considering an investment in the Buffered 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 Buffered 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
the Buffered PLUS.
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Trustee:
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The Bank of New York Mellon
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Calculation agent:
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MS & Co.
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Use of proceeds and hedging:
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The proceeds from the
sale of the Buffered PLUS will be used by us for general corporate purposes. We will receive, in aggregate, $10 per Buffered
PLUS issued, because, when we enter into hedging transactions in order to meet our obligations under the Buffered PLUS,
our hedging counterparty will reimburse the cost of the agent’s commissions. The costs of the Buffered PLUS borne
by you and described beginning on page 2 above comprise the agent’s commissions and the cost of issuing, structuring
and hedging the Buffered PLUS.
On or prior to the pricing
date, we, through our affiliates or others, hedged our anticipated exposure in connection with the Buffered PLUS by taking
positions in stocks of the underlying indices, futures and/or 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 value
of either
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Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
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underlying index on the pricing date, and therefore could have increased
the value at or above which such underlying index must close on the averaging dates so that investors do not suffer a loss
on their initial investment in the Buffered PLUS (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 Buffered PLUS, including
on the averaging dates, by purchasing and selling the stocks constituting the underlying indices, futures or options contracts
on the underlying indices or its 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 Buffered PLUS, and the hedging strategy may involve greater
and more frequent 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
Buffered PLUS 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 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 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 Buffered 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 (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 Buffered 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 Buffered 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 such persons,
unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of
Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief
for direct or indirect prohibited transactions resulting from the purchase or holding of the Buffered 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 may provide an exemption for the purchase and sale of securities and the
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Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
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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 Buffered
PLUS.
Because we may be considered
a party in interest with respect to many Plans, the Buffered 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 Buffered PLUS will be deemed to have
represented, in its corporate and its fiduciary capacity, by its purchase and holding of the Buffered PLUS that either
(a) it is not a Plan or a Plan Asset Entity and is not purchasing such Buffered 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 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 Buffered PLUS on behalf of or with
“plan assets” of any Plan consult with their counsel regarding the availability of exemptive relief.
The Buffered PLUS are
contractual financial instruments. The financial exposure provided by the Buffered 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 Buffered PLUS. The Buffered 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 Buffered PLUS.
Each purchaser or holder
of any Buffered 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 Buffered PLUS, (B) the purchaser or
holder’s investment in the Buffered PLUS, or (C) the exercise of or failure to exercise any rights we have under
or with respect to the Buffered 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 Buffered PLUS and (B) all hedging transactions in connection with our obligations under the Buffered PLUS;
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Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
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(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and
positions of those entities and are not assets and positions held for the benefit of the purchaser
or holder;
(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 Buffered PLUS has exclusive responsibility for ensuring that its purchase, holding and disposition of the Buffered
PLUS do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any Buffered
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.
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 Buffered 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 Buffered
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 Buffered PLUS, either directly or indirectly.
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Supplemental information regarding plan of distribution;
conflicts of interest:
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We expect to deliver the
Buffered PLUS against payment therefor in New York, New York on November 15, 2017, which will be the third scheduled business
day following the date of the pricing of the Buffered PLUS. Under Rule 15c6-1 of the Exchange Act, trades in the secondary
market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade the Buffered PLUS on the date of pricing or on or prior to the second business
day prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed
settlement.
The agent may distribute
the Buffered PLUS 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 Buffered PLUS they sell. In addition, Morgan Stanley
Wealth Management will receive a structuring fee of $0.05 for each Buffered 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 Buffered 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
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Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
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referred to as FINRA, regarding a FINRA member firm’s distribution
of the Buffered PLUS 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 Buffered PLUS:
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In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley,
when the Buffered 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 Buffered 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 Buffered 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 February 16, 2016, which is Exhibit 5-a to Post-Effective Amendment No. 1 to the Registration Statement on Form
S-3 filed by Morgan Stanley on February 16, 2016.
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Contact:
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Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office
or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All
other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley
Structured Investment Sales at (800) 233-1087.
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Where you can find more information:
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MSFL and Morgan Stanley
have filed a registration statement (including a prospectus, as supplemented by the product supplement for PLUS and 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 MSFL and Morgan Stanley have filed with the SEC for more complete information
about MSFL and Morgan Stanley and this offering. You may get these documents without cost by visiting EDGAR on the SEC
web site at
.
www.sec.gov. Alternatively, MSFL, Morgan Stanley, any underwriter or any
dealer participating in this 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 February 29, 2016
Index
Supplement dated January 30, 2017
Prospectus
dated February 16, 2016
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Morgan Stanley Finance LLC
Buffered PLUS Based on the Value of Worst Performing of the S&P 500
®
Index and the Russell 2000
®
Index due November 16, 2022
Principal at Risk Securities
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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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