Preliminary Terms No. 2,093
Opportunities in U.S. Equities
Buffered PLUS Based on the Value of a Basket
Consisting of Three Indices due June 10, 2021
The Buffered PLUS offered are unsecured obligations of Morgan
Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The Buffered
PLUS will pay no interest, provide a minimum payment at maturity of only 12% of the stated principal amount and have the terms
described in the accompanying product supplement for PLUS, index supplement and prospectus, as supplemented or modified by this
document. At maturity, if the basket has appreciated in value, investors will receive the stated principal amount of
their investment plus leveraged upside performance of the basket, subject to the maximum payment at maturity. If the
basket has depreciated in value, but the basket has not declined by more than the specified buffer amount, the Buffered PLUS will
redeem for par. However, if the basket has declined by more than the buffer amount, investors will lose 1% for every
1% decline beyond the specified buffer amount, subject to the minimum payment at maturity of 12% of the stated principal amount. Investors
may lose up to 88% of the stated principal amount of the Buffered PLUS.
The Buffered PLUS are for investors who
seek an equity-based return and who are willing to risk their principal and forgo current income and upside above the maximum payment
at maturity in exchange for the leverage and buffer features that in each case apply to a limited range of performance of the basket. The
Buffered PLUS are notes issued as part of MSFL’s Series A Global Medium-Term Notes program.
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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Maturity date:
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June 10, 2021
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Original issue price:
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$1,000 per Buffered PLUS
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Stated principal amount:
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$1,000 per Buffered PLUS
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Pricing date:
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June 5, 2019
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Original issue date:
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June 10, 2019 (3 business days after the pricing date)
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Aggregate principal amount:
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$
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Interest:
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None
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Basket:
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Basket component
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Bloomberg
ticker symbol
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Basket component weighting
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Initial basket component value
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Multiplier
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S&P 500
®
Index (the “SPX Index”)
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SPX
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70%
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S&P MidCap 400
®
Index (the “MID Index”)
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MID
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20%
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Russell 2000
®
Index (the “RTY Index”)
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RTY
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10%
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We refer to each of the SPX Index, the MID Index and the RTY Index as an underlying index and, together, as the basket components.
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Payment at maturity
(per Buffered PLUS):
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§
If the final basket value is
greater than
the initial basket value: $1,000 + the leveraged upside payment
In no event will the payment at maturity exceed
the maximum payment at maturity.
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§
If the final basket value is
less than
or equal to
the initial basket value but has decreased from the initial basket value by an amount
less than or equal to
the buffer amount of 12%: $1,000
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§
If the final basket value is
less than
the initial basket value and has decreased from the initial basket value by an amount
greater than
the buffer amount
of 12%:
($1,000
x basket performance factor) + $120
Under these circumstances, the payment at maturity
will be less than the stated principal amount of $1,000. However, under no circumstances will the Buffered PLUS pay less than $120
per Buffered PLUS at maturity.
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Leveraged upside payment:
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$1,000 × leverage factor × basket percent change
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Leverage factor:
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130%
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Basket percent change:
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(final basket value – initial basket value) / initial basket value
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Buffer amount:
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12%
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Minimum payment at maturity:
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$120 per Buffered PLUS (12% of the stated principal amount)
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Basket performance factor:
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Final basket value / initial basket value
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Maximum payment at maturity:
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$1,224.00 per Buffered PLUS (122.40% of the stated principal amount)
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Initial basket value:
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100, which will be equal to the sum of the products of the initial basket component values of each of the basket components, as set forth under “Basket—Initial basket component value” above, and the applicable multiplier for each of the basket components, each of which will be determined on the pricing date.
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Final basket value:
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The basket closing value on the valuation date.
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Valuation date:
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June 7, 2021, subject to postponement for non-index business days and certain market disruption events.
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Basket closing value:
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The basket closing value on any day is the sum of the products of (i) the basket component closing value of each of the basket components and (ii) the applicable multiplier for such basket component on such date.
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Basket component closing value:
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In the case of each underlying index, the index closing value of such underlying index.
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Multiplier:
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The multiplier will be set on the pricing date based on each basket component’s respective initial basket component value so that each basket component will represent its applicable basket component weighting in the predetermined initial basket value. Each multiplier will remain constant for the term of the Buffered PLUS. See “Basket—Multiplier” above.
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Listing:
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The Buffered PLUS will not be listed on any securities exchange.
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CUSIP / ISIN:
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61769HFM2 / US61769HFM25
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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 $985.00 per Buffered PLUS, or within $10.00 of that estimate. See “Investment Overview” on page 2.
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Commissions and issue price:
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Price to public
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Agent’s commissions
(1)
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Proceeds to us
(2)
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Per Buffered PLUS
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$1,000
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$
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$
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Total
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$
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$
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$
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(1)
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Selected dealers and their financial advisors will
collectively receive from the agent, Morgan Stanley & Co. LLC, a fixed sales commission of $ for each
Buffered PLUS they sell. See “Supplemental information regarding plan of distribution; conflicts of interest.”
For additional information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying product supplement
for PLUS.
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(2)
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See “Use of proceeds and hedging” on page
17.
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The Buffered PLUS involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 6.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement,
index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The Buffered PLUS are not deposits or savings accounts and
are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they
obligations of, or guaranteed by, a bank.
You should read this document together with the related product
supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see
“Additional Terms of the Buffered PLUS” and “Additional Information About the Buffered PLUS” at the end
of this document.
References to “we,” “us” and “our”
refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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Investment Summary
Buffered Performance Leveraged Upside Securities
The Buffered PLUS Based on the Value of a Basket Consisting of
Three Indices due June 10, 2021 (the “Buffered PLUS”) can be used:
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As an alternative to direct exposure to the basket
that enhances returns for a certain range of potential positive performance of the basket, subject to the maximum payment at maturity
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To enhance returns and potentially outperform the
basket in a moderately bullish scenario
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To achieve similar levels of upside exposure to the
basket as a direct investment, subject to the maximum payment at maturity, while using fewer dollars by taking advantage of the
leverage factor
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To obtain a buffer against a specified level of negative
performance in the basket
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Maturity:
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2 years
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Leverage factor:
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130%
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Buffer amount:
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12%
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Minimum payment at maturity:
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$120 per Buffered PLUS (12% of the stated principal amount). Investors may lose up to 88% of the stated principal amount of the Buffered PLUS.
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Maximum payment at maturity:
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$1,224.00 per Buffered PLUS (122.40% of the stated principal amount)
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Basket weightings:
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70% for the SPX Index, 20% for the MID Index and 10% for the RTY Index
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Interest:
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None
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The original issue price
of each Buffered PLUS is $1,000. This price includes costs associated with issuing, selling, structuring and hedging
the Buffered PLUS, which are borne by you, and, consequently, the estimated value of the Buffered PLUS on the pricing date will
be less than $1,000. We estimate that the value of each Buffered PLUS on the pricing date will be approximately $985.00,
or within $10.00 of that estimate. Our estimate of the value of the Buffered PLUS 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 Buffered
PLUS on the pricing date, we take into account that the Buffered PLUS comprise both a debt component and a performance-based component
linked to the basket components. The estimated value of the Buffered PLUS is determined using our own pricing and valuation
models, market inputs and assumptions relating to the basket components, instruments based on the basket components, 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 Buffered PLUS?
In determining the economic
terms of the Buffered PLUS, including the leverage factor, the buffer amount, the minimum payment at maturity and the maximum payment
at maturity, 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 Buffered PLUS 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 Buffered PLUS?
The price at which MS &
Co. purchases the Buffered PLUS in the secondary market, absent changes in market conditions, including those related to the basket
components, 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 Buffered PLUS are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to
the extent that MS & Co. may buy or sell the Buffered PLUS in the secondary market, absent changes in market conditions, including
those related to the basket components, 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 Buffered PLUS and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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Key Investment Rationale
The Buffered PLUS offer leveraged upside exposure to the positive
performance of the basket, subject to the maximum payment at maturity, while providing limited protection against negative performance
of the basket. Once the basket has decreased in value by more than the specified buffer amount, investors are exposed
to the negative performance of the basket, subject to the minimum payment at maturity. At maturity, if the basket has
appreciated, investors will receive the stated principal amount of their investment plus leveraged upside performance of the underlying
basket, subject to the maximum payment at maturity. At maturity, if the basket has depreciated and (i) if the closing
value of the basket has not declined by more than the specified buffer amount, the Buffered PLUS will redeem for par, or (ii) if
the closing value of the basket has declined by more than the buffer amount, the investor will lose 1% for every 1% decline beyond
the specified buffer amount.
Investors may lose up to 88% of the stated principal amount of the Buffered PLUS.
Leveraged Performance
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The Buffered PLUS offer investors an opportunity to capture enhanced returns for a certain range of positive performance relative to a direct investment in the basket.
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Upside Scenario
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The basket increases in value, and, at maturity, the Buffered PLUS redeem for the stated principal amount of $1,000 plus 130% of the basket percent change, subject to the maximum payment at maturity of $1,224.00 per Buffered PLUS (122.40% of the stated principal amount).
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Par Scenario
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The basket declines in value by no more than 12%, and, at maturity, the Buffered PLUS redeem for the stated principal amount of $1,000.
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Downside Scenario
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The basket declines in value by more than 12%, and, at maturity, the Buffered PLUS redeem for less than the stated principal amount by an amount that is proportionate to the percentage decrease of the basket in excess of the buffer amount of 12%. (Example: if the basket decreases in value by 35%, the Buffered PLUS will redeem for $770 or 77% of the stated principal amount.) The minimum payment at maturity is $120 per Buffered PLUS.
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Morgan Stanley Finance LLC
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Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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How the Buffered PLUS Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the Buffered PLUS based on the following terms:
Stated principal amount:
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$1,000 per Buffered PLUS
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Leverage factor:
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130%
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Buffer amount:
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12%
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Maximum payment at maturity:
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$1,224.00 per Buffered PLUS (122.40% of the stated principal amount)
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Minimum payment at maturity:
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$120 per Buffered PLUS
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Buffered PLUS Payoff Diagram
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How it works
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Upside Scenario.
If
the final basket value is greater than the initial basket value, investors will receive the $1,000 stated principal amount plus
130% of the appreciation of the basket over the term of the Buffered PLUS, subject to the maximum payment at maturity. An investor
will realize the maximum payment at maturity of $1,224.00 per Buffered PLUS (122.40% of the stated principal amount) at a final
basket value of approximately 117.23% of the initial basket value.
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§
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If the basket appreciates 2%, the investor would receive
a 2.6% return, or $1,026.00 per Buffered PLUS.
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§
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If the basket appreciates 60%, the investor would
receive only the maximum payment at maturity of $1,224.00 per Buffered PLUS, or 122.40% of the stated principal amount.
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§
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Par Scenario.
If
the final basket value is less than or equal to the initial basket value but has decreased from the initial basket value by an
amount less than or equal to the buffer amount of 12%, investors will receive the stated principal amount of $1,000 per Buffered
PLUS.
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§
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If the basket depreciates 5%, investors would receive
the $1,000 stated principal amount.
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§
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Downside Scenario.
If
the final basket value is less than the initial basket value and has decreased from the initial basket value by an amount greater
than the buffer amount of 12%, investors will receive an amount that is less than the
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Morgan Stanley Finance LLC
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Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
stated principal amount by an amount that is proportionate
to the percentage decrease of the basket in excess of the buffer amount of 12%. The minimum payment at maturity is $120 per Buffered
PLUS.
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§
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For example, if the basket depreciates 60%, investors
will lose 48% of their principal and receive only $520 per Buffered PLUS at maturity, or 52% of the stated principal amount.
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Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
Risk Factors
The following is a non-exhaustive list of certain key risk factors
for investors in the Buffered PLUS. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement for PLUS, index supplement and prospectus. You should
also consult with your investment, legal, tax, accounting and other advisers in connection with your investment in the Buffered
PLUS.
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§
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The Buffered PLUS do not pay interest and provide
a minimum payment at maturity of only 12% of your principal.
The terms of the Buffered PLUS differ from those of
ordinary debt securities in that the Buffered PLUS do not pay interest and provide a minimum payment at maturity of only 12% of
the stated principal amount of the Buffered PLUS. If the final basket value is less than 88% of the initial basket value,
you will receive for each Buffered PLUS that you hold a payment at maturity that is less than the stated principal amount of each
Buffered PLUS by an amount proportionate to the decline in the value of the basket from the initial ba
sket value, plus $120
per Buffered PLUS
.
Accordingly, investors may lose up to 88% of the stated principal amount of the Buffered PLUS.
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§
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The appreciation potential of the Buffered PLUS
is limited by the maximum payment at maturity.
The appreciation potential of the Buffered PLUS is limited by the maximum payment
at maturity of $1,224.00 per Buffered PLUS, or 122.40% of the stated principal amount. Although the leverage factor provides 130%
exposure to any increase in the final basket value over the initial basket value, because the payment at maturity will be limited
to 122.40% of the stated principal amount for the Buffered PLUS, any increase in the final basket value over the initial basket
value by more than approximately 17.23% of the initial basket value will not further increase the return on the Buffered PLUS.
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§
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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 Buffered PLUS in
the secondary market and the price at which MS & Co. may be willing to purchase or sell the Buffered PLUS in the secondary
market, including: the value, volatility and dividend yield of the basket components, interest and yield rates in the market, time
remaining to maturity, geopolitical conditions and economic, financial, political and regulatory or judicial events and any actual
or anticipated changes in our credit ratings or credit spreads. You may receive less, and possibly significantly less, than the
stated principal amount per Buffered PLUS if you try to sell your Buffered PLUS prior to maturity.
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§
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The Buffered PLUS are linked to the Russell 2000
®
Index and are subject to risks associated with small-capitalization companies.
As the Russell 2000
®
Index is
one of the underlying indices, and the Russell 2000
®
Index consists of stocks issued by companies with relatively
small market capitalization, the Buffered PLUS are linked to the value of small-capitalization companies. These companies often
have greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies and therefore
the Russell 2000
®
Index may be more volatile than indices that consist of stocks issued by large-capitalization
companies. Stock prices of small-capitalization companies are also more vulnerable than those of large-capitalization companies
to adverse business and economic developments, and the stocks of small-capitalization companies may be thinly traded. In addition,
small capitalization companies are typically less well-established and less stable financially than large-capitalization companies
and may depend on a small number of key personnel, making them more vulnerable to loss of personnel. Such companies tend to have
smaller revenues, less diverse product lines, smaller shares of their product or service markets, fewer financial resources and
less competitive strengths than large-capitalization companies and are more susceptible to adverse developments related to their
products.
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§
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The Buffered PLUS 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 Buffered
PLUS.
You are dependent on our ability to pay all amounts due on the Buffered PLUS at maturity and therefore you
are subject to our credit risk. The Buffered PLUS are not guaranteed by any other entity. If we default on
our obligations under the Buffered PLUS, your investment would be at risk and you could lose some or all of your investment. As
a result, the market value of the Buffered PLUS 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 Buffered PLUS.
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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
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Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
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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Changes in the values of the basket components
may offset each other.
Value movements in the basket components may not correlate with each other. At
a time when the values of one or more basket components increase, the values of the other basket components may not increase as
much, or may even decline. Therefore, in calculating the basket components’ performance on the valuation date,
increases in the values of one or more basket components may be moderated, or wholly offset, by lesser increases or declines in
the values of other basket components.
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§
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The basket components
are not equally weighted.
The Buffered PLUS are linked to a basket of three basket components, and the basket components have
significantly different weights in determining the value of the basket. The same percentage change in two of the basket components
could therefore have different effects on the basket closing value because of the unequal weighting. For example, if the weighting
of one basket component is greater than the weighting of another basket component, a 5% decrease in the value of the basket component
with the greater weighting will have a greater impact on the basket closing value than a 5% increase in the value of the basket
component with the lesser weighting.
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§
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Adjustments to the basket components could adversely
affect the value of the Buffered PLUS.
The publisher of each underlying index can add, delete or substitute the
stocks underlying such index, and can make other methodological changes that could change the value of such underlying index. Any
of these actions could adversely affect the value of the Buffered PLUS. In addition, an index publisher may discontinue
or suspend calculation or publication of the relevant underlying index at any time. In these circumstances, MS &
Co., as the calculation agent, will have the sole discretion to substitute a successor index for such index that is comparable
to the discontinued index and is permitted to consider indices that are calculated and published by MS & Co. or any of its
affiliates. If MS & Co. determines that there is no appropriate successor index for such index, the payment at maturity
on the Buffered PLUS will be an amount based on the closing prices on the valuation date of the securities constituting such underlying
index at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance
with the formula for calculating such underlying index last in effect prior to discontinuance of such index.
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§
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Investing in the Buffered PLUS is not equivalent
to investing in the basket components.
Investing in the Buffered PLUS is not equivalent to investing directly in
the basket components or any of the component stocks of the S&P 500
®
Index, the S&P MidCap 400
®
Index or the Russell 2000
®
Index. Investors in the Buffered PLUS will not have voting rights or rights
to receive dividends or other distributions or any other rights with respect to any of the component stocks of the S&P 500
®
Index, the S&P MidCap 400
®
Index or the Russell 2000
®
Index.
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§
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The rate we are willing
to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market
credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling,
structuring and hedging the Buffered PLUS in the original issue price reduce the economic terms of the Buffered PLUS, cause the
estimated value of the Buffered PLUS 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 Buffered PLUS 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 Buffered PLUS in the original issue price and the lower rate we are
willing to pay as issuer make the economic terms of the Buffered PLUS less favorable to you than they otherwise would be.
However, because
the costs associated with issuing, selling, structuring and hedging the Buffered PLUS are not fully deducted upon issuance, for
a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the Buffered PLUS in the secondary
market, absent changes in market conditions, including those related to the basket components, and to our secondary market credit
spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected
in your brokerage account statements.
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§
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The estimated value of the Buffered PLUS 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
Buffered PLUS than those generated by
|
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
others, including other dealers in the market, if
they attempted to value the Buffered PLUS. 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 Buffered PLUS in the secondary
market (if any exists) at any time. The value of your Buffered PLUS at any time after the date of this document will vary based
on many factors that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions. See
also “The market price will be influenced by many unpredictable factors” above.
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§
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The Buffered PLUS will not be listed on any securities
exchange and secondary trading may be limited.
The Buffered PLUS will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the Buffered PLUS. MS & Co. may, but is not obligated to, make a
market in the Buffered PLUS. Even if there is a secondary market, it may not provide enough liquidity to allow you to
trade or sell the Buffered PLUS easily. Because we do not expect that other broker dealers will participate significantly
in the secondary market for the Buffered PLUS, the price at which you may be able to trade your Buffered PLUS is likely to depend
on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were not to make a
market in the Buffered PLUS, it is likely that there would be no secondary market for the Buffered PLUS. Accordingly,
you should be willing to hold your Buffered PLUS to 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 Buffered PLUS.
As calculation
agent, MS & Co. will determine the initial basket component values, the multipliers and the final basket value, and will calculate
the basket percent change or basket performance factor, as applicable, and the amount of cash you will receive at maturity. Moreover,
certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make
subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events and the selection of
a successor index or calculation of the basket component closing value in the event of a market disruption event or discontinuance
of an underlying index. These potentially subjective determinations may adversely affect the payout to you at maturity. For
further information regarding these types of determinations, see “Description of PLUS—Postponement of Valuation Date(s)”
and “—Calculation Agent and Calculations” in the accompanying product supplement. In addition, MS
& Co. has determined the estimated value of the Buffered PLUS on the pricing date.
|
|
§
|
Hedging and trading activity by our affiliates
could potentially adversely affect the value of the Buffered PLUS.
One or more of our affiliates and/or third-party
dealers expect to carry out hedging activities related to the Buffered PLUS (and possibly to other instruments linked to the basket
components or component stocks of the S&P 500
®
Index, the S&P MidCap 400
®
Index or the Russell
2000
®
Index), including trading in the stocks that constitute the S&P 500
®
Index, the S&P
MidCap 400
®
Index or the Russell 2000
®
Index as well as in other instruments related to the basket
components. As a result, these entities may be unwinding or adjusting hedge positions during the term of the Buffered
PLUS, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation date approaches. Some
of our affiliates also trade the stocks that constitute the S&P 500
®
Index, the S&P MidCap 400
®
Index or the Russell 2000
®
Index and other financial instruments related to the basket components 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 basket component values of the basket components, and, therefore, could
increase the values at or above which the basket components must close on the valuation date so that investors do not suffer a
loss on their initial investment in the Buffered PLUS. Additionally, such hedging or trading activities during the term
of the Buffered PLUS, including on the valuation date, could adversely affect the closing values of the basket components on the
valuation date, and, accordingly, the amount of cash an investor will receive at maturity.
|
|
§
|
The U.S. federal income tax consequences of an
investment in the Buffered PLUS are uncertain.
Please read the discussion under “Additional Information—Tax
considerations” in this document and the discussion under “United States Federal Taxation” in the accompanying
product supplement for PLUS (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences
of an investment in the Buffered PLUS. If the Internal Revenue Service (the “IRS”) were successful in asserting
an alternative treatment, the timing and character of income on the Buffered PLUS 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 Buffered
PLUS as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the Buffered
PLUS every year at a “comparable yield” determined at the time of issuance and recognize all income and gain in respect
of the Buffered PLUS as ordinary income. Additionally, as discussed under “United States Federal Taxation—FATCA”
in the accompanying product supplement for PLUS, the withholding rules commonly referred to as “FATCA” would apply
to the Buffered PLUS 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 Buffered PLUS, would be recharacterized as debt is greater than the
|
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
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 Buffered PLUS, 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 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 Buffered
PLUS, 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 Buffered PLUS, 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
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
Basket Overview
The basket consists of the S&P 500
®
Index
(the “SPX Index”), the S&P MidCap 400
®
Index (the “MID Index”) and the Russell 2000
®
Index (the “RTY Index”) and offers exposure to price movements in U.S. equity markets.
S&P 500
®
Index.
The S&P 500
®
Index,
which is calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500
component companies selected to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500
®
Index
is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular
time as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941
through 1943. For additional information about the S&P 500
®
Index, see the information set forth under “S&P
500
®
Index” in the accompanying index supplement.
S&P MidCap 400
®
Index.
The S&P
MidCap 400
®
Index is published by S&P Dow Jones Indices LLC (“S&P”) and is intended to
provide a benchmark for performance measurement of the medium-capitalization segment of the U.S. equity markets. It tracks the
stock price movement of 400 companies with mid-sized market capitalizations, primarily ranging from $1.6 billion to $6.8 billion.
S&P chooses companies for inclusion in the S&P MidCap 400
®
Index with an aim of achieving a distribution
by broad industry groupings that approximates the distribution of these groupings in the common stock population of the medium
capitalization segment of the U.S. equity market. For additional information about the S&P MidCap 400
®
Index,
see the information set forth under “S&P MidCap 400
®
Index” in the accompanying index supplement.
Russell 2000
®
Index.
The Russell 2000
®
Index is an index calculated, published and disseminated by FTSE Russell, and measures the composite price performance of stocks
of 2,000 companies incorporated in the U.S. and its territories. All 2,000 stocks are traded on a major U.S. exchange
and are the 2,000 smallest securities that form the Russell 3000
®
Index. The Russell 3000
®
Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of
the U.S. equity market. The Russell 2000
®
Index consists of the smallest 2,000 companies included
in the Russell 3000
®
Index and represents a small portion of the total market capitalization of the Russell
3000
®
Index. The Russell 2000
®
Index is designed to track the performance
of the small capitalization segment of the U.S. equity market. For additional information about the Russell 2000
®
Index, see the information set forth under “Russell 2000
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
Information as of market close on May 30, 2019:
Basket Component Information as of May 30, 2019
|
|
Bloomberg Ticker Symbol
|
Current Basket Component Level
|
52 Weeks Ago
|
52-Week High
|
52-Week Low
|
SPX Index
|
SPX
|
2,788.86
|
2,705.27
|
(on 4/30/2019): 2,945.83
|
(on 12/24/2018): 2,351.10
|
MID Index
|
MID
|
1,828.67
|
1,967.96
|
(on 8/29/2018): 2,050.23
|
(on 12/24/2018): 1,567.40
|
RTY Index
|
RTY
|
1,485.531
|
1,647.989
|
(on 8/31/2018): 1,740.753
|
(on 12/24/2018): 1,266.925
|
The following graph is calculated based on an initial basket
value of 100 on January 1, 2014 (assuming that each basket component is weighted as described in “Basket” on the cover
page) and illustrates the effect of the offset and/or correlation among the basket components during the indicated period. The
graph does not take into account the terms of the Buffered PLUS, nor does it attempt to show your expected return on an investment
in the Buffered PLUS. The historical performance of the basket should not be taken as an indication of its future performance.
Basket Historical Performance
January 1, 2014 to May
30, 2019
|
|
The following graphs set forth the daily closing values of each
of the basket components for the period from January 1, 2014 through May 30, 2019. The related tables set forth the
published high and low closing values, as well as end-of-quarter closing values, for each of the basket components for each quarter
in the same period. The closing values for each of the basket components on May 30, 2019 were: (i) in the case of the
SPX Index, 2,788.86, (ii) in the case of the MID Index, 1,828.67, and (iii) in the case of the RTY Index, 1,485.531. We
obtained the information in the tables and graphs below from Bloomberg Financial Markets, without independent verification. The
historical values of the basket components should not be taken as an indication of their future performance, and no assurance can
be given as to the basket closing value on the valuation date.
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
S&P 500
®
Index
Daily Index Closing Values
January 1, 2014 to May 30, 2019
|
|
S&P 500
®
Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
2015
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
|
Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
|
Fourth Quarter
|
2,271.72
|
2,085.18
|
2,238.83
|
2017
|
|
|
|
First Quarter
|
2,395.96
|
2,238.83
|
2,362.72
|
Second Quarter
|
2,453.46
|
2,328.95
|
2,423.41
|
Third Quarter
|
2,519.36
|
2,409.75
|
2,519.36
|
Fourth Quarter
|
2,690.16
|
2,519.36
|
2,673.61
|
2018
|
|
|
|
First Quarter
|
2,872.87
|
2,581.00
|
2,640.87
|
Second Quarter
|
2,786.85
|
2,581.88
|
2,718.37
|
Third Quarter
|
2,930.75
|
2,713.22
|
2,913.98
|
Fourth Quarter
|
2,925.51
|
2,351.10
|
2,506.85
|
2019
|
|
|
|
First Quarter
|
2,854.88
|
2,447.89
|
2,834.40
|
Second Quarter (through May 30, 2019)
|
2,945.83
|
2,783.02
|
2,788.86
|
|
|
|
|
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 500
®
,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. For more information, see “S&P 500
®
Index”
in the accompanying index supplement.
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
S&P MidCap 400
®
Index
Daily Index Closing Values
January 1, 2014 to May 30, 2019
|
|
S&P MidCap 400
®
Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,389.21
|
1,265.61
|
1,378.50
|
Second Quarter
|
1,432.94
|
1,318.50
|
1,432.94
|
Third Quarter
|
1,445.16
|
1,365.31
|
1,370.97
|
Fourth Quarter
|
1,474.40
|
1,288.10
|
1,452.44
|
2015
|
|
|
|
First Quarter
|
1,539.61
|
1,410.91
|
1,524.03
|
Second Quarter
|
1,549.44
|
1,499.68
|
1,502.17
|
Third Quarter
|
1,522.99
|
1,351.29
|
1,368.91
|
Fourth Quarter
|
1,473.14
|
1,366.44
|
1,398.58
|
2016
|
|
|
|
First Quarter
|
1,445.19
|
1,238.82
|
1,445.19
|
Second Quarter
|
1,525.14
|
1,416.66
|
1,496.50
|
Third Quarter
|
1,581.51
|
1,482.30
|
1,552.26
|
Fourth Quarter
|
1,696.12
|
1,476.68
|
1,660.58
|
2017
|
|
|
|
First Quarter
|
1,758.27
|
1,660.58
|
1,719.65
|
Second Quarter
|
1,769.34
|
1,681.04
|
1,746.65
|
Third Quarter
|
1,795.94
|
1,691.67
|
1,795.94
|
Fourth Quarter
|
1,911.28
|
1,795.94
|
1,900.57
|
2018
|
|
|
|
First Quarter
|
1,995.23
|
1,801.29
|
1,878.77
|
Second Quarter
|
2,003.97
|
1,835.31
|
1,951.67
|
Third Quarter
|
2,050.23
|
1,951.67
|
2,019.55
|
Fourth Quarter
|
2,004.19
|
1,567.40
|
1,663.04
|
2019
|
|
|
|
First Quarter
|
1,933.72
|
1,631.56
|
1,896.27
|
Second Quarter (through May 30, 2019)
|
1,980.83
|
1,828.67
|
1,828.67
|
|
|
|
|
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 400
®
,” “Standard & Poor’s MidCap 400
®
Index” and
“S&P MidCap Index” are trademarks of Standard and Poor’s Financial Services LLC. For more information, see
“S&P MidCap 400
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
Russell 2000
®
Index
Daily Index Closing Values
January 1, 2014 to May 30, 2019
|
|
Russell 2000
®
Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,208.651
|
1,093.594
|
1,173.038
|
Second Quarter
|
1,192.964
|
1,095.986
|
1,192.964
|
Third Quarter
|
1,208.150
|
1,101.676
|
1,101.676
|
Fourth Quarter
|
1,219.109
|
1,049.303
|
1,204.696
|
2015
|
|
|
|
First Quarter
|
1,266.373
|
1,154.709
|
1,252.772
|
Second Quarter
|
1,295.799
|
1,215.417
|
1,253.947
|
Third Quarter
|
1,273.328
|
1,083.907
|
1,100.688
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
1,135.889
|
2016
|
|
|
|
First Quarter
|
1,135.889
|
953.715
|
1,114.028
|
Second Quarter
|
1,188.954
|
1,089.646
|
1,151.923
|
Third Quarter
|
1,263.438
|
1,139.453
|
1,251.646
|
Fourth Quarter
|
1,388.073
|
1,156.885
|
1,357.130
|
2017
|
|
|
|
First Quarter
|
1,413.635
|
1,345.598
|
1,385.920
|
Second Quarter
|
1,425.985
|
1,345.244
|
1,415.359
|
Third Quarter
|
1,490.861
|
1,356.905
|
1,490.861
|
Fourth Quarter
|
1,548.926
|
1,464.095
|
1,535.511
|
2018
|
|
|
|
First Quarter
|
1,610.706
|
1,463.793
|
1,529.427
|
Second Quarter
|
1,706.985
|
1,492.531
|
1,643.069
|
Third Quarter
|
1,740.753
|
1,643.069
|
1,696.571
|
Fourth Quarter
|
1,672.992
|
1,266.925
|
1,348.559
|
2019
|
|
|
|
First Quarter
|
1,590.062
|
1,330.831
|
1,539.739
|
Second Quarter (through May 30, 2019)
|
1,614.976
|
1,485.531
|
1,485.531
|
|
|
|
|
The “Russell 2000
®
Index” is a trademark
of FTSE Russell. For more information, see “Russell 2000
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
Additional Terms of the Buffered PLUS
Please read this information in conjunction with the summary
terms on the front cover of this document.
If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
|
Underlying index publishers:
|
With respect to each of the SPX Index and the MID Index, S&P
Dow Jones Indices LLC, or any successor thereof.
With respect to the RTY Index, FTSE Russell, or any
successor thereof.
|
Index closing value:
|
With respect to each of the SPX Index and the MID Index, the
index closing value on any index business day shall be determined by the calculation agent and shall equal the official closing
value of the relevant underlying index, or any successor index as defined under “Discontinuance of Any Underlying Index or
Basket Index; Alteration of Method of Calculation” in the accompanying product supplement, published at the regular official
weekday close of trading on such index business day by the underlying index publisher for the relevant underlying index, as determined
by the calculation agent. In certain circumstances, the index closing value for the SPX Index or the MID Index will
be based on the alternate calculation of the relevant underlying index as described under “Discontinuance of Any Underlying
Index or Basket Index; Alteration of Method of Calculation” in the accompanying product supplement.
With respect to the RTY Index, the index closing value on any
index business day shall be determined by the calculation agent and shall equal the closing value of the RTY Index or any successor
index reported by Bloomberg Financial Services, or any successor reporting service the calculation agent may select, on such index
business day. In certain circumstances, the index closing value for the RTY Index will be based on the alternate calculation
of the RTY Index as described under “Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation”
in the accompanying product supplement. The closing value of the RTY Index reported by Bloomberg Financial Services may be lower
or higher than the official closing value of the RTY Index published by the underlying index publisher for the RTY Index.
|
Interest:
|
None
|
Bull market or bear market Buffered PLUS:
|
Bull Market Buffered PLUS
|
Postponement of maturity date:
|
If the valuation date for any basket component 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 such valuation date as postponed.
|
Denominations:
|
$1,000 per Buffered PLUS and integral multiples thereof
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”)
|
Issuer notice to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the valuation 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 Buffered PLUS 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 Buffered PLUS 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 actual valuation date.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee and to the depositary of the amount of cash to be delivered with respect to each stated principal
amount of the Buffered PLUS, 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 Buffered PLUS to the trustee for delivery to the depositary, as
holder of the Buffered PLUS, on the maturity date.
|
Morgan Stanley Finance LLC
|
Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
Additional Information About the Buffered PLUS
Minimum ticketing size:
|
$1,000 / 1 Buffered PLUS
|
Tax considerations:
|
Although there is uncertainty regarding the U.S. federal income tax consequences of an investment in the Buffered PLUS 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 Buffered PLUS 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 Buffered PLUS is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement for PLUS, 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 Buffered PLUS prior to settlement, other than pursuant to a sale or exchange.
|
|
§
Upon sale,
exchange or settlement of the Buffered PLUS, 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 Buffered PLUS. Such gain or loss should be long-term capital gain
or loss if the investor has held the Buffered PLUS 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 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 Buffered PLUS, possibly with
retroactive effect.
As discussed
in the accompanying product supplement for PLUS, Section 871(m) of the Internal Revenue Code of 1986, as amended, and Treasury
regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding
tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S.
equities or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions,
Section 871(m) generally applies to securities that substantially replicate the economic performance of one or more Underlying
Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However,
pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have a delta of
one with respect to any Underlying Security. Based on the terms of the Buffered PLUS and current market conditions,
we expect that the Buffered PLUS 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 final pricing supplement. Assuming that the Buffered PLUS do not have a delta of
one with respect to any Underlying Security, our counsel is of the opinion that the Buffered PLUS 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 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 Buffered
PLUS.
Both U.S.
and non-U.S. investors considering an investment in the Buffered PLUS should read the discussion under “Risk Factors”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for
PLUS and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the Buffered
PLUS, including possible alternative treatments, the issues
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Morgan Stanley Finance LLC
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Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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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 product supplement for PLUS, 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 Buffered PLUS.
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Use of proceeds and hedging:
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The proceeds from the sale of the Buffered PLUS will be used
by us for general corporate purposes. We will receive, in aggregate, $1,000 per Buffered PLUS issued, because, when
we enter into hedging transactions in order to meet our obligations under the Buffered PLUS, our hedging counterparty will reimburse
the cost of the agent’s commissions. The costs of the Buffered PLUS borne by you and described on page 2 above
comprise the agent’s commissions and the cost of issuing, structuring and hedging the Buffered PLUS.
On or prior to the pricing date, we expect to hedge our anticipated
exposure in connection with the Buffered PLUS by entering into hedging transactions with our affiliates and/or third-party dealers. We
expect our hedging counterparties to take positions in the basket components, in futures and/or options contracts on the basket
components or component stocks of the S&P 500
®
Index, the S&P MidCap 400
®
Index and
the Russell 2000
®
Index listed on major securities markets or positions in any other available securities or instruments
that they may wish to use in connection with such hedging. Such purchase activity could potentially increase the initial
basket component values of the basket components, and, therefore, could increase the values at or above which the basket components
must close on the valuation date so that investors do not suffer a loss on their initial investment in the Buffered PLUS. In
addition, through our affiliates, we are likely to modify our hedge position throughout the term of the Buffered PLUS, including
on the valuation date, by purchasing and selling the stocks constituting the S&P 500
®
Index, the S&P MidCap
400
®
Index and the Russell 2000
®
Index, futures and/or options contracts on the basket components
or component stocks of the S&P 500
®
Index, the S&P MidCap 400
®
Index and the Russell
2000
®
Index or positions in any other available securities or instruments that we may wish to use in connection
with such hedging activities. As a result, these entities may be unwinding or adjusting hedge positions during the term
of the Buffered PLUS, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation
date approaches. We cannot give any assurance that our hedging activities will not affect the values of the basket components,
and, therefore, adversely affect the value of the Buffered PLUS or the payment 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
for PLUS.
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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 Buffered PLUS. 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 Buffered PLUS 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 Buffered PLUS 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 Buffered PLUS. 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
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Morgan Stanley Finance LLC
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Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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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 Buffered PLUS.
Because we may be considered a party in interest with respect
to many Plans, the Buffered PLUS 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 Buffered PLUS will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase
and holding of the Buffered PLUS that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such Buffered PLUS
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 Buffered PLUS 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 Buffered PLUS on behalf of or with “plan assets” of any Plan consult with their
counsel regarding the availability of exemptive relief.
The Buffered PLUS are contractual financial instruments. The
financial exposure provided by the Buffered PLUS 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 Buffered PLUS. The
Buffered PLUS 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 Buffered PLUS.
Each purchaser or holder of any Buffered PLUS 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 Buffered PLUS, (B) the purchaser or holder’s investment in the Buffered PLUS, or (C) the exercise of or failure
to exercise any rights we have under or with respect to the Buffered PLUS;
(ii)
we and our affiliates have acted
and will act solely for our own account in connection with (A) all transactions relating to the Buffered PLUS and (B) all hedging
transactions in connection with our obligations under the Buffered PLUS;
(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 Buffered PLUS has exclusive
responsibility for ensuring that its purchase, holding and disposition of the Buffered PLUS do not violate the prohibited transaction
rules of ERISA or the Code or any Similar Law. The sale of any Buffered PLUS 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
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Morgan Stanley Finance LLC
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Buffered PLUS Based on the Value of a Basket Consisting of Three Indices due June 10, 2021
Buffered Performance Leveraged Upside Securities
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Principal at Risk Securities
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generally and such purchasers of the Buffered PLUS should consult
and rely on their own counsel and advisers as to whether an investment in the Buffered PLUS 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 Buffered PLUS if the account, plan or annuity is for the benefit of an employee of
Morgan Stanley, Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the Buffered PLUS 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 Buffered PLUS, either directly or indirectly.
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Supplemental information regarding plan of distribution; conflicts of interest:
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Selected dealers, which may include our affiliates, and their
financial advisors will collectively receive from the agent a fixed sales commission of $ for
each Buffered PLUS 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 Buffered PLUS. When MS & Co. prices this offering of Buffered PLUS, it will determine the economic terms of
the Buffered PLUS such that for each Buffered PLUS 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 product supplement
for PLUS.
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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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MSFL and Morgan Stanley have filed a registration statement (including
a prospectus, as supplemented by the product supplement for PLUS 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 PLUS, 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 MSFL, 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 and/or Morgan Stanley will arrange to send you the product supplement for PLUS, index 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:
Product Supplement for PLUS 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 PLUS, in the index supplement or in the prospectus.
“Performance Leveraged Upside Securities
SM
”
and “PLUS
SM
” are our service marks.
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