Pricing Supplement
No. 4,520
Registration Statement
Nos. 333-221595; 333-221595-01
Opportunities in U.S. Equities
The Contingent Income Auto-Callable Securities do not guarantee
the payment of interest or the repayment of principal. Instead, the securities offer the opportunity for investors to earn a contingent
quarterly coupon (plus any previously unpaid contingent quarterly coupons from prior observation dates), but only with
respect to each observation date on which the index closing value of the underlying index is greater than or equal to 80% of the
initial index value, which we refer to as the downside threshold level. In addition, if the index closing value of the underlying
index is greater than or equal to the initial index value on any quarterly redemption determination date, the securities will
be automatically redeemed for an amount per security equal to the stated principal amount plus the contingent quarterly
coupon for the relevant observation date and the contingent quarterly coupons with respect to any prior observation date(s) for
which a contingent quarterly coupon was not paid. However, if the securities are not automatically redeemed prior to maturity,
the payment at maturity due on the securities will be as follows: (i) if the final index value, as measured on the five averaging
dates, is greater than or equal to the downside threshold level, investors will receive the stated principal amount, the related
contingent quarterly coupon and any previously unpaid contingent quarterly coupons, or (ii) if the final index value, as measured
on the five averaging dates, is less than the downside threshold level, investors will be exposed to the full decline in the underlying
index on a 1-to-1 basis and will receive a payment at maturity that is less than 80% of the stated principal amount of the securities
and could be zero. Moreover, if on any observation date, the index closing value of the underlying index is less than the downside
threshold level, you will not receive any contingent quarterly coupon for that quarterly period. As a result, investors must be
willing to accept the risk of not receiving any contingent quarterly coupons and also the risk of receiving a payment at maturity
that is significantly less than the stated principal amount of the securities and could be zero. Accordingly, investors could
lose their entire initial investment in the securities. The securities are for investors who are willing to risk their principal
and seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of receiving few or no contingent
quarterly coupons over the 54-week term of the securities. Investors will not participate in any appreciation of the underlying
index. The securities are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally
guaranteed by Morgan Stanley. The securities are issued as part of MSFL’s Series A Global Medium-Term Notes program.
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.
Observation Dates, Redemption
Determination Dates, Coupon Payment Dates and Early Redemption Dates
Observation Dates / Redemption Determination Dates
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Coupon Payment Dates / Early Redemption Dates
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10/22/2020
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10/27/2020
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1/22/2021
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1/27/2021
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4/22/2021
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4/27/2021
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See “Averaging dates” above
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7/27/2021 (maturity date)
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
The Contingent Income Auto-Callable Securities
due July 27, 2021 Based on the Performance of the S&P 500® Index, which we refer to as the securities, provide
an opportunity for investors to earn a contingent quarterly coupon (plus any previously unpaid contingent quarterly coupons
from prior observation dates) with respect to each quarterly observation date or the averaging dates, as applicable, on which the
index closing value or the final index value, as applicable, is greater than or equal to 80% of the initial index value, which
we refer to as the downside threshold level. It is possible that the index closing value of the underlying index could remain below
the downside threshold level for extended periods of time or even throughout the term of the securities so that you may receive
few or no contingent quarterly coupons.
If the index closing value is greater than
or equal to the initial index value on any quarterly redemption determination date, beginning on October 22, 2020, the securities
will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the related contingent
quarterly coupon and the contingent quarterly coupons with respect to any prior observation date(s) for which a contingent quarterly
coupon was not paid. If the securities have not previously been redeemed and the final index value, as measured on the five averaging
dates, is greater than or equal to the downside threshold level, the payment at maturity will be the stated principal amount, the
related contingent quarterly coupon and any previously unpaid contingent quarterly coupons. However, if the securities have not
previously been redeemed and the final index value, as measured on the five averaging dates, is less than the downside threshold
level, investors will be exposed to the decline in the underlying index, as compared to the initial index value, on a 1-to-1 basis.
In this case, the payment at maturity will be less than 80% of the stated principal amount of the securities and could be zero.
Investors in the securities must be willing to accept the risk of losing their entire principal and also the risk of not receiving
any contingent quarterly coupon. In addition, investors will not participate in any appreciation of the underlying index.
The original issue price of each security is
$1,000. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by
you, and, consequently, the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value
of each security on the pricing date is $982.40.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
index. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying index, instruments based on the underlying index, 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 index, may vary
from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary
market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type
and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not
fully deducted upon issuance, for a period of up to 4 months following the issue date, to the extent that MS & Co. may buy
or sell the securities in the secondary market, absent changes in
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
market conditions, including those related
to the underlying index, and to our secondary market credit spreads, it would do so based on values higher than the estimated value.
We expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to,
make a market in the securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
quarterly coupon (plus any previously unpaid contingent quarterly coupons) with respect to each observation date or the
averaging dates, as applicable, on which the index closing value or the final index value, as applicable, is greater than or equal
to 80% of the initial index value, which we refer to as the downside threshold level. The securities may be redeemed prior to maturity
for the stated principal amount per security plus the applicable contingent quarterly coupon and any previously unpaid contingent
quarterly coupons, and the payment at maturity will vary depending on the final index value, as measured on the five averaging
dates, as follows:
Scenario 1
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On any quarterly redemption determination
date, the index closing value is greater than or equal to the initial index value.
§ The
securities will be automatically redeemed for (i) the stated principal amount plus (ii) the contingent quarterly coupon
with respect to the related observation date and any previously unpaid contingent quarterly coupons with respect to any prior observation
dates.
§ Investors
will not participate in any appreciation of the underlying index from the initial index value.
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Scenario 2
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The securities are not automatically redeemed
prior to maturity, and the final index value, as measured on the five averaging dates, is greater than or equal to the downside
threshold level.
§ The
payment due at maturity will be (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to
the final quarterly period and any previously unpaid contingent quarterly coupons with respect to the prior observation dates.
§ Investors
will not participate in any appreciation of the underlying index from the initial index value.
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Scenario 3
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The securities are not automatically redeemed
prior to maturity, and the final index value, as measured on the five averaging dates, is less than the downside threshold
level.
§ The
payment due at maturity will be equal to (i) the stated principal amount multiplied by (ii) the index performance factor.
§ Investors
will lose a significant portion, and may lose all, of their principal in this scenario.
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the index closing values and (2) the final index value.
Diagram #1: Contingent Quarterly Coupons
(Beginning on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
For
more information about the payout upon an early redemption or at maturity in different hypothetical scenarios, see “Hypothetical
Examples” starting on page 8.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
Hypothetical Examples
The below examples are based on the following terms:
Hypothetical Initial Index Value:
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2,500
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Hypothetical Downside Threshold Level:
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2,000, which is 80% of the hypothetical initial index value
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Contingent Quarterly Coupon:
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$32.25 per quarter per security
If the contingent quarterly coupon is not paid on any coupon payment
date (because the index closing value of the underlying index is less than the downside threshold level on the related observation
date), such unpaid contingent quarterly coupon will be paid on a later coupon payment date but only if the index
closing value of the underlying index on such later observation date (or the final index value, as applicable) is greater than
or equal to the downside threshold level. Any such unpaid contingent quarterly coupon will be paid on the first subsequent
coupon payment date for which the index closing value of the underlying index on the related observation date (or the final index
value, as applicable) is greater than or equal to the downside threshold level; provided, however, in the case of
any such payment of a previously unpaid contingent quarterly coupon, no additional interest shall accrue or be payable in respect
of such unpaid contingent quarterly coupon from and after the end of the original interest payment period for such unpaid contingent
quarterly coupon.
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Stated Principal Amount:
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$1,000 per security
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In Examples 1 and 2, the index closing value
of the underlying index is greater than or equal to the initial index value on one of the quarterly redemption determination dates.
Because the index closing value is greater than or equal to the initial index value on such a date, the securities are automatically
redeemed on the related early redemption date. In Examples 3 and 4, the index closing value is less than the initial index value
on each redemption determination date, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding
until, maturity.
Example 1—The securities are automatically redeemed
following the quarterly redemption determination date in October 2020, as the index closing value is greater than or equal to the
initial index value on such redemption determination date. Therefore, upon early redemption, investors receive the stated principal
amount plus the contingent quarterly coupon with respect to that observation date, calculated as: $1,000 + $32.25 = $1,032.25.
The total payment over the 3-month term of the securities is $1,032.25.
Investors do not participate in any appreciation of the underlying index.
Example 2—The securities are automatically redeemed
following the quarterly redemption determination date in April 2021, as the index closing value is greater than or equal to the
initial index value on such redemption determination date. The index closing value is at or above the downside threshold level
on only the first of the 2 quarterly observation dates prior to (and excluding) the observation date immediately preceding the
early redemption. Therefore, you would receive the contingent quarterly coupon with respect to that observation date, equal to
$32.25, but not with respect to the other observation date. The underlying index, however, recovers, and the index closing value
is greater than or equal to the initial index value on the redemption determination date in April 2021. Upon early redemption,
investors receive the stated principal amount plus the contingent quarterly coupon with respect to that observation date
and the previously unpaid contingent quarterly coupon for an early redemption payment equal to $1,000 + $32.25 + $32.25 = $1,064.50
The total payment over the 9-month term of the securities is $32.25
+ $1,064.50 = $1,096.75. Investors do not participate in any appreciation of the underlying index.
Example 3—The securities are not redeemed prior to
maturity, as the index closing value is less than the initial index value on each quarterly redemption determination date. The
index closing value is below the downside threshold level on all of the quarterly observation dates and the final index value is
1,250. Therefore, you would receive no contingent quarterly coupons, and the payment at maturity would be calculated as $1,000
× 1,250 / 2,500 = $500.00.
The total payment over the 54-week term of the securities is $0
+ $500.00 = $500.00, representing a substantial loss.
Example 4—The securities are not
redeemed prior to maturity, as the index closing value is less than the initial index value on each quarterly redemption determination
date. The index closing value is below the downside threshold level on all 3 quarterly observation dates. Although the final index
value of 2,300, as measured on the five averaging dates, is less than the initial index value, it is still not less than the downside
threshold level. Therefore, you would receive the contingent quarterly coupon with respect to the final quarterly period and the
previously unpaid contingent quarterly coupons with respect to the prior observation dates, and so the payment at maturity is calculated
as $1,032.25 + $32.25 + $32.25 + $32.25 = $1,129.00.
If the securities are not automatically redeemed prior to maturity
and the final index value 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
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement, index supplement and prospectus. You should also consult your
investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
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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 the securities do not guarantee the payment of regular interest or the return
of any of the principal amount at maturity. Instead, if the securities have not been automatically redeemed prior to maturity and
if the final index value, as measured on the five averaging dates, is less than the downside threshold level, you will be exposed
to the full decline in the underlying index, as compared to the initial index value, on a 1-to-1 basis and you will receive a payment
at maturity that will be less than 80% of the stated principal amount and could be zero. You could lose up to your entire investment
in the securities.
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§
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You will not receive any contingent quarterly coupon for any quarterly period where the index
closing value is less than the downside threshold level. A contingent quarterly coupon will be paid with respect to a quarterly
period only if the index closing value is greater than or equal to the downside threshold level. If the index closing value remains
below the downside threshold level on each observation date over the term of the securities, you will not receive any contingent
quarterly coupons.
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§
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The contingent quarterly coupon, if any, is based solely on the index closing value or the
final index value, as applicable. Whether the contingent quarterly coupon will be paid with respect to an observation date
or the averaging dates will be based on the index closing value or the final index value, as applicable. As a result, you will
not know whether you will receive the contingent quarterly coupon until the related observation date. Moreover, because the contingent
quarterly coupon is based solely on the index closing value on a specific observation date or the final index value, as applicable,
if such index closing value or final index value is less than the downside threshold level, you will not receive any contingent
quarterly coupon with respect to such observation date or the averaging dates, as applicable, even if the index closing value of
the underlying index was higher on other days during the term of the securities.
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§
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Investors will not participate in any appreciation in the value of the underlying index. Investors
will not participate in any appreciation in the value of the underlying index from the initial index value, 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 or
the averaging dates, as applicable, on which the index closing value or the final index value, as applicable, is greater than or
equal to the downside threshold level until the securities are redeemed or reach maturity. It is possible that the index closing
value could be below the downside threshold level on most or all of the observation dates 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 automatic early redemption feature may limit the term of your investment to as short as
approximately three months. If the securities are redeemed early, you may not be able to reinvest at comparable terms or returns.
The term of your investment in the securities may be limited to as short as approximately three
months by the automatic early redemption feature of the securities. If the securities are redeemed prior to maturity, you will
receive no more contingent quarterly coupons and may be forced to invest in a lower interest rate environment and may not be able
to reinvest at comparable terms or returns. For the avoidance of doubt, the costs borne by investors in the securities, including
the fees and commissions described on the cover page of this document, will not be rebated if the securities are redeemed early.
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The market price will be influenced by many unpredictable factors. Several
factors 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. Although we expect that generally the index closing value of the underlying
index on any day will affect the value of the securities more than any other single factors,
other factors that may influence the value of the securities include:
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o
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the volatility (frequency and magnitude of changes in value) of the underlying index,
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o
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whether the index closing value of the underlying index is currently or has been below the downside threshold level on any
observation date,
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
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o
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks
of the underlying index or securities markets generally and which may affect the value of the underlying index,
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o
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dividend rates on the securities underlying the underlying index,
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o
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the time remaining until the securities mature,
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o
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interest and yield rates in the market,
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o
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the availability of comparable instruments,
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o
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the composition of the underlying index and changes in the constituent stocks of such index, and
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o
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any actual or anticipated changes in our credit ratings or credit spreads.
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Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity. In particular,
if the underlying index has closed near or below the downside threshold level, the market value of the securities is expected to
decrease substantially and you may have to sell your securities at a substantial discount from the stated principal amount of $1,000
per security.
You cannot predict the future performance
of the underlying index based on its historical performance. The value of the underlying index may decrease and be below the downside
threshold level on each observation date so that you will receive no contingent quarterly coupons, and the final index value of
the underlying index, as measured on the five averaging dates, may decrease and be below the downside threshold level so that you
will lose a significant portion or all of your investment. There can be no assurance that the index closing value of the underlying
index will be greater than or equal to the downside threshold level on any observation date so that you will receive any contingent
quarterly coupon during the term of the securities, or that the final index value, as measured on the five averaging dates, will
be greater than or equal to the downside threshold level so that you do not suffer a significant loss on your initial investment
in the securities. See “S&P 500® Index Overview” below.
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§
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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 on each coupon payment date, upon automatic redemption or at maturity, and therefore you
are subject to our credit risk. If we default on our obligations under the securities, your investment would be at risk and you
could lose some or all of your investment. As a result, the market value of the securities prior to maturity will be affected by
changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase
in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the securities.
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As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its securities and will have
no independent assets available for distributions to holders of MSFL securities if they make claims in respect of such securities
in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available
under the related guarantee by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated
obligations of Morgan Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the
guarantee. Holders of securities issued by MSFL should accordingly assume that in any such proceedings they would not have any
priority over and should be treated pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley,
including holders of Morgan Stanley-issued securities.
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Investing in the securities is not equivalent to investing in the underlying index. Investing
in the securities is not equivalent to investing in the underlying index or its component stocks. As an investor in the securities,
you will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the stocks
that constitute the underlying index.
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Adjustments to the underlying index could adversely affect the value of the securities. The
publisher of the underlying index may add, delete or substitute the component stocks of the underlying index or make other methodological
changes that could change the value of the underlying index. Any of these actions could adversely affect the value of the securities.
The publisher of the underlying index may also discontinue or suspend calculation or publication of the underlying index at any
time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index
that is comparable to the discontinued index. MS & Co. could have an economic interest that
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
is different than that of investors
in the securities insofar as, for example, MS & Co. is permitted to consider indices that are calculated and published by MS
& Co. or any of its affiliates. If MS & Co. determines that there is no appropriate successor index on any observation
date, the determination of whether the contingent quarterly coupon will be payable on the securities on the applicable coupon payment
date, whether the securities will be redeemed or the payment at maturity, as applicable, will be based on whether the value of
the underlying index, based on the closing prices of the stocks constituting the underlying index at the time of such discontinuance,
without rebalancing or substitution, computed by MS & Co. as calculation agent in accordance with the formula for calculating
the underlying index last in effect prior to such discontinuance, is less than the downside threshold level or initial index value,
as applicable.
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§
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The securities will not be listed on any securities exchange and secondary trading may be
limited. The securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market
for the securities. 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 you may be able to trade your securities is likely
to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making
a market in the securities, it is likely that there would be no secondary market for the securities. Accordingly, you should be
willing to hold your securities to maturity.
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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.
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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 4 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 index, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
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The estimated value of the securities is determined by reference to our pricing and valuation
models, which may differ from those of other dealers and is not a maximum or minimum secondary market price. These pricing
and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about
future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities,
our models may yield a higher estimated value of the securities than those generated by others, including other dealers in the
market, if they attempted to value the securities. In addition, the estimated value on the pricing date does not represent a minimum
or maximum price at which dealers, including MS & Co., would be willing to purchase your securities in the secondary market
(if any exists) at any time. The value of your securities at any time after the date of this document will vary based on many factors
that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “The market
price will be influenced by many unpredictable factors” above.
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Hedging and trading activity by our affiliates could potentially adversely affect the value
of the securities. One or more of our affiliates and/or third-party dealers expect to
carry out hedging activities related to the securities (and to other
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
instruments linked to the underlying
index or its component stocks), including trading in the stocks that constitute the underlying index as well as in other instruments
related to the underlying index. As a result, these entities may be unwinding or adjusting hedge positions during the term of the
securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the averaging dates
approach. Some of our affiliates also trade the stocks that constitute the underlying index and other financial instruments related
to the underlying index 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 July 8, 2020 could potentially increase the initial index value, and, therefore, could increase
the value at or above which the underlying index must close on each observation date so that you receive a contingent quarterly
coupon on the securities, and, if the securities are not called prior to maturity, the value at or above which the underlying index
must close on the averaging dates so that you are not exposed to the negative performance of the underlying index at maturity.
Additionally, such hedging or trading activities during the term of the securities could potentially affect the value of the underlying
index on the redemption determination dates, the observation dates and the averaging dates, and, accordingly, whether the securities
are automatically called prior to maturity, whether we pay a contingent quarterly coupon on each coupon payment date and, if the
securities are not called prior to maturity, the payout to you at maturity, if any.
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The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will
make determinations with respect to the securities. As calculation agent, MS & Co. will determine the initial index value,
the downside threshold level, the index closing value on each observation date and averaging date, the final index value, whether
the contingent quarterly coupon will be paid on each coupon payment date, whether you will receive any previously unpaid contingent
quarterly coupons, whether the securities will be redeemed following any redemption determination date, whether a market disruption
event has occurred, and the payment that you will receive upon an automatic early redemption or at maturity, if any. Moreover,
certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make
subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events and the selection of
a successor index or calculation of the index closing value in the event of a market disruption event or discontinuance of the
underlying index. These potentially subjective determinations may affect the payout to you upon an automatic early redemption or
at maturity, if any. For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable
Securities Linked to a Single Index” and “—Calculation Agent and Calculations” in the accompanying product
supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.
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|
§
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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
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
“other income” or
similar provision, and will not be required to pay any additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and
timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an
investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
S&P 500®
Index Overview
The S&P 500® Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies selected
to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500® Index is based
on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time
as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941 through
1943. For additional information about the S&P 500® Index, see the information set forth under “S&P
500® Index” in the accompanying index supplement.
Information as of market close on July 9, 2020:
Bloomberg Ticker Symbol:
|
SPX
|
Current Index Value:
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3,152.05
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52 Weeks Ago:
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2,979.63
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52 Week High (on 2/19/2020):
|
3,386.15
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52 Week Low (on 3/23/2020):
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2,237.40
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|
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The following graph sets forth the daily closing
values of the underlying index for the period from January 1, 2015 through July 9, 2020. The related table sets forth the published
high and low closing values, as well as end-of-quarter closing values, of the underlying index for each quarter in the same period.
The closing value of the underlying index on July 9, 2020 was 3,152.05. We obtained the information in the table and graph below
from Bloomberg Financial Markets, without independent verification. The underlying index has at times experienced periods of high
volatility, and you should not take the historical values of the underlying index as an indication of its future performance. No
assurance can be given as to the closing value of the underlying index on any observation date, including on the averaging dates.
S&P 500®
Index Daily Closing Values
January 1, 2015 to July
9, 2020
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|
* The red solid line indicates the downside
threshold level of 2,535.952, which is 80% of the initial index value.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
S&P 500® Index
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High
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Low
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Period End
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2015
|
|
|
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First Quarter
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2,117.39
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1,992.67
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2,067.89
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Second Quarter
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2,130.82
|
2,057.64
|
2,063.11
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Third Quarter
|
2,128.28
|
1,867.61
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1,920.03
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Fourth Quarter
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2,109.79
|
1,923.82
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2,043.94
|
2016
|
|
|
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First Quarter
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2,063.95
|
1,829.08
|
2,059.74
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Second Quarter
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2,119.12
|
2,000.54
|
2,098.86
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Third Quarter
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2,190.15
|
2,088.55
|
2,168.27
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Fourth Quarter
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2,271.72
|
2,085.18
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2,238.83
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2017
|
|
|
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First Quarter
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2,395.96
|
2,257.83
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2,362.72
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Second Quarter
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2,453.46
|
2,328.95
|
2,423.41
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Third Quarter
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2,519.36
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2,409.75
|
2,519.36
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Fourth Quarter
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2,690.16
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2,529.12
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2,673.61
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2018
|
|
|
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First Quarter
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2,872.87
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2,581.00
|
2,640.87
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Second Quarter
|
2,786.85
|
2,581.88
|
2,718.37
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Third Quarter
|
2,930.75
|
2,713.22
|
2,913.98
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Fourth Quarter
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2,925.51
|
2,351.10
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2,506.85
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2019
|
|
|
|
First Quarter
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2,854.88
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2,447.89
|
2,834.40
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Second Quarter
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2,954.18
|
2,744.45
|
2,941.76
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Third Quarter
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3,025.86
|
2,840.60
|
2,976.74
|
Fourth Quarter
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3,240.02
|
2,887.61
|
3,230.78
|
2020
|
|
|
|
First Quarter
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3,386.15
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2,237.40
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2,584.59
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Second Quarter
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3,232.39
|
2,470.50
|
3,100.29
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Third Quarter (through July 9, 2020)
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3,179.72
|
3,115.86
|
3,152.05
|
|
|
|
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“Standard & Poor’s®,” “S&P®,”
“S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. See “S&P 500® Index” in the accompanying index
supplement.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
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Principal at Risk Securities
Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Terms:
|
|
If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
|
Day count convention:
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Interest will be computed on the basis of a 360-day year of twelve 30-day months.
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Interest period:
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The quarterly period from and including the original issue date (in the case of the first interest period) or the previous scheduled coupon payment date, as applicable, to but excluding the following scheduled coupon payment date, with no adjustment for any postponement thereof.
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Record date:
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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 contingent quarterly coupon payable at maturity or upon redemption shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
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Underlying index publisher:
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S&P Dow Jones Indices LLC or any successor thereof.
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Postponement of maturity date:
|
If the scheduled final averaging date is not an index business day or if a market disruption event occurs on that day so that the final averaging date is postponed and falls less than two business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the second business day following that final averaging date as postponed.
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Postponement of averaging dates:
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If a market disruption event with respect to the underlying index occurs on any scheduled averaging date or if any such scheduled averaging date is not an index business day, the index closing value for such scheduled averaging date will be determined on the immediately succeeding index business day on which no market disruption event shall have occurred. Each succeeding averaging date will then be the next index business day following the preceding averaging date as postponed. The final index value will be determined on the date on which the index closing values for all scheduled averaging dates have been determined; provided that (i) the index closing value for any averaging date will not be determined on a date later than the tenth business day after the last scheduled averaging date, (ii) the index closing value for any remaining averaging dates that would otherwise fall after such tenth business day will be the index closing value on such tenth business day and (iii) if such tenth business day is not an index business day or if there is a market disruption event on such date, the calculation agent will determine the index closing value of the underlying index on such tenth index business day in accordance with the formula for and method of calculating such underlying index last in effect prior to the commencement of the market disruption event, without rebalancing or substitution, using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension or limitation) on such index business day of each security most recently constituting the underlying index.
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Postponement of coupon payment dates:
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If a coupon payment date (including the maturity date) is postponed as a result of the postponement of the relevant observation date, no adjustment shall be made to any contingent quarterly coupon paid on that postponed date.
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Listing:
|
The securities will not be listed on any securities exchange.
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Trustee:
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The Bank of New York Mellon
|
Calculation agent:
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MS & Co.
|
Issuer notices to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the final averaging 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 averaging date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable redemption determination date, give notice of the early redemption
and the early redemption payment, including specifying the payment date of the amount due upon the early redemption, (x) to each
registered holder of the securities by mailing notice of such early redemption by first class mail,
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
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|
postage prepaid, to such registered holder’s last address
as it shall appear upon the registry books, (y) to the trustee by facsimile confirmed by mailing such notice to the trustee by
first class mail, postage prepaid, at its New York office and (z) to the depositary by telephone or facsimile confirmed by mailing
such notice to the depositary by first class mail, postage prepaid, and (ii) on or prior to the early redemption date, deliver
the aggregate cash amount due with respect to the securities to the trustee for delivery to the depositary, as holder of the securities.
Any notice that is mailed to a registered holder of the securities in the manner herein provided shall be conclusively presumed
to have been duly given to such registered holder, whether or not such registered holder receives the notice. This notice shall
be given by the issuer or, at the issuer’s request, by the trustee in the name and at the expense of the issuer, with any
such request to be accompanied by a copy of the notice to be given.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash to be delivered as contingent quarterly coupon, if any, with respect to each security on or prior to 10:30 a.m. (New York
City time) on the business day preceding each coupon payment date, and (ii) deliver the aggregate cash amount due, if any, with
respect to the contingent quarterly coupon to the trustee for delivery to the depositary, as holder of the securities, on the applicable
coupon payment date.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash to be delivered with respect to each stated principal amount of the securities, on or prior to 10:30 a.m. (New York City time)
on the business day preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to the securities
to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
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Principal at Risk Securities
Additional Information About the Securities
Additional Information:
|
|
Minimum ticketing size:
|
$1,000 / 1 security
|
Tax considerations:
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the securities
issued under this document and is superseded by the following discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of the ownership and disposition of the securities. This discussion
applies only to investors in the securities who:
· purchase
the securities in the original offering; and
· hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
· certain
financial institutions;
· insurance
companies;
· certain
dealers and traders in securities or commodities;
· investors
holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive
sale transaction;
· U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
· partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
· regulated
investment companies;
· real
estate investment trusts; or
· tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of
the Code, respectively.
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the securities is technical and complex, the discussion below necessarily represents only a general
summary. The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences
or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial or
administrative authorities that directly address the treatment of the securities or instruments that are similar to the securities
for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will agree with the tax treatment described
herein. We intend to treat a security for U.S. federal income tax purposes as a single financial contract that provides for a coupon
that will be treated as gross income to you at the time received or accrued in accordance with your regular method of tax accounting.
In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under current law;
however, our counsel has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to
be upheld, and that alternative treatments are possible.
You should consult your tax adviser regarding
all aspects of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments
of the securities). Unless otherwise stated, the following discussion is based on the treatment of each security as described in
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
|
the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal
income tax purposes:
· a
citizen or individual resident of the United States;
· a
corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
· an
estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as
set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis. A U.S. Holder’s tax
basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon Payments. Any
coupon payment on the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in accordance
with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities. Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could
result in adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of
an Investment in the Securities
Due to the absence of authorities that directly address the proper
tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment
described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the securities
under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”). If the
IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the timing and character of income
thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original issue
discount on the securities every year at a “comparable yield” determined at the time of their issuance, adjusted upward
or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on the securities.
Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the securities would
be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S. Holder’s
prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments providing for buffers,
triggers or similar downside protection features, such as the securities, would be recharacterized as debt is greater than the
risk of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal income tax treatments of the securities
are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the
securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether to require holders
of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment. It also
asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded
status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
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|
dates. While it is not clear whether instruments such as the securities
would be viewed as similar to the prepaid forward contracts described in the notice, any Treasury regulations or other guidance
promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in
the securities, possibly with retroactive effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income
tax consequences of an investment in the securities, including possible alternative treatments and the issues presented by this
notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely
furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides proof
of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S. Holder.
As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax
purposes:
· an
individual who is classified as a nonresident alien;
· a
foreign corporation; or
· a
foreign estate or trust.
The term “Non-U.S. Holder” does
not include any of the following holders:
· a
holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes;
· certain
former citizens or residents of the United States; or
· a
holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in
the United States.
Such holders should consult their tax advisers regarding the U.S.
federal income tax consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code and Treasury regulations promulgated
thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend
equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices
that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m) generally
applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as determined
based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant to an IRS
notice, Section 871(m) will not apply to securities issued before January 1, 2023 that do not have a delta of one with respect
to any Underlying Security. Based on our determination that the securities do not have a delta of one with respect to any Underlying
Security, our counsel is of the opinion that the securities should not be Specified Securities and, therefore, should not be subject
to Section 871(m).
Our determination is not binding on the IRS, and the IRS may disagree
with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including whether
you
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
|
enter into other transactions with respect to an Underlying Security.
If Section 871(m) withholding is required, we will not be required to pay any additional amounts with respect to the amounts so
withheld. You should consult your tax adviser regarding the potential application of Section 871(m) to the securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the
IRS in connection with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities
and the payment of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding
in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish
that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup
withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income
tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the
IRS.
FATCA
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies to payments
of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain financial
instruments treated as providing for U.S.-source interest or dividends. Under recently proposed regulations (the preamble to which
specifies that taxpayers are permitted to rely on them pending finalization), no withholding will apply on payments of gross proceeds
(other than amounts treated as FDAP income). While the treatment of the securities is unclear, you should assume that any coupon
payment with respect to the securities will be subject to the FATCA rules. If withholding applies to the securities, we will not
be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their
tax advisers regarding the potential application of FATCA to the securities.
The discussion in the preceding paragraphs, insofar as it purports
to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full opinion
of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
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Use of proceeds and hedging:
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The proceeds from the sale of the securities will be used by us
for general corporate purposes. We will receive, in aggregate, $1,000 per security issued. The costs of the securities borne by
you and described beginning on page 3 above comprise the cost of issuing, structuring and hedging the securities.
On or prior to July 8, 2020, we will hedge our anticipated exposure
in connection with the securities, by entering into hedging transactions with our affiliates and/or third-party dealers. We expect
our hedging counterparties to take positions in the stocks constituting the underlying index, in futures and/or options contracts
on the underlying index or the component stocks of the underlying index listed on major securities markets, or positions in any
other available securities or instruments that they may wish to use in connection with such hedging. Such purchase activity could
potentially increase the initial index value, and, as a result, could increase the value at or above which the underlying index
must close on each observation date so that you receive a contingent quarterly coupon on the securities, and, if the securities
are not redeemed prior to maturity, the value at or above which the underlying index must close on the averaging dates in order
for you to avoid being exposed to the negative performance of the underlying index at maturity. These entities may be unwinding
or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent
dynamic adjustments to the hedge as the averaging dates approach. Additionally, our hedging activities, as well as our other trading
activities, during the term of the securities could potentially affect the value of the underlying index on the observation dates,
and, accordingly, the payment to you at maturity, if any, and whether we pay a contingent quarterly coupon on the securities.
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Benefit plan investor considerations:
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Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing an investment in
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
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the securities. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent
with the documents and instruments governing the Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions
between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and the related lending transactions,
provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control
or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further that the
Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called
“service provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available
with respect to transactions involving the securities.
Because we may be considered a party in interest with respect
to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the Code (“Similar Law”) or (b) its purchase, holding and disposition of these securities will not constitute or result
in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The securities are contractual financial instruments. The financial
exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the securities. The securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
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provide is not intended to be
impartial investment advice.
Each purchaser and holder of the securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these securities should consult
and rely on their own counsel and advisers as to whether an investment in these securities is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations:
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Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities, either directly or indirectly.
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Supplemental information regarding plan of distribution; conflicts of interest:
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JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC
and its affiliates will act as placement agents for the securities and will receive a fee from the Issuer or one of its affiliates
that will not exceed $10 per $1,000 stated principal amount of securities, but will forgo any fees for sales to certain fiduciary
accounts.
MS & Co. is an affiliate of MSFL and a wholly owned
subsidiary of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable,
hedging the securities.
MS & Co. will conduct this offering in compliance
with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as
FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.
MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of
Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement
for auto-callable securities.
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Validity of the securities:
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In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 16, 2017, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 16, 2017.
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Where you can find more information:
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Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration
statement, the product supplement for auto-callable securities, the index supplement and any other documents relating to this offering
that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering.
You may get these documents without cost by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, Morgan Stanley, MSFL,
any underwriter or any dealer participating in the offering will arrange to send you the prospectus, the product supplement for
auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at.www.sec.gov
as follows:
Product
Supplement for Auto-Callable Securities dated November 16, 2017
Index
Supplement dated November 16, 2017
Prospectus
dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement for auto-callable
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due July 27, 2021
Based on the Performance of the S&P 500® Index
Principal at Risk Securities
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securities, in the index supplement or in the prospectus.
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