CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities Offered
|
|
Maximum
Aggregate Offering Price
|
|
Amount
of Registration Fee
|
Contingent Income Auto-Callable Securities due
2022
|
|
$250,000
|
|
$32.45
|
June 2020
Pricing Supplement No. 4,294
Registration Statement Nos. 333-221595; 333-221595-01
Dated June 30, 2020
Filed pursuant to Rule 424(b)(2)
Morgan
Stanley Finance LLC
STRUCTURED INVESTMENTS
Opportunities
in U.S. Equities
Contingent Income
Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst
Performing of the S&P 500® Index and the Russell 2000® Index
Fully
and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
The securities
are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan
Stanley. The securities have the terms described in the accompanying product supplement, index supplement and prospectus, as supplemented
or modified by this document. The securities do not guarantee the repayment of principal and do not provide for the regular payment
of interest. Instead, the securities will pay a contingent monthly coupon but only if the index closing value of each
of the S&P 500® Index and the Russell 2000® Index is at or above its coupon
barrier level of 75% of its respective initial index value on the related observation date. If, however, the index closing value
of either underlying index is less than its coupon barrier level on any observation date, we will pay no interest for the
related monthly period. In addition, the securities will be automatically redeemed if the index closing value of each underlying
index is greater than or equal to its respective initial index value on any quarterly redemption determination date (beginning
six months after the original issue date) for the early redemption payment equal to the sum of the stated principal amount plus
the related contingent monthly coupon. At maturity, if the securities have not previously been redeemed and the final index
value of each underlying index is greater than or equal to its downside threshold level of 75% of the respective initial
index value, the payment at maturity will be the stated principal amount and the related contingent monthly coupon. If, however,
the final index value of either underlying index is less than its downside threshold level, investors will be fully exposed
to the decline in the worst performing underlying index on a 1-to-1 basis and will receive a payment at maturity that is less than
75% of the stated principal amount of the securities and could be zero. Accordingly, investors in the securities must
be willing to accept the risk of losing their entire initial investment and also the risk of not receiving any contingent monthly
coupons throughout the 1.5-year term of the securities. Because all payments on the securities are based on the worst performing
of the underlying indices, a decline beyond the respective coupon barrier level or respective downside threshold level, as applicable,
of either underlying index will result in few or no contingent coupon payments or a significant loss of your investment, even if
the other underlying index has appreciated or has not declined as much. The securities are for investors who are willing to risk
their principal and seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of receiving
no monthly coupons over the entire 1.5-year term. Investors will not participate in any appreciation of either underlying index.
The securities are notes issued as part of MSFL’s Series A Global
Medium-Term Notes program.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These securities are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
FINAL
TERMS
|
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying indices:
|
S&P 500® Index (the “SPX Index”) and Russell 2000® Index (the “RTY Index”)
|
Aggregate principal amount:
|
$250,000
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security
|
Pricing date:
|
June 30, 2020
|
Original issue date:
|
July 6, 2020 (3 business days after the pricing date)
|
Maturity date:
|
January 4, 2022
|
Early redemption:
|
The securities are not subject to automatic early redemption
until six months after the original issue date. Following this initial 6-month non-call period, if, on any redemption determination
date, beginning on December 30, 2020, the index closing value of each underlying index is greater than or equal to its respective
initial index value, the securities will be automatically redeemed for an early redemption payment on the related early redemption
date. No further payments will be made on the securities once they have been redeemed.
The securities will not be redeemed early on any
early redemption date if the index closing value of either underlying index is below the respective initial index value for such
underlying index on the related redemption determination date.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold plus (ii) the contingent monthly coupon with respect to the related observation date.
|
Contingent monthly coupon:
|
A contingent coupon at an annual rate of 13.00% (corresponding
to approximately $10.833 per month per security) will be paid on the securities on each coupon payment date but only
if the index closing value of each underlying index is at or above its respective coupon barrier level on the related
observation date.
If, on any observation date, the index closing value
of either underlying index is less than the respective coupon barrier level for such underlying index, we will pay no coupon for
the applicable monthly period. It is possible that one or both underlying indices will remain below their respective coupon barrier
levels for extended periods of time or even throughout the entire 1.5-year term of the securities so that you will receive few
or no contingent monthly coupons.
|
Payment at maturity:
|
If the final index value of each underlying index is greater
than or equal to its respective downside threshold level: the stated principal amount and the contingent monthly coupon with
respect to the final observation date
If the final index value of either underlying
index is less than its respective downside threshold level: (i) the stated principal amount multiplied by (ii) the
index performance factor of the worst performing underlying index. Under these circumstances, the payment at maturity will be
less than 75% of the stated principal amount of the securities and could be zero.
|
|
Terms continued on the following page
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
$962.40 per security. See “Investment Summary” beginning on page 3.
|
Commissions and issue price:
|
Price to public(1)
|
Agent’s commissions and fees(2)
|
Proceeds to us(3)
|
Per security
|
$1,000
|
$5
|
$995
|
Total
|
$250,000
|
$1,250
|
$248,750
|
|
(1)
|
The securities will be
sold only to investors purchasing the securities in fee-based advisory accounts.
|
|
(2)
|
MS & Co. expects
to sell all of the securities that it purchases from us to an unaffiliated dealer at a price of $995 per security, for further
sale to certain fee-based advisory accounts at the price to public of $1,000 per security. MS & Co. will not receive a sales
commission with respect to the securities. 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.
|
|
(3)
|
See “Use of proceeds
and hedging” on page 26.
|
The
securities involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning
on page 11.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement,
index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and
are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they
obligations of, or guaranteed by, a bank.
You should read this document together with the related product
supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Terms of the Securities” and “Additional Information About the Securities” 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 Auto-Callable Securities dated November 16, 2017 Index Supplement dated November 16, 2017
Prospectus dated November 16, 2017
Morgan Stanley Finance
LLC
Contingent Income
Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the
Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at
Risk Securities
Terms continued from previous page:
|
Redemption determination dates:
|
Beginning after six months, quarterly, on December 30, 2020, March 30, 2021, June 30, 2021 and September 30, 2021, subject to postponement for non-index business days and certain market disruption events.
|
Early redemption dates:
|
Beginning after six months, quarterly, on January 5, 2021, April 2, 2021, July 6, 2021 and October 5, 2021. If any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day.
|
Coupon barrier level:
|
With respect to the SPX Index: 2,325.218, which is approximately
75% of its initial index value
With respect to the RTY Index: 1,081.024, which is approximately
75% of its initial index value
|
Downside threshold level:
|
With respect to the SPX Index: 2,325.218, which is approximately
75% of its initial index value
With respect to the RTY Index: 1,081.024, which is approximately
75% of its initial index value
|
Initial index value:
|
With respect to the SPX Index: 3,100.29, which is its
index closing value on the pricing date
With respect to the RTY Index: 1,441.365, which is its
index closing value on the pricing date
|
Final index value:
|
With respect to each index, the respective index closing value on the final observation date
|
Worst performing underlying:
|
The underlying index with the larger percentage decrease from the respective initial index value to the respective final index value
|
Index performance factor:
|
Final index value divided by the initial index value
|
Coupon payment dates:
|
Monthly, as set forth under “Observation Dates and Coupon Payment Dates” below; provided that if any such day is not a business day, that contingent monthly coupon, if any, will be paid on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day; provided further that the contingent monthly coupon, if any, with respect to the final observation date will be paid on the maturity date
|
Observation dates:
|
Monthly, as set forth under “Observation Dates and Coupon Payment Dates” below, subject to postponement for non-index business days and certain market disruption events. We also refer to December 30, 2021 as the final observation date.
|
CUSIP / ISIN:
|
61771BLT9 / US61771BLT97
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Observation Dates and Coupon
Payment Dates
Observation Dates
|
Coupon Payment Dates
|
July 30, 2020
|
August 4, 2020
|
August 31, 2020
|
September 3, 2020
|
September 30, 2020
|
October 5, 2020
|
October 30, 2020
|
November 4, 2020
|
November 30, 2020
|
December 3, 2020
|
December 30, 2020
|
January 5, 2021
|
January 29, 2021
|
February 3, 2021
|
February 26, 2021
|
March 3, 2021
|
March 30, 2021
|
April 2, 2021
|
April 30, 2021
|
May 5, 2021
|
May 28, 2021
|
June 3, 2021
|
June 30, 2021
|
July 6, 2021
|
July 30, 2021
|
August 4, 2021
|
August 30, 2021
|
September 2, 2021
|
September 30, 2021
|
October 5, 2021
|
October 29, 2021
|
November 3, 2021
|
November 30, 2021
|
December 3, 2021
|
December 30, 2021 (final observation date)
|
January 4, 2022 (maturity date)
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
Contingent Income Auto-Callable Securities due January 4, 2022,
With 6-month Initial Non-Call Period All Payments on the Securities Based on the Worst Performing of the S&P 500®
Index and the Russell 2000® Index (the “securities”) do not provide for the regular payment of interest.
Instead, the securities will pay a contingent monthly coupon but only if the index closing value of each underlying
index is at or above 75% of its initial index value, which we refer to as the respective coupon barrier level, on the related
observation date. If the index closing value of either underlying index is less than the respective coupon barrier level
on any observation date, we will pay no coupon for the related monthly period. It is possible that the index closing value of either
underlying index could remain below the respective coupon barrier level for extended periods of time or even throughout the entire
1.5-year term of the securities so that you will receive few or no contingent monthly coupons during the term of the securities.
We refer to these coupons as contingent, because there is no guarantee that you will receive a coupon payment on any coupon payment
date. Even if both underlying indices were to be at or above their respective coupon barrier levels on some monthly observation
dates, one or both underlying indices may fluctuate below the respective coupon barrier level(s) on others. In addition, if the
securities have not been automatically called prior to maturity and the final index value of either underlying index is
less than 75% of the respective initial index value, which we refer to as the downside threshold level, investors will be fully
exposed to the decline in the worst performing underlying index on a 1-to-1 basis, and will receive a payment at maturity that
is less than 75% of the stated principal amount of the securities and could be zero. Accordingly, investors in the securities
must be willing to accept the risk of losing their entire initial investment and also the risk of not receiving any contingent
monthly coupons throughout the entire 1.5-year term of the securities.
Maturity:
|
Approximately 1.5 years
|
|
|
Contingent monthly coupon:
|
A contingent monthly coupon at an annual rate of 13.00% (corresponding to approximately $10.833 per month per security) will be paid on the securities on each coupon payment date but only if the index closing value of each underlying index is at or above the respective coupon barrier level on the related observation date. If on any observation date, the index closing value of either underlying index is less than the respective coupon barrier level, we will pay no coupon for the applicable monthly period.
|
|
|
Automatic early redemption (beginning after six months):
|
If the index closing value of each underlying index is greater than or equal to its initial index value on any quarterly redemption determination date, beginning on December 30, 2020 (approximately six months after the original issue date), the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent monthly coupon with respect to the related observation date.
|
|
|
Payment at maturity:
|
If the final index value of each underlying index is greater
than or equal to the respective downside threshold level, investors will receive at maturity the stated principal amount and
the contingent monthly coupon with respect to the final observation date.
If the final index value of either underlying
index is less than its downside threshold level, investors will receive a payment at maturity equal to the stated principal
amount times the index performance factor of the worst performing underlying index. Under these circumstances, the payment
at maturity will be less than 75% of the stated principal amount of the securities and could be zero, and no monthly coupon will
be payable at maturity. Accordingly, investors in the securities must be willing to accept the risk of losing their entire
initial investment.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
The original issue price of each security is $1,000. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value of each security on the
pricing date is $962.40.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date, we take into account
that the securities comprise both a debt component and a performance-based component linked to the underlying indices. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying indices, instruments based on the underlying indices, volatility and other factors including current and expected interest
rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our
conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities, including
the contingent monthly coupon rate, the coupon barrier levels and the downside threshold levels, we use an internal funding rate,
which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling,
structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic
terms of the securities would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying indices, may vary from, and be
lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market
credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and
other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully
deducted upon issuance, for a period of up to 5 months following the issue date, to the extent that MS & Co. may buy or sell
the securities in the secondary market, absent changes in market conditions, including those related to the underlying indices,
and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those
higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a market in the
securities and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities will pay a contingent monthly coupon but only if the index closing value of each underlying index
is at or above its respective coupon barrier level on the related observation date. The securities have been designed for
investors who are willing to forgo market floating interest rates and accept the risk of receiving no coupon payments for the entire
1.5-year term of the securities in exchange for an opportunity to earn interest at a potentially above market rate if each underlying
index closes at or above its respective coupon barrier level on each monthly observation date until the securities are redeemed
early or reach maturity. The following scenarios are for illustrative purposes only to demonstrate how the coupon and the payment
at maturity (if the securities have not previously been redeemed) are calculated, and do not attempt to demonstrate every situation
that may occur. Accordingly, the securities may or may not be redeemed, the contingent coupon may be payable in none of, or some
but not all of, the monthly periods during the 1.5-year term of the securities and the payment at maturity may be less than 75%
of the stated principal amount of the securities and may be zero.
Scenario
1: The securities are redeemed prior to maturity
|
This scenario assumes that, prior to early redemption, each underlying
index closes at or above its coupon barrier level on some monthly observation dates, but one or both underlying indices close below
the respective coupon barrier level(s) on the others. Investors receive the contingent monthly coupon for the monthly periods for
which each index closing value is at or above the coupon respective barrier level on the related observation date, but not for
the monthly periods for which either index closing value is below the respective coupon barrier level on the related observation
date.
Starting on December 30, 2020, when each underlying index closes
at or above its initial index value on a quarterly redemption determination date, the securities will be automatically redeemed
for the stated principal amount plus the contingent monthly coupon with respect to the related observation date.
|
Scenario
2: The securities are not redeemed prior to maturity and investors receive principal back at maturity
|
This scenario assumes that each underlying index closes at or above the respective coupon barrier level on some monthly observation dates, but one or both underlying indices close below the respective coupon barrier level(s) on the others, and each underlying index closes below the respective initial index value on every quarterly redemption determination date. Consequently, the securities are not automatically redeemed, and investors receive the contingent monthly coupon for the monthly periods for which each index closing value is at or above the respective coupon barrier level on the related observation date, but not for the monthly periods for which either index closing value is below the respective coupon barrier level on the related observation date. On the final observation date, each underlying index closes at or above its downside threshold level. At maturity, investors will receive the stated principal amount and the contingent monthly coupon with respect to the final observation date.
|
Scenario
3: The securities are not redeemed prior to maturity and investors suffer a substantial loss of principal at maturity
|
This scenario assumes that each underlying index closes at or above its respective coupon barrier level on some monthly observation dates, but one or both underlying indices close below the respective coupon barrier level(s) on the others, and each underlying index closes below the respective initial index value on every quarterly redemption determination date. Consequently, the securities are not automatically redeemed, and investors receive the contingent monthly coupon for the monthly periods for which each index closing value is at or above the respective coupon barrier level on the related observation date, but not for the monthly periods for which either index closing value is below the respective coupon barrier level on the related observation date. On the final observation date, one or both underlying indices close below the respective downside threshold level(s). At maturity, investors will receive an amount equal to the stated principal amount multiplied by the index performance factor of the worst performing underlying index. Under these circumstances, the payment at maturity will be less than 75% of the stated principal amount and could be zero. No coupon will be paid at maturity in this scenario.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the index closing values on each monthly observation date, (2) the index closing values on each
quarterly redemption determination date and (3) the final index values. Please see “Hypothetical Examples” beginning
on page 8 for illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Monthly Coupons (Beginning
on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Beginning
Approximately Six Months After the Original Issue Date)
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
For more information about the payout upon an early redemption
or at maturity in different hypothetical scenarios, see “Hypothetical Examples” starting on page 8.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent monthly coupon is paid with respect to an observation date and how to calculate the payment at maturity if
the securities have not been automatically redeemed early. The following examples are for illustrative purposes only. Whether you
receive a contingent monthly coupon will be determined by reference to the index closing value of each underlying index on each
monthly observation date, and the amount you will receive at maturity, if any, will be determined by reference to the final index
value of each underlying index on the final observation date. The actual initial index value, coupon barrier level and downside
threshold level for each underlying index are set forth on the cover of this document. All payments on the securities, if any,
are subject to our credit risk. The numbers in the hypothetical examples below may have been rounded for the ease of analysis.
The below examples are based on the following terms:
Contingent Monthly Coupon:
|
13.00% per annum (corresponding to approximately $10.833 per
month per security)*
With respect to each coupon payment date, a contingent
monthly coupon is paid but only if the final index value of each underlying is at or above its respective coupon barrier level
on the related observation date.
|
Automatic Early Redemption:
|
If the index closing value of each underlying index is greater than or equal to its initial index value on any quarterly redemption determination date (beginning approximately six months after the original issue date), the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent monthly coupon with respect to the related observation date.
|
Payment at Maturity (if the securities have not been automatically redeemed early):
|
If the final index value of each underlying index is greater
than or equal to its respective downside threshold level: the stated principal amount and the contingent monthly coupon with
respect to the final observation date.
If the final index value of either underlying
is less than its respective downside threshold level: (i) the stated principal amount multiplied by (ii) the index
performance factor of the worst performing underlying index
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Index Value:
|
With respect to the SPX Index: 2,500
With respect to the RTY Index: 1,200
|
Hypothetical Coupon Barrier Level:
|
With respect to the SPX Index: 1,875, which is 75% of
the hypothetical initial index value for such index
With respect to the RTY Index: 900, which is 75% of
the hypothetical initial index value for such index
|
Hypothetical Downside Threshold Level:
|
With respect to the SPX Index: 1,875, which is 75% of
the hypothetical initial index value for such index
With respect to the RTY Index: 900, which is 75% of
the hypothetical initial index value for such index
|
* The actual contingent monthly coupon will be an amount determined
by the calculation agent based on the number of days in the applicable payment period, calculated on a 30/360 basis. The hypothetical
contingent monthly coupon of $10.833 is used in these examples for ease of analysis.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
How to determine whether a contingent monthly
coupon is payable with respect to an observation date:
|
Index Closing Value
|
Contingent Monthly Coupon
|
|
SPX Index
|
RTY Index
|
|
Hypothetical Observation Date 1
|
2,000 (at or above coupon barrier level)
|
1,000 (at or above coupon barrier level)
|
$10.833
|
Hypothetical Observation Date 2
|
1,900 (at or above coupon barrier level)
|
600 (below coupon barrier level)
|
$0
|
Hypothetical Observation Date 3
|
1,200 (below coupon barrier level)
|
1,200 (at or above coupon barrier level)
|
$0
|
Hypothetical Observation Date 4
|
1,000 (below coupon barrier level)
|
500 (below coupon barrier level)
|
$0
|
On hypothetical observation date 1, both the SPX Index and RTY
Index close at or above their respective coupon barrier levels. Therefore a contingent monthly coupon of $10.833 is paid on the
relevant coupon payment date.
On each of the hypothetical observation dates 2 and 3, one underlying
index closes at or above its coupon barrier level, but the other underlying index closes below its coupon barrier level. Therefore,
no contingent monthly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 4, each underlying index closes
below its respective coupon barrier level, and, accordingly, no contingent monthly coupon is paid on the relevant coupon payment
date.
You will not receive a contingent monthly coupon on any coupon
payment date if the index closing value of either underlying index is below its respective coupon barrier level on the related
observation date.
How to calculate the payment at maturity (if
the securities have not been automatically redeemed early):
|
Index Closing Value
|
Payment at Maturity
|
|
SPX Index
|
RTY Index
|
|
Example 1:
|
2,700 (at or above the downside threshold level and at or above the coupon barrier level)
|
1,300 (at or above the downside threshold level and at or above the coupon barrier level)
|
$1,010.833 (the stated principal amount plus the contingent monthly coupon with respect to the final observation date)
|
Example 2:
|
1,900 (at or above the downside threshold level)
|
600 (below the downside threshold level)
|
$1,000 × index performance factor of the worst performing underlying index =
$1,000 × (600 / 1,200) = $500
|
Example 3:
|
1,000 (below the downside threshold level)
|
1,600 (at or above the downside threshold level)
|
$1,000 × (1,000 / 2,500) = $400
|
Example 4:
|
1,000 (below the downside threshold level)
|
600 (below the downside threshold level)
|
$1,000 × (1,000 / 2,500) = $400
|
Example 5:
|
1,000 (below the downside threshold level)
|
360 (below the downside threshold level)
|
$1,000 × (360 / 1,200) = $300
|
In example 1, the final index values of both the SPX Index and
RTY Index are at or above their respective downside threshold levels and coupon threshold levels. Therefore, investors receive
at maturity the stated principal amount of the securities and the contingent monthly coupon with respect to the final observation
date. However, investors do not participate in any appreciation of either underlying index.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
In examples 2 and 3, the final index value of one underlying
index is at or above its downside threshold level, but the final index value of the other underlying index is below its downside
threshold level. Therefore, investors are exposed to the downside performance of the worst performing underlying index at maturity
and receive at maturity an amount equal to the stated principal amount times the index performance factor of the worst performing
underlying index.
Similarly, in examples 4 and 5, the final index value of each
underlying index is below its respective downside threshold level, and investors receive at maturity an amount equal to the stated
principal amount times the index performance factor of the worst performing underlying index. In example 4, the SPX Index
has declined 60% from its initial index value to its final index value, while the RTY Index has declined 50% from its initial index
value to its final index value. Therefore, the payment at maturity equals the stated principal amount times the index performance
factor of the SPX Index, which is the worst performing underlying index in this example. In example 5, the SPX Index has declined
60% from its initial index value to its final index value, while the RTY Index has declined 70% from its initial index value to
its final index value. Therefore, the payment at maturity equals the stated principal amount times the index performance
factor of the RTY Index, which is the worst performing underlying index in this example.
If the final index value of EITHER underlying index is below
its respective downside threshold level, you will be exposed to the downside performance of the worst performing underlying index
at maturity, and your payment at maturity will be less than $750 per security and could be zero.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Risk Factors
The
following is a list of certain key risk factors for investors in the securities. For further discussion of these and other risks,
you should read the section entitled “Risk Factors” in the accompanying product supplement, index supplement and prospectus.
We also urge you to consult with your investment, legal, tax, accounting and other advisers in connection with your
investment in the securities.
|
§
|
The securities do not guarantee the return of any principal. The
terms of the securities differ from those of ordinary debt securities in that they do not guarantee the repayment of any principal.
If the securities have not been automatically redeemed prior to maturity, and if the final index value of either underlying index
is less than its downside threshold level of 75% of its initial index value, you will be exposed to the decline in the closing
value of the worst performing underlying index, as compared to its initial index value, on a 1-to-1 basis, and you will receive
for each security that you hold at maturity an amount equal to the stated principal amount times the index performance factor
of the worst performing underlying index. In this case, the payment at maturity will be less than 75% of the stated principal
amount and could be zero.
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|
§
|
The securities do not provide for the regular payment of interest.
The terms of the securities differ from those of ordinary debt securities in that they do not provide for the regular
payment of interest. Instead, the securities will pay a contingent monthly coupon but only if the index closing value of
each underlying index is at or above 75% of its respective initial index value, which we refer to as the coupon barrier
level, on the related observation date. If, on the other hand, the index closing value of either underlying index is lower
than the coupon barrier level for such underlying index on the relevant observation date for any interest period, we will pay no
coupon on the applicable coupon payment date. It is possible that the index closing value of one or both underlying indices will
remain below the respective coupon barrier level(s) for extended periods of time or even throughout the entire 1.5-year term of
the securities so that you will receive few or no contingent monthly coupons. If you do not earn sufficient contingent monthly
coupons over the term of the securities, the overall return on the securities may be less than the amount that would be paid on
a conventional debt security of ours of comparable maturity.
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|
§
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You are exposed to the price risk of both underlying indices, with
respect to both the contingent monthly coupons, if any, and the payment at maturity, if any. Your
return on the securities is not linked to a basket consisting of both underlying indices. Rather, it will be contingent upon the
independent performance of each underlying index. Unlike an instrument with a return linked to a basket of underlying assets in
which risk is mitigated and diversified among all the components of the basket, you will be exposed to the risks related to both
underlying indices. Poor performance by either underlying index over the term of
the securities will negatively affect your return and will not be offset or mitigated by any positive performance by the other
underlying index. To receive any contingent monthly coupons, each
underlying index must close at or above its respective coupon barrier level on the applicable
observation date. In addition, if the securities have not been automatically redeemed early and either
underlying index has declined to below its respective downside threshold level as of the final
observation date, you will be fully exposed to the decline in the worst performing
underlying index over the term of the securities on a 1-to-1 basis, even if the other underlying index has appreciated or has not
declined as much. Under this scenario, the value of any such payment will be less than 75% of the stated principal amount and could
be zero. Accordingly, your investment is subject to the price risk of both underlying indices.
|
|
§
|
Because the securities are linked to the performance of the worst performing underlying index, you are exposed to greater
risks of receiving no contingent monthly coupons and sustaining a significant loss on your investment than if the securities were
linked to just one index. The risk that you will not receive any contingent monthly coupons, or that you will suffer a significant
loss on your investment, is greater if you invest in the securities as opposed to substantially similar securities that are linked
to the performance of just one underlying index. With two underlying indices, it is more likely that either underlying index will
close below its coupon barrier level on any observation date, or below its downside threshold level on the final observation date,
than if the securities were linked to only one underlying index. Therefore, it is more likely that you will not receive any contingent
monthly coupons and that you will suffer a significant loss on your investment. In addition, because each underlying index must
close above its initial index value on a monthly determination date in order for the securities to be called prior to maturity,
the securities
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
are less likely to be called
on any redemption determination date than if the securities were linked to just one underlying index.
|
§
|
The contingent monthly coupon, if any, is based on the value of each underlying index on only the related monthly observation
date at the end of the related interest period. Whether the
contingent monthly coupon will be paid on any coupon payment date will be determined at the end of the relevant interest period
based on the closing value of each underlying index on the relevant monthly observation date. As a result, you will not know whether
you will receive the contingent monthly coupon on any coupon payment date until near the end of the relevant interest period. Moreover,
because the contingent monthly coupon is based solely on the value of each underlying index on monthly observation dates, if the
closing value of either underlying index on any observation date is below the coupon barrier level for such index, you will receive
no coupon for the related interest period, even if the level of such underlying index was at or above its respective coupon barrier
level on other days during that interest period and even if the closing value of the other underlying index is at or above the
coupon barrier level for such index.
|
|
§
|
Investors will not participate in any appreciation in either underlying index. Investors will not participate in any
appreciation in either underlying index from the initial index value for such index, and the return on the securities will be limited
to the contingent monthly coupons, if any, that are paid with respect to each observation date on which the index closing value
of each underlying index is greater than or equal to its respective coupon barrier level.
|
|
§
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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 securities
in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary
market. We expect that generally the level of interest rates available in the market and the value of each underlying
index on any day, including in relation to its respective
coupon barrier level and downside threshold level, will affect the value of the securities more than any other factors. Other factors
that may influence the value of the securities include:
|
|
o
|
the volatility (frequency and magnitude of changes in value) of the underlying indices,
|
|
o
|
whether the index closing value of either underlying index has been below its respective coupon barrier level on any observation
date,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks
of the underlying indices or securities markets generally and which may affect the value of each underlying index,
|
|
o
|
dividend rates on the securities underlying the underlying
indices,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the composition of the underlying indices and changes in the constituent stocks of such indices, and
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|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity. In particular,
if either underlying index has closed near or below its coupon barrier level and downside threshold level, the market value of
the securities is expected to decrease substantially, and you may have to sell your securities at a substantial discount from the
stated principal amount of $1,000 per security.
You cannot predict the future performance
of either underlying index based on its historical performance. The value of either underlying index may decrease and be below
the coupon barrier level for such index on each observation date so that you will receive no return on your investment, and one
or both underlying indices may close below the respective downside threshold level(s) on the final observation date so that you
will lose more than 25% or all of your initial investment in the securities. There can be no assurance that the index closing value
of each underlying index will be at or above the respective coupon barrier level on any observation date so that you will receive
a coupon payment on the securities for the applicable interest period, or that it will be at or above its respective downside threshold
level on the
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
final observation date so that you
do not suffer a significant loss on your initial investment in the securities. See “S&P 500® Index Overview”
and “Russell 2000® Index Overview” below.
|
§
|
The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads
may adversely affect the market value of the securities. You are dependent on our ability to pay all amounts due on the securities
at maturity, upon early redemption or on any coupon payment date, and therefore you are subject to our credit risk. The securities
are not guaranteed by any other entity. If we default on our obligations under the securities, your investment would be at risk
and you could lose some or all of your investment. As a result, the market value of the securities prior to maturity will be affected
by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase
in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the securities.
|
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§
|
As a finance subsidiary, MSFL has no independent operations and will have no independent assets. As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should
be treated pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders
of Morgan Stanley-issued securities.
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|
§
|
The securities are linked to the Russell 2000® Index and are subject to risks associated with small-capitalization
companies. As the Russell 2000® Index is one of the underlying indices, and the Russell 2000®
Index consists of stocks issued by companies with relatively small market capitalization, the securities are linked to the value
of small-capitalization companies. These companies often have greater stock price volatility, lower trading volume and
less liquidity than large-capitalization companies and therefore the Russell 2000® Index may be more volatile than
indices that consist of stocks issued by large-capitalization companies. Stock prices of small-capitalization companies
are also more vulnerable than those of large-capitalization companies to adverse business and economic developments, and the stocks
of small-capitalization companies may be thinly traded. In addition, small capitalization companies are typically less
well-established and less stable financially than large-capitalization companies and may depend on a small number of key personnel,
making them more vulnerable to loss of personnel. Such companies tend to have smaller revenues, less diverse product
lines, smaller shares of their product or service markets, fewer financial resources and less competitive strengths than large-capitalization
companies and are more susceptible to adverse developments related to their products.
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§
|
Not equivalent to investing in the underlying indices. Investing in the securities
is not equivalent to investing in either underlying index or the component stocks of either underlying index. Investors in the
securities will not participate in any positive performance of either underlying index, and 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.
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|
§
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Reinvestment risk. The term
of your investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities
are redeemed prior to maturity, you will receive no more contingent monthly coupons and may be forced to invest in a lower interest
rate environment and may not be able to reinvest at comparable terms or returns. However, under no circumstances will the securities
be redeemed in the first six months of the term of the securities.
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|
§
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The securities will not be listed on any securities exchange and secondary trading may be limited.
Accordingly, you should be willing to hold your securities for the entire 1.5-year term of the securities. The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
related
hedging positions, the time remaining to maturity and the likelihood that it will be able to resell the securities. Even if there
is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Since other broker-dealers
may not participate significantly in the secondary market for the securities, the price at which you may be able to trade your
securities is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co.
were to cease making a market in the securities, it is likely that there would be no secondary market for the securities. Accordingly,
you should be willing to hold your securities to maturity.
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§
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The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices. Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well
as other factors.
|
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 5 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying indices, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
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§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price. These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
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§
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Hedging and trading activity by our affiliates could potentially affect the value of the securities. One or more of
our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other instruments
linked to the underlying indices or their component stocks), including trading in the stocks that constitute the underlying indices
as well as in other instruments related to the underlying indices. As a result, these entities may be unwinding or adjusting hedge
positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the final observation date approaches. Some of our affiliates also trade the stocks that constitute the underlying
indices and other financial instruments related to the underlying indices on a regular basis as part of their general broker-dealer
and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the
initial index value of an underlying index, and, therefore, could increase (i) the value at or above which such underlying index
must close on the redemption determination dates so that the securities are redeemed prior to maturity for the early redemption
payment (depending also on the performance of the other underlying index), (ii) the coupon barrier level for such underlying index,
which is the value at or above which such underlying index must close on the observation dates in order for you to earn a contingent
monthly coupon (depending also on the performance of the other underlying index) and (iii) the downside
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
threshold
level for such underlying index, which is the value at or above which such underlying index must close on the final observation
date so that you are not exposed to the negative performance of the worst performing underlying index at maturity (depending also
on the performance of the other underlying index). Additionally, such hedging or trading activities during the term of the securities
could affect the value of an underlying index on the redemption determination dates and the observation dates, and, accordingly,
whether we redeem the securities prior to maturity, whether we pay a contingent monthly coupon on the securities and the amount
of cash you receive at maturity, if any (depending also on the performance of the other underlying index).
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§
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The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities. As calculation agent, MS & Co. will determine the initial index value, the coupon barrier level and
the downside threshold level for each underlying index, whether you receive a contingent monthly coupon on each coupon payment
date and/or at maturity, whether the securities will be redeemed on any early redemption date and the payment 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 index closing value in the event of a market disruption event or discontinuance of an
underlying index. These potentially subjective determinations may adversely affect the payout to you at maturity, if any. For further
information regarding these types of determinations, see "Description of Auto-Callable Securities—Postponement of Determination
Dates," "—Alternate Exchange Calculation in Case of an Event of Default,” "—Discontinuance of
Any Underlying Index; Alteration of Method of Calculation” and "—Calculation Agent and Calculations" in the
accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing
date.
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§
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Adjustments to the underlying indices could adversely affect the value of the securities. The publisher of each underlying
index may add, delete or substitute the component stocks of such underlying index or make other methodological changes that could
change the value of such underlying index. Any of these actions could adversely affect the value of the securities. The publisher
of each underlying index may also discontinue or suspend calculation or publication of such underlying index at any time. In these
circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable
to the discontinued index. MS & Co. could have an economic interest that is different than that of investors in the securities
insofar as, for example, MS & Co. is permitted to consider indices that are calculated and published by MS & Co. or any
of its affiliates. If MS & Co. determines that there is no appropriate successor index on any observation date, the determination
of whether a contingent monthly coupon will be payable on the securities on the applicable coupon payment date, and/or the amount
payable at maturity, will be based on the value of such underlying index, based on the closing prices of the stocks constituting
such underlying index at the time of such discontinuance, without rebalancing or substitution, computed by MS & Co. as calculation
agent in accordance with the formula for calculating such underlying index last in effect prior to such discontinuance, as compared
to the coupon barrier level or downside threshold level, as applicable (depending also on the performance of the other underlying
index).
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§
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The U.S. federal income tax consequences of an investment in the securities are uncertain. There is no direct legal
authority as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects
of the tax treatment of the securities are uncertain.
|
Please read the discussion under
“Additional Information—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders (as defined below) would be required to accrue into income original issue
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
discount on the securities every
year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference, if any, between
the actual and the projected amount of any contingent payments on the securities) and recognize all income and gain in respect
of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar downside protection
features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable
financial instruments that do not have such features.
Non-U.S. Holders (as defined
below) should note that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision, and will
not be required to pay any additional amounts with respect to amounts withheld.
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. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and
timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an
investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
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 June 30, 2020:
Bloomberg Ticker Symbol:
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SPX
|
52 Week High (on 2/19/2020):
|
3,386.15
|
Current Index Value:
|
3,100.29
|
52 Week Low (on 3/23/2020):
|
2,237.40
|
52 Weeks Ago:
|
2,964.33
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|
The following graph sets forth the daily index closing values
of the SPX Index for each quarter in the period from January 1, 2015 through June 30, 2020. 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 June 30, 2020 was 3,100.29. 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, 2015
to June 30, 2020
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|
* The red solid line indicates both the downside threshold level and the coupon barrier level of 2,325.218, each of which is approximately 75% of the initial index value.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
S&P 500® Index
|
High
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Low
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Period End
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2015
|
|
|
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First Quarter
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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
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1,920.03
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Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
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First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
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Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
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Fourth Quarter
|
2,271.72
|
2,085.18
|
2,238.83
|
2017
|
|
|
|
First Quarter
|
2,395.96
|
2,257.83
|
2,362.72
|
Second Quarter
|
2,453.46
|
2,328.95
|
2,423.41
|
Third Quarter
|
2,519.36
|
2,409.75
|
2,519.36
|
Fourth Quarter
|
2,690.16
|
2,529.12
|
2,673.61
|
2018
|
|
|
|
First Quarter
|
2,872.87
|
2,581.00
|
2,640.87
|
Second Quarter
|
2,786.85
|
2,581.88
|
2,718.37
|
Third Quarter
|
2,930.75
|
2,713.22
|
2,913.98
|
Fourth Quarter
|
2,925.51
|
2,351.10
|
2,506.85
|
2019
|
|
|
|
First Quarter
|
2,854.88
|
2,447.89
|
2,834.40
|
Second Quarter
|
2,954.18
|
2,744.45
|
2,941.76
|
Third Quarter
|
3,025.86
|
2,840.60
|
2,976.74
|
Fourth Quarter
|
3,240.02
|
2,887.61
|
3,230.78
|
2020
|
|
|
|
First Quarter
|
3,386.15
|
2,237.40
|
2,584.59
|
Second Quarter
|
3,232.39
|
2,470.50
|
3,100.29
|
“Standard & Poor’s®,” “S&P®,”
“S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. For more information, see “S&P 500® Index” in
the accompanying index supplement.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
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 June 30, 2020:
Bloomberg Ticker Symbol:
|
RTY
|
52 Week High (on 1/16/2020):
|
1,705.215
|
Current Index Value:
|
1,441.365
|
52 Week Low (on 3/18/2020):
|
991.160
|
52 Weeks Ago:
|
1,569.663
|
|
|
The following graph sets forth the daily index closing values
of the RTY Index for each quarter in the period from January 1, 2015 through June 30, 2020. 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 June 30, 2020 was 1,441.365. 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, 2015
to June 30, 2020
|
|
*The red solid line indicates both the downside threshold level and the coupon barrier level of 1,081.024, each of which is approximately 75% of the initial index value.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Russell 2000® Index
|
High
|
Low
|
Period End
|
2015
|
|
|
|
First Quarter
|
1,266.373
|
1,154.709
|
1,252.772
|
Second Quarter
|
1,295.799
|
1,215.417
|
1,253.947
|
Third Quarter
|
1,273.328
|
1,083.907
|
1,100.688
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
1,135.889
|
2016
|
|
|
|
First Quarter
|
1,114.028
|
953.715
|
1,114.028
|
Second Quarter
|
1,188.954
|
1,089.646
|
1,151.923
|
Third Quarter
|
1,263.438
|
1,139.453
|
1,251.646
|
Fourth Quarter
|
1,388.073
|
1,156.885
|
1,357.130
|
2017
|
|
|
|
First Quarter
|
1,413.635
|
1,345.598
|
1,385.920
|
Second Quarter
|
1,425.985
|
1,345.244
|
1,415.359
|
Third Quarter
|
1,490.861
|
1,356.905
|
1,490.861
|
Fourth Quarter
|
1,548.926
|
1,464.095
|
1,535.511
|
2018
|
|
|
|
First Quarter
|
1,610.706
|
1,463.793
|
1,529.427
|
Second Quarter
|
1,706.985
|
1,492.531
|
1,643.069
|
Third Quarter
|
1,740.753
|
1,653.132
|
1,696.571
|
Fourth Quarter
|
1,672.992
|
1,266.925
|
1,348.559
|
2019
|
|
|
|
First Quarter
|
1,590.062
|
1,330.831
|
1,539.739
|
Second Quarter
|
1,614.976
|
1,465.487
|
1,566.572
|
Third Quarter
|
1,585.599
|
1,456.039
|
1,523.373
|
Fourth Quarter
|
1,678.010
|
1,472.598
|
1,668.469
|
2020
|
|
|
|
First Quarter
|
1,705.215
|
991.160
|
1,153.103
|
Second Quarter
|
1,536.895
|
1,052.053
|
1,441.365
|
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
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional
Terms:
|
|
If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
|
Underlying
index publisher:
|
With respect to the SPX Index, S&P Dow Jones Indices
LLC, or any successor thereof.
With respect to the RTY Index, FTSE Russell, or any
successor thereof.
|
Index
closing value:
|
With respect to the SPX Index, the index closing value on any
index business day shall be determined by the calculation agent and shall equal the official closing value of the SPX Index, or
any successor index as defined under “Discontinuance of Any Underlying Index; Alteration of Method of Calculation”
in the accompanying product supplement), published at the regular official weekday close of trading on such index business day
by the underlying index publisher for the SPX Index, as determined by the calculation agent. In certain circumstances, the index
closing value for the SPX Index will be based on the alternate calculation of the SPX Index as described under “Discontinuance
of Any Underlying Index; Alteration of Method of Calculation” in the accompanying product supplement.
With respect to the RTY Index, the index closing value
on any index business day shall be determined by the calculation agent and shall equal the closing value of the RTY Index, or
any successor underlying index (as defined under “Discontinuance of an Underlying Index; Alteration of Method of Calculation”
in the accompanying product supplement), reported by Bloomberg Financial Services, or any successor reporting service the calculation
agent may select, on such index business day. In certain circumstances, the index closing value for the RTY Index shall be based
on the alternate calculation of the RTY Index described under “Discontinuance of an Underlying Index; Alteration of Method
of Calculation” in the accompanying product supplement.
|
Interest
period:
|
The monthly period from and including the original issue date (in the case of the first interest period) or the previous scheduled coupon payment date, as applicable, to but excluding the following scheduled coupon payment date, with no adjustment for any postponement thereof.
|
Record
date:
|
The record date for each coupon payment date shall be the date one business day prior to such scheduled coupon payment date; provided, however, that any coupon payable at maturity (or upon early redemption) shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
|
Downside
threshold level:
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
Day
count convention:
|
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
|
Postponement
of coupon payment dates (including the maturity date) and early redemption dates:
|
If any observation date or redemption determination date is postponed due to a non-index business day or certain market disruption events so that it falls less than two business days prior to the relevant scheduled coupon payment date (including the maturity date) or early redemption date, as applicable, the coupon payment date (or the maturity date) or the early redemption date will be postponed to the second business day following that observation date or redemption determination date as postponed, and no adjustment will be made to any coupon payment or early redemption payment made on that postponed date.
|
Denominations:
|
$1,000 per security and integral multiples thereof
|
Trustee:
|
The Bank of New York Mellon
|
Calculation
agent:
|
MS & Co.
|
Issuer
notices to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due
to postponement of the final observation date, the issuer shall give notice of such postponement and, once it has been determined,
of the date to which the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice
of such postponement by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon
the registry books, (ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage
prepaid, at its New York office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile
confirmed by mailing such notice to the depositary by first class mail, postage prepaid. Any notice that is mailed to a registered
holder of the securities in the
|
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Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
|
manner herein provided shall be conclusively presumed to have
been duly given to such registered holder, whether or not such registered holder receives the notice. The issuer shall give such
notice as promptly as possible, and in no case later than (i) with respect to notice of postponement of the maturity date, the
business day immediately preceding the scheduled maturity date, and (ii) with respect to notice of the date to which the maturity
date has been rescheduled, the business day immediately following the final observation date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable redemption determination date, give notice of the early redemption
and the early redemption payment, including specifying the payment date of the amount due upon the early redemption, (x) to each
registered holder of the securities by mailing notice of such early redemption by first class mail, postage prepaid, to such registered
holder’s last address as it shall appear upon the registry books, (y) 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 (z) to the depositary by telephone or facsimile
confirmed by mailing such notice to the depositary by first class mail, postage prepaid, and (ii) on or prior to the early redemption
date, deliver the aggregate cash amount due with respect to the securities to the trustee for delivery to the depositary, as holder
of the securities. Any notice that is mailed to a registered holder of the securities in the manner herein provided shall be conclusively
presumed to have been duly given to such registered holder, whether or not such registered holder receives the notice. This notice
shall be given by the issuer or, at the issuer’s request, by the trustee in the name and at the expense of the issuer, with
any such request to be accompanied by a copy of the notice to be given.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash to be delivered as contingent monthly coupon, if any, with respect to each security on or prior to 10:30 a.m. (New York City
time) on the business day preceding each coupon payment date, and (ii) deliver the aggregate cash amount due, if any, with respect
to the contingent monthly coupon to the trustee for delivery to the depositary, as holder of the securities, on the applicable
coupon payment date.
The issuer shall, or shall cause the calculation agent
to, (i) provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the
amount of cash to be delivered with respect to each stated principal amount of the securities, on or prior to 10:30 a.m. (New
York City time) on the business day preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to
the securities to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
Additional Information About the Securities
Additional
Information:
|
|
Minimum
ticketing size:
|
$1,000 / 1 security
|
Tax considerations:
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the securities
issued under this document and is superseded by the following discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of the ownership and disposition of the securities. This discussion
applies only to investors in the securities who:
· purchase
the securities in the original offering; and
· hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
· certain
financial institutions;
· insurance
companies;
· certain
dealers and traders in securities or commodities;
· investors
holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive
sale transaction;
· U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
· partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
· regulated
investment companies;
· real
estate investment trusts; or
· tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of
the Code, respectively.
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the securities is technical and complex, the discussion below necessarily represents only a general
summary. The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences
or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial or administrative
authorities that directly address the treatment of the securities or instruments that are similar to the securities for U.S. federal
income tax purposes, no assurance can be given that the IRS or a court will agree with the tax
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Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
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|
treatment described herein. We intend to treat a security for
U.S. federal income tax purposes as a single financial contract that provides for a coupon that will be treated as gross income
to you at the time received or accrued in accordance with your regular method of tax accounting. In the opinion of our counsel,
Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under current law; however, our counsel has advised
us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative treatments
are possible.
You should consult your tax adviser regarding all aspects
of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments of the securities).
Unless otherwise stated, the following discussion is based on the treatment of each security as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal
income tax purposes:
· a
citizen or individual resident of the United States;
· a
corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
· an
estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as set forth above is
respected, the following U.S. federal income tax consequences should result.
Tax Basis. A U.S. Holder’s tax
basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon Payments.
Any coupon payment on the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in
accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities. Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could
result in adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due to the absence of authorities that directly address
the proper tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the
treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the
securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the timing and character
of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of
|
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Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
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|
any contingent payments on the securities. Furthermore, any gain
realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the securities would be treated as ordinary
income, and any loss realized would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original
issue discount and as capital loss thereafter. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features.
Other alternative federal income tax treatments of the securities
are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the
securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether to require holders
of “prepaid forward contracts” and similar 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; 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; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible
alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely
furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides proof
of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S. Holder.
As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax
purposes:
· an
individual who is classified as a nonresident alien;
· a
foreign corporation; or
· a
foreign estate or trust.
The term “Non-U.S. Holder” does
not include any of the following holders:
· a
holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes;
· certain
former citizens or residents of the United States; or
· a
holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in
the United States.
Such holders should consult their tax advisers regarding
the U.S. federal income tax
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
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Principal at Risk Securities
|
consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code and Treasury regulations promulgated
thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend
equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices
that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m) generally
applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as determined
based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant to an IRS
notice, Section 871(m) will not apply to securities issued before January 1, 2023 that do not have a delta of one with respect
to any Underlying Security. Based on our determination that the securities do not have a delta of one with respect to any Underlying
Security, our counsel is of the opinion that the securities should not be Specified Securities and, therefore, should not be subject
to Section 871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including
whether you enter into other transactions with respect to an Underlying Security. If Section 871(m) withholding is required, we
will not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser
regarding the potential application of Section 871(m) to the securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA”
generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with
respect to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied.
An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
|
applies to certain financial instruments that are treated as
paying U.S.-source interest or other U.S.-source “fixed or determinable annual or periodical” income (“FDAP income”).
Withholding (if applicable) applies to payments of U.S.-source FDAP income and to payments of gross proceeds of the disposition
(including upon retirement) of certain financial instruments treated as providing for U.S.-source interest or dividends. Under
recently proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending finalization),
no withholding will apply on payments of gross proceeds (other than amounts treated as FDAP income). While the treatment of the
securities is unclear, you should assume that any coupon payment with respect to the securities will be subject to the FATCA rules.
If withholding applies to the securities, we will not be required to pay any additional amounts with respect to amounts withheld.
Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the securities.
The discussion in the preceding paragraphs, insofar
as it purports to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the
full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
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Use
of proceeds and hedging:
|
The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 4 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we expect to hedge
our anticipated exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third
party dealers. We expect our hedging counterparties to take positions in the stocks constituting the underlying indices, in futures
and/or options contracts on the underlying indices or the component stocks of the underlying indices listed on major securities
markets, or positions in any other available securities or instruments that they may wish to use in connection with such hedging.
Such purchase activity could potentially increase the initial index value of an underlying index, and, as a result, increase (i)
the level at or above which such underlying index must close on any redemption determination date so that the securities are redeemed
prior to maturity for the early redemption payment (depending also on the performance of the other underlying index), (ii) the
coupon barrier level for such underlying index, which is the level at or above which such underlying index must close on each
observation date in order for you to earn a contingent monthly coupon (depending also on the performance of the other underlying
index) and (iii) the downside threshold level for such underlying index, which is the level at or above which such underlying
index must close on the final observation date so that you are not exposed to the negative performance of the worst performing
underlying index at maturity (depending also on the performance of the other underlying index). These entities may be unwinding
or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent
dynamic adjustments to the hedge as the final observation date approaches. Additionally, our hedging activities, as well as our
other trading activities, during the term of the securities could potentially affect the value of an underlying index on the redemption
determination dates and observation dates, and, accordingly, whether we redeem the securities prior to maturity, whether we pay
a contingent monthly coupon on the securities and the amount of cash you receive at maturity, if any (depending also on the performance
of the other underlying index).
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Benefit plan investor considerations:
|
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In
addition, we and certain of our affiliates, including MS & Co., may each be considered a “party in interest” within
the meaning of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended
(the “Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (such accounts
and plans, together with other plans, accounts and arrangements subject to Section 4975 of the Code, also “Plans”).
ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans and parties in interest or disqualified
persons. Prohibited transactions within
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
|
the
meaning of ERISA or the Code would likely arise, for example, if the securities are acquired by or with the assets of a Plan with
respect to which MS & Co. or any of its affiliates is a service provider or other party in interest, unless the securities
are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of these “prohibited
transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those
persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
The
U.S. Department of Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive
relief for direct or indirect prohibited transactions resulting from the purchase or holding of the securities. Those class exemptions
are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1
(for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by
independent qualified professional asset managers). In addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) provide
an exemption for the purchase and sale of securities and the related lending transactions, provided that neither the issuer
of the securities nor any of its affiliates has or exercises any discretionary authority or control or renders any investment
advice with respect to the assets of the Plan involved in the transaction and provided further that the Plan pays no more,
and receives no less, than “adequate consideration” in connection with the transaction (the so-called “service
provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available with respect
to transactions involving the securities.
Because
we may be considered a party in interest with respect to many Plans, the securities may not be purchased, held or disposed of
by any Plan, any entity whose underlying assets include “plan assets” by reason of any Plan’s investment in
the entity (a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase,
holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14
or the service provider exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser, including
any fiduciary purchasing on behalf of a Plan, transferee or holder of the securities will be deemed to have represented, in its
corporate and its fiduciary capacity, by its purchase and holding of the securities that either (a) it is not a Plan or a Plan
Asset Entity and is not purchasing such securities on behalf of or with “plan assets” of any Plan or with any assets
of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S. law that is substantially
similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its purchase,
holding and disposition of these securities will not constitute or result in a non-exempt prohibited transaction under Section
406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due
to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions,
it is particularly important that fiduciaries or other persons considering purchasing the securities on behalf of or with “plan
assets” of any Plan consult with their counsel regarding the availability of exemptive relief.
The securities are contractual financial instruments.
The financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy
for, individualized investment management or advice for the benefit of any purchaser or holder of the securities. The securities
have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of
any purchaser or holder of the securities.
Each purchaser or holder of any securities
acknowledges and agrees that:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
|
held for the benefit of the purchaser
or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each
purchaser and holder of the securities has exclusive responsibility for ensuring that its purchase, holding and disposition of
the securities do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any securities
to any Plan or plan subject to Similar Law is in no respect a representation by us or any of our affiliates or representatives
that such an investment meets all relevant legal requirements with respect to investments by plans generally or any particular
plan, or that such an investment is appropriate for plans generally or any particular plan. In this regard, neither this discussion
nor anything provided in this document is or is intended to be investment advice directed at any potential Plan purchaser or at
Plan purchasers generally and such purchasers of these securities should consult and rely on their own counsel and advisers as
to whether an investment in these securities is suitable.
However, individual retirement accounts, individual
retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their
accounts, will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee
of Morgan Stanley, Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for
example, an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations:
|
Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities, either directly or indirectly.
|
Supplemental information
regarding plan of distribution; conflicts of interest:
|
MS & Co. expects to sell all of the securities that it purchases
from us to an unaffiliated dealer at a price of $995 per security, for further sale to certain fee-based advisory accounts at the
price to public of $1,000 per security. MS & Co. will not receive a sales commission with respect to the securities.
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 securities.
MS & Co. will conduct this offering in compliance
with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as
FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.
MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan
of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement
for auto-callable securities.
|
Validity of the securities:
|
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 4, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500® Index and the Russell 2000® Index
Principal at Risk Securities
|
authentication of the securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 16, 2017, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 16, 2017.
|
Where
you can find more information:
|
Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration
statement, the product supplement for auto-callable securities, the index supplement and any other documents relating to this offering
that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering.
You may get these documents without cost by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, Morgan Stanley, MSFL
or any underwriter or any dealer participating in the offering will arrange to send you the prospectus, the product supplement
for auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at www.sec.gov
as follows:
Product Supplement for Auto-Callable Securities dated November 16, 2017
Index Supplement dated November 16, 2017
Prospectus dated November 16, 2017
Terms used but not defined in this document are defined
in the product supplement for auto-callable securities, in the index supplement or in the prospectus.
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