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CALCULATION
OF REGISTRATION FEE
| Maximum Aggregate |
Amount of Registration |
|||
| Title of Each Class of Securities Offered |
Offering Price |
Fee | ||
| Buffered Digital Index-Linked Notes |
$7,790,000 | $944.15 | ||
| due 2020 |
| PROSPECTUS Dated November 16, 2017 | Pricing Supplement No. 1,449 to |
| PRODUCT SUPPLEMENT Dated November 16, 2017 | Registration Statement Nos. 333-221595; 333-221595-01 |
| INDEX SUPPLEMENT Dated November 16, 2017 | Dated January 14, 2019 |
| Rule 424(b)(2) |
Morgan
Stanley Finance LLC
STRUCTURED
INVESTMENTS
Opportunities
in U.S. Equities
$7,790,000
Buffered Digital S&P
500® Index-Linked Notes due February 19, 2020
Fully and Unconditionally
Guaranteed by Morgan Stanley
Principal at Risk Securities
The notes are unsecured obligations
of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The notes will
not bear interest. The amount that you will be paid on your notes on the stated maturity
date (February 19, 2020, subject to postponement) is based on the performance of the S&P 500® Index as measured
from the trade date (January 14, 2019) to and including the determination date (February 14, 2020, subject to postponement). If
the final underlier level on the determination date is greater than or equal to 85% of the initial underlier level, you will receive
an amount equal to the maximum settlement amount ($1,068.50 for each $1,000 face amount of your notes). However, if the
underlier declines by more than 15.00% from the initial underlier level, the return on your notes will be negative. You could lose
your entire investment in the notes. The notes are notes issued as part of MSFL’s
Series A Global Medium-Term Notes program.
All payments are subject
to our credit risk. If we default on our obligations, you could lose some or all of your investment. These notes are not secured
obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or
assets.
To determine
your payment at maturity, we will calculate the underlier return, which is the percentage increase or decrease in the final underlier
level from the initial underlier level. On the stated maturity date, for each $1,000 face amount of your notes, you will receive
an amount in cash equal to:
| ● | if the underlier return is greater than or equal to -15.00% (the final underlier level is greater than or equal to 85.00% of the initial underlier level), the maximum settlement amount of $1,068.50 per note, or 106.85% of the face amount; or |
| ● | if the underlier return is less than -15.00% (the final underlier level is less than 85.00% of the initial underlier level), the sum of (i) $1,000 plus (ii) the product of (a) $1,000 times (b) approximately 1.1765 times (c) the sum of the underlier return plus 15.00%. |
Under these circumstances, you will lose some or all
of your investment.
You should read the additional disclosure herein so that you
may better understand the terms and risks of your investment.
The estimated value on the trade date is $986.60 per note.
See “Estimated Value” on page 2.
|
Price |
Agent’s |
Proceeds |
|
| Per note | $1,000 | $9.50 | $990.50 |
| Total | $7,790,000 | $74,005 | $7,715,995 |
(1) The price to public is 99.05% for certain investors; see
“Additional Information About the Notes—Supplemental information regarding plan of distribution; conflicts of interest”
on page 21. Morgan Stanley & Co. LLC (“MS & Co.”) will sell all of the notes that it purchases from us to an
unaffiliated dealer. Investors that purchase and hold the notes in fee-based accounts may be charged fees based on the amount of
assets held in those accounts, including the notes.
(2) See “Additional
Information About the Notes—Use of proceeds and hedging” beginning on page 19.
The notes involve risks not
associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 10.
The Securities and Exchange
Commission and state securities regulators have not approved or disapproved these notes, or determined if this document or the
accompanying product supplement, index supplement and prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The notes are not deposits
or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
You should read this document
together with the related product supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks
below. Please also see “Final Terms” on page 3 and “Additional Information About the Notes” on page 19.
MORGAN
STANLEY
About Your Prospectus
The notes are notes issued as part of MSFL’s Series A Global
Medium-Term Notes program. This prospectus includes this pricing supplement and the accompanying documents listed below. This pricing
supplement constitutes a supplement to the documents listed below and should be read in conjunction with such documents:
The information in this pricing supplement supersedes any conflicting
information in the documents listed above. In addition, some of the terms or features described in the listed documents may not
apply to your notes.
ESTIMATED
VALUE
The Original Issue Price of each note is $1,000. This price includes
costs associated with issuing, selling, structuring and hedging the notes, which are borne by you, and, consequently, the estimated
value of the notes on the Trade Date is less than $1,000. We estimate that the value of each note on the Trade Date is $986.60.
What goes into the estimated value on the Trade Date?
In valuing the notes on the Trade Date, we take into account
that the notes comprise both a debt component and a performance-based component linked to the Underlier. The estimated value of
the notes is determined using our own pricing and valuation models, market inputs and assumptions relating to the Underlier, instruments
based on the Underlier, volatility and other factors including current and expected interest rates, as well as an interest rate
related to our secondary market credit spread, which is the implied interest rate at which our conventional fixed rate debt trades
in the secondary market.
What determines the economic terms of the notes?
In determining the economic terms of the notes, including the
Maximum Settlement Amount and the Threshold Amount, we use an internal funding rate, which is likely to be lower than our secondary
market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne by you were
lower or if the internal funding rate were higher, one or more of the economic terms of the notes would be more favorable to you.
What is the relationship between the estimated value on the
Trade Date and the secondary market price of the notes?
The price at which MS & Co. purchases the notes in the secondary
market, absent changes in market conditions, including those related to the Underlier, may vary from, and be lower than, the estimated
value on the Trade Date, because the secondary market price takes into account our secondary market credit spread as well as the
bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other factors. However, because
the costs associated with issuing, selling, structuring and hedging the notes are not fully deducted upon issuance, for a period
of up to 3 months following the issue date, to the extent that MS & Co. may buy or sell the notes in the secondary market,
absent changes in market conditions, including those related to the Underlier, and to our secondary market credit spreads, it would
do so based on values higher than the estimated value. We expect that those higher values will also be reflected in your brokerage
account statements.
MS & Co. may, but is not obligated to, make a market in the
notes, and, if it once chooses to make a market, may cease doing so at any time.
SUMMARY
INFORMATION
|
The Buffered Digital S&P 500® Index-Linked
References to “we,” “us” |
Final
Terms
Capitalized terms used but not defined herein
have the meanings assigned to them in the accompanying product supplement and prospectus. All references to “Buffer Rate,”
“Cash Settlement Amount,” “Closing Level,” “Determination Date,” “Face Amount,”
“Final Underlier Level,” “Initial Underlier Level,” “Original Issue Price,” “Stated Maturity
Date,” “Threshold Amount,” “Trade Date,” “Underlier” and “Underlier Return”
herein shall be deemed to refer to “downside factor,” “payment at maturity,” “index closing value,”
“valuation date,” “stated principal amount,” “final index value,” “initial index value,”
“issue price,” “maturity date,” “buffer amount,” “pricing date,” “underlying
index” and “index percent change” respectively, as used in the accompanying product supplement.
If the terms described herein are inconsistent
with those described in the accompanying product supplement or prospectus, the terms described herein shall control.
Issuer: Morgan Stanley Finance LLC
Guarantor: Morgan Stanley
Underlier: S&P 500® Index
Underlier Publisher: S&P Dow Jones Indices LLC
Notes: The accompanying product supplement refers to the
notes as the “jump securities.”
Specified currency: U.S. dollars (“$”)
Face Amount: Each note will have a Face Amount of $1,000;
$7,790,000 in the aggregate for all the notes; the aggregate Face Amount of notes may be increased if the Issuer, at its sole option,
decides to sell an additional amount of the notes on a date subsequent to the date hereof.
Denominations: $1,000
and integral multiples thereof
Cash Settlement Amount (on the Stated Maturity Date): For
each $1,000 Face Amount of notes, we will pay you on the Stated Maturity Date an amount in cash equal to:
| · | if the Final Underlier Level is greater than or equal to the Threshold Level, the Maximum Settlement Amount; or |
| · | if the Final Underlier Level is less than the Threshold Level, the sum of (i) $1,000 plus (ii) the product of (a) $1,000 times (b) the Buffer Rate times (c) the sum of the Underlier Return and the Threshold Amount. |
You will lose some or all of
your investment at maturity if the Final Underlier Level is less than the Threshold Level. Notwithstanding anything to the contrary
in the accompanying product supplement, you will receive the Maximum Settlement Amount if the Final Underlier Level is greater
than or equal to the Threshold Level. Any payment of the Cash Settlement Amount is subject to the credit risk of Morgan Stanley.
Initial Underlier Level: 2,582.61
Final Underlier Level: The Closing Level of the Underlier
on the Determination Date, except in the limited circumstances described under “Description of Securities—Postponement
of Valuation Date(s)” on page S-47 of the accompanying product supplement, and subject to adjustment as provided under “Description
of Securities—Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation” on page
S-50 of the accompanying product supplement.
Underlier Return: The quotient of (i) the
Final Underlier Level minus the Initial Underlier Level divided by (ii) the Initial Underlier Level, expressed as
a percentage
Maximum Settlement Amount: $1,068.50
for each $1,000 Face Amount of notes (which is comprised of the $1,000 Face Amount plus an upside payment of $68.50)
Threshold Level: 2,195.2185, which is 85% of the Initial
Underlier Level
Threshold Amount: 15%
Buffer Rate: The quotient of the Initial Underlier
Level divided by the Threshold Level, which equals approximately 117.65%
Trade Date: January 14, 2019
Original Issue Date (Settlement Date): January 22, 2019
(5 Business Days after the Trade Date)
Determination Date: February 14, 2020, subject to postponement
as described in the accompanying product supplement on page S-47 under “Description of Securities—Postponement of Valuation
Date(s).”
Stated Maturity Date: February 19, 2020 (2 Business Days
after the Determination Date), subject to postponement as described below.
Postponement of Stated Maturity Date: If the scheduled
Determination Date is not a Trading Day or if a market disruption event occurs on that day so that the Determination Date as postponed
falls less than two Business Days prior to the scheduled Stated Maturity Date, the Stated Maturity Date of the notes will be postponed
to the second Business Day following that Determination Date as postponed.
Closing Level: As described under “Description of
Securities—Some Definitions—index closing value” on page S-37 of the accompanying product supplement.
Business Day: As described under “Description of
Securities—Some Definitions—business day” on page S-36 of the accompanying product supplement
Trading Day: As described under “Description of
Securities—Some Definitions—index business day” on page S-37 of the accompanying product supplement. The accompanying
product supplement refers to a Trading Day as an “index business day.”
Market disruption event: The following replaces in its
entirety the section entitled “Description of Securities—Some Definitions—market disruption event” on page
S-37 of the accompanying product supplement:
“Market disruption event” means, with respect to
the Underlier:
(i) the occurrence or existence of:
| (a) | a suspension, absence or material limitation of trading of securities then constituting 20 percent or more, by weight, of the Underlier (or the successor index) on the relevant exchanges for such securities for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such relevant exchange, or |
| (b) | a breakdown or failure in the price and trade reporting systems of any relevant exchange as a result of which the reported trading prices for securities then constituting 20 percent or more, by weight, of the Underlier (or the successor index), or futures or options contracts, if available, relating to the Underlier (or the successor index) or the securities then constituting 20 percent or more, by weight, of the Underlier during the last one-half hour preceding the close of the principal trading session on such relevant exchange are materially inaccurate, or |
| (c) | the suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options contracts or exchange-traded funds related to the Underlier (or the successor index), or in futures or options contracts, if available, relating to securities then constituting 20 percent or more, by weight, of the Underlier (or the successor index) for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such market, |
in each case as determined by the calculation agent in its sole
discretion; and
(ii) a determination by the calculation agent in its sole discretion
that any event described in clause (i) above materially interfered with our ability or the ability of any of our affiliates to
unwind or adjust all or a material portion of the hedge position with respect to the notes.
For the purpose of determining whether a market disruption event
exists at any time, if trading in a security included in the Underlier is suspended, absent or materially limited at that time,
then the relevant percentage contribution of that security to the value of the Underlier shall be based on a comparison of (x)
the portion of the value of the Underlier attributable to that security relative to (y) the overall value of the Underlier, in
each case immediately before that suspension or limitation.
For the purpose of determining whether a market disruption event
has occurred: (1) a limitation on the hours or number of days of trading will not constitute a market disruption event if it results
from an announced change in the regular business hours of the relevant exchange or market, (2) a decision to permanently discontinue
trading in the relevant futures or options contract or exchange-traded fund will not constitute a market disruption event, (3)
a suspension of trading in futures or options contracts or exchange-traded funds on the Underlier, or futures or options contracts,
if available, relating to securities then constituting 20 percent or more, by weight, of the Underlier, by the primary securities
market trading in such contracts or funds by reason of (a) a price change exceeding limits set by such securities exchange or market,
(b) an imbalance of orders relating to such contracts or funds, or (c) a disparity in bid and ask quotes relating to such contracts
or funds will constitute a suspension, absence or material limitation of trading in futures or options contracts or exchange-traded
funds related to the Underlier and (4) a “suspension, absence or material limitation of trading” on any relevant exchange
or on the primary market on which futures or options contracts or exchange-traded funds related to the Underlier are traded will
not include any time when such securities market is itself closed for trading under ordinary circumstances.
Issuer Notice To Registered Security Holders, the Trustee
and the Depositary: In the event that the Stated Maturity Date is postponed due to postponement of the Determination Date,
the Issuer shall give notice of such postponement and, once it has been determined, of the date to which the Stated Maturity Date
has been rescheduled (i) to each registered holder of the notes by mailing notice of such postponement by first class mail, postage
prepaid, to such registered holder’s last address as it shall appear upon the registry books, (ii) to the Trustee by facsimile
confirmed by mailing such notice to the Trustee by first class mail, postage prepaid, at its New York office and (iii) to The Depository
Trust Company (the “depositary”) by telephone or facsimile, confirmed by mailing such notice to the depositary by first
class mail, postage prepaid. Any notice that is mailed to a registered holder of the notes in the manner herein provided shall
be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder receives the
notice. The Issuer shall give such notice as promptly as possible, and in no case later than (i) with respect to notice of postponement
of the Stated Maturity Date, the Business Day immediately preceding the scheduled Stated Maturity Date and (ii) with respect to
notice of the date to which the Stated Maturity Date has been rescheduled, the Business Day immediately following the actual Determination
Date for determining the Final Underlier Level.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee and to the depositary of the amount of cash, if any, to be delivered with respect to each
Face Amount of notes, on or prior to 10:30 a.m. (New York City time) on the Business Day preceding the Stated Maturity Date, and
(ii) deliver the aggregate cash amount due with respect to the notes, if any, to the Trustee for delivery to the depositary, as
holder of the notes, on the Stated Maturity Date.
Trustee: The Bank of New York Mellon
Calculation Agent: MS & Co.
CUSIP no.: 61768DYJ8
ISIN: US61768DYJ89
HYPOTHETICAL
EXAMPLES
The following table and
chart are provided for purposes of illustration only. They should not be taken as an indication or prediction of future investment
results and are intended merely to illustrate the impact that the various hypothetical Closing Levels of the Underlier on the Determination
Date could have on the Cash Settlement Amount.
The examples below are
based on a range of Final Underlier Levels that are entirely hypothetical; no one can predict what the level of the Underlier will
be on any day during the term of the notes, and no one can predict what the Final Underlier Level will be on the Determination
Date. The Underlier has at times experienced periods of high volatility — meaning that the level of the Underlier has changed
considerably in relatively short periods — and its performance cannot be predicted for any future period.
The information in the
following examples reflects hypothetical rates of return on the notes assuming that they are purchased on the Original Issue Date
at the Face Amount and held to the Stated Maturity Date. The value of the notes at any time after the Trade Date will vary based
on many economic and market factors, including interest rates, the volatility of the Underlier, our creditworthiness and changes
in market conditions, and cannot be predicted with accuracy. Any sale prior to the Stated Maturity Date could result in a substantial
loss to you.
| Key Terms and Assumptions |
|
| Face Amount: |
$1,000 |
| Maximum Settlement Amount: |
$1,068.50 per $1,000 Face Amount of notes (106.850% of the Face Amount) |
| Minimum Cash Settlement Amount: |
None |
| Threshold Level: |
85% of the Initial Underlier Level |
| Buffer Rate: |
Approximately 117.65% |
| Threshold Amount: |
15.00% |
| · | Neither a market disruption event nor a non-Trading Day occurs on the Determination Date. |
| · | No discontinuation of the Underlier or alteration of the method by which the Underlier is calculated. |
| · | Notes purchased on the Original Issue Date at the Face Amount and held to the Stated Maturity Date. |
The actual performance of the Underlier over the term of the
notes, as well as the Cash Settlement Amount, if any, may bear little relation to the hypothetical examples shown below or to the
historical levels of the Underlier shown elsewhere in this document. For information about the historical levels of the Underlier
during recent periods, see “The Underlier” below.
The levels in the left column of the table below represent hypothetical
Final Underlier Levels and are expressed as percentages of the Initial Underlier Level. The amounts in the right column represent
the hypothetical Cash Settlement Amount, based on the corresponding hypothetical Final Underlier Level (expressed as a percentage
of the Initial Underlier Level), and are expressed as percentages of the Face Amount of notes (rounded to the nearest one-thousandth
of a percent). Thus, a hypothetical Cash Settlement Amount of 100% means that the value of the cash payment that we would deliver
for each $1,000 Face Amount of notes on the Stated Maturity Date would equal 100% of the Face Amount of notes, based on the corresponding
hypothetical Final Underlier Level (expressed as a percentage of the Initial Underlier Level) and the assumptions noted above.
The numbers appearing in the table and chart below may have been rounded for ease of analysis.
| Hypothetical Final Underlier Level | Hypothetical Cash Settlement Amount |
| (as Percentage of Initial Underlier Level) | (as Percentage of Face Amount) |
| 200.000% | 106.850% |
| 175.000% | 106.850% |
| 150.000% | 106.850% |
| 125.000% | 106.850% |
| 120.000% | 106.850% |
| 115.000% | 106.850% |
| 110.000% | 106.850% |
| 105.500% | 106.850% |
| 100.000% | 106.850% |
| 95.000% | 106.850% |
| 90.000% | 106.850% |
| 85.000% | 106.850% |
| 80.000% | 94.118% |
| 75.000% | 88.235% |
| 50.000% | 58.824% |
| 25.000% | 29.412% |
| 0.000% | 0.000% |
If, for example, the Final Underlier Level were determined to
be 25.000% of the Initial Underlier Level, the Cash Settlement Amount would be approximately 29.412% of the Face Amount of notes,
as shown in the table above. As a result, if you purchased your notes on the Original Issue Date at the Face Amount and held them
to the Stated Maturity Date, you would lose approximately 70.588% of your investment. If you purchased your notes at a premium
to the Face Amount, you would lose a correspondingly higher percentage of your investment.
If the Final Underlier Level were determined to be 150.000% of
the Initial Underlier Level, the Cash Settlement Amount would be capped at the Maximum Settlement Amount (expressed as a percentage
of the Face Amount), or 106.850% of each $1,000 Face Amount of notes, as shown in the table above. As a result, if you purchased
the notes on the Original Issue Date at the Face Amount and held them to the Stated Maturity Date, you would not benefit from any
increase in the Final Underlier Level above 85.000% of the Initial Underlier Level.
Payoff Diagram
The following chart shows a graphical illustration of the hypothetical
Cash Settlement Amount (expressed as a percentage of the Face Amount of notes), if the Final Underlier Level (expressed as a percentage
of the Initial Underlier Level) were any of the hypothetical levels shown on the horizontal axis. The chart shows that any hypothetical
Final Underlier Level (expressed as a percentage of the Initial Underlier Level) of less than the Threshold Level of 85% (the section
left of the 85% marker on the horizontal axis) would result in a hypothetical Cash Settlement Amount of less than 100% of the Face
Amount of notes (the section below the 100% marker on the vertical axis), and, accordingly, in a loss of principal to the holder
of the notes. The chart also shows that any hypothetical Final Underlier Level (expressed as a percentage of the Initial Underlier
Level) of greater than or equal to 85% (the section right of the 85% marker on the horizontal axis) would result in a capped return
on your investment and a Cash Settlement Amount equal to the Maximum Settlement Amount.
| Hypothetical Payoff Diagram |
 |
RISK
FACTORS
| The following is a non-exhaustive list of certain key risk factors for investors in the notes. For further discussion of these and other risks, you should read the section entitled “Risk Factors” in the accompanying product supplement and prospectus. We also urge you to consult your investment, legal, tax, accounting and other advisers in connection with your investment in the notes. |
The Notes Do Not Pay Interest Or Guarantee
The Return Of Any Of Your Principal
The terms of the notes differ from those of ordinary debt securities
in that the notes do not pay interest and do not guarantee any return of principal at maturity. If the Final Underlier Level has
declined by an amount greater than the Threshold Amount of 15% from the Initial Underlier Level, you will receive for each note
that you hold a Cash Settlement Amount that is less than the Face Amount of each note by an amount proportionate to the decline
in the level of the Underlier below the Threshold Level of 85% of the Initial Underlier Level times the Buffer Rate of approximately
117.65%. As there is no minimum Cash Settlement Amount on the notes, you could lose your entire initial investment.
Also, the market price of your notes prior to the Stated Maturity
Date may be significantly lower than the purchase price you pay for your notes. Consequently, if you sell your notes before the
Stated Maturity Date, you may receive significantly less than the amount of your investment in the notes.
The Appreciation Potential Of The Notes
Is Limited By The Maximum Settlement Amount
The appreciation potential of the notes is limited by the Maximum
Settlement Amount of $1,068.50 per note, or
106.85% of the Face Amount. Because the Cash Settlement Amount will be limited to 106.85% of the Face Amount for the notes, any
increase in the Final Underlier Level over the Threshold Level will not increase the return on the notes, even if the Final Underlier
Level is significantly greater than the Initial Underlier Level.
If You Purchase Your Notes At A Premium
To The Face Amount, The Return On Your Investment Will Be Lower Than The Return On Notes Purchased At The Face Amount, And The
Impact Of Certain Key Terms Of The Notes Will Be Negatively Affected
The Cash Settlement Amount will not be adjusted based on the
issue price you pay for the notes. If you purchase notes at a price that differs from the Face Amount of notes, then the return
on your investment in such notes held to the Stated Maturity Date will differ from, and may be substantially less than, the return
on notes purchased at the Face Amount. If you purchase your notes at a premium to the Face Amount and hold them to the Stated Maturity
Date, the return on your investment in the notes will be lower than it would have been had you purchased the notes at the Face
Amount or at a discount to the Face Amount. In addition, the impact of the Threshold Level and the Maximum Settlement Amount on
the return on your investment will depend upon the price you pay for your notes relative to the Face Amount. For example, if you
purchase your notes at a premium to the Face Amount, the Threshold Level will not offer the same measure of protection to your
investment as would have been the case for notes purchased at the Face Amount or at a discount to the Face Amount. Additionally,
the Cash Settlement Amount will be limited to the Maximum Settlement Amount, which would represent a lower percentage return relative
to your initial investment than it would have been had you purchased the notes at the Face Amount.
The Underlier Reflects The Price Return
Of The Stocks Composing The Underlier, Not A Total Return
The return on the notes is based on the performance of the Underlier,
which reflects the changes in the market prices of the stocks composing the Underlier. It is not, however, linked to a “total
return” version of the Underlier, which, in addition to reflecting those price returns, would also reflect all dividends
and other distributions paid on the stocks composing the Underlier. The return on the notes will not include such a total return
feature.
The Market Price Will Be Influenced By
Many Unpredictable Factors
Several factors, many of which are beyond our control, will influence
the value of the notes in the secondary market and the price at which MS & Co. may be willing to purchase or sell the notes
in the secondary market, including: the level of the Underlier, volatility (frequency and magnitude of changes in value) of the
Underlier and dividend yield of the Underlier, interest and yield rates, time remaining to maturity, geopolitical conditions and
economic, financial, political and regulatory or judicial events that affect the Underlier or equities markets generally and which
may affect the Final Underlier Level of the Underlier and any actual or anticipated changes in our credit ratings or credit spreads.
The level of the Underlier may be, and has been, volatile, and we can give you no assurance that the volatility will lessen. See
“The Underlier” below. You may receive less, and possibly significantly less, than the Face Amount per note if you
try to sell your notes prior to maturity.
The
Notes Are Subject To Our Credit Risk, And Any Actual Or Anticipated Changes To Our Credit Ratings Or Credit Spreads May Adversely
Affect The Market Value Of The Notes
You are dependent on our
ability to pay all amounts due on the notes at maturity, and therefore you are subject to our credit risk. If we default on our
obligations under the notes, your investment would be at risk and you could lose some or all of your investment. As a result, the
market value of the notes prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any
actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit
risk is likely to adversely affect the market value of the notes.
As
A Finance Subsidiary, MSFL Has No Independent Operations And Will Have No Independent Assets
As a
finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its securities and will have no
independent assets available for distributions to holders of the notes if they make claims in respect of such notes in a bankruptcy,
resolution or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related
guarantee by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations
of Morgan Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee.
Holders of the notes should accordingly assume that in any such proceedings they could not have any priority over and should be
treated pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of
Morgan Stanley-issued securities.
The Amount Payable On The Notes Is Not
Linked To The Level Of The Underlier At Any Time Other Than The Determination Date
The Final Underlier Level will be based on the Closing Level
on the Determination Date, subject to adjustment for non-Trading Days and certain market disruption events. Even if the level of
the Underlier appreciates prior to the Determination Date but then drops by the Determination Date, the Cash Settlement Amount
may be less, and may be significantly less, than it would have been had the Cash Settlement Amount been linked to the level of
the Underlier prior to such drop. Although the actual level of the Underlier on the Stated Maturity Date or at other times during
the term of the notes may be higher than the Final Underlier Level, the Cash Settlement Amount will be based solely on the Closing
Level on the Determination Date.
Investing In The Notes Is Not Equivalent
To Investing In The Underlier
Investing in the notes is not equivalent to investing in the
Underlier or its component stocks. Investors in the notes will not have voting rights or rights to receive dividends or other distributions
or any other rights with respect to stocks that constitute the Underlier.
Adjustments To The Underlier Could Adversely
Affect The Value Of The Notes
The publisher of the Underlier may add, delete or substitute
the stocks constituting the Underlier or make other methodological changes that could change the level of the Underlier. The publisher
of the Underlier may discontinue or suspend calculation or publication of the Underlier 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 Underlier
and is permitted to consider indices that are calculated and published by the calculation agent or any of its affiliates. If the
calculation agent determines that there is no appropriate successor index, the Cash Settlement Amount on the notes will be an amount
based on
the closing prices at maturity of the securities composing the
Underlier at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance
with the formula for calculating the Underlier last in effect prior to discontinuance of the Underlier.
The Rate We Are Willing To Pay For Securities
Of This Type, Maturity And Issuance Size Is Likely To Be Lower Than The Rate Implied By Our Secondary Market Credit Spreads And
Advantageous To Us. Both The Lower Rate And The Inclusion Of Costs Associated With Issuing, Selling, Structuring And Hedging The
Notes In The Original Issue Price Reduce The Economic Terms Of The Notes, Cause The Estimated Value Of The Notes To Be Less Than
The Original Issue Price And Will Adversely Affect Secondary Market Prices
Assuming no change in market conditions or any other relevant
factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the notes in secondary market
transactions will likely be significantly lower than the Original Issue Price, because secondary market prices will exclude the
issuing, selling, structuring and hedging-related costs that are included in the Original Issue Price and borne by you and because
the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge
in a secondary market transaction of this type as well as other factors.
The inclusion of the costs of issuing, selling, structuring and
hedging the notes in the Original Issue Price and the lower rate we are willing to pay as issuer make the economic terms of the
notes less favorable to you than they otherwise would be.
However, because the costs associated with issuing, selling,
structuring and hedging the notes are not fully deducted upon issuance, for a period of up to 3 months following the issue date,
to the extent that MS & Co. may buy or sell the notes in the secondary market, absent changes in market conditions, including
those related to the Underlier, and to our secondary market credit spreads, it would do so based on values higher than the estimated
value, and we expect that those higher values will also be reflected in your brokerage account statements.
The Estimated Value Of The Notes Is Determined
By Reference To Our Pricing And Valuation Models, Which May Differ From Those Of Other Dealers And Is Not A Maximum Or Minimum
Secondary Market Price
These pricing and valuation models are proprietary and rely in
part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be incorrect.
As a result, because there is no market-standard way to value these types of securities, our models may yield a higher estimated
value of the notes than those generated by others, including other dealers in the market, if they attempted to value the notes.
In addition, the estimated value on the Trade Date does not represent a minimum or maximum price at which dealers, including MS
& Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value of your notes
at any time after the date hereof will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness
and changes in market conditions. See also “The Market Price Will Be Influenced By Many Unpredictable Factors” above.
The Notes Will Not Be Listed On Any Securities
Exchange And Secondary Trading May Be Limited
The notes will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the notes. MS & Co. may, but is not obligated to, make a market in the notes
and, if it once chooses to make a market, may cease doing so at any time. When it does make a market, it will generally do so for
transactions of routine secondary market size at prices based on its estimate of the current value of the notes, taking into account
its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed sale, the cost of unwinding any
related hedging positions, the time remaining to maturity and the likelihood that it will be able to resell the notes. Even if
there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Since other broker-dealers
may not participate significantly in the secondary market for the notes, the price at which you may be able to trade your notes
is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease
making a market in the notes, it is likely that there would be no secondary market for the notes. Accordingly, you should be willing
to hold your notes to maturity.
The Calculation Agent, Which Is A Subsidiary
Of Morgan Stanley And An Affiliate Of MSFL, Will Make Determinations With Respect To The Notes
As calculation agent, MS & Co. has determined the Initial
Underlier Level, will determine the Final Underlier Level and will calculate the Cash Settlement Amount you receive at maturity,
if any. Moreover, certain determinations made by MS & Co. in its capacity as calculation agent, may require it to exercise
discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events
and the selection of a successor index or calculation of the Final Underlier Level in the event of a market disruption event or
discontinuance of the Underlier. These potentially subjective determinations may adversely affect the Cash Settlement Amount at
maturity, if any. For further information regarding these types of determinations, see “Description of Securities—Postponement
of Valuation Date(s)” and “—Calculation Agent and Calculations” in the accompanying product supplement.
In addition, MS & Co. has determined the estimated value of the notes on the Trade Date.
Hedging And Trading Activity By Our Affiliates
Could Potentially Adversely Affect The Value Of The Notes
One or more of our affiliates and/or third-party dealers have
carried out, and will continue to carry out, hedging activities related to the notes, including trading in the stocks that constitute
the Underlier as well as in other instruments related to the Underlier. As a result, these entities may be unwinding or adjusting
hedge positions during the term of the notes, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the Determination Date approaches. Some of our affiliates also trade the stocks that constitute the Underlier and
other financial instruments related to the Underlier on a regular basis as part of their general broker-dealer and other businesses.
Any of these hedging or trading activities on or prior to the Trade Date could have increased the Initial Underlier Level, and,
therefore, could have increased the Threshold Level, which is the level at or above which the Underlier must close on the Determination
Date so that investors do not suffer a loss on their initial investment in the notes. Additionally, such hedging or trading activities
during the term of the notes, including on the Determination Date, could adversely affect the level of the Underlier on the Determination
Date, and, accordingly, the Cash Settlement Amount an investor will receive at maturity, if any. Furthermore, if the dealer from
which you purchase notes is to conduct trading and hedging activities for us in connection with the notes, that dealer may profit
in connection with such trading and hedging activities and such profit, if any, will be in addition to the compensation that the
dealer receives for the sale of the notes to you. You should be aware that the potential to earn a profit in connection with hedging
activities may create a further incentive for the dealer to sell the notes to you, in addition to the compensation they would receive
for the sale of the notes.
We May Sell An Additional Aggregate Face
Amount Of Notes At A Different Issue Price
At our sole option, we may decide to sell an additional aggregate
Face Amount of notes subsequent to the date hereof. The issue price of the notes in the subsequent sale may differ substantially
(higher or lower) from the issue price you paid as provided on the cover of this document.
Past Performance is No Guide to Future
Performance
The actual performance of the Underlier over the term of the
notes, as well as the amount payable at maturity, may bear little relation to the historical Closing Levels of the Underlier or
to the hypothetical return examples set forth herein. We cannot predict the future performance of the Underlier.
The U.S. Federal Income Tax Consequences
Of An Investment In The Notes Are Uncertain
Please read the discussion under “Tax
Considerations” in this document and the discussion under “United States Federal Taxation” in the accompanying
product supplement (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of
an investment in the notes. If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative
treatment, the timing and character of income on the notes might differ significantly from the tax treatment described in the Tax
Disclosure Sections. For example, under one possible treatment, the IRS could seek to recharacterize the notes as debt instruments.
In that event, U.S. Holders would be required to accrue into income original issue discount on the notes every year at a “comparable
yield” determined at the time of issuance and recognize all income and gain in respect of the notes as ordinary income. Additionally,
as discussed under “United States Federal Taxation—FATCA” in the accompanying product supplement, the
withholding rules commonly referred to as “FATCA”
would apply to the notes if they were recharacterized as debt instruments. The risk that financial instruments providing for buffers,
triggers or similar downside protection features, such as the notes, would be recharacterized as debt is greater than the risk
of recharacterization for comparable financial instruments that do not have such features. We do not plan to request a ruling from
the IRS regarding the tax treatment of the notes, and the IRS or a court may not agree with the tax treatment described in the
Tax Disclosure Sections.
In 2007, the U.S. Treasury Department and the IRS released a
notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment.
It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded
status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to
which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether
these instruments are or should be subject to the “constructive ownership” rule, 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 notes, possibly with retroactive
effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of
an investment in the notes, including possible alternative treatments, the issues presented by this notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
THE UNDERLIER
The 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.
In addition, information about the Underlier may be obtained
from other sources including, but not limited to, the Underlier Publisher’s website (including information regarding (i)
the Underlier’s top ten constituents and (ii) the Underlier’s sector weightings). We are not incorporating by reference
into this document the website or any material it includes. Neither the issuer nor the agent makes any representation that such
publicly available information regarding the Underlier is accurate or complete.
Information as of market close on January 14, 2019:
| Bloomberg Ticker Symbol: | SPX |
| Current Index Value: | 2,582.61 |
| 52 Weeks Ago: | 2,776.42 |
| 52 Week High (on 9/20/2018): | 2,930.75 |
| 52 Week Low (on 12/24/2018): | 2,351.10 |
The following graph sets forth the daily Closing Levels of the
Underlier for each quarter in the period from January 1, 2014 through January 14, 2019. The Closing Level of the Underlier on January
14, 2019 was 2,582.61. We obtained the information in the graph below from Bloomberg Financial Markets, without independent verification.
The Underlier has at times experienced periods of high volatility. The actual performance of the Underlier over the term of the
notes, as well as the amount payable at maturity, may bear little relation to the historical Closing Levels of the Underlier or
to the hypothetical return examples set forth herein. We cannot predict the future performance of the Underlier. You should not
take the historical levels of the Underlier as an indication of its future performance, and no assurance can be given as to the
Closing Level of the Underlier on the Determination Date.
|
S&P 500® Index Daily Underlier Closing Values January 1, 2014 to January 14, 2019 |
 |
“Standard & Poor’s®,” “S&P®,”
“S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. See “S&P 500® Index” in the accompanying index
supplement.
TAX CONSIDERATIONS
Although there is uncertainty
regarding the U.S. federal income tax consequences of an investment in the notes due to the lack of governing authority, in the
opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, it is more likely
than not that a note will be treated as a single financial contract that is an “open transaction” for U.S. federal
income tax purposes.
Assuming this treatment
of the notes is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product
supplement, the following U.S. federal income tax consequences should result based on current law:
| § | A U.S. Holder should not be required to recognize taxable income over the term of the notes prior to settlement, other than pursuant to a sale or exchange. |
| § | Upon sale, exchange or settlement of the notes, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the notes. Such gain or loss should be long-term capital gain or loss if the investor has held the notes for more than one year, and short-term capital gain or loss otherwise. |
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 notes, possibly with retroactive effect.
As discussed
in the accompanying product supplement, Section 871(m) of the Internal Revenue Code of 1986, as amended, and Treasury regulations
promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax
on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities
or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m)
generally applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as
determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant
to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have a delta of one with
respect to any Underlying Security. Based on our determination that the notes do not have a delta of one with respect to any Underlying
Security, our counsel is of the opinion that the notes should not be Specified Securities and, therefore, should not be subject
to Section 871(m).
Our determination
is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may
depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying Security.
If withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld. You
should consult your tax adviser regarding the potential application of Section 871(m) to the notes.
Both U.S.
and non-U.S. investors considering an investment in the notes should read the discussion under “Risk Factors” in this
document and the discussion under “United States Federal Taxation” in the accompanying product supplement and consult
their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the notes, including possible
alternative treatments, the issues presented by the aforementioned notice and any tax consequences arising under the laws of any
state, local or non-U.S. taxing jurisdiction.
The discussion
in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying product supplement, insofar as
they purport
to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of
Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the notes.
ADDITIONAL
INFORMATION ABOUT THE NOTES
No interest or dividends: The notes will not pay interest
or dividends.
No listing: The notes will not be listed on any securities
exchange.
No redemption: The notes will not be subject to any redemption
right.
Purchase at amount other
than Face Amount: The amount we will pay you on the Stated Maturity Date for your notes will
not be adjusted based on the issue price you pay for your notes, so if you acquire notes at a premium (or discount) to the Face
Amount and hold them to the Stated Maturity Date, it could affect your investment in a number of ways. The return on your investment
in such notes will be lower (or higher) than it would have been had you purchased the notes at the Face Amount. Also, the Threshold
Level would not offer the same measure of protection to your investment as would be the case if you had purchased the notes at
the Face Amount. Additionally, the Maximum Settlement Amount would represent a lower (or higher) percentage return than it would
have had you purchased the notes at the Face Amount. See “Risk Factors—If You Purchase Your Notes At A Premium To The
Face Amount, The Return On Your Investment Will Be Lower Than The Return On Notes Purchased At The Face Amount, And The Impact
Of Certain Key Terms Of The Notes Will Be Negatively Affected” beginning on page 10 of this document.
Use of proceeds and hedging: The proceeds from the sale
of the notes will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per note issued. The costs
of the notes borne by you and described on page 2 comprise the cost of issuing, structuring and hedging the notes.
On or prior to the Trade Date, we hedged our anticipated exposure
in connection with the notes, by entering into hedging transactions with our affiliates and/or third party dealers. We expect our
hedging counterparties to have taken positions in stocks of the Underlier and in futures and options contracts on the Underlier,
and any component stocks of the Underlier listed on major securities markets. Such purchase activity could have increased the level
of the Underlier on the Trade Date, and therefore could have increased the Threshold Level, which is the level at or above which
the Underlier must close on the Determination Date so that investors do not suffer a loss on their initial investment in the notes.
In addition, through our affiliates, we are likely to modify our hedge position throughout the term of the notes, including on
the Determination Date, by purchasing and selling the stocks constituting the Underlier, futures or options contracts on the Underlier
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 notes, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as
the Determination Date approaches. We cannot give any assurance that our hedging activities will not affect the level of the Underlier,
and, therefore, adversely affect the value of the notes or the payment you will receive at maturity, if any. For further information
on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product supplement.
Benefit Plan Investor Considerations: Each fiduciary of
a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the
Plan’s particular circumstances before authorizing an investment in the notes. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent
with the documents and instruments governing the Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions
between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the notes are acquired by or with the assets of a Plan with respect to which MS & Co. or
any of its affiliates is a service provider or other party in interest, unless the notes are acquired pursuant to an exemption
from
the “prohibited transaction” rules. A violation of
these “prohibited transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section
4975 of the Code for 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 notes. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Section 4975(d)(20) of the Code provide an exemption for the purchase and sale of securities and the related lending
transactions, provided that neither the Issuer of the notes nor any of its affiliates has or exercises any discretionary authority
or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further
that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction
(the so-called “service provider” exemption). There can be no assurance that any of these class or statutory exemptions
will be available with respect to transactions involving the notes.
Because we may be considered a party in interest with respect
to many Plans, the notes may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include “plan
assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person investing
“plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief, including
relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding or disposition
is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or holder of the
notes will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the notes
that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such notes on behalf of or with “plan assets”
of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S.
law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”)
or (b) its purchase, holding and disposition of these notes will not constitute or result in a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the notes on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The notes are contractual financial instruments. The financial
exposure provided by the notes is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the notes. The notes have not been designed and will
not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder of the notes.
Each purchaser or holder of any notes acknowledges and agrees
that:
| (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 notes, (B) the purchaser or holder’s investment in the notes, or (C) the exercise of or failure to exercise any rights we have under or with respect to the notes; |
| (ii) | we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the notes and (B) all hedging transactions in connection with our obligations under the notes; |
| (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 notes has exclusive responsibility
for ensuring that its purchase, holding and disposition of the notes do not violate the prohibited transaction rules of ERISA or
the Code or any Similar Law. The sale of any notes to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this pricing supplement is or is intended to be investment
advice directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these notes should consult
and rely on their own counsel and advisers as to whether an investment in these notes is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the notes if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the notes by the account, plan or annuity.
Additional considerations: Client accounts over which
Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted
to purchase the notes, either directly or indirectly.
Supplemental information regarding plan of distribution; conflicts
of interest: We have agreed to sell to MS & Co., and MS & Co. has agreed to purchase from us, the aggregate face amount
of the offered notes specified on the cover of this pricing supplement. MS & Co. proposes initially to offer the notes to an
unaffiliated securities dealer at the price to public set forth on the cover of this pricing supplement less a concession not in
excess of 0.95% of the face amount. The price to public for notes purchased by certain fee-based advisory accounts is 99.05% of
the face amount of the notes, which reduces the agent’s commission specified on the cover of this pricing supplement with
respect to such notes to 0.00%. MS & Co., the agent for this offering, is our affiliate. Because MS & Co. is both our affiliate
and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), the underwriting arrangements for this
offering must comply with the requirements of FINRA Rule 5121 regarding a FINRA member firm’s distribution of the securities
of an affiliate and related conflicts of interest. In accordance with FINRA Rule 5121, MS & Co. may not make sales in offerings
of the notes to any of its discretionary accounts without the prior written approval of the customer.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the notes.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the notes of an affiliate and related conflicts of interest. MS & Co. or any of
our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement.
Settlement: We expect to deliver the notes against payment
for the notes on the Original Issue Date, which will be the fifth scheduled Business Day following the Trade Date. Under Rule 15c6-1
of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle in two Business
Days, unless the parties to a trade expressly agree otherwise. Accordingly, if the Original Issue Date is more than two Business
Days after the Trade Date, purchasers who wish to transact in the notes more than two Business Days prior to the Original Issue
Date will be required to specify alternative settlement arrangements to prevent a failed settlement.
CONTACT
Morgan Stanley clients may contact their local Morgan Stanley
branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776).
All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured
Investment Sales at (800) 233-1087.
WHERE
YOU CAN FIND MORE INFORMATION
MSFL and Morgan Stanley have filed a registration statement (including
a prospectus, as supplemented by the product supplement and the index supplement) with the Securities and Exchange Commission,
or SEC, for the offering to which this communication relates. You should read the prospectus in that registration statement, the
product supplement, the index supplement and any other documents relating to this offering that MSFL and Morgan Stanley have filed
with the SEC for more complete information about MSFL, 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 and/or Morgan Stanley will arrange to send you the product
supplement, index supplement and prospectus if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at
www.sec.gov as follows:
Product
Supplement dated November 16, 2017
Index
Supplement dated November 16, 2017
Prospectus
dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement, in the index supplement or in the prospectus.
VALIDITY
OF THE NOTES
In the opinion of Davis Polk & Wardwell LLP, as special counsel
to MSFL and Morgan Stanley, when the notes offered by this pricing supplement have been executed and issued by MSFL, authenticated
by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment
as contemplated herein, such notes will be valid and binding obligations of MSFL and the related guarantee will be a valid and
binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability
(including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that
such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable
law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect
of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s
obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of
New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this
opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the MSFL Senior
Debt Indenture and its authentication of the notes and the validity, binding nature and enforceability of the MSFL Senior Debt
Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 16, 2017, which is Exhibit 5-a
to the Registration Statement on Form S-3 filed by Morgan Stanley on November 16, 2017.
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