Opportunities in U.S. Equities
SUMMARY
TERMS
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Issuer:
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Morgan Stanley Finance LLC
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Guarantor:
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Morgan Stanley
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Underlying stock:
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Deere & Company common stock
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Aggregate principal amount:
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$
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Stated
principal amount:
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$1,000 per security
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Issue
price:
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$1,000 per security (see “Commissions and issue price” below)
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Pricing
date:
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July 10, 2020
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Original
issue date:
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July 15, 2020 (3 business days after the pricing date)
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Maturity date:
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July 14, 2022
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Call
feature:
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Beginning on October 16, 2020, an early redemption, in whole but not in part,
will occur on a redemption date if and only if the output of a risk neutral valuation model on a business day that is at least
2 but no more than 5 business days prior to such redemption date, as selected by the calculation agent (the “determination
date”), taking as input: (i) prevailing reference market levels, volatilities and correlations, as applicable and in
each case as of the determination date and (ii) Morgan Stanley’s credit spreads as of the pricing date, indicates that
redeeming on such date is economically rational for us as compared to not redeeming on such date. If we call the
securities, we will give you notice at least 2 business days before the redemption date specified in the notice. No further
payments will be made on the securities once they have been redeemed.
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Redemption
payment:
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The redemption payment will be an amount equal to (i) the stated principal amount
for each security you hold plus (ii) any contingent quarterly coupon otherwise due with respect to the related observation
date.
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Determination
closing price:
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The closing price of the underlying stock on any observation date other than
the final observation date, times the adjustment factor on such observation date
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Redemption
dates:
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Quarterly, beginning on October 16, 2020, as set forth under “Observation
Dates, Coupon Payment Dates and Redemption Dates” below. If any such day is not a business day, the redemption
payment will be made on the next succeeding business day and no adjustment will be made to any redemption payment made on
that succeeding business day
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Contingent
quarterly coupon:
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A contingent quarterly
coupon at an annual rate of at least 13.10% (corresponding to approximately $32.75 per quarter per security) will
be paid on the securities on each coupon payment date but only if the determination closing price of the
underlying stock is at or above the downside threshold level on the related observation date. The actual contingent quarterly
coupon rate will be determined on the pricing date.
If, on any observation
date, the determination closing price is less than the downside threshold level, we will pay no coupon for the applicable
quarterly period. It is possible that the underlying stock will remain below the downside threshold level for extended
periods of time or even throughout the entire 2-year term of the securities so that you will receive few or no contingent
quarterly coupons.
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Downside threshold level:
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$ , which is equal to 65% of the initial share price
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Payment
at maturity:
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If the securities have
not previously been redeemed, investors will receive on the maturity date a payment at maturity determined as follows:
· If
the final share price is greater than or equal to the downside threshold level: (i) the stated principal amount
plus (ii) the contingent quarterly coupon with respect to the final observation date; or
· If
the final share price is less than the downside threshold level: (i) the stated principal amount multiplied by (ii)
the share performance factor.
Under these
circumstances, the payment at maturity will be significantly less than the stated principal amount of $1,000, and will
represent a loss of more than 35%, and possibly all, of your investment.
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Terms continued on the following page
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL
and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution;
conflicts of interest.”
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Estimated value on the pricing date:
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Approximately $959.50 per security, or within $25.00 of that estimate. See
“Investment Summary” beginning on page 3.
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Commissions and issue price:
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Price
to public
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Agent’s commissions(1)
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Proceeds to us(2)
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Per security
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$1,000
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$10
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$990
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Total
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$
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$
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$
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(1)
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Selected dealers and
their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission of $10 for each security
they sell. See “Supplemental information regarding plan of distribution; conflicts of interest.” For additional information,
see “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus supplement.
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(2)
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See “Use of proceeds
and hedging” on page 27.
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The securities involve risks
not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 9.
The Securities and Exchange
Commission and state securities regulators have not approved or disapproved these securities, or determined if this document or
the accompanying prospectus supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal
offense.
The securities are not deposits
or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
You should read this document
together with the related prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below. Please
also see “Additional Terms of the Securities” and “Additional Information About the Securities” at the
end of this document.
As used in this document, “we,”
“us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context
requires.
Prospectus Supplement dated November 16, 2017 Prospectus dated November 16, 2017
Morgan Stanley Finance LLC
Callable
Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
Terms
continued from previous page:
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Initial
share price:
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$ , which is equal to the closing price
of the underlying stock on the pricing date.
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Final
share price:
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The closing price of the underlying stock on the final observation date times the
adjustment factor on such date
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Coupon payment dates:
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Quarterly, as set forth under “Observation Dates, Coupon Payment Dates and Redemption
Dates” below. If any such day is not a business day, that coupon payment will be made on the next succeeding
business day and no adjustment will be made to any coupon payment made on that succeeding business day. The
contingent quarterly coupon, if any, with respect to the final observation date shall be paid on the maturity date.
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Observation
dates:
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Quarterly, as set forth under “Observation Dates, Coupon Payment Dates and Redemption
Dates” below, subject to postponement for non-trading days and certain market disruption events. We also
refer to July 11, 2022 as the final observation date.
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Adjustment
factor:
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1.0, subject to adjustment
in the event of certain corporate events affecting the underlying stock
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Share performance factor:
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Final share price divided by the initial share price
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CUSIP / ISIN:
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61771BUH5 / US61771BUH58
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Listing:
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The securities will not be listed on any securities exchange.
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Observation Dates, Coupon
Payment Dates and Redemption Dates
Observation Dates
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Coupon Payment Dates / Redemption Dates
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October 13, 2020
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October 16, 2020
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January 11, 2021
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January 14, 2021
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April 12, 2021
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April 15, 2021
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July 12, 2021
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July 15, 2021
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October 12, 2021
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October 15, 2021
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January 10, 2022
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January 13, 2022
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April 11, 2022
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April 14, 2022
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July 11, 2022 (final observation date)
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July 14, 2022 (maturity date)
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Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
Investment Summary
Callable Contingent Income Securities
Callable Contingent Income Securities due July 14, 2022 Based
on the Performance of the Common Stock of Deere & Company (the “securities”) do not provide for the regular payment
of interest. Instead, the securities will pay a contingent quarterly coupon but only if the determination closing price
of the underlying stock is at or above 65% of the initial share price, which we refer to as the downside threshold level,
on the related observation date. If the determination closing price is less than the downside threshold level on any observation
date, we will pay no coupon for the related quarterly period. It is possible that the determination closing price could remain
below the downside threshold level for extended periods of time or even throughout the entire 2-year term of the securities so
that you will receive few or no contingent quarterly coupons during the entire 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 the underlying
stock were to be at or above the downside threshold level on some quarterly observation dates, it may fluctuate below the downside
threshold level on others. In addition, beginning on October 16, 2020, we will redeem the securities on any quarterly redemption
date for a redemption payment equal to the sum of the stated principal amount plus any contingent quarterly coupon otherwise due
with respect to the related observation date, if and only if the output of a risk neutral valuation model on a business day that
is at least 2 but no more than 5 business days prior to such redemption date, based on the inputs indicated under “Call feature”
on the cover page, indicates that redeeming on such date is economically rational for us as compared to not redeeming on such date.
An early redemption of the securities will not automatically occur based on the performance of the underlying stock. At maturity,
if the securities have not previously been redeemed and the final share price is below the downside threshold level, investors
will be fully exposed to the decline in the underlying stock on a 1-to-1 basis and will receive a payment at maturity that is less
than 65% 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
quarterly coupons. In addition, investors will not participate in any appreciation of the underlying stock.
Maturity:
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Approximately 2 years, unless redeemed earlier based on the output of a risk neutral valuation model
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Payment
at maturity:
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If the securities have not previously been redeemed, investors
will receive on the maturity date a payment at maturity determined as follows:
If the final share price is greater than or equal to the
downside threshold level, investors will receive the stated principal amount and the contingent quarterly coupon with respect to
the final observation date.
If the final share price is less than the downside threshold
level, investors will receive a payment at maturity that is less than 65% 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.
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Contingent
quarterly coupon:
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A contingent coupon at an annual rate of at least 13.10%
(corresponding to approximately $32.75 per quarter per security) will be paid on the securities on each coupon payment date but
only if the determination closing price of the underlying stock is at or above the downside threshold level on the related
observation date. The actual contingent quarterly coupon rate will be determined on the pricing date.
If, on any observation date, the determination closing price
of the underlying stock is less than the downside threshold level, we will pay no coupon for the applicable quarterly period.
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Early
redemption:
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Beginning on October 16, 2020, we will redeem the securities
on any quarterly redemption date for a redemption payment equal to the sum of stated principal amount plus any contingent quarterly
coupon otherwise due with respect to the related observation date, if and only if the output of a risk neutral valuation model
on a business day that is at least 2 but no more than 5 business days prior to such
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Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
|
redemption date, based on the inputs indicated under “Call
feature” on the cover page, indicates that redeeming on such date is economically rational for us as compared to not redeeming
on such date. An early redemption of the securities will not automatically occur based on the performance of the underlying stock.
In accordance with the risk neutral valuation model determination noted herein, it is more likely that we will redeem the securities
when it would otherwise be advantageous for you to continue to hold the securities. As such, we will be more likely to redeem the
securities when the determination closing price of the underlying stock on the observation dates is at or above the downside threshold
level, which would otherwise result in an amount of interest payable on the securities that is greater than instruments of a comparable
maturity and credit rating trading in the market. In other words, we will be more likely to redeem the securities at a time when
the securities are paying an above-market coupon. If the securities are redeemed prior to maturity, you will receive no more contingent
quarterly coupon payments, may be forced to invest in a lower interest rate environment and may not be able to reinvest at comparable
terms or returns.
On the other hand, we will be less likely to redeem the securities
when the determination closing price of the underlying stock is below the downside threshold level and/or when the final share
price is expected to be below the downside threshold level, such that you will receive no contingent quarterly coupons and/or that
you will suffer a significant loss on your initial investment in the securities at maturity. Therefore, if we do not redeem the
securities, it is more likely that you will receive few or no contingent quarterly coupons and suffer a significant loss at maturity.
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We are using this preliminary pricing supplement to solicit from
you an offer to purchase the securities. You may revoke your offer to purchase the securities at any time prior to the time at
which we accept such offer by notifying the relevant agent. We reserve the right to change the terms of, or reject any offer to
purchase, the securities prior to their issuance. In the event of any material changes to the terms of the securities, we will
notify you.
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 will be less than $1,000. We estimate that the value of each security
on the pricing date will be approximately $959.50 or within $25.00 of that estimate. Our estimate of the value of the securities
as determined on the pricing date will be set forth in the final pricing supplement.
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 stock. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying stock, instruments based on the underlying stock, 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 quarterly coupon rate and the downside threshold level, 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 stock, 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
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
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 6 months following the issue date, to the extent that MS & Co.
may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
stock, 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
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
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 quarterly coupon but only if the determination closing price of the underlying
stock is at or above the downside threshold level on the related observation date. The securities have been designed 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 coupon payment if the underlying stock closes below the downside threshold level on the related
quarterly observation date, and the risk of an early redemption of the securities based on the output of a risk neutral valuation
model. 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 by us based on the output of a risk neutral valuation model, the contingent
coupon may be payable in none of, or some but not all of, the quarterly periods during the 2-year term of the securities and the
payment at maturity may be less than 65% of the stated principal amount of the securities and may be zero.
Scenario 1: The securities are redeemed prior to maturity
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This scenario assumes that we redeem the securities based on the output of a risk neutral valuation model prior to the maturity date on one of the quarterly redemption dates, starting on October 16, 2020, for the redemption payment equal to the stated principal amount plus any contingent quarterly coupon with respect to the relevant observation date, as applicable. Prior to the early redemption, the underlying stock closes at or above the downside threshold level on some quarterly observation dates but below the downside threshold level on the others. Investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price is below the downside threshold level on the related observation date. No further payments will be made on the securities once they have been redeemed.
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Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
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This scenario assumes that we do not redeem the securities on any of the quarterly redemption dates, and, as a result, investors hold the securities to maturity. During the term of the securities, the underlying stock closes at or above the downside threshold level on some quarterly observation dates but below the downside threshold level on the others. Investors will receive the contingent quarterly coupon for the quarterly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price is below the downside threshold level on the related observation date. On the final observation date, the underlying stock closes at or above the downside threshold level. At maturity, investors will receive the stated principal amount and the contingent quarterly coupon with respect to the final observation date.
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Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
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This scenario assumes that we do not redeem the securities on any of the quarterly redemption dates, and, as a result, investors hold the securities to maturity. During the term of the securities, the underlying stock closes at or above the downside threshold level on some quarterly observation dates and below the downside threshold level on the others. Investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price is below the downside threshold level on the related observation date. On the final observation date, the underlying stock closes below the downside threshold level. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the share performance factor. Under these circumstances, the payment at maturity will be less than 65% of the stated principal amount and could be zero. No coupon will be paid at maturity in this scenario.
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Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity
if the securities have not been redeemed. The following examples are for illustrative purposes only. Whether you receive a contingent
quarterly coupon will be determined by reference to the determination closing price on each quarterly observation date, and the
payment at maturity will be determined by reference to the determination closing price on the final observation date. Any early
redemption of the securities will be based on the output of a risk neutral valuation model. The actual initial share price and
downside threshold level will be determined on the pricing date. 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:
Hypothetical Initial Share Price:
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$150.00
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Hypothetical Downside Threshold Level:
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$97.50, which is 65% of the hypothetical initial share price
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Hypothetical Contingent Quarterly Coupon:
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13.10% per annum (corresponding to approximately $32.75 per quarter
per security)1
A contingent quarterly coupon is paid on each coupon payment
date but only if the determination closing price of the underlying stock is at or above the downside threshold level on the
related observation date.
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Call Feature:
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Beginning on October 16, 2020, an early redemption, in whole but not in part, will occur on a redemption date if and only if the output of a risk neutral valuation model on a business day that is at least 2 but no more than 5 business days prior to such redemption date, as selected by the calculation agent (the “determination date”), taking as input: (i) prevailing reference market levels, volatilities and correlations, as applicable and in each case as of the determination date and (ii) Morgan Stanley’s credit spreads as of the pricing date, indicates that redeeming on such date is economically rational for us as compared to not redeeming on such date. If we call the securities, we will give you notice at least 2 business days before the call date specified in the notice. Any redemption payment will be equal to the stated principal amount plus any contingent quarterly coupon otherwise due with respect to the related observation date.
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Payment at Maturity (if the securities have not been redeemed early):
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If the final share price is greater than or equal to the
downside threshold level: the stated principal amount and the contingent quarterly coupon with respect to the final observation
date
If the final share price is less than the downside threshold
level: (i) the stated principal amount multiplied by (ii) the share performance factor
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Stated Principal Amount:
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$1,000
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1
The actual contingent quarterly coupon will be an amount determined by the calculation agent based on the actual contingent quarterly
coupon rate and the number of days in the applicable payment period, calculated on a 30/360 day-count basis. The hypothetical
contingent quarterly coupon of $32.75 is used in these examples for ease of analysis.
In Example 1, we redeem the securities on one
of the quarterly redemption dates, and no further payments are made on the securities after they have been redeemed. In Examples
2, 3 and 4, the securities are not redeemed prior to, and remain outstanding until, maturity.
Example 1— We redeem the securities
on April 14, 2022, which is the seventh quarterly redemption date. The underlying stock declines substantially and the determination
closing price is at or above the downside threshold level on only 3 of the 6 quarterly observation dates prior to (and excluding)
the observation date immediately preceding the redemption. Therefore, you would receive the contingent quarterly coupons with respect
to those 3 observation dates, totaling $32.75 × 3 = $98.25, but not for the other 3 observation dates. The determination
closing price is greater than or equal to the downside threshold level on the observation date in April 2022. Upon early redemption,
investors receive the redemption payment calculated as $1,000 + $32.75 = $1,032.75.
The total payment over the 1.75-year term of
the securities is $98.25 + $1,032.75 = $1,131.00
Example 2—The securities are not
redeemed prior to maturity. The determination closing price is at or above the downside threshold level on all 7 quarterly observation
dates prior to (and excluding) the final observation date, and the final share price is also at or above the downside threshold
level. Therefore, you would receive (i) the contingent quarterly coupons with respect to the 7 observation dates prior to (and
excluding) the final observation date, totaling $32.75 × 7 = $229.25, and (ii) the payment at maturity calculated as $1,000.00
+ $32.75 = $1,032.75.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
The total payment over the 2-year term of the
securities is $229.25 + $1,032.75 = $1,262.00
This example illustrates the scenario where
you receive a contingent quarterly coupon on every coupon payment date throughout the term of the securities and receive your principal
back at maturity, resulting in an annual interest rate of 13.10% over the 2-year term of the securities. This example, therefore,
represents the maximum amount payable over the 2-year term of the securities. To the extent that coupons are not paid on every
coupon payment date, the effective rate of interest on the securities will be less than 13.10% per annum and could be zero. In
addition, we will be more likely to redeem the securities prior to maturity when the determination closing price is at or above
the downside threshold level on the observation dates. If the securities are redeemed prior to maturity, you will receive no
more contingent quarterly coupon payments, may be forced to invest in a lower interest rate environment and may not be able to
reinvest at comparable terms or returns.
Example 3—The securities are not
redeemed prior to maturity. The determination closing price is at or above the downside threshold level on 2 out of the 7 quarterly
observation dates prior to (and excluding) the final observation date. The final share price is $150.00, which is above the downside
threshold level. In this scenario, you receive a payment at maturity equal to the stated principal amount and the contingent quarterly
coupon with respect to the final observation date. Therefore, you would receive (i) the contingent quarterly coupons with respect
to those 2 observation dates prior to (and excluding) the final observation date, totaling $32.75 × 2 = $65.50, but not for
the other 5 observation dates, and (ii) the payment at maturity calculated as $1,000.00 + $32.75 = $1,032.75.
The total payment over the 2-year term of the
securities is $65.50 + $1,032.75 = $1,098.25.
Example 4—The securities are not
redeemed prior to maturity. The determination closing price is below the downside threshold level on all of the quarterly observation
dates, including the final observation date, on which the final share price is $60.00. Therefore, you would receive no contingent
quarterly coupons, and the payment at maturity would be calculated as $1,000.00 × $60.00 / $150.00 = $400.
The total payment over the 2-year term of the
securities is $0 + $400 = $400.
If we do not redeem the securities prior
to maturity and the final share price is less than the downside threshold level, you will lose a significant portion or all of
your investment in the securities.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
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 prospectus 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.
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§
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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 redeemed prior to maturity and if the final share price is less than the downside threshold level
of 65% of the initial share price, you will be exposed to the decline in the closing price of the underlying stock, as compared
to the initial share price, 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 share performance factor. In this case, the payment at maturity will be less than
65% of the stated principal amount and could be zero.
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|
§
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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 quarterly coupon but only if the determination closing price of
the underlying stock is at or above 65% of the initial share price, which we refer to as the downside threshold level, on
the related observation date. If, on the other hand, the determination closing price is lower than the downside threshold level
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 determination closing price will remain below the downside threshold level for extended periods of time or even throughout
the entire 2-year term of the securities so that you will receive few or no contingent quarterly coupons. If you do not earn sufficient
contingent quarterly 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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The contingent quarterly coupon, if any, is based on the determination closing price of the underlying stock on only the
related quarterly observation date at the end of the related interest period.
Whether the contingent quarterly coupon will be paid on any coupon payment date will be determined at the end of the relevant interest
period based on the determination closing price of the underlying stock on the relevant quarterly observation date. As a result,
you will not know whether you will receive the contingent quarterly coupon on any coupon payment date until near the end of the
relevant interest period. Moreover, because the contingent quarterly coupon is based solely on the value of the underlying stock
on quarterly observation dates, if the determination closing price of the underlying stock on any observation date is below the
downside threshold level, you will receive no coupon for the related interest period, even if the level of the underlying stock
was at or above the downside threshold level on other days during that interest period.
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|
§
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The securities have early redemption risk. The term of the securities, and thus your opportunity to earn a potentially
above-market coupon if the underlying stock is greater than or equal to the downside threshold level on quarterly observation dates,
will be limited if we redeem the securities based on the output of a risk neutral valuation model on any quarterly redemption date,
beginning October 16, 2020. The term of your investment in the securities may be limited to as short as three months. In accordance
with the risk neutral valuation model determination noted herein, it is more likely that we will redeem the securities when it
would be advantageous for you to continue to hold the securities. As such, we will be more likely to redeem the securities when
the determination closing price of the underlying stock on the observation dates is at or above the downside threshold level, which
would otherwise result in an amount of interest payable on the securities that is greater than instruments of a comparable maturity
and credit rating trading in the market. In other words, we will be more likely to redeem the securities when the securities are
paying an above-market coupon. If the securities are redeemed prior to maturity, you will receive no more contingent quarterly
coupon payments, may be forced to invest in a lower interest rate environment and may not be able to reinvest at comparable terms
or returns.
|
On the other hand, we will be less
likely to redeem the securities when the determination closing price of the underlying stock is below the downside threshold level
and/or when the final share price is expected to be below the downside threshold level, such that you will receive no contingent
quarterly coupons and/or that you will suffer a significant loss on
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
your initial investment in the securities
at maturity. Therefore, if we do not redeem the securities, it is more likely that you will receive few or no contingent quarterly
coupons and suffer a significant loss at maturity.
|
§
|
Investors will not participate in any appreciation in the price of the underlying stock. Investors will not participate
in any appreciation in the price of the underlying stock from the initial share price, and the return on the securities will be
limited to the contingent quarterly coupons, if any, that are paid with respect to each observation date on which the determination
closing price is greater than or equal to the downside threshold level.
|
|
§
|
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 the underlying
stock on any day, including in relation to the 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 trading price and volatility (frequency and magnitude of changes in value) of the underlying stock,
|
|
o
|
whether the determination closing price of the underlying stock has been below the downside threshold level on any observation
date,
|
|
o
|
dividend rates on the underlying stock,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stock
and which may affect the final share price of the underlying stock,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, and
|
|
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. For example,
you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security if the price
of the underlying stock at the time of sale is below the downside threshold level, or if market interest rates rise.
The
price of the underlying stock may be, and has recently been, volatile, and we can give you no assurance that the volatility will
lessen. See “Deere & Company Overview” below. The price of the underlying stock may decrease and be below
the downside threshold level on each observation date so that you will receive no return on your investment. Additionally, the
price of the underlying stock may decrease and be below the downside threshold level on the final observation date so that you
will lose more than 35% or all of your initial investment in the securities. There can be no assurance that the determination closing
price of the underlying stock will be at or above the downside threshold 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 the downside threshold level
on the final observation date so that you do not suffer a significant loss on your initial investment in the securities.
|
§
|
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 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.
|
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
|
§
|
As a finance subsidiary, MSFL has no independent operations and will have no independent assets. As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
securities 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.
|
|
§
|
Investing in the securities is not equivalent to investing in the
common stock of Deere & Company. Investors
in the securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect
to the underlying stock, and investors will not participate in any appreciation of the underlying stock over the term of the securities.
As a result, any return on the securities will not reflect the return you would realize if you actually owned shares of the underlying
stock and received the dividends paid or distributions made on them.
|
|
§
|
No affiliation with Deere & Company. Deere & Company is not an affiliate of ours, is not involved with this
offering in any way, and has no obligation to consider your interests in taking any corporate actions that might affect the value
of the securities. We have not made any due diligence inquiry with respect to Deere & Company in connection with this offering.
|
|
§
|
We may engage in business with or involving Deere & Company without regard to your interests. We or our affiliates
may presently or from time to time engage in business with Deere & Company without regard to your interests and thus may acquire
non-public information about Deere & Company. Neither we nor any of our affiliates undertakes to disclose any such information
to you. In addition, we or our affiliates from time to time have published and in the future may publish research reports with
respect to Deere & Company, which may or may not recommend that investors buy or hold the underlying stock.
|
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect
the underlying stock. MS & Co., as calculation agent, will adjust the adjustment factor for certain corporate events affecting
the underlying stock, such as stock splits, stock dividends and extraordinary dividends, and certain other corporate actions involving
the issuer of the underlying stock, such as mergers. However, the calculation agent will not make an adjustment for every corporate
event that can affect the underlying stock. For example, the calculation agent is not required to make any adjustments if the issuer
of the underlying stock or anyone else makes a partial tender or partial exchange offer for the underlying stock, nor will adjustments
be made following the final observation date. In addition, no adjustments will be made for regular cash dividends, which are expected
to reduce the price of the underlying stock by the amount of such dividends. If an event occurs that does not require the calculation
agent to adjust the adjustment factor, the market price of the securities
may be materially and adversely affected. For example, if the record date for a regular cash dividend were to occur on or shortly
before an observation date, this may decrease the determination closing price to be less than the downside threshold level (resulting
in no contingent quarterly coupon being paid with respect to such date) or the final share price to be less than the downside threshold
level (resulting in a loss of a significant portion of all of your investment in the securities), materially and adversely affecting
your return.
|
|
§
|
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 2-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 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
|
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
you may be able to trade your securities
is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease
making a market in the securities, it is likely that there would be no secondary market for the securities. Accordingly, you should
be willing to hold your securities to maturity.
|
§
|
The 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 6 months following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary
market, absent changes in market conditions, including those related to the underlying stock, and to our secondary market credit
spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected
in your brokerage account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price. These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your 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.
|
|
§
|
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 stock), including trading in the underlying stock. 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 underlying stock and other financial
instruments related to the underlying stock 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 share price, and,
therefore, could increase the downside threshold level, which is the price at or above which the underlying stock must close on
each observation date in order for you to earn a contingent quarterly coupon, and, if the securities are not called prior to maturity,
in order for you to avoid being exposed to the negative price performance of the underlying stock at maturity. Additionally, such
hedging or trading activities during the term of the securities could affect the price of the underlying stock on the observation
dates, and, accordingly, whether we pay a contingent quarterly coupon on the securities and the amount of cash you receive at maturity,
if any.
|
|
§
|
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 share price,
|
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
the downside threshold level, the
final share price, whether the contingent quarterly coupon will be paid on each coupon payment date, whether a market disruption
event has occurred, whether to make any adjustments to the adjustment factor and the payment that you will receive at maturity,
if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise
discretion and make subjective judgments, such as with respect to the occurrence or nonoccurrence of market disruption events and
certain adjustments to the adjustment factor. These potentially subjective determinations may affect the payout to you upon an
early redemption or at maturity, if any. For further information regarding these types of determinations, see “Additional
Terms of the Securities—Additional Terms—Calculation agent,” “—Market disruption event,” “—Postponement
of observation dates,” “—Antidilution adjustments,” and “—Alternative exchange calculation
in case of an event of default,” below. In addition, MS & Co. has determined the estimated value of the securities on
the pricing date.
|
§
|
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 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
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
Deere & Company Overview
Deere & Company operates in three major business segments:
agriculture and turf, construction and forestry and financial services. The underlying stock is registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Information provided to or filed with the Securities and Exchange
Commission by Deere & Company pursuant to the Exchange Act can be located by reference to the Securities and Exchange Commission
file number 001- 4121 through the Securities and Exchange Commission’s website at www.sec.gov. In addition, information regarding
Deere & Company may be obtained from other sources including, but not limited to, press releases, newspaper articles and other
publicly disseminated documents. Neither the issuer nor the agent makes any representation that such publicly available documents
or any other publicly available information regarding the issuer of the underlying stock is accurate or complete.
Information as of market close on July 8, 2020:
Bloomberg
Ticker Symbol:
|
DE
|
Exchange:
|
NYSE
|
Current
Stock Price:
|
$158.38
|
52
Weeks Ago:
|
$163.89
|
52
Week High (on 11/11/2019):
|
$179.80
|
52
Week Low (on 3/23/2020):
|
$111.15
|
Current
Dividend Yield:
|
1.92%
|
The following table sets forth the published high and low closing
prices of, as well as dividends on, the underlying stock for each quarter from January 1, 2017 through July 8, 2020. The closing
price of the underlying stock on July 8, 2020 was $158.38. The associated graph shows the closing prices of the underlying stock
for each day from January 1, 2015 through July 8, 2020. We obtained the information in the table and graph below from Bloomberg
Financial Markets, without independent verification. The historical performance of the underlying stock should not be taken as
an indication of its future performance, and no assurance can be given as to the price of the underlying stock at any time, including
on the observation dates.
Common
Stock of Deere & Company (CUSIP 244199105)
|
High
($)
|
Low
($)
|
Dividends
($)
|
2017
|
|
|
|
First Quarter
|
111.22
|
104.05
|
0.60
|
Second Quarter
|
127.90
|
107.54
|
0.60
|
Third Quarter
|
132.41
|
115.44
|
0.60
|
Fourth Quarter
|
158.75
|
127.29
|
0.60
|
2018
|
|
|
|
First Quarter
|
171.49
|
148.00
|
0.60
|
Second Quarter
|
159.00
|
134.75
|
0.69
|
Third Quarter
|
154.07
|
135.53
|
0.69
|
Fourth Quarter
|
162.21
|
130.56
|
0.76
|
2019
|
|
|
|
First Quarter
|
165.97
|
144.05
|
0.76
|
Second Quarter
|
169.15
|
134.82
|
0.76
|
Third Quarter
|
170.39
|
143.17
|
0.76
|
Fourth Quarter
|
179.80
|
163.25
|
0.76
|
2020
|
|
|
|
First Quarter
|
177.60
|
111.15
|
0.76
|
Second Quarter
|
168.81
|
125.82
|
0.76
|
Third Quarter (through July 8, 2020)
|
160.22
|
156.85
|
-
|
We make no representation as to the amount of dividends, if any,
that Deere & Company may pay in the future. In any event, as an investor in the Callable Contingent Income Securities, you
will not be entitled to receive dividends, if any, that may be payable on the common stock of Deere & Company.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
Common Stock of Deere & Company
– Daily Closing Prices
January 1, 2015 to July 8, 2020
|
|
* The
red solid line indicates the hypothetical downside threshold level, assuming the closing price of the underlying stock on July
8, 2020 were the initial share price.
This document relates only to the securities
offered hereby and does not relate to the underlying stock or other securities of Deere & Company. We have derived all disclosures
contained in this document regarding Deere & Company stock from the publicly available documents described above. In connection
with the offering of the securities, neither we nor the agent has participated in the preparation of such documents or made any
due diligence inquiry with respect to Deere & Company. Neither we nor the agent makes any representation that such publicly
available documents or any other publicly available information regarding Deere & Company is accurate or complete. Furthermore,
we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy
or completeness of the publicly available documents described above) that would affect the trading price of the underlying stock
(and therefore the price of the underlying stock at the time we price the securities) have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of or failure to disclose material future events concerning Deere & Company
could affect the value received with respect to the securities and therefore the value of the securities.
Neither the issuer nor any of its affiliates
makes any representation to you as to the performance of the underlying stock.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
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 preliminary pricing supplement.
Additional Terms:
|
If the terms described herein are inconsistent with those described in the accompanying prospectus supplement or prospectus, the terms described herein shall control.
|
Interest period:
|
The quarterly period from and including the original issue date (in the case of the first interest period) or the previous scheduled contingent payment date, as applicable, to but excluding the following scheduled contingent payment date, with no adjustment for any postponement thereof
|
Underlying stock issuer:
|
Deere & Company
|
Denominations:
|
$1,000 per security and integral multiples thereof
|
Senior security or subordinated security:
|
Senior
|
Specified currency:
|
U.S. dollars
|
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 redemption payment, as the case may be, shall be payable.
|
Day count convention:
|
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
The calculation agent for the securities will be MS & Co.
All determinations made by the calculation agent will be at the sole discretion of the calculation agent and will, in the absence
of manifest error, be conclusive for all purposes and binding on you, the trustee and us.
All calculations with respect to the contingent quarterly coupon,
the redemption payment and the payment at maturity, if any, shall be made by the calculation agent and shall be rounded to the
nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., .876545 would be rounded to .87655); all dollar
amounts related to determination of the amount of cash payable per stated principal amount, if any, shall be rounded to the nearest
ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to .7655); and all dollar amounts
paid on the aggregate principal amount of the securities shall be rounded to the nearest cent, with one-half cent rounded upward.
Because the calculation agent is our affiliate, the economic
interests of the calculation agent and its affiliates may be adverse to your interests as an investor in the securities, including
with respect to certain determinations and judgments that the calculation agent must make in determining the payment that you will
receive, if any, on each coupon payment date, upon early redemption or at maturity or whether a market disruption event has occurred.
See “Market disruption event”, “Antidilution adjustments,” and “Alternate exchange calculation in
case of an event of default” below. MS & Co. is obligated to carry out its duties and functions as calculation agent
in good faith and using its reasonable judgment.
|
Business day:
|
Any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York.
|
Trading day:
|
With respect to the underlying stock, a day, as determined by the calculation agent, on which trading is generally conducted on the New York Stock Exchange, The Nasdaq Stock Market LLC (the “Nasdaq”), the Chicago Mercantile Exchange and the Chicago Board of Options Exchange and in the over-the-counter market for equity securities in the United States.
|
Closing price:
|
Subject to the provisions set out under “Antidilution adjustments”
below, the closing price for one share of the underlying stock (or one unit of any other security for which a closing price must
be determined) on any trading day means:
(i) if the underlying stock (or any such other security)
is listed on a national securities exchange (other than Nasdaq), the last reported sale price, regular way, of the principal trading
session on such day on the principal national securities exchange registered under the Securities Exchange Act of 1934, as amended,
on which the underlying stock (or any such other security) is listed,
|
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
|
(ii) if the underlying stock (or any such other security)
is a security of the Nasdaq, the official closing price of the underlying stock published by the Nasdaq on such day, or
(iii) if the underlying stock (or any such other security)
is not listed on any national securities exchange but is included in the OTC Bulletin Board Service (the OTC Bulletin Board) operated
by the Financial Industry Regulatory Authority, Inc. (FINRA), the last reported sale price of the principal trading session on
the OTC Bulletin Board on such day.
If the underlying stock (or any such other security) is listed
on any national securities exchange but the last reported sale price or the official closing price published by such exchange,
or by the Nasdaq, as applicable, is not available pursuant to the preceding sentence, then the closing price for one share of the
underlying stock (or one unit of any such other security) on any trading day will mean the last reported sale price of the principal
trading session on the over-the-counter market as reported on the Nasdaq or the OTC Bulletin Board on such day. If a market disruption
event (as defined below) occurs with respect to the underlying stock, (or any such other security) or the last reported sale price
or the official closing price published by the Nasdaq, as applicable, for the underlying (or any such other security) is not available
pursuant to either of the two preceding sentences, then the closing price for any trading day will be the mean, as determined by
the calculation agent, of the bid prices for the underlying stock (or any such other security) for such trading day obtained from
as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the calculation
agent. Bids of MS & Co. and its successors or any of its affiliates may be included in the calculation of such mean, but only
to the extent that any such bid is the highest of the bids obtained. If no bid prices are provided from any third-party dealers,
such closing price will be determined by the calculation agent in its sole and absolute discretion (acting in good faith) taking
into account any information that it deems relevant. The term OTC Bulletin Board Service will include any successor service thereto,
or, if applicable, the OTC Reporting Facility operated by FINRA. See “Antidilution adjustments” below.
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Market disruption event:
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With respect to the underlying stock, market disruption event
means:
(i) the occurrence or existence of any of:
(a) a
suspension, absence or material limitation of trading of the underlying stock on the primary market for the underlying stock for
more than two hours of trading or during the one-half hour period preceding the close of the principal trading session in such
market; or
(b) a
breakdown or failure in the price and trade reporting systems of the primary market for the underlying stock as a result of which
the reported trading prices for the underlying stock during the last one-half hour preceding the close of the principal trading
session in such market are materially inaccurate; or
(c) the
suspension, absence or material limitation of trading on the primary market for trading in futures or options contracts related
to the underlying stock, if available, during the one-half hour period preceding the close of the principal trading session in
the applicable market,
in each case as determined by the calculation agent
in its sole discretion; and
(ii) a determination by the calculation agent in its
sole discretion that any event described in clause (i) above materially interfered with our ability or the ability of any of our
affiliates to unwind or adjust all or a material portion of the hedge position with respect to the securities.
For the purposes of determining whether a market disruption event
has occurred with respect to the underlying stock: (1) a limitation on the number of hours or number of days of trading will not
constitute a market disruption event if it results from an announced in the regular business hours of the primary market, (2) decision
to permanently discontinue trading in the relevant options contract will not constitute a market disruption event, (3) a suspension
of trading in options contracts on the underlying stock by the primary securities market trading in such contracts by reason of
(a) a price change exceeding limits set by such securities exchange or market, (b) an imbalance of orders relating to such contracts
or (c) a disparity in bid and ask quotes relating to such contracts will constitute a suspension, absence or material limitation
of trading in options contracts related to the underlying stock and (4) a suspension, absence or material limitation of trading
on the primary market on which options contracts related to the underlying stock are traded will not include any time when such
securities market is itself closed for trading under ordinary circumstances.
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Postponement of observation dates:
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The observation dates are subject to postponement due to non-trading
days or certain market disruption events, as described in the following paragraph.
If a market disruption event with respect to the underlying stock
occurs on any scheduled observation date, or if any such observation date is not a trading day, the closing price for the underlying
stock for such date will be determined on the immediately succeeding trading day on which no market disruption event will have
occurred with respect to the underlying stock; provided
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Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
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that the determination closing price for the underlying stock will not be determined on a date later than the fifth scheduled trading day after the scheduled observation date and if such date is not a trading day, or if there is a market disruption event on such date, the calculation agent will determine the closing price of the underlying stock on such fifth trading day based on the mean, as determined by the calculation agent, of the bid prices for one share of the underlying stock for such date obtained from as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the calculation agent. Bids of MS & Co. or any of its affiliates may be included in the calculation of such mean, but only to the extent that any such bid is the highest of the bids obtained. If no bid prices are provided from any third-party dealers, the closing price will be determined by the calculation agent in its sole and absolute discretion (acting in good faith) taking into account any information that it deems relevant.
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Postponement of coupon payment dates (including the maturity date) and redemption dates:
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If any scheduled coupon payment date is not a business day, that contingent quarterly coupon, if any, shall be paid on the next succeeding business day; provided that the contingent quarterly coupon, if any, with respect to the final observation date shall be paid on the maturity date; provided further that if, due to a market disruption event or otherwise, any observation date with respect to the underlying stock is postponed so that it falls less than two business days prior to the scheduled coupon payment date, maturity date or redemption date, as applicable, the coupon payment date, maturity date or redemption date, as applicable, shall be postponed to the second business day following the observation date as postponed, by which date the closing price of the underlying stock has been determined. In any of these cases, no adjustment shall be made to any contingent quarterly coupon payment, payment at maturity or redemption payment made on that postponed date.
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Antidilution adjustments:
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The adjustment factor with respect to the underlying stock will
be adjusted as follows:
1. If the underlying stock is subject to a stock split or reverse
stock split, then once such split has become effective, the adjustment factor for the underlying stock will be adjusted by
the calculation agent to equal the product of the prior adjustment factor and the number of shares issued in such stock split or
reverse stock split with respect to one share of the underlying stock.
2. If the underlying stock is subject (i) to a stock dividend
(issuance of additional shares of the underlying stock) that is given ratably to all holders of shares of the underlying stock
or (ii) to a distribution of the underlying stock as a result of the triggering of any provision of the corporate charter of that
underlying stock issuer, then once the dividend has become effective and the underlying stock is trading ex-dividend, the adjustment
factor will be adjusted so that the new adjustment factor will equal the prior adjustment factor plus the product of (i) the number
of shares issued with respect to one share of the underlying stock and (ii) the prior adjustment factor.
3. If the underlying stock issuer issues rights or warrants to
all holders of its underlying stock to subscribe for or purchase that underlying stock at an exercise price per share less than
the closing price of that underlying stock on both (i) the date the exercise price of such rights or warrants is determined and
(ii) the expiration date of such rights or warrants, and if the expiration date of such rights or warrants precedes the maturity
of the securities, then the adjustment factor will be adjusted to equal the product of the prior adjustment factor and a fraction,
the numerator of which will be the number of shares of the underlying stock outstanding immediately prior to the issuance of such
rights or warrants plus the number of additional shares of the underlying offered for subscription or purchase pursuant to such
rights or warrants and the denominator of which will be the number of shares of the underlying outstanding immediately prior to
the issuance of such rights or warrants plus the number of additional shares of the underlying stock which the aggregate offering
price of the total number of shares of the underlying stock so offered for subscription or purchase pursuant to such rights or
warrants would purchase at the closing price on the expiration date of such rights or warrants, which will be determined by multiplying
such total number of shares offered by the exercise price of such rights or warrants and dividing the product so obtained by such
closing price.
4. There will be no required adjustments to the adjustment factor
to reflect cash dividends or other distributions paid with respect to the underlying stock other than distributions described in
paragraph 2, paragraph 3 and clauses (i), (iv) and (v) of paragraph 5 below and extraordinary dividends as described below. A cash
dividend or other distribution with respect to the underlying stock will be deemed to be an extraordinary dividend if such cash
dividend or distribution exceeds the immediately preceding non-extraordinary dividend for the underlying stock by an amount equal
to at least 10% of the closing price of the underlying stock (as adjusted for any subsequent corporate event requiring an adjustment
hereunder, such as a stock split or reverse stock split) on the trading day preceding the ex-dividend date (that is, the day on
and after which transactions in the underlying stock on the primary U.S. organized securities exchange or trading system on which
the underlying stock is traded no longer carry the right to receive that cash dividend or that cash distribution) for the payment
of such extraordinary dividend. If an extraordinary dividend occurs with respect to the underlying stock, the adjustment factor
with respect to the underlying stock will be adjusted on the ex-dividend date with respect to such extraordinary dividend so that
the new adjustment factor will equal the product of (i) the then current adjustment factor and (ii) a fraction, the numerator of
which is the closing price on the trading day preceding the ex-dividend date, and the denominator of which
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Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
|
is the amount by which the closing price on the trading day preceding
the ex-dividend date exceeds the extraordinary dividend amount. The extraordinary dividend Amount with respect to an extraordinary
dividend for the underlying stock will equal (i) in the case of cash dividends or other distributions that constitute regular dividends,
the amount per share of such extraordinary dividend minus the amount per share of the immediately preceding non-extraordinary dividend
for the underlying stock or (ii) in the case of cash dividends or other distributions that do not constitute regular dividends,
the amount per share of such extraordinary dividend. To the extent an extraordinary dividend is not paid in cash, the value of
the non-cash component will be determined by the calculation agent, whose determination will be conclusive. A distribution on the
underlying stock described in clause (i), (iv) or (v) of paragraph 5 below that also constitutes an extraordinary dividend will
cause an adjustment to the adjustment factor pursuant only to clause (i), (iv) or (v) of paragraph 5, as applicable.
5. If (i) there occurs any reclassification or change of the
underlying stock, including, without limitation, as a result of the issuance of any tracking stock by the underlying stock issuer,
(ii) the underlying stock issuer or any surviving entity or subsequent surviving entity of the underlying stock issuer (the “successor
corporation”) has been subject to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory
exchange of securities of the underlying stock issuer or any successor corporation with another corporation occurs (other than
pursuant to clause (ii) above), (iv) the underlying stock issuer is liquidated, (v) the underlying stock issuer issues to all of
its shareholders equity securities of an issuer other than the underlying stock issuer (other than in a transaction described in
clause (ii), (iii) or (iv) above) (a “spin-off event”) or (vi) a tender or exchange offer or going-private transaction
is consummated for all the outstanding shares of the underlying stock (any such event in clauses (i) through (vi), a “reorganization
event”), the method of determining the amount payable upon a redemption date or at maturity for each security will be as
follows:
· Upon
the final observation date, if the securities have not previously been redeemed: You will receive for each security that you hold
a payment at maturity equal to:
Ø If
the exchange property value on the final observation date is greater than or equal to the downside threshold level: (i) the
stated principal amount plus (ii) the contingent quarterly coupon with respect to the final observation date; or
Ø If
the exchange property value on the final observation date is less than the downside threshold level: (i) the stated principal
amount multiplied by (ii) the share performance factor. For purposes of calculating the share performance factor, the “final
share price” will be deemed to equal the per-share cash value, determined as of the final observation date, of the securities,
cash or any other assets distributed to holders of the underlying stock in or as a result of any such reorganization event, including
(A) in the case of the issuance of tracking stock, the reclassified shares of the underlying stock, (B) in the case of a spin-off
event, the shares of the underlying stock with respect to which the spun-off security was issued, and (C) in the case of any other
reorganization event where the underlying stock continues to be held by the holders receiving such distribution, the underlying
stock (collectively, the exchange property).
Following the effective date of a reorganization event, the contingent
quarterly coupon will be payable for each observation date on which the exchange property value is greater than or equal to the
downside threshold level.
If exchange property includes a cash component, investors will
not receive any interest accrued on such cash component. In the event exchange property consists of securities, those securities
will, in turn, be subject to the antidilution adjustments set forth in paragraphs 1 through 5.
For purposes of determining whether or not the exchange property
value is less than the initial share price or downside threshold level, “exchange property value” means (x) for any
cash received in any reorganization event, the value, as determined by the calculation agent, as of the date of receipt, of such
cash received for one share of the underlying stock, as adjusted by the adjustment factor at the time of such reorganization event,
(y) for any property other than cash or securities received in any such reorganization event, the market value, as determined by
the calculation agent in its sole discretion, as of the date of receipt, of such exchange property received for one share of the
underlying stock, as adjusted by the adjustment factor at the time of such reorganization event and (z) for any security received
in any such reorganization event, an amount equal to the determination closing price, as of the day on which the exchange property
value is determined, per share of such security multiplied by the quantity of such security received for each share of the underlying
stock, as adjusted by the adjustment factor at the time of such reorganization event.
For purposes of paragraph 5 above, in the case of a consummated
tender or exchange offer or going-private transaction involving consideration of particular types, exchange property shall be deemed
to include the amount of cash or other property delivered by the offeror in the tender or exchange offer (in an amount determined
on the basis of the rate of exchange in such tender or
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Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
|
exchange offer or going-private transaction). In the event of
a tender or exchange offer or a going-private transaction with respect to exchange property in which an offeree may elect to receive
cash or other property, exchange property shall be deemed to include the kind and amount of cash and other property received by
offerees who elect to receive cash.
Following the occurrence of any reorganization event referred
to in paragraph 5 above, all references in this offering document with respect to the securities to “the underlying stock”
shall be deemed to refer to the exchange property and references to a “share” or “shares” of the underlying
stock shall be deemed to refer to the applicable unit or units of such exchange property, unless the context otherwise requires.
No adjustment to the adjustment factor will be required unless
such adjustment would require a change of at least 0.1% in the adjustment factor then in effect. The adjustment factor resulting
from any of the adjustments specified above will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded
upward. Adjustments to the adjustment factor will be made up to the close of business on the final observation date.
No adjustments to the adjustment factor or method of calculating
the adjustment factor will be required other than those specified above. The adjustments specified above do not cover all events
that could affect the determination closing price or the final share price of the underlying stock, including, without limitation,
a partial tender or exchange offer for the underlying stock.
The calculation agent shall be solely responsible for the determination
and calculation of any adjustments to the adjustment factor or method of calculating the adjustment factor and of any related determinations
and calculations with respect to any distributions of stock, other securities or other property or assets (including cash) in connection
with any corporate event described in paragraphs 1 through 5 above, and its determinations and calculations with respect thereto
shall be conclusive in the absence of manifest error.
The calculation agent will provide information as to any adjustments
to the adjustment factor or to the method of calculating the amount payable at maturity of the securities made pursuant to paragraph
5 above upon written request by any investor in the securities.
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Issuer notices to registered security holders, the trustee and the depositary:
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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 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 any coupon payment date is postponed due to
the postponement of the relevant observation date, the issuer shall give notice of such postponement and, once it has been determined,
of the date to which the applicable coupon payment 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 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 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 any coupon payment date, the business day immediately preceding the applicable
scheduled coupon payment date and (ii) with respect to notice of the date to which the applicable coupon payment date has been
rescheduled, the business day immediately following the applicable observation date as postponed.
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 quarterly coupon, if any, with respect to the securities 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 with respect
to the applicable interest to the trustee for delivery to the depositary, as holder of the securities, on the applicable coupon
payment date.
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Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
|
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, if any, to be delivered with respect to the securities, on or prior to 10:30 a.m. (New York City time) on the business day preceding the redemption date or the business day preceding the maturity date, as applicable, and (ii) deliver the aggregate cash amount due with respect to the securities, if any, to the trustee for delivery to the depositary, as holder of the securities, on the redemption date or maturity date, as applicable.
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Alternate exchange calculation in case of an event of default:
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If an event of default with respect to the securities shall have
occurred and be continuing, the amount declared due and payable upon any acceleration of the securities (the “Acceleration
Amount”) will be an amount, determined by the calculation agent in its sole discretion, that is equal to the cost of having
a qualified financial institution, of the kind and selected as described below, expressly assume all our payment and other obligations
with respect to the securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations
providing substantially equivalent economic value to you with respect to the securities. That cost will equal:
· the
lowest amount that a qualified financial institution would charge to effect this assumption or undertaking, plus
· the
reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the securities in preparing any documentation
necessary for this assumption or undertaking.
During the default quotation period for the securities, which
we describe below, the holders of the securities and/or we may request a qualified financial institution to provide a quotation
of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the
other party in writing of the quotation. The amount referred to in the first bullet point above will equal the lowest—or,
if there is only one, the only—quotation obtained, and as to which notice is so given, during the default quotation period.
With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds,
to the assumption or undertaking by the qualified financial institution providing the quotation and notify the other party in writing
of those grounds within two business days after the last day of the default quotation period, in which case that quotation will
be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to MSFL or Morgan Stanley, then depending
on applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount.
If the maturity of the securities is accelerated because of an
event of default as described above, we shall, or shall cause the calculation agent to, provide written notice to the trustee at
its New York office, on which notice the trustee may conclusively rely, and to the depositary of the Acceleration Amount and the
aggregate cash amount due, if any, with respect to the securities as promptly as possible and in no event later than two business
days after the date of such acceleration.
Default quotation period
The default quotation period is the period beginning on the day
the Acceleration Amount first becomes due and ending on the third business day after that day, unless:
· no
quotation of the kind referred to above is obtained, or
· every
quotation of that kind obtained is objected to within five business days after the due date as described above.
If either of these two events occurs, the default quotation period
will continue until the third business day after the first business day on which prompt notice of a quotation is given as described
above. If that quotation is objected to as described above within five business days after that first business day, however, the
default quotation period will continue as described in the prior sentence and this sentence.
In any event, if the default quotation period and the subsequent
two business day objection period have not ended before the final observation date, then the Acceleration Amount will equal the
principal amount of the securities.
Qualified financial institutions
For the purpose of determining the Acceleration Amount at any
time, a qualified financial institution must be a financial institution organized under the laws of any jurisdiction in the United
States or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date
of issue and rated either:
· A-2
or higher by Standard & Poor’s Ratings Services or any successor, or any other
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Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities
|
comparable rating then used by that rating agency,
or
· P-2
or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating agency.
|
Morgan Stanley Finance LLC
Callable Contingent Income Securities due July 14, 2022
Based on the Performance of the Common Stock of Deere & Company
Principal at Risk Securities