May
2019
Preliminary
Terms No. 2,038
Registration
Statement Nos. 333-221595; 333-221595-01
Dated
May 29, 2019
Filed
pursuant to Rule 433
M
organ
S
tanley
F
inance
LLC
Structured Investments
Opportunities in Commodities
Enhanced Trigger Jump Securities due June
17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
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Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
The Enhanced Trigger Jump Securities due June 17, 2020 Based
on the Performance of Brent Crude Oil Futures Contracts, which we refer to as the securities, are unsecured obligations of Morgan
Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. Unlike ordinary debt
securities, the securities do not pay interest and do not guarantee the return of any principal at maturity. Instead, at maturity,
you will receive for each security that you hold an amount in cash that may be greater than or less than the stated principal
amount depending on the performance of Brent crude oil futures contracts, which we refer to as the underlying commodity, as measured
on each of the five averaging dates (as defined below). If the final commodity price (as defined below), as measured on each of
the five averaging dates, is
greater than or equal to
the downside threshold value of 65% of the initial commodity price,
the return on your investment in the securities will be the specified fixed percentage. However, if the final commodity price,
as measured on each of the five averaging dates, is
less than
the downside threshold value, meaning that the underlying
commodity has depreciated by more than 35% from its initial value, the payment at maturity will be solely based on the commodity
percent change, and, therefore, you will be exposed on a 1 to 1 basis to the negative performance of the underlying commodity
over the term of the securities and you will lose a significant portion or all of your investment. Under these circumstances,
the payment at maturity will be less than $650 and could be zero. The securities are for investors who seek a Brent crude oil
futures contract-based return at maturity and who are willing to risk their principal and forgo current income and upside above
the fixed percentage in exchange for the potential of receiving the fixed percentage return if the final commodity price is greater
than or equal to the specified downside threshold value.
The payment at maturity may be significantly less than the stated
principal amount of the securities and could be zero
.
Accordingly, you could lose your entire initial investment in the
securities.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These securities are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
SUMMARY TERMS
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Issuer:
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Morgan Stanley Finance LLC
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Guarantor:
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Morgan Stanley
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Aggregate principal amount:
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$
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Stated principal amount:
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$1,000 per security
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Issue price:
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$1,000 per security
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Pricing date:
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May 31, 2019
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Original issue date:
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June 5, 2019 (3 business days after the pricing date)
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Maturity date:
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June 17, 2020
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Underlying commodity:
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Brent crude oil futures contracts (“Brent crude oil”)
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Payment at maturity per security:
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$1,000 + return amount. The payment at maturity may be greater than or less than the stated principal amount.
There is no minimum payment at maturity. Accordingly, you could lose your entire initial investment in the securities.
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Return amount:
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If the final commodity price, as measured on each of
the five averaging dates, is
greater than or equal to
the downside threshold value, the return amount will be an amount
in cash equal to:
$1,000 x the fixed percentage
If the final commodity price, as measured on each of
the five averaging dates, is
less than
the downside threshold value, the return amount will be an amount in cash equal
to:
$1,000 x the commodity percent change
In this case, the return amount will be negative
and your payment at maturity per security will be an amount less than 65% of the stated principal amount and could be zero.
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Fixed percentage:
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10.00%
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Downside threshold value:
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$ , which is 65% of the initial commodity price
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Commodity percent change:
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(final commodity price – initial commodity price) / initial commodity price
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Final commodity price:
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The arithmetic average of the commodity prices on each of the five averaging dates
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Initial commodity price:
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The commodity price on the pricing date, subject to adjustment for non-trading days and certain market disruption events.
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Commodity price:
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For any trading day, the official settlement price per barrel of Brent blend crude oil on the relevant exchange of the first nearby month futures contract, stated in U.S. dollars, as made public by the relevant exchange on such date.
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Relevant exchange:
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The ICE Futures Europe or, if such relevant exchange is no longer the principal exchange or trading market for the underlying commodity, such exchange or principal trading market for the underlying commodity that serves as the source of prices for the underlying commodity and any principal exchanges where options or futures contracts on the underlying commodity are traded.
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Averaging dates:
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June 8, 2020, June 9, 2020, June 10, 2020, June 11, 2020 and June 12, 2020, subject to adjustment for non-trading days and certain market disruption events. The final commodity price will be determined on the last averaging date to occur, which is referred to as the “final averaging date.” See “Additional Information About the Securities—Postponement of averaging dates.”
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CUSIP / ISIN:
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61766YDV0 / US61766YDV02
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Listing:
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The securities will not be listed on any securities exchange.
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
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Estimated value on the pricing date:
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Approximately $982.50 per security, or within $22.50 of that estimate. See “Investment Summary” beginning on page 2.
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Commissions and issue price:
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Price to public
(1)
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Agent’s commissions and fees
(2)
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Proceeds to us
(3)
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Per security
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$1,000
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$10
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$990
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Total
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$
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$
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$
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(1)
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J.P. Morgan Securities
LLC and JPMorgan Chase Bank, N.A. will act as placement agents for the securities. The placement agents will forgo fees for sales
to certain fiduciary accounts. The total fees represent the amount that the placement agents receive from sales to accounts other
than such fiduciary accounts. The placement agents will receive a fee from the Issuer or one of its affiliates that will not exceed
$10 per $1,000 stated principal amount of securities.
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(2)
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Please see “Supplemental
information regarding plan of distribution; conflicts of interest” for information about fees and commissions. For additional
information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus supplement.
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(3)
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See “Use of proceeds
and hedging” on page 17.
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The securities involve risks not associated
with an investment in ordinary debt securities. See “Risk Factors” beginning on page 8.
The Securities and Exchange Commission
and state securities regulators have not approved or disapproved these securities, or determined if this document or the accompanying
prospectus supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings
accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
You should read this document together
with the related prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see
“Additional Information About the Securities” at the end of this document.
As used in this document, “we,”
“us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context
requires.
Prospectus Supplement dated June 20, 2018
Prospectus dated November 16, 2017
Morgan Stanley
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
Investment Summary
Enhanced Trigger Jump Securities
Principal
at Risk Securities
The Enhanced Trigger Jump Securities due June 17, 2020 Based
on the Performance of Brent Crude Oil Futures Contracts (the “securities”) can be used:
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§
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To gain exposure to the performance of Brent crude oil futures contracts and provide diversification of underlying asset class
exposure
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§
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To provide limited protection against loss and potentially outperform the underlying commodity for a limited range of performance
due to the fixed percentage return if the final commodity price, as measured on each of the five averaging dates, is
greater
than or equal to
65% of the initial commodity price, which we refer to as the downside threshold value
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The securities
are exposed to the performance of
Brent crude oil futures contracts
, but have a fixed percentage
return payable at maturity if the final commodity price is greater than or equal to the downside threshold value. There is no minimum
payment at maturity on the securities. Accordingly, you could lose your entire initial investment in the securities.
Maturity:
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Approximately 54 weeks
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Minimum payment at maturity:
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None. You could lose your entire initial investment in the securities.
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Interest:
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None
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Payment scenario 1:
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If the final commodity price, as measured on each of the five averaging dates, is
greater than or equal to
the downside threshold value, you will receive a full return of principal at maturity
plus
a return based on the fixed percentage of 10.00%.
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Payment scenario 2:
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If the final commodity price, as measured on each of the five averaging dates, is
less than
the downside threshold value,
you will
not
receive
a full return of principal at maturity. Instead, you will receive an amount equal to the sum of the stated principal amount and a return based on the commodity percent change, which will be negative.
The payment you receive will be significantly less than the stated principal amount and could be zero. There is no minimum payment at maturity on the securities, and, accordingly, you could lose your entire investment.
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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 $982.50, or within $22.50 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 commodity. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying commodity, instruments based on the underlying commodity, 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 fixed percentage and the downside threshold value, we use an internal funding rate, which is likely to be lower than our secondary
market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne by you were
lower or if the internal funding rate were higher, one or more of the economic terms of the securities would be more favorable
to you.
Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
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 commodity, 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.
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
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
Key Investment Rationale
This investment does not pay interest but offers a fixed
positive return of 10.00% if the final commodity price, as measured on each of the five averaging dates, is greater than or equal
to 65% of the initial commodity price, which we refer to as the downside threshold value, and limited protection against a decline
in the final commodity price of up to 35%. However, if the final commodity price, as measured on each of the five averaging dates,
is less than the downside threshold value, the securities will be exposed on a 1 to 1 basis to the negative performance of Brent
crude oil futures contracts.
Upside Scenario
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The final commodity price, as measured on each of the five averaging dates, is
greater than or equal to
the downside threshold value, and, at maturity, an investor would receive a full return of principal at maturity
plus
a return based on the fixed percentage of 10.00%.
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Downside Scenario
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The final commodity price, as measured on each of the five averaging dates, is
less than
the downside threshold value, and the securities redeem for less than the stated principal amount by an amount proportionate to the negative performance of the underlying commodity. Under these circumstances, the payment at maturity will be significantly less than the $1,000 stated principal amount and could be zero.
There is no minimum payment at maturity on the securities. Accordingly, you could lose your entire initial investment in the securities.
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
How the Securities Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the securities based on the following terms:
Stated principal amount:
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$1,000 per security
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Downside threshold value:
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65% of the initial commodity price (-35% change in final commodity price compared to initial commodity price)
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Fixed percentage:
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10.00%
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Securities Payoff Diagram
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How it works
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§
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Upside Scenario.
If the final commodity price, as measured on each of the five averaging
dates, is greater than or equal to the downside threshold value, an investor would receive a full return of principal at maturity
plus a return based on the fixed percentage of 10.00%.
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§
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Downside Scenario.
If the final commodity price, as measured on each of the five
averaging dates, is less than the downside threshold value, the payment at maturity would be less than the stated principal amount
of $1,000 by an amount that is proportionate to the decline in the final commodity price from the initial commodity price. In this
scenario, the investor would lose a significant portion or all of the amount invested in the securities. For example, if the final
commodity price declines by 40% from the initial commodity price, the payment at maturity would be $600 per security (60% of the
stated principal amount).
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
Hypothetical Examples
The examples below illustrate how the payment at maturity on
the securities is calculated and are based on the following terms:
Stated principal amount:
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$1,000 per security
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Hypothetical initial commodity price:
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$70.00
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Downside threshold value:
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$45.50, which is 65% of the hypothetical initial commodity price
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Fixed percentage:
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10.00%
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The actual initial commodity price and downside threshold value
will be determined on the pricing date.
EXAMPLE 1: The final commodity price, as measured on each
of the five averaging dates, is greater than the downside threshold value and has increased from the initial commodity price by
25%. You receive the fixed percentage-based return.
Hypothetical final commodity price
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=
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$87.50
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Commodity percent change
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=
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(final commodity price – initial commodity price) / initial commodity price
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=
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($87.50 – $70.00) / $70.00
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=
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25%
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Return amount
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=
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stated principal amount × fixed percentage
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=
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$1,000 × 10.00%
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=
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$100
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Payment at maturity
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=
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stated principal amount + return amount
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=
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$1,100
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Payment at maturity = $1,100
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EXAMPLE 2: The final commodity price, as measured on each
of the five averaging dates, has declined from the initial commodity price by 10% but is greater than the downside threshold value.
You receive the fixed percentage-based return.
Hypothetical final commodity price
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=
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$63.00
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Commodity percent change
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=
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(final commodity price – initial commodity price) / initial commodity price
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=
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($63.00 – $70.00) / $70.00
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=
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–10%
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Return amount
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=
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stated principal amount × fixed percentage
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=
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$1,000 × 10.00%
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=
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$100
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Payment at maturity
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=
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stated principal amount + return amount
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=
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$1,100
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Payment at maturity = $1,100
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
EXAMPLE 3: The final commodity price, as measured on each
of the five averaging dates, has declined from the initial commodity price by 60% and is less than the downside threshold value.
You are fully exposed to the decline in the final commodity price from the initial commodity price.
Hypothetical final commodity price
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=
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$28.00
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Commodity percent change
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=
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(final commodity price – initial commodity price) / initial commodity price
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=
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($28.00 – $70.00) / $70.00
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=
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–60%
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Return amount
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=
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stated principal amount × commodity percent change
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=
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$1,000 × (–60%)
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=
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–$600
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Payment at maturity
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=
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stated principal amount + return amount, which means that the payment at maturity is an amount
significantly less than
the stated principal amount, because the return amount is necessarily negative by a significant amount.
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=
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$1,000 + (–$600)
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=
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$400
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Payment at maturity = $400
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying prospectus supplement and prospectus. We also urge you to consult with your investment,
legal, tax, accounting and other advisers in connection with your investment in the securities.
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§
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The securities do not pay interest or guarantee return of any principal at maturity.
The terms of the securities differ
from those of ordinary debt securities in that we do not guarantee repayment of the principal amount of the securities at maturity
and do not pay you interest on the securities.
If the final commodity price, as measured on each of the five averaging dates,
is less than the downside threshold value, the payment at maturity on each security will be significantly less than the stated
principal amount of the securities and could be zero. Consequently, the entire principal amount of your investment is at risk.
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§
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The appreciation potential is fixed and limited.
Where the final commodity price is greater than or equal to the
downside threshold value, the appreciation potential of the securities is limited to the return amount based on the fixed percentage
of 10.00% of the stated principal amount, even if the final commodity price is significantly greater than the initial commodity
price.
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§
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You will lose the benefit of the fixed percentage return if the final commodity price is less than the downside threshold
value.
If the final commodity price, as measured on each of the five averaging dates, is less than the downside threshold value,
the payment at maturity will solely depend on the commodity percent change, which will be negative, and you will lose the benefit
of the minimum return based on the fixed percentage. As a result, you will be exposed on a 1 to 1 basis to the negative performance
of the underlying commodity over the term of the securities and you will lose a significant portion or all of your investment in
the securities.
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§
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The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads
may adversely affect the market value of the securities.
You are dependent on our ability to pay all amounts due on the securities
at maturity and therefore you are subject to our credit risk. If we default on our obligations under the securities, your investment
would be at risk and you could lose some or all of your investment. As a result, the market value of the securities prior to maturity
will be affected by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit
ratings or increase in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market
value of the securities.
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§
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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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§
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The amount payable at maturity, if any, is based on the arithmetic average of the commodity prices on each of the five averaging
dates, and therefore the return amount may be less than if it were based solely on the commodity price on the final averaging date
.
The amount payable at maturity, if any, will be calculated by reference to the average of the commodity prices on each of the five
averaging dates. Therefore, in calculating the final commodity price, positive performance of the underlying commodity as of some
averaging dates may be moderated, or wholly offset, by lesser or negative performance as of other averaging dates. Similarly, the
final commodity price, calculated based on the commodity prices on each of the five averaging dates, may be less than the commodity
price on the final averaging date, and as a result, the amount you receive at maturity may be less than if it were based solely
on the commodity price on the final averaging date.
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§
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The market price of the securities may 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, including:
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
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·
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the market price of the underlying commodity and futures contracts on the underlying commodity and the volatility (frequency
and magnitude of changes in price) of such prices;
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|
·
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whether or not the price of the underlying commodity is less than the downside threshold value;
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|
·
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trends of supply and demand for the underlying commodity at any time, as well as the effects of speculation or any government
actions that could affect the markets for the underlying commodity;
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|
·
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interest and yield rates in the market;
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|
·
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect
the underlying
commodity
or commodities markets generally and which may affect the price of
the underlying commodity;
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|
·
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the time remaining until the maturity of the securities; and
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|
·
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any actual or anticipated changes in our credit ratings or credit spreads.
|
Some or all of these factors will
influence the price you will receive if you sell your securities prior to maturity. For example, you may have to sell your securities
at a substantial loss if the price of the underlying commodity at the time of sale is at or below its initial price and especially
if it is near or below the downside threshold value or it is believed to be likely to do so in light of the then-current price
of
the underlying commodity.
You cannot predict the future prices
of the underlying commodity based on its historical prices. The final commodity price may be less than the downside threshold value
such that you will be exposed on a 1 to 1 basis to the negative performance of the underlying commodity and, as a result, you will
lose a significant portion or all of your investment at maturity. There can be no assurance that the final commodity price will
be greater than or equal to the downside threshold value so that you do not suffer a significant loss on your initial investment
in the securities.
|
§
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Single commodity prices tend to be more volatile than, and may not correlate with, the prices of commodities generally.
The payment at maturity is linked exclusively to the price of futures contracts on Brent crude oil and not to a diverse basket
of commodities or a broad-based commodity index. The price of futures contracts on Brent crude oil may not correlate to, and may
diverge significantly from, the prices of commodities generally. Because the securities are linked to the price of a single commodity,
they carry greater risk and may be more volatile than a security linked to the prices of multiple commodities or a broad-based
commodity index. The price of futures contracts on Brent crude oil may be, and has recently been, highly volatile, and we can give
you no assurance that the volatility will lessen.
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|
§
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Investments linked to a single commodity are subject to sharp fluctuations in commodity prices, and the price of Brent crude
oil may change unpredictably and affect the value of the securities in unforeseen ways.
Investments, such as the securities,
linked to the price of a single commodity, such as Brent crude oil futures contracts, are subject to significant fluctuations in
the price of the commodity over short periods due to a variety of factors. Brent crude oil is light sweet crude oil from the North
Sea. Most refinement takes place in Northwest Europe. Brent crude oil prices are generally more volatile and subject to dislocation
than prices of other commodities. Demand for refined petroleum products by consumers, as well as by the agricultural, manufacturing
and transportation industries, affects the price of crude oil. Crude oil’s end-use as a refined product is often
as transport fuel, industrial fuel and in-home heating fuel. Potential for substitution in most areas exists, although
considerations including relative cost often limit substitution levels. Because the precursors of demand for petroleum
products are linked to economic activity, demand will tend to reflect economic conditions. Demand is also influenced
by government regulations, such as environmental or consumption policies. In addition to general economic activity and
demand, prices for Brent crude oil are affected by political events, labor activity, developments in production technology such
as fracking and, in particular, direct government intervention (such as embargos) or supply disruptions in major oil producing
regions of the world. Such events tend to affect oil prices worldwide, regardless of the location of the event. Supply
for crude oil may increase or decrease depending on many factors. These include production decisions by the Organization
of the Petroleum Exporting Countries (“OPEC”) and other crude oil producers. OPEC has the potential to influence
oil prices worldwide because its members possess a significant portion of the world’s oil supply. In the event of sudden
disruptions in the supplies of oil, such as those caused by war, natural events, accidents or acts of terrorism, prices of oil
futures contracts could become extremely volatile and unpredictable. Also, sudden and dramatic changes in the futures
market may occur, for example, upon the commencement or cessation of hostilities that may exist in countries producing oil, the
introduction of new or previously withheld supplies into the market or the introduction of substitute products or commodities. Brent
crude oil prices may also be affected by short-term changes in supply and demand because of trading activities in the oil market
and seasonality (e.g., weather conditions such as hurricanes). The price of Brent
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
crude oil futures has experienced
very severe price fluctuations over the recent past and there can be no assurance that this extreme price volatility will not continue
in the future. See “Underlying Commodity Overview” on page 14.
You can review a table of the published
high and low commodity prices, as well as end-of-quarter commodity prices, of the underlying commodity for each calendar quarter
in the period from January 1, 2014 through May 24, 2019 on page 15 and a graph that plots the daily commodity prices of the underlying
commodity for the same period in this document on page 14. You cannot predict the future performance of the underlying commodity
based on its historical performance. In addition, there can be no assurance that the final commodity price will be greater than
or equal to the downside threshold value so that you do not suffer a significant loss on your initial investment in the securities.
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§
|
An investment linked to commodity futures contracts is not equivalent to an investment linked to the spot prices of physical
commodities.
The securities have returns based on the change in price of futures contracts on the underlying commodity, not
the change in the spot price of the actual physical commodity to which such futures contracts relate. The price of a futures contract
reflects the expected value of the commodity upon delivery in the future, whereas the price of a physical commodity reflects the
value of such commodity upon immediate delivery, which is referred to as the spot price. Several factors can result in differences
between the price of a commodity futures contract and the spot price of a commodity, including the cost of storing such commodity
for the length of the futures contract, interest costs related to financing the purchase of such commodity and expectations of
supply and demand for such commodity. While the changes in the price of a futures contract are usually correlated with the changes
in the spot price, such correlation is not exact. In some cases, the performance of a commodity futures contract can deviate significantly
from the spot price performance of the related underlying commodity, especially over longer periods of time. Accordingly, investments
linked to the return of commodities futures contracts may underperform similar investments that reflect the spot price return on
physical commodities.
|
|
§
|
Differences between futures prices and the spot price of Brent crude oil may decrease the amount payable at maturity. The
initial commodity price and final commodity price that are used to determine the payment at maturity on the securities are determined
by reference to the settlement price of the first nearby month futures contract for Brent crude oil on the pricing date and each
of the averaging dates, respectively, and will not therefore reflect the spot price of Brent crude oil on such dates. The market
for futures contracts on Brent crude oil has experienced periods of backwardation, in which futures prices are lower than the spot
price, and periods of contango, in which futures prices are higher than the spot price. If the contract is in contango on the pricing
date or in backwardation on the averaging dates, the amount payable at maturity on the securities will be less than if the initial
Brent crude oil price or final Brent crude oil price, respectively, was determined with reference to the spot price.
|
|
§
|
Suspension or disruptions of market trading in Brent crude oil futures contracts may adversely affect the value of the securities.
The futures market for Brent crude oil is subject to temporary distortions or other disruptions due to various factors, including
the lack of liquidity in the markets, the participation of speculators and government regulation and intervention. In addition,
U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices
which may occur during a single business day. These limits are generally referred to as “daily price fluctuation limits”
and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “limit price.”
Once the limit price has been reached in a particular contract, no trades may be made at a different price. Limit prices have the
effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices.
These circumstances could adversely affect the value of Brent crude oil futures contracts and, therefore, the value of the securities.
|
|
§
|
Investing in the securities is not equivalent to investing in the underlying commodity or in futures contracts or forward
contracts on the underlying commodity. By purchasing the securities, you do not purchase any entitlement to the underlying commodity
or futures contracts or forward contracts on the underlying commodity. Furthermore, by purchasing the securities, you are taking
credit risk to us and not to any counter-party to futures contracts or forward contracts on the underlying commodity.
|
|
§
|
Legal and regulatory changes could adversely affect the return on and value of the securities.
Futures contracts and
options on futures contracts, including those related to the underlying commodity, are subject to extensive statutes, regulations,
and margin requirements. The Commodity Futures Trading Commission, commonly referred to as the “CFTC,” and the exchanges
on which such futures contracts trade, are authorized to take extraordinary actions in the event of a market emergency, including,
for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of
daily limits and the suspension of trading. Furthermore, certain
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
exchanges have regulations that
limit the amount of fluctuations in futures contract prices that may occur during a single five-minute trading period. These limits
could adversely affect the market prices of relevant futures and options contracts and forward contracts. The regulation of commodity
transactions in the U.S. is subject to ongoing modification by government and judicial action. In addition, various non-U.S. governments
have expressed concern regarding the disruptive effects of speculative trading in the commodity markets and the need to regulate
the derivative markets in general. The effect on the value of the securities of any future regulatory change is impossible to predict,
but could be substantial and adverse to the interests of holders of the securities.
For example, the Dodd-Frank Act,
which was enacted on July 21, 2010, requires the CFTC to establish limits on the amount of positions that may be held by any person
in certain commodity futures contracts and swaps, futures and options that are economically equivalent to such contracts. While
the effects of these or other regulatory developments are difficult to predict, when adopted, such rules may have the effect of
making the markets for commodities, commodity futures contracts, options on futures contracts and other related derivatives more
volatile and over time potentially less liquid. Such restrictions may force market participants, including us and our affiliates,
or such market participants may decide, to sell their positions in such futures contracts and other instruments subject to the
limits. If this broad market selling were to occur, it would likely lead to declines, possibly significant declines, in commodity
prices, in the price of such commodity futures contracts or instruments and potentially, the value of the securities.
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§
|
The securities will not be listed on any securities exchange and secondary trading may be limited.
The securities will
not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough
liquidity to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in
the secondary market for the securities, the price at which you may be able to trade your securities is likely to depend on the
price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market
in the securities, it is likely that there would be no secondary market for the securities. Accordingly, you should be willing
to hold your securities to maturity.
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§
|
Hedging and trading activity by our affiliates could potentially adversely affect the value of the securities.
One or
more of our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other
instruments linked to the underlying commodity), including trading in futures contracts on the underlying commodity, and possibly
in other instruments related to the underlying commodity. As a result, these entities may be unwinding or adjusting hedge positions
during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge
as the averaging dates approach. Some of our affiliates also trade the underlying commodity and other financial instruments related
to the underlying commodity on a regular basis as part of their general broker-dealer, commodity trading, proprietary trading and
other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial
commodity price and, as a result, could increase the downside threshold value, which is the price at or above which the final commodity
price must be on the averaging dates so that you do not suffer a significant loss on your initial investment in the securities.
Additionally, such hedging or trading activities during the term of the securities, including on the averaging dates, could potentially
affect the final commodity price and whether the final commodity price is less than the downside threshold value, and, accordingly,
the amount of cash you will receive upon a sale of the securities or at maturity, if any.
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§
|
The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
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.
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§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
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§
|
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, MSCG will determine the initial commodity price, the downside threshold value, the
final commodity price and whether the final commodity price, as measured on each of the five averaging dates, is less than the
downside threshold value, the commodity percent change and whether a market disruption event has occurred. Additionally, the calculation
agent will calculate the amount of cash, if any, you will receive at maturity. Moreover, certain determinations made by MSCG, 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 commodity price in the event of a market disruption
event. These potentially subjective determinations may adversely affect the payout to you at maturity, if any. For further information
regarding these types of determinations, see “Description of Securities—Alternate Exchange Calculation in Case of an
Event of Default” and “—Calculation Agent and Calculations” and related definitions in the accompanying
prospectus 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.
Please read the discussion
under “Additional provisions—Tax considerations” in this document and the discussion under “United States
Federal Taxation” in the accompanying prospectus supplement (together, the “Tax Disclosure Sections”) concerning
the U.S. federal income tax consequences of an investment in the securities. If the Internal Revenue Service (the “IRS”)
were successful in asserting an alternative treatment, the timing and character of income on the securities might differ significantly
from the tax treatment described in the Tax Disclosure Sections. For example, under one possible treatment, the IRS could seek
to recharacterize the securities as debt instruments. In that event, U.S. Holders 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 and recognize
all income and gain in respect of the securities as ordinary income. Additionally, as discussed under “United States Federal
Taxation—FATCA” in the accompanying prospectus supplement, the withholding rules commonly referred to as “FATCA”
would apply to the securities if they were recharacterized as debt instruments. However, recently proposed regulations (the preamble
to which specifies that taxpayers are permitted to rely on them pending finalization) eliminate the withholding requirement on
payments of gross proceeds of a taxable disposition. 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. We do not plan to request a ruling from the IRS regarding
the tax treatment of the securities, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure
Sections.
|
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to
Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
which income (including any mandated
accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject
to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital
gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective
dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the securities, possibly with retroactive effect. Both U.S. and Non-U.S. Holders
should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the 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
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
Underlying Commodity Overview
Crude oil is used as a refined product primarily
as transport fuel, industrial fuel and in-home heating fuel. The price of Brent crude oil to which the return on the securities
is linked is based on the official settlement price per barrel of Brent blend crude oil on the ICE Futures Europe of the first
nearby month futures contract, stated in U.S. dollars, as made public by the ICE Futures Europe on such date.
Underlying Commodity information as of May 24, 2019
|
|
Bloomberg Ticker Symbol*
|
Current Commodity Price
|
52 Weeks Ago
|
52 Week
High
|
52 Week
Low
|
Brent crude oil (in U.S. dollars)
|
CO1
|
$68.69
|
$78.79
|
$86.29 (on 10/3/2018)
|
$50.47 (on 12/24/2018)
|
* The Bloomberg ticker symbol is being provided for reference
purposes only. The commodity price on any trading day will be determined based on the price published by the ICE Futures Europe.
The following graph sets forth the daily commodity prices of
the underlying commodity for each quarter in the period from January 1, 2014 through May 24, 2019. The related table sets forth
the published high and low commodity prices, as well as end-of-quarter commodity prices, of the underlying commodity for each quarter
in the same period. The commodity price of the underlying commodity on May 24, 2019 was $68.69. We obtained the information in
the table and graph below from Bloomberg Financial Markets, without independent verification. The underlying commodity has at times
experienced periods of high volatility. You should not take the historical performance of the underlying commodity as an indication
of its future performance, and no assurance can be given as to the commodity price of the underlying commodity on any date, including
on any of the averaging dates.
Daily Commodity
Prices of Brent Crude Oil Futures Contracts
January 1,
2014 to May 24, 2019
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|
The solid red line indicates the hypothetical downside threshold
value, assuming the commodity price of the underlying commodity on May 24, 2019 was the initial commodity price.
Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
Brent Crude Oil (in U.S. dollars per barrel)
|
High ($)
|
Low ($)
|
Period End ($)
|
2014
|
|
|
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First Quarter
|
111.20
|
105.78
|
107.76
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Second Quarter
|
115.06
|
104.79
|
112.36
|
Third Quarter
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112.29
|
94.67
|
94.67
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Fourth Quarter
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94.16
|
57.33
|
57.33
|
2015
|
|
|
|
First Quarter
|
62.58
|
46.59
|
55.11
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Second Quarter
|
67.77
|
54.95
|
63.59
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Third Quarter
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62.07
|
42.69
|
48.37
|
Fourth Quarter
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53.05
|
36.11
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37.28
|
2016
|
|
|
|
First Quarter
|
41.79
|
27.88
|
39.60
|
Second Quarter
|
52.51
|
37.69
|
49.68
|
Third Quarter
|
50.89
|
41.80
|
49.06
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Fourth Quarter
|
56.82
|
44.43
|
56.82
|
2017
|
|
|
|
First Quarter
|
57.10
|
50.56
|
52.83
|
Second Quarter
|
56.23
|
44.82
|
47.92
|
Third Quarter
|
59.02
|
46.71
|
57.54
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Fourth Quarter
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67.02
|
55.62
|
66.87
|
2018
|
|
|
|
First Quarter
|
70.53
|
62.59
|
70.27
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Second Quarter
|
79.80
|
67.11
|
79.44
|
Third Quarter
|
82.72
|
70.76
|
82.72
|
Fourth Quarter
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86.29
|
50.47
|
53.80
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2019
|
|
|
|
First Quarter
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68.50
|
54.91
|
68.39
|
Second Quarter (through May 24, 2019)
|
74.57
|
67.76
|
68.69
|
Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
Additional Information About the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional provisions:
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|
Denominations:
|
$1,000 and integral multiples thereof
|
Postponement of maturity date:
|
If, due to a market disruption event or otherwise, the final averaging date is postponed so that it falls less than two business days prior to the scheduled maturity date, the maturity date will be postponed to the second business day following the final averaging date as postponed. See “Postponement of averaging dates” below.
|
Postponement of averaging dates:
|
If a scheduled averaging date is not a trading day, the commodity
price in respect of such averaging date will be the commodity price on the succeeding trading day (notwithstanding the fact that
such day may be another scheduled averaging date, in which case the commodity price on such trading day will be used as the commodity
price in respect of more than one averaging date);
provided
that if a market disruption event relating to the underlying
commodity occurs on an averaging date, the commodity price for such averaging date will be determined in accordance with the next
succeeding paragraph.
If a market disruption event relating to the underlying
commodity occurs on any scheduled averaging date, the calculation agent will calculate the commodity price in respect of such
averaging date using as a price the commodity price on the first succeeding trading day on which no market disruption event is
existing with respect to the underlying commodity and each succeeding averaging date will be the next trading day on which no
market disruption event has occurred;
provided
that, if a market disruption event occurs with respect to the underlying
commodity on each of the five trading days immediately succeeding any averaging date, the calculation agent will use as the commodity
price in respect of such averaging date a price equal to the arithmetic mean, as determined by the calculation agent on the fifth
trading day immediately succeeding such averaging date, of the prices of the underlying commodity determined by at least three
independent leading dealers, selected by the calculation agent, in the underlying market for the underlying commodity, taking
into consideration the latest available quote for the underlying commodity and any other information in good faith deemed relevant
by such dealers. Quotations of Morgan Stanley & Co. LLC, Morgan Stanley Capital Group Inc. (“MSCG”) or any
of their affiliates may be included in the calculation of such mean, but only to the extent that any such bid is the highest of
the quotations obtained. In the event prices from at least three dealers are not obtained, the calculation agent will make
a good faith estimate of the price of the underlying commodity and, using that price, determine the commodity price.
|
Minimum
ticketing size:
|
$1,000 / 1 security
|
Tax
considerations:
|
Although there is uncertainty
regarding the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in
the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a security
should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
However, because our counsel’s opinion is based in part on market conditions as of the date of this document, it is subject
to confirmation on the pricing date.
Assuming this treatment
of the securities is respected and subject to the discussion in “United States Federal Taxation” in the accompanying
prospectus supplement, the following U.S. federal income tax consequences should result based on current law:
§
A
U.S. Holder should not be required to recognize taxable income over the term of the securities prior to settlement, other than
pursuant to a sale or exchange.
§
Upon
sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the
amount realized and the U.S. Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain or
loss if the investor has held the securities for more than one year, and short-term capital gain or loss otherwise.
In
2007, the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments
on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses
in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks
for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status
of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which
income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these
instruments are or should be subject to the “constructive
|
Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
|
ownership”
rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest
charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other
guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment
in the securities, possibly with retroactive effect.
Both U.S.
and non-U.S. investors considering an investment in the securities should read the discussion under “Risk Factors”
in this document and the discussion under “United States Federal Taxation” in the accompanying prospectus supplement
and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the securities,
including possible alternative treatments, the issues presented by the aforementioned notice and any tax consequences arising under
the laws of any state, local or non-U.S. taxing jurisdiction.
The discussion
in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying prospectus supplement, insofar as they purport to describe provisions of U.S.
federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP
regarding the material U.S. federal tax consequences of an investment in the securities.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
Morgan Stanley Capital Group Inc. (“MSCG”)
|
Use of proceeds and hedging:
|
The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 2 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 futures contracts on the underlying
commodity or positions in any other available instruments that they may wish to use in connection with such hedging. Such purchase
activity could increase the initial commodity price, and, as a result, could increase the downside threshold value, which is the
price at or above which the final commodity price must be on the averaging dates so that you do not suffer a significant loss
on your initial investment in the securities. In addition, through our affiliates, we are likely to modify our hedge position
throughout the life of the securities, including on the averaging dates, by purchasing and selling futures contracts on the underlying
commodity or positions in any other available instruments that we may wish to use in connection with such hedging activities,
including by selling any such instruments during the term of the securities, including on the averaging dates. As a result, these
entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the averaging dates approach. We cannot give any assurance that
our hedging activities will not affect the commodity price, and, therefore, adversely affect the value of the securities or the
payment you will receive at maturity, if any. For further information on our use of proceeds and hedging, see “Use of Proceeds
and Hedging” in the accompanying prospectus supplement.
|
Benefit plan investor considerations:
|
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the 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 Section 4975 of the Code 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,
|
Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
|
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 Section 4975(d)(20) of the Code provide an exemption for the purchase and sale of securities and the related lending
transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority
or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further
that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction
(the so-called “service provider” exemption). There can be no assurance that any of these class or statutory exemptions
will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with respect
to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the Code (“Similar Law”) or (b) its purchase, holding and disposition of these securities will not constitute or result
in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The securities are contractual financial instruments. The financial
exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the securities. The securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i)
the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii)
we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii)
any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv)
our
interests are adverse to the interests of the purchaser or holder; and
(v)
neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive
responsibility for ensuring that its
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities due June 17, 2020 Based on the Performance of Brent Crude Oil Futures Contracts
Principal at Risk Securities
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purchase, holding and disposition of the securities do not violate
the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any securities to any Plan or plan subject
to Similar Law is in no respect a representation by us or any of our affiliates or representatives that such an investment meets
all relevant legal requirements with respect to investments by plans generally or any particular plan, or that such an investment
is appropriate for plans generally or any particular plan. In this regard, neither this discussion nor anything provided in this
document is or is intended to be investment advice directed at any potential Plan purchaser or at Plan purchasers generally and
such purchasers of these securities should consult and rely on their own counsel and advisers as to whether an investment in these
securities is suitable.
However, individual retirement accounts, individual
retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their
accounts, will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee
of Morgan Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as,
for example, an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations:
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Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the securities, either directly or indirectly.
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Supplemental
information regarding plan of distribution
; conflicts of interest:
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JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and its
affiliates will act as placement agents for the securities and will receive a fee from the Issuer or one of its affiliates that
will not exceed $10 per $1,000 stated principal amount of securities, but will forgo any fees for sales to certain fiduciary accounts.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities such
that for each security the estimated value on the pricing date will be no lower than the minimum level described in “Investment
Summary” on page 2.
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 prospectus supplement.
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Contact:
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Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
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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 prospectus 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 prospectus supplement and
any other documents relating to this offering that Morgan Stanley and MSFL have filed with the SEC for more complete information
about Morgan Stanley, MSFL and this offering. You may get these documents without cost by visiting EDGAR on the SEC web site at
.
www.sec.gov.
Alternatively, Morgan Stanley, MSFL, any underwriter or any dealer participating in the offering will arrange to send you the prospectus
supplement and prospectus if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov
.
as follows:
Prospectus Supplement dated June 20, 2018
Prospectus dated November 16, 2017
Terms used but not defined in this document are defined
in the prospectus supplement or in the prospectus.
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