Preliminary Terms No. 5,162
Registration Statement Nos. 333-221595;
333-221595-01
Opportunities in U.S. Equities
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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February 24, 2021
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March 1, 2021
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May 24, 2021
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May 27, 2021
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August 24, 2021
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August 27, 2021
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November 29, 2021 (final observation date)
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December 2, 2021 (maturity date)
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
Investment Summary
Contingent Income Buffered Auto-Callable Securities
Principal at Risk Securities
Contingent Income Buffered Auto-Callable Securities due December
2, 2021 All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF (the “securities”)
do not provide for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon but only
if the determination closing price of the VanEck Vectors® Gold Miners ETF, which we refer to as the underlying
shares, is at or above 85% of the initial share price, which we refer to as the coupon barrier level, on the related observation
date. If, however, the determination closing price of the underlying shares is less than the coupon barrier level on any observation
date, we will pay no interest for the related quarterly period. The securities will be automatically redeemed if the determination
closing price of the underlying shares is greater than or equal to the initial share price on any quarterly redemption determination
date for the early redemption payment equal to the sum of the stated principal amount plus the related contingent quarterly coupon.
No further payments will be made on the securities once they have been redeemed. At maturity, if the securities have not previously
been redeemed and the final share price of the underlying shares is greater than or equal to 85% of the initial share price,
meaning that the underlying shares have not declined by an amount greater than the buffer amount of 15%, the payment at maturity
will be the stated principal amount and the related contingent quarterly coupon. However, if the final share price of the underlying
shares is less than 85% of the initial share price, meaning that the underlying shares have declined by an amount greater
than the buffer amount of 15%, investors will lose 1% for every 1% decline in the final share price of the underlying shares from
the initial share price beyond the buffer amount of 15%. Accordingly, investors in the securities must be willing to
accept the risk of losing up to 85% of their initial investment and also the risk of not receiving any contingent quarterly coupons
throughout the 1-year term of the securities. Investors will not participate in any appreciation in the price of the underlying
shares.
Maturity:
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Approximately 1 year
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Contingent quarterly coupon:
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A contingent quarterly coupon at an annual rate of 8.00%
to 10.00% (corresponding to approximately $20.00 to $25.00 per quarter per security, to be determined on the pricing date) will
be paid on the securities on each coupon payment date but only if the determination closing price of the underlying shares
is at or above the coupon barrier level on the related observation date.
If on any observation date, the determination closing price
of the underlying shares is less than the coupon barrier level, we will pay no coupon for the applicable quarterly period.
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Automatic early redemption quarterly:
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If the determination closing price of the underlying shares is greater than or equal to the initial share price on any quarterly redemption determination date, beginning on February 24, 2021, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent quarterly coupon with respect to the related observation date. No further payments will be made on the securities once they have been redeemed.
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Payment at maturity:
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If the securities have not previously been redeemed and the final
share price of the underlying shares is greater than or equal to 85% of the initial share price, meaning that the underlying
shares have not declined by an amount greater than the buffer amount of 15%, the payment at maturity will be the stated principal
amount and the related contingent quarterly coupon.
If the final share price of the underlying shares is less
than 85% of the initial share price, meaning that the underlying shares have declined by an amount greater than the buffer
amount of 15%, investors will lose 1% for every 1% decline in the final share price of the underlying shares from the initial share
price beyond the buffer amount of 15%. Under these circumstances, the payment at maturity will be less than the stated principal
amount of the securities. However, under no circumstances will the securities pay less than the minimum payment at maturity
of $150 per security. Accordingly, investors in the securities must be willing to accept the risk of losing up to
85% of their initial investment.
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Contingent Income Buffered Auto-Callable Securities due December 2, 2021
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The original issue price of each security is
$1,000. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by
you, and, consequently, the estimated value of the securities on the pricing date will be less than $1,000. We estimate that the
value of each security on the pricing date will be approximately $964.30, or within $35.00 of that estimate. Our estimate of the
value of the securities as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
shares. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying shares, instruments based on the underlying shares, 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, the coupon barrier level and the buffer amount, we use an internal funding rate,
which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling,
structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more 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 shares, 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 market conditions, including those related to the underlying
shares, 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 Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
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Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities will pay a contingent quarterly coupon but only if the determination closing price of the underlying
shares is at or above the coupon barrier level on the related observation date. The securities have been designed for investors
who are willing to forgo market floating interest rates and risk the loss of principal and accept the risk of receiving few or
no coupon payments for the entire 1-year term of the securities in exchange for an opportunity to earn interest at a potentially
above-market rate if the underlying shares close at or above the coupon barrier level on each quarterly observation date, unless
the securities are redeemed early. The following scenarios are for illustration purposes only to demonstrate how the coupon and
the payment at maturity (if the securities have not previously been redeemed) are calculated, and do not attempt to demonstrate
every situation that may occur. Accordingly, the securities may or may not be redeemed, the contingent quarterly coupon may be
payable in none of, or some but not all of, the quarterly periods during the 1-year term of the securities, and the payment at
maturity may be up to 85% less than the stated principal amount of the securities.
Scenario 1: The securities are redeemed prior to maturity
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Prior to early redemption, investors receive the contingent quarterly
coupon for the quarterly periods for which the determination closing price of the underlying shares is at or above the coupon barrier
level on the related observation date, but not for the quarterly periods for which the determination closing price of the underlying
shares is below the coupon barrier level on the related observation date.
When the underlying shares close at or above the initial share
price on a quarterly redemption determination date, the securities will be automatically redeemed for the stated principal amount
plus the contingent quarterly coupon with respect to the related observation date.
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Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
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This scenario assumes that the underlying shares close at or above the coupon barrier level on some quarterly observation dates, but the underlying shares close below the coupon barrier level on the others, and the underlying shares close below the initial share price on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price of the underlying shares is at or above the coupon barrier level on the related observation date, but not for the quarterly periods for which the determination closing price of the underlying shares is below the coupon barrier level on the related observation date. On the final observation date, the underlying shares close at or above 85% of the initial share price, meaning that the underlying shares have not declined by an amount greater than the buffer amount of 15%. At maturity investors will receive the stated principal amount and the related contingent quarterly coupon.
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Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a loss of principal at maturity
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This scenario assumes that the underlying shares close at or above the coupon barrier level on some quarterly observation dates, but the underlying shares close below the coupon barrier level on the others, and the underlying shares close below the initial share price on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price of the underlying shares is greater than or equal to the coupon barrier level on the related observation date, but not for the quarterly periods for which the determination closing price of the underlying shares is below the coupon barrier level on the related observation date. On the final observation date, the underlying shares close below 85% of the initial share price, meaning that the underlying shares have declined by an amount greater than the buffer amount of 15%. At maturity, investors will lose 1% for every 1% decline in the final share price of the underlying shares from the initial share price beyond the buffer amount of 15%. Under these circumstances, the payment at maturity will be less than the stated principal amount. Investors may lose up to 85% of their investment in the securities. No coupon will be paid at maturity in this scenario.
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity,
assuming the securities are not redeemed prior to maturity. The following examples are for illustrative purposes only. Whether
you receive a contingent quarterly coupon will be determined by reference to the determination closing price of the underlying
shares on each quarterly observation date, and the amount you will receive at maturity will be determined by reference to the final
share price of the underlying shares on the final observation date. The actual contingent quarterly coupon rate, initial share
price and coupon barrier level will be determined on the pricing date. All payments on the securities are subject to our credit
risk. The below examples are based on the following terms:
Hypothetical Contingent Quarterly Coupon:
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8.00% per annum (corresponding to approximately $20.00 per quarter
per security)1
With respect to each coupon payment date, a contingent quarterly
coupon is paid but only if the determination closing price of the underlying shares is at or above the coupon barrier level on
the related observation date.
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Payment at Maturity (if the securities are not redeemed prior to maturity):
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If the final share price of the underlying shares is greater
than or equal to 85% of the initial share price: the stated principal amount and the contingent quarterly coupon with respect
to the final observation date.
If the final share price of the underlying shares is less
than 85% of the initial share price:
$1,000 + [$1,000 × (share percent change +
15%)]
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Stated Principal Amount:
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$1,000
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Minimum Payment at Maturity:
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$150 per security
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Hypothetical Initial Share Price:
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$35.00
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Hypothetical Coupon Barrier Level:
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$29.75, which is 85% of the hypothetical initial share price
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Buffer Amount:
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15%
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1
The actual contingent quarterly coupon will be an amount determined by the calculation agent based
on the actual contingent quarterly coupon rate and the number of days in the applicable payment period, calculated on a 30/360
day-count basis. The hypothetical contingent quarterly coupon of $20.00 is used in these examples for ease of analysis.
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date:
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Determination Closing Price
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Hypothetical Contingent Quarterly Coupon
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Hypothetical Observation Date 1
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$40.00 (at or above the coupon barrier level)
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$20.00
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Hypothetical Observation Date 2
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$25.00 (below the coupon barrier level)
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$0
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On hypothetical observation date 1, the underlying shares close
at or above the coupon barrier level. Therefore, a contingent quarterly coupon of $20.00 is paid on the relevant coupon payment
date.
On hypothetical observation date 2, the underlying shares close
below the coupon barrier level and accordingly no contingent quarterly coupon is paid on the relevant coupon payment date.
You will not receive a contingent quarterly coupon on any
coupon payment date if the determination closing price of the underlying shares is below the coupon barrier level on the related
observation date.
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How to calculate the payment at maturity:
In the following examples, the underlying shares close below
the initial share price on each redemption determination date, and, consequently, the securities are not automatically redeemed
prior to, and remain outstanding until, maturity.
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Final Share Price
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Payment at Maturity
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Example 1:
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$40.00 (at or above 85% of initial share price)
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$1,020.00 (the stated principal amount and the contingent quarterly coupon with respect to the final observation date)
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Example 2:
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$5.25 (below 85% of initial share price)
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$1,000 + [$1,000 x (share percent change + 15%)]
= $1,000 + [$1,000 × (-85% + 15%)]
= $1,000 + ($1,000 × -70.00%) = $300
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In example 1, the final share price of the underlying shares
is at or above 85% of the initial share price. Therefore, investors receive at maturity the stated principal amount of the securities
and the contingent quarterly coupon with respect to the final observation date. However, investors do not participate in any appreciation
of the underlying shares.
In example 2, the final share price of the underlying shares
is below 85% of the initial share price. Therefore, investors are exposed to the downside performance of the underlying shares
and investors lose 1% of principal for every 1% decline in the final share price of the underlying shares from the initial share
price beyond the buffer amount of 15%. The payment at maturity in this example is equal to $300 per security. Investors do not
receive the contingent quarterly coupon for the final observation date.
If the final share price of the underlying shares is below
85% of the initial share price, you will be exposed to the downside performance of the underlying shares at maturity, and your
payment at maturity will be less than the stated principal amount per security. Under these circumstances, you will lose some,
and up to 85%, of your investment in the securities.
Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
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Risk Factors
The
following is a list of certain key risk factors for investors in the securities. For further discussion of these and other risks,
you should read the section entitled “Risk Factors” in the accompanying product supplement, index supplement and prospectus.
We also urge you to consult with your investment, legal, tax, accounting and other advisers in connection with your
investment in the securities.
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The securities provide a minimum payment at maturity of only 15%
of your principal. The terms of the securities differ from those of ordinary debt securities in that they provide a
minimum payment at maturity of only 15% of the stated principal amount at maturity. If the securities have not been automatically
redeemed prior to maturity and if the final share price of the underlying shares is less than 85% of the initial share price,
meaning that the underlying shares have declined by an amount greater than the buffer amount of 15%, you will lose 1% for every
1% decline in the final share price of the underlying shares from the initial share price beyond the buffer amount of 15%. In this
case, the payment at maturity will be less than the stated principal amount. You could lose up to 85% of your investment in
the securities.
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§
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The securities do not provide for the regular payment of interest
and may pay no interest over the entire term of the securities. The terms of the securities differ from those of ordinary
debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent
quarterly coupon but only if the determination closing price of the underlying shares is at or above 85% of the initial
share price, which we refer to as the coupon barrier level, on the related observation date. If, on the other hand, the determination
closing price of the underlying shares is lower than the coupon barrier level on the relevant observation date for any interest
period, we will pay no coupon on the applicable coupon payment date. It is possible that the determination closing price of the
underlying shares could remain below the coupon barrier level for extended periods of time or even throughout the entire 1-year
term of the securities so that you will receive few or no contingent quarterly coupons. If you do not earn sufficient contingent
quarterly coupons over the term of the securities, the overall return on the securities may be less than the amount that would
be paid on a conventional debt security of ours of comparable maturity.
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Investing in the securities exposes investors to risks associated with investments in securities with a concentration in
the gold and silver mining industry. The securities are subject to certain risks applicable to the gold and silver mining industry.
The stocks included in the NYSE Arca Gold Miners Index and that are generally tracked by the underlying shares are stocks of companies
primarily engaged in the mining of gold or silver. The underlying shares may be subject to increased price volatility as they are
linked to a single industry, market or sector and may be more susceptible to adverse economic, market, political or regulatory
occurrences affecting that industry, market or sector.
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Because the underlying shares primarily
invest in stocks, American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”) of companies
that are involved in the gold mining industry, the underlying shares are subject to certain risks associated with such companies.
Competitive pressures may have a
significant effect on the financial condition of companies in the gold mining industry. Also, gold mining companies are highly
dependent on the price of gold. Gold prices are subject to volatile price movements over short periods of time and are affected
by numerous factors. These include economic factors, including, among other things, the structure of and confidence in the global
monetary system, expectations of the future rate of inflation, the relative strength of, and confidence in, the U.S. dollar (the
currency in which the price of gold is generally quoted), interest rates and gold borrowing and lending rates, and global or regional
economic, financial, political, regulatory, judicial or other events. Gold prices may also be affected by industry factors such
as industrial and jewelry demand, lending, sales and purchases of gold by the official sector, including central banks and other
governmental agencies and multilateral institutions which hold gold, levels of gold production and production costs, and short-term
changes in supply and demand because of trading activities in the gold market.
The underlying shares invest to
a lesser extent in stocks, ADRs and GDRs of companies involved in the silver mining industry. Silver mining companies are highly
dependent on the price of silver. Silver prices can fluctuate widely and may be affected by numerous factors. These include general
economic trends, technical developments, substitution issues and regulation, as well as specific factors including industrial and
jewelry demand, expectations with respect to the rate of inflation, the relative strength of the U.S. dollar (the currency in which
the price of silver is generally quoted) and other currencies, interest rates, central bank sales, forward sales by producers,
global or regional political or economic events, and production costs and disruptions in major silver producing countries such
as Mexico and Peru. The supply of silver consists of a combination of new mine production and existing stocks of bullion and fabricated
silver held by governments, public and private financial institutions, industrial organizations and private individuals. In addition,
the price of silver has
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on occasion been subject to very
rapid short-term changes due to speculative activities. From time to time, above-ground inventories of silver may also influence
the market. The major end-uses for silver include industrial applications, jewelry, photography and silverware.
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The prices of the underlying shares are subject to currency exchange risk. Because the prices of the underlying shares
are related to the U.S. dollar value of stocks underlying the NYSE Arca Gold Miners Index, holders of the securities will be exposed
to currency exchange rate risk with respect to the currencies in which such component securities trade. Exchange rate movements
for a particular currency are volatile and are the result of numerous factors including the supply of, and the demand for, those
currencies, as well as relevant government policy, intervention or actions, but are also influenced significantly from time to
time by political or economic developments, and by macroeconomic factors and speculative actions related to the relevant region.
An investor’s net exposure will depend on the extent to which the currencies of the component securities strengthen or weaken
against the U.S. dollar and the relative weight of each currency. If, taking into account such weighting, the dollar strengthens
against the currencies of the component securities represented in the NYSE Arca Gold Miners Index, the price of the underlying
shares will be adversely affected.
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The contingent quarterly coupon, if any, is based only on the determination closing price of the underlying shares on the
related quarterly observation date at the end of the related interest period.
Whether the contingent quarterly coupon will be paid on any coupon payment date will be determined at the end of the
relevant interest period based on the determination closing price of the underlying shares on the relevant quarterly observation
date. As a result, you will not know whether you will receive the contingent quarterly coupon on any coupon payment date until
near the end of the relevant interest period. Moreover, because the contingent quarterly coupon is based solely on the price of
the underlying shares on quarterly observation dates, if the determination closing price of the underlying shares on any observation
date is below the coupon barrier level, you will receive no coupon for the related interest period even if the price of the underlying
shares was higher on other days during that interest period.
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Investors will not participate in any appreciation in the price of the underlying shares. Investors will not participate
in any appreciation in the price of the underlying shares from the initial share price, and the return on the securities will be
limited to the contingent quarterly coupon that is paid with respect to each observation date on which each determination closing
price is greater than or equal to the coupon barrier level, if any.
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The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control, will influence the value of the securities
in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary
market. We expect that generally the level of interest rates available in the market and the price of the underlying
shares on any day, including in relation to the coupon
barrier level, will affect the value of the securities more than any other factors. Other factors that may influence the value
of the securities include:
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o
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the trading price and volatility (frequency and magnitude of changes in value) of the underlying shares and the stocks constituting
the share underlying index,
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o
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whether the determination closing price of the underlying shares has been below the coupon barrier level on any observation
date,
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o
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dividend rates on the stocks constituting the share underlying index,
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o
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying shares
or equity markets generally and which may affect the price of the underlying shares,
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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 occurrence of certain events affecting the underlying shares that may or may not require an adjustment to the adjustment
factor,
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o
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the composition of the underlying shares and changes in the constituents of the underlying shares, 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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Generally,
the longer the time remaining to maturity, the more the market price of the securities will be affected by the other factors described
above. Some or all of these factors will influence the price that you will receive if you sell your securities prior to maturity.
For example, you may have to sell your securities at a substantial discount from the stated principal
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amount
of $1,000 per security if the price of the underlying shares at the time of sale is near or below the coupon barrier level or if
market interest rates rise.
The
price of the underlying shares may be, and has recently been, volatile, and we can give you no assurance that the volatility will
lessen. The price of the underlying shares may decrease and be below the coupon barrier level on each observation date so
that you will receive no return on your investment, and the underlying shares may decline by an amount greater than the buffer
amount as of the final observation date so that you lose some or a significant portion of your initial investment in the securities.
There can be no assurance that the closing price of the underlying shares will be at or above the coupon barrier level on any observation
date so that you will receive a coupon payment on the securities for the applicable interest period, or that the underlying shares
will not decline by an amount greater than the buffer amount of 15% as of the final observation date so that you do not suffer
a loss on your initial investment in the securities. See
“VanEck Vectors® Gold Miners ETF Overview”
below.
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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 and at maturity and therefore you are subject to our credit risk. The securities
are not guaranteed by any other entity. If we default on our obligations under the securities, your investment would be at risk
and you could lose some or all of your investment. As a result, the market value of the securities prior to maturity will be affected
by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase
in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the securities.
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As a finance subsidiary, MSFL has no independent operations and will have no independent assets. As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should
be treated pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders
of Morgan Stanley-issued securities.
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Reinvestment risk. The term
of your investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities
are redeemed prior to maturity, you will receive no more contingent 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.
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The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the underlying
shares. MS & Co., as calculation agent, will adjust the adjustment factor for certain events affecting the underlying shares.
However, the calculation agent will not make an adjustment for every event that can affect the underlying shares. If an event occurs
that does not require the calculation agent to adjust the adjustment factor, the market price of the securities
may be materially and adversely affected.
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The securities will not be listed on any securities exchange and secondary trading may be limited,
and accordingly, you should be willing to hold your securities for the entire 1-year term of the securities. The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary
market for the securities, the price at which 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
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices. Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well
as other factors.
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 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 shares, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers, and is not a maximum or minimum secondary market price. These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
Adjustments to the underlying shares or the index tracked by the underlying shares could adversely affect the value of the
securities. The investment advisor to the underlying shares (VanEck Associates Corporation) seeks investment results that correspond
generally to the price and yield performance, before fees and expenses, of the share underlying index. Pursuant to its investment
strategy or otherwise, the investment advisor may add, delete or substitute the stocks composing the underlying shares. Any of
these actions could adversely affect the price of the underlying shares and, consequently, the value of the securities. The publisher
of the share underlying index is responsible for calculating and maintaining the share underlying index. They may add, delete or
substitute the securities constituting the share underlying index or make other methodological changes that could change the value
of the share underlying index, and, consequently, the price of the underlying shares and the value of the securities. The publisher
of the share underlying index may discontinue or suspend calculation or publication of the share underlying index at any time.
In these circumstances, the calculation agent will have the sole discretion to substitute a successor index that is comparable
to the discontinued share underlying index and will be permitted to consider indices that are calculated and published by the calculation
agent or any of its affiliates.
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|
§
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The performance and market price of the underlying shares, particularly during periods of market volatility, may not correlate
with the performance of the share underlying index, the performance of the component securities of the share underlying index or
the net asset value per share of the underlying shares. The underlying shares do not fully replicate the share underlying
index, and may hold securities that are different than those included in the share underlying index. In addition, the performance
of the underlying shares will reflect additional transaction costs and fees that are not included in the calculation of the share
underlying index. All of these factors may lead to a lack of correlation between the performance of the underlying shares
and the share underlying index. In addition, corporate actions (such as mergers and spin-offs) with respect to the equity
securities underlying the underlying shares may impact the variance between the performance of the underlying shares and the share
underlying index. Finally, because the shares of the underlying shares are traded on an exchange and are subject to market
supply and investor demand, the market price of one share of the underlying shares may differ from the net asset value per share
of the underlying shares.
|
Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
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In particular, during periods of
market volatility, or unusual trading activity, trading in the securities underlying the underlying shares may be disrupted or
limited, or such securities may be unavailable in the secondary market. Under these circumstances, the liquidity of the underlying
shares may be adversely affected, market participants may be unable to calculate accurately the net asset value per share of the
underlying shares, and their ability to create and redeem shares of the underlying shares may be disrupted. Under these circumstances,
the market price of shares of the underlying shares may vary substantially from the net asset value per share of the underlying
share or the level of the share underlying index.
For all of the foregoing reasons,
the performance of the underlying shares may not correlate with the performance of the share underlying index, the performance
of the component securities of the share underlying index or the net asset value per share of the underlying shares. Any
of these events could materially and adversely affect the prices of the underlying shares and, therefore, the value of the securities.
Additionally, if market volatility or these events were to occur on the final observation date, the calculation agent would maintain
discretion to determine whether such market volatility or events have caused a market disruption event to occur, and such determination
would affect the payment at maturity of the securities. If the calculation agent determines that no market disruption event
has taken place, the payment at maturity would be based solely on the published closing price per share of the underlying shares
on the final observation date, even if the underlying shares are underperforming the share underlying index or the component securities
of the share underlying index and/or trading below the net asset value per share of the underlying shares.
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§
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Not equivalent to investing in the underlying shares or the stocks
composing the share underlying index. Investing in the securities is not equivalent to investing
in the underlying shares, the share underlying index or the stocks that constitute the share underlying index. Investors in the
securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to
the underlying shares or the stocks that constitute the share underlying index.
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|
§
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Hedging and trading activity by our affiliates could potentially affect the value of the securities. One or more of
our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other instruments
linked to the underlying shares and the share underlying index), including trading in the underlying shares. As a result, these
entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the final observation date approaches. Some of our affiliates also
trade the underlying shares and other financial instruments related to the underlying shares and the share 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 the pricing date could potentially increase the initial share price of the underlying shares and, therefore, could increase
(i) the value at or above which the underlying shares must close on the redemption determination dates so that the securities are
redeemed prior to maturity for the early redemption payment, (ii) the coupon barrier level, which is the value at or above which
the underlying shares must close on the observation dates so that you receive a contingent quarterly coupon on the securities,
and (iii) the value at or above which the underlying shares must close on the final observation date so that you are not exposed
to the negative performance of the underlying shares at maturity. Additionally, such hedging or trading activities during the term
of the securities could potentially affect the value of the underlying shares on the redemption determination dates and the observation
dates and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent quarterly coupon on the
securities and the amount of cash you will receive at maturity.
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|
§
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The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities. As calculation agent, MS & Co. will determine the initial share price, the coupon barrier level, the
final share price, the payment at maturity, whether you receive a contingent quarterly coupon on each coupon payment date and/or
at maturity, whether the securities will be redeemed on any early redemption date, whether a market disruption event has occurred
and whether to make any adjustments to the adjustment factor. 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 or calculation of the determination closing price in the event of a market disruption
event. These potentially subjective determinations may affect the payout to you upon an automatic early redemption or at maturity.
For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable
Securities Linked to Underlying Shares” 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.
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
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Principal at Risk Securities
Please read the discussion under
“Additional Information—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders (as defined below) would be required to accrue into income original issue discount
on the securities every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference,
if any, between the actual and the projected amount of any contingent payments on the securities) and recognize all income and
gain in respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar
downside protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization
for comparable financial instruments that do not have such features.
Non-U.S. Holders (as defined
below) should note that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision, and will
not be required to pay any additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and
timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an
investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
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VanEck Vectors® Gold Miners ETF
Overview
The VanEck Vectors® Gold Miners ETF is an exchange-traded
fund managed by VanEck, a registered investment company that seeks investment results that correspond generally to the price and
yield performance, before fees and expenses, of the NYSE Arca Gold Miners Index. VanEck Vectors® ETF Trust (the
“Trust”) is an investment portfolio managed by VanEck. Information provided to or filed with the Securities and Exchange
Commission by the Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference
to Commission file numbers 333-123257 and 811-10325, respectively, through the Commission’s website at www.sec.gov. In addition,
information may be obtained from other publicly available sources. We make no representation or warranty as to the accuracy or
completeness of such information.
Information as of market close on October
27, 2020:
Ticker Symbol:
|
GDX UP
|
Current Share Price:
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$38.83
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52 Weeks Ago:
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$27.06
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52 Week High (on 8/5/2020):
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$44.53
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52 Week Low (on 3/13/2020):
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$19.00
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|
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The following graph sets forth the daily closing
values of the GDX Shares for the period from January 1, 2015 through October 27, 2020. The related table sets forth the published
high and low closing prices, as well as the end-of-quarter closing prices, of the GDX Shares for each quarter in the same period.
The closing price of the GDX Shares on October 27, 2020 was $38.83. We obtained the information in the graph and table below from
Bloomberg Financial Markets, without independent verification. The historical performance of the GDX Shares should not be taken
as an indication of its future performance, and no assurance can be given as to the price of the GDX Shares at any time, including
on the redemption determination dates or the observation dates.
VanEck Vectors® Gold Miners ETF – Daily Closing Prices
January 1, 2015 to October 27, 2020
|
|
Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
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VanEck Vectors® Gold Miners ETF (CUSIP: 92189F106)
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High ($)
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Low ($)
|
Period End ($)
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2015
|
|
|
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First Quarter
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22.94
|
17.67
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18.24
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Second Quarter
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20.82
|
17.76
|
17.76
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Third Quarter
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17.85
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13.04
|
13.74
|
Fourth Quarter
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16.90
|
13.08
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13.72
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2016
|
|
|
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First Quarter
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20.86
|
12.47
|
19.98
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Second Quarter
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27.70
|
19.53
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27.70
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Third Quarter
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31.32
|
25.45
|
26.43
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Fourth Quarter
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25.96
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18.99
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20.92
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2017
|
|
|
|
First Quarter
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25.57
|
21.14
|
22.81
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Second Quarter
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24.57
|
21.10
|
22.08
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Third Quarter
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25.49
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21.21
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22.96
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Fourth Quarter
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23.84
|
21.42
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23.24
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2018
|
|
|
|
First Quarter
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24.60
|
21.27
|
21.98
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Second Quarter
|
23.06
|
21.81
|
22.31
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Third Quarter
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22.68
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17.57
|
18.52
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Fourth Quarter
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21.09
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18.39
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21.09
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2019
|
|
|
|
First Quarter
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23.36
|
20.31
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22.42
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Second Quarter
|
26.17
|
20.17
|
25.56
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Third Quarter
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30.95
|
24.58
|
26.71
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Fourth Quarter
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29.49
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26.19
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29.28
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2020
|
|
|
|
First Quarter
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31.05
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19.00
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23.04
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Second Quarter
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37.21
|
24.03
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36.68
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Third Quarter
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44.53
|
36.17
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39.16
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Fourth Quarter (through October 27, 2020)
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40.96
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38.11
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38.83
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This document relates only to the securities offered hereby
and does not relate to the GDX Shares. We have derived all disclosures contained in this document regarding the Trust
from the publicly available documents described above. In connection with the offering of the securities, neither we
nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the Trust. Neither
we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding
the Trust is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the
date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above)
that would affect the trading price of the GDX Shares (and therefore the price of the GDX Shares at the time we price the securities)
have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material
future events concerning the Trust could affect the value received with respect to the securities and therefore the value of the
securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the GDX Shares.
We and/or our affiliates may presently or from time to time engage
in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information
with respect to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In
addition, one or more of our affiliates may publish research reports with respect to the GDX Shares. The statements
in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws. As
a prospective purchaser of the securities, you should undertake an independent investigation of the Trust as in your judgment is
appropriate to make an informed decision with respect to an investment linked to the GDX Shares.
Market VectorsSM is a service
mark of Van Eck Associates Corporation (“Van Eck”). The securities are not sponsored, endorsed, sold, or promoted by
Van Eck. Van Eck makes no representations or warranties to the owners of the securities or any member of the public regarding the
advisability of investing in the securities. Van Eck has no obligation or liability in connection with the operation, marketing,
trading or sale of the securities.
The
NYSE Arca Gold Miners Index. The NYSE Arca Gold Miners Index is a modified market capitalization
weighted index comprised of publicly traded companies involved primarily in the mining of gold and silver. The NYSE Arca Gold Miners
Index includes common stocks, ADRs or GDRs of selected companies involved in the mining for gold and silver ore and are listed
for trading and electronically quoted on a major stock market that is accessible by foreign investors. For additional information
about the NYSE Arca Gold Miners Index, please see the information set forth under “NYSE Arca Gold Miners Index” in
the accompanying index supplement.
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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.
|
Interest period:
|
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.
|
Record date:
|
The record date for each coupon payment date shall be the date one business day prior to such scheduled coupon payment date; provided, however, that any coupon payable at maturity (or upon early redemption) shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
|
Share underlying index:
|
NYSE Arca Gold Miners Index
|
Share underlying index publisher:
|
ICE Data Indices, LLC, or any successor thereof
|
Day count convention:
|
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
|
Postponement of coupon payment dates (including the maturity date) and early redemption dates:
|
If any observation date or redemption determination date is postponed due to a non-trading day or certain market disruption events with respect to either of the underlying shares so that it falls less than two business days prior to the relevant scheduled coupon payment date (including the maturity date) or early redemption date, as applicable, the coupon payment date (or the maturity date) or the early redemption date will be postponed to the second business day following that observation date or redemption determination date as postponed, and no adjustment will be made to any coupon payment, early redemption payment or payment at maturity made on that postponed date.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
Issuer notices to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the final observation date, the issuer shall give notice of such postponement and, once it has been determined, of the date
to which the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice of such postponement
by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books,
(ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its
New York office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile confirmed by
mailing such notice to the depositary by first class mail, postage prepaid. Any notice that is mailed to a registered holder of
the securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered holder,
whether or not such registered holder receives the notice. The issuer shall give such notice as promptly as possible, and in no
case later than (i) with respect to notice of postponement of the maturity date, the business day immediately preceding the scheduled
maturity date and (ii) with respect to notice of the date to which the maturity date has been rescheduled, the business day immediately
following the final observation date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable redemption determination date, give notice of the early redemption
and the early redemption payment, including specifying the payment date of the amount due upon the early redemption, (x) to each
registered holder of the securities by mailing notice of such early redemption by first class mail, postage prepaid, to such registered
holder’s last address as it shall appear upon the registry books, (y) to the trustee by facsimile confirmed by mailing such
notice to the trustee by first class mail, postage prepaid, at its New York office and (z) to the depositary by telephone or facsimile
confirmed by mailing such notice to the depositary by first class mail, postage prepaid, and (ii) on or prior to the early redemption
date, deliver the aggregate cash amount due with respect to the securities to the trustee for delivery to the depositary, as holder
of the securities. Any notice that is mailed to a registered holder of the securities in the manner herein provided shall be conclusively
presumed to have been duly given to such registered holder, whether or not such registered holder receives the notice. This notice
shall be given by the issuer or, at the issuer’s request, by the trustee in the name and at the expense of the issuer, with
any such request to be accompanied by a copy of the notice to be given.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash to be delivered as quarterly coupon 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 with respect to the 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
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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.
|
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Contingent Income Buffered Auto-Callable Securities due December 2, 2021
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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. Moreover, our counsel’s opinion is based on market
conditions as of the date of this
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
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preliminary pricing supplement and is subject
to confirmation on the pricing date.
You should consult your tax adviser regarding
all aspects of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments
of the securities). Unless otherwise stated, the following discussion is based on the treatment of each security as described in
the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal
income tax purposes:
· a
citizen or individual resident of the United States;
· a
corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
· an
estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as
set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis. A U.S. Holder’s tax
basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon Payments.
Any coupon payment on the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in
accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities. Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could
result in adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of
an Investment in the Securities
Due to the absence of authorities that directly
address the proper tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold,
the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning
the securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the timing and character
of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of 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
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
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securities. In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses on whether to require holders of “prepaid forward contracts” and similar
instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including
the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such
accrual regime; the relevance of factors such as the exchange–traded status of the instruments and the nature of the underlying
property to which the instruments are linked; whether these instruments are or should be subject to the “constructive ownership”
rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest
charge; and appropriate transition rules and effective dates. While it is not clear whether instruments such as the securities
would be viewed as similar to the prepaid forward contracts described in the notice, any Treasury regulations or other guidance
promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in
the securities, possibly with retroactive effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income
tax consequences of an investment in the securities, including possible alternative treatments and the issues presented by this
notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of
payments on the securities and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S.
Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable
requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax
and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required
information is timely furnished to the IRS. In addition, information returns will be filed with the IRS in connection with
payments on the securities and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the
U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are
a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S.
federal income tax purposes:
· an
individual who is classified as a nonresident alien;
· a
foreign corporation; or
· a
foreign estate or trust.
The term “Non-U.S. Holder” does
not include any of the following holders:
· a
holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes;
· certain
former citizens or residents of the United States; or
· a
holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in
the United States.
Such holders should consult their tax advisers regarding the
U.S. federal income tax 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)”)
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
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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 the terms of the securities and current market conditions, we expect that the securities
will not have a delta of one with respect to any Underlying Security on the pricing date. However, we will provide an updated determination
in the pricing supplement. Assuming that the securities do not have a delta of one with respect to any Underlying Security, our
counsel is of the opinion that the securities should not be Specified Securities and, therefore, should not be subject to Section
871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including
whether you enter into other transactions with respect to an Underlying Security. If Section 871(m) withholding is required, we
will not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser
regarding the potential application of Section 871(m) to the securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally 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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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
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, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 4 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we 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 underlying shares, in futures and/or options contracts on the underlying
shares or any component stocks of the share underlying index, 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 share price
of the underlying shares and, therefore, could increase (i) the value at or above which the underlying shares must close on the
redemption determination dates so that the securities are redeemed prior to maturity for the early redemption payment, (ii) the
coupon barrier level, which is the value at or above which the underlying shares must close on the observation dates so that you
receive a contingent quarterly coupon on the securities, and (iii) the value at or above which the underlying shares must close
on the final observation date so that you are not exposed to the negative performance of the underlying shares 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 final observation date approaches. Additionally, our hedging
activities, as well as our other trading activities, during the term of the securities could potentially affect the value of the
underlying shares on the redemption determination dates and other observation dates and, accordingly, whether we redeem the securities
prior to maturity, whether we pay a contingent quarterly coupon on the securities and the amount of cash you will receive at maturity.
For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product
supplement.
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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 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
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
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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 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
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Selected dealers, which may include our affiliates, and their financial advisors will collectively
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Morgan Stanley Finance LLC
Contingent Income Buffered Auto-Callable Securities due December 2, 2021
All Payments on the Securities Based on the Performance of the VanEck Vectors® Gold Miners ETF
Principal at Risk Securities
plan of distribution; conflicts of interest:
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receive from the agent a fixed sales commission of
$ for each security they sell.
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. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities,
including the contingent quarterly coupon rate, such that for each security the estimated value on the pricing date will be no
lower than the minimum level described in “Investment Summary” beginning on page 3.
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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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 MSFL and Morgan Stanley have filed with the SEC for more complete information about Morgan Stanley and this offering. You
may get these documents without cost by visiting EDGAR on the SEC web site at.www.sec.gov. Alternatively,
MSFL, Morgan Stanley, any underwriter or any dealer participating in the offering will arrange to send you the prospectus, the
product supplement for auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at.www.sec.gov
as follows:
Product
Supplement for Auto-Callable Securities dated November 16, 2017
Index
Supplement dated November 16, 2017
Prospectus
dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement for auto-callable securities, in the index supplement or in the prospectus.
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