CALCULATION
OF REGISTRATION FEE
|
|
Maximum Aggregate
|
|
Amount of Registration
|
Title of Each Class of Securities Offered
|
|
Offering Price
|
|
Fee
|
Jump Securities with Auto-Callable Feature
|
|
$6,505,000
|
|
$788.41
|
due 2024
|
|
|
|
|
June 2019
Pricing Supplement No. 2,188
Registration Statement Nos.
333-221595; 333-221595-01
Dated June 27, 2019
Filed pursuant to Rule 424(b)(2)
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S. Equities
Jump Securities with Auto-Callable Feature Based
on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
The
securities are unsecured obligations of
Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally
guaranteed by Morgan Stanley.
The securities do not guarantee the repayment
of principal, do not provide for the regular payment of interest and have the terms described in the accompanying product supplement,
index supplement and prospectus, as supplemented or modified by this document.
Beginning after one year, t
he
securities will be automatically redeemed if the index closing value on
any of the semi-annual determination dates
is
greater than or equal to 96% of the initial index value, which we refer to as the call threshold level, for an early redemption
payment that will increase over the term of the securities and that will correspond to a return of approximately 7.50%
per
annum
, as described below. No further payments will be made on the securities once they have been redeemed. At maturity,
if
the securities have not previously been redeemed and the final index value is greater than or equal to the call threshold level,
investors will receive a fixed positive return that will also correspond to a return of approximately 7.50%
per annum
,
as set forth below. If the securities are not automatically redeemed prior to maturity and the final index value is less than
the call threshold level but has not decreased by an amount greater than the specified buffer amount from the initial index value,
investors will receive the stated principal amount of their investment. However, if the securities are not automatically redeemed
prior to maturity and the final index value is less than the initial index value by an amount greater than the buffer amount,
investors will lose 1.25% for every 1% decline beyond the specified buffer amount. There is no minimum payment at maturity on
the securities.
Accordingly,
i
nvestors in the securities must be willing to accept the risk of losing their entire initial
investment.
These long-dated securities are for investors who are willing to risk their principal and forego current income
and participation in the appreciation of the underlying index in exchange for the possibility of receiving an early redemption
payment or payment at maturity greater than the stated principal amount if the underlying index closes at or above the call threshold
level on a semi-annual determination date or the final determination date, respectively, with no possibility of an early redemption
until after the one-year non-call period and the buffer feature that applies only to a limited range of performance of the underlying
index. Investors will not participate in any appreciation of the S&P 500
®
Index. The securities are notes issued
as part of MSFL’s Series A Global Medium-Term Notes program.
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.
FINAL TERMS
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying index:
|
S&P 500
®
Index
|
Aggregate principal amount:
|
$6,505,000
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security
|
Pricing date:
|
June 27, 2019
|
Original issue date:
|
July 2, 2019 (3 business days after the pricing date)
|
Maturity date:
|
July 2, 2024
|
Early redemption:
|
The securities are not subject to automatic early redemption until approximately one year after the original issue date.
Following the initial 1-year non-call period, if, on any semi-annual determination date (other than the final determination date), beginning on June 30, 2020, the index closing value of the underlying index is
greater than or equal to
the call threshold level, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date.
|
Early redemption payment:
|
The early redemption payment will be an amount in cash
per stated principal amount (corresponding to a return of approximately 7.50%
per annum
) for each semi-annual determination
date. See “Determination Dates, Early Redemption Dates and Early Redemption Payments” below.
No further payments will be made on the securities once
they have been redeemed.
|
Determination dates:
|
Semi-annually. See “Determination Dates, Early
Redemption Dates and Early Redemption Payments” below. We also refer to June 27, 2024 as the final determination date.
The determination dates are subject to postponement
for non-index business days and certain market disruption events.
|
Early redemption dates:
|
See “Determination Dates, Early Redemption Dates and Early Redemption Payments” below. If any such day is not a business day, the early redemption payment, if payable, will be paid on the next business day, and no adjustment will be made to the early redemption payment.
|
Initial index value:
|
2,924.92, which is the index closing value on the pricing date
|
Final index value:
|
The index closing value on the final determination date
|
Payment at maturity:
|
If the securities have not previously been redeemed,
you will receive at maturity a cash payment per security as follows:
·
If
the final index value is
greater than or equal to
the call threshold level:
$1,375.00
·
If
the final index value is
less than
the call threshold level but has decreased from the initial index value by an amount
less than or equal to
the buffer amount of 20%:
$1,000
·
If
the final index value is
less than
the call threshold level and has decreased from the initial index value by an amount
greater than
the buffer amount of 20%:
$1,000 + [$1,000 × (index return + 20%)
× downside factor]
Under these circumstances, the payment
at maturity will be less than the stated principal amount of $1,000 and could be zero.
|
Call threshold level:
|
2,807.923, which is approximately 96% of the initial index value
|
Buffer amount:
|
20%. As a result of the buffer amount of 20%, the value at or above which the underlying index must close on the final determination date so that investors do not suffer a loss on their initial investment in the securities is 2,339.936, which is approximately 80% of the initial index value.
|
Downside factor:
|
1.25
|
Index return:
|
(Final index value – initial index value) / initial index value
|
CUSIP:
|
61769HJH9
|
ISIN:
|
US61769HJH93
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Agent:
|
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.”
|
Estimated value on the pricing date:
|
$991.60 per security. See “Investment Summary” beginning on page 3.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions
(1)
|
Proceeds to us
(2)
|
Per security
|
$1,000
|
$0
|
$1,000
|
Total
|
$6,505,000
|
$0
|
$6,505,000
|
|
|
|
|
|
|
|
|
|
(1)
|
MS & Co. will act as
the agent for this offering and will not receive a sales commission in connection with
sales of the securities. 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.
|
|
(2)
|
See “Use of proceeds
and hedging” on page 19.
|
The securities involve risks
not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 11.
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 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 product
supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Terms of the Securities” and “Additional Information About the Securities” at the end of this document.
As used in this document, “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product
Supplement for Auto-Callable Securities dated November 16, 2017
Index
Supplement dated November 16, 2017
Prospectus
dated November 16, 2017
Morgan Stanley Finance LLC
Jump Securities
with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial
Non-Call Period
Principal
at Risk Securities
Determination Dates, Early
Redemption Dates and Early Redemption Payments (Beginning After One Year)
Determination Dates
|
Early Redemption Dates
|
Early Redemption Payments (per $1,000 Security)
|
1
st
determination date: June 30, 2020
|
1
st
early redemption date: July 6, 2020
|
$1,075.00
|
2
nd
determination date: December 28, 2020
|
2
nd
early redemption date: December 31, 2020
|
$1,112.50
|
3
rd
determination date: June 28, 2021
|
3
rd
early redemption date: July 1, 2021
|
$1,150.00
|
4
th
determination date: December 27, 2021
|
4
th
early redemption date: December 30, 2021
|
$1,187.50
|
5
th
determination date: June 27, 2022
|
5
th
early redemption date: June 30, 2022
|
$1,225.00
|
6
th
determination date: December 27, 2022
|
6
th
early redemption date: December 30, 2022
|
$1,262.50
|
7
th
determination date: June 27, 2023
|
7
th
early redemption date: June 30, 2023
|
$1,300.00
|
8
th
determination date: December 27, 2023
|
8
th
early redemption date: January 2, 2024
|
$1,337.50
|
Final determination date: June 27, 2024
|
See “Maturity date” above.
|
See “Payment at maturity” above.
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
Investment Summary
Jump Securities with Auto-Callable Feature
Principal at Risk Securities
Jump Securities with Auto-Callable Feature Based on the Performance
of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period (the “securities”) do
not provide for the regular payment of interest and do not guarantee the repayment of principal. Instead, beginning after one year,
the securities will be automatically redeemed if the index closing value on any semi-annual determination date is greater than
or equal to the call threshold level, for an early redemption payment that will increase over the term of the securities and that
will correspond to a return of approximately 7.50%
per annum
, as described below. At maturity, if the securities have not
previously been redeemed and the final index value is greater than or equal to the call threshold level, investors will receive
a fixed positive return that will also correspond to a return of approximately 7.50%
per annum
, as set forth below. If the
final index value is less than the call threshold level but has not decreased by an amount greater than the specified buffer amount
from the initial index value, investors will receive the stated principal of $1,000. However, if the final index value is less
than the initial index value by an amount greater than the buffer amount, investors will lose 1.25% for every 1% decline beyond
the specified buffer amount. There is no minimum payment at maturity on the securities.
Accordingly,
i
nvestors in the
securities must be willing to accept the risk of losing their entire initial investment.
Maturity:
|
5 years
|
Automatic early redemption:
|
The securities are not subject to automatic early redemption until approximately one year after the original issue date.
Following this initial 1-year non-call period, if, on any semi-annual determination date, the index closing value of the underlying index is greater than or equal to the call threshold level, the securities will be automatically redeemed for the early redemption payment on the related early redemption date.
|
Early redemption payment:
|
The early redemption payment will be an amount in cash per stated
principal amount (corresponding to a return of approximately 7.50%
per annum
) for each semi-annual determination date, as
follows:
·
1
st
determination date: $1,075.00
·
2
nd
determination date: $1,112.50
·
3
rd
determination date: $1,150.00
·
4
th
determination date: $1,187.50
·
5
th
determination date: $1,225.00
·
6
th
determination date: $1,262.50
·
7
th
determination date: $1,300.00
·
8
th
determination date: $1,337.50
No further payments will be made on the securities once they
have been redeemed.
|
Payment at maturity:
|
If the securities have not previously been redeemed, you will
receive at maturity a cash payment per security as follows:
·
If
the final index value is
greater than or equal to
the call threshold level:
$1,375.00
·
If
the final index value is
less than
the call threshold level but has decreased from the initial index value by an amount
less than or equal to
the buffer amount of 20%:
$1,000
·
If
the final index value is
less than
the call threshold level and has decreased from
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
|
the initial index value by an
amount
greater than
the buffer amount of 20%:
$1,000 + [$1,000 × (index return + 20%) ×
downside factor]
If the final index value is less than the call threshold level
and has decreased from the initial index value by an amount greater than the buffer amount, the payment at maturity will be less
than the stated principal amount of $1,000 and could be zero.
Accordingly, investors in the securities must be willing to accept
the risk of losing their entire initial investment.
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
The original issue price of each security is
$1,000. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by
you, and, consequently, the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value
of each security on the pricing date is $991.60.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
index. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying index, instruments based on the underlying index, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the early redemption payment amounts, the call threshold level, the buffer amount and the downside factor, we use an
internal funding rate, which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If
the issuing, selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or
more of the economic terms of the securities would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the
securities in the secondary market, absent changes in market conditions, including those related to the underlying index, may vary
from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary
market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type
and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not
fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy
or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
index, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that
those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to,
make a market in the securities and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, beginning after one year, the securities will be automatically redeemed for an early redemption amount (corresponding
to a return of approximately 7.50%
per annum
) if the index closing value on any semi-annual determination date is
greater
than or equal to
the call threshold level.
The following scenarios are for illustrative purposes only to
demonstrate how an automatic early redemption payment or the payment at maturity (if the securities have not previously been redeemed)
are calculated, and do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or may not be
redeemed prior to maturity and the payment at maturity may be less than the stated principal amount of the securities and may be
zero.
Scenario 1: The securities are redeemed prior to maturity
|
Beginning after one year, when the underlying index closes at or above the call threshold level on any semi-annual determination date, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date, corresponding to a return of approximately 7.50%
per annum
. Investors do not participate in any appreciation of the underlying index.
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive a fixed positive return at maturity
|
This scenario assumes that the underlying index closes below the call threshold level on each of the semi-annual determination dates (beginning after one year). Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes at or above the call threshold level. At maturity, investors will receive a cash payment equal to $1,375.00 per stated principal amount, corresponding to a return of approximately 7.50%
per annum
. Investors do not participate in any appreciation of the underlying index.
|
Scenario 3: The securities are not redeemed prior to maturity, and investors receive the stated principal amount at maturity
|
This scenario assumes that the underlying index closes below the call threshold level on each of the semi-annual determination dates (beginning after one year). Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes below the call threshold level but is not less than the initial index value by an amount greater than the buffer amount of 20%. At maturity, investors will receive a cash payment equal to the stated principal amount of $1,000.
|
Scenario 4: The securities are not redeemed prior to maturity, and investors suffer a loss of principal at maturity
|
This scenario assumes that the underlying index closes below the call threshold level on each of the semi-annual determination dates (beginning after one year). Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes below the call threshold level and is less than the initial index value by an amount greater than the buffer amount of 20%. At maturity, investors will receive an amount that is less than the stated principal amount by an amount that is proportionate to the percentage decrease beyond the buffer amount multipled by the downside factor of 1.25. Under these circumstances, the payment at maturity will be less than the stated principal amount and could be zero.
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples are for illustrative purposes
only. Whether the securities are redeemed prior to maturity will be determined by reference to the index closing value on each
of the semi-annual determination dates (beginning after one year), and the payment at maturity will be determined by reference
to the index closing value on the final determination date. The actual initial index value and call threshold level are set forth
on the cover page of this document. Some numbers appearing in the examples below have been rounded for ease of analysis. All payments
on the securities are subject to our credit risk. The below examples are based on the following terms:
Hypothetical Initial Index Value:
|
2,900
|
Early Redemption Payment:
|
The early redemption payment will be an amount in cash per stated
principal amount (corresponding to a return of approximately 7.50%
per annum
) for each semi-annual determination date (beginning
after one year), as follows:
·
1
st
determination date: $1,075.00
·
2
nd
determination date: $1,112.50
·
3
rd
determination date: $1,150.00
·
4
th
determination date: $1,187.50
·
5
th
determination date: $1,225.00
·
6
th
determination date: $1,262.50
·
7
th
determination date: $1,300.00
·
8
th
determination date: $1,337.50
No further payments will be made on the securities once they
have been redeemed.
|
Payment at Maturity:
|
If the securities have not previously been redeemed, you will
receive at maturity a cash payment per security as follows:
·
If
the final index value is
greater than or equal to
the call threshold level:
$1,375.00
·
If
the final index value is
less than
the call threshold level but has decreased from the initial index value by an amount
less than or equal to
the buffer amount of 20%:
$1,000
·
If
the final index value is
less than
the call threshold level and has decreased from the initial index value by an amount
greater than the buffer amount of 20%:
$1,000
+ [$1,000
×
(index return + 20%) × downside factor]
Under these circumstances, the payment at maturity
will be less than the stated principal amount of $1,000 and could be zero.
|
Hypothetical Call Threshold Level:
|
2,784, which is 96% of the hypothetical initial index value
|
Stated Principal Amount:
|
$1,000
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
Automatic Call:
Example 1 — the securities are redeemed
following the second determination date
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,500 (below the call threshold level, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
3,400 (at or above the call threshold level, securities are automatically redeemed)
|
$1,112.50
|
In this example, the index closing value on
the first determination date is below the call threshold level, and the index closing value on the second determination date is
at or above the call threshold level. Therefore the securities are automatically redeemed on the second early redemption date.
Investors will receive $1,112.50 per security on the related early redemption date, corresponding to an annual return of approximately
7.50%. No further payments will be made on the securities once they have been redeemed, and investors do not participate in the
appreciation of the underlying index.
Payment at Maturity
In the following examples, the index closing
value on each of the semi-annual determination dates (beginning after one year) is less than the call threshold level, and, consequently,
the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
Example 1 — the final index value
is at or above the initial index value
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,500 (below the call threshold level, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
2,200 (below the call threshold level, securities are not redeemed)
|
--
|
3
rd
Determination Date
|
2,400 (below the call threshold level, securities are not redeemed)
|
--
|
4
th
Determination Date
|
2,700 (below the call threshold level, securities are not redeemed)
|
--
|
5
th
to 8
th
Determination Dates
|
Various closing values (
all below
the call threshold level, securities are not redeemed)
|
--
|
Final Determination Date
|
4,930 (at or above the call threshold level)
|
$1,375.00
|
In this example, the index closing value is
below the call threshold level on each of the determination dates before the final determination date, and therefore the securities
are not redeemed prior to maturity. On the final determination date, the underlying index has appreciated 70% from the hypothetical
initial index value. At maturity, investors receive $1,375.00 per security, corresponding to an annual return of approximately
7.50%. However, investors do not participate in the appreciation of the underlying index over the term of the securities.
Example 2 — the final index value
is below the call threshold level but has decreased from the initial index value by an amount less than or equal to the buffer
amount of 20%:
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,500 (below the call threshold level, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
2,200 (below the call threshold level, securities are not redeemed)
|
--
|
3
rd
Determination Date
|
2,700 (below the call threshold level, securities are not redeemed)
|
--
|
4
th
Determination Date
|
2,600 (below the call threshold level, securities are not redeemed)
|
--
|
5
th
to 8
th
Determination Dates
|
Various closing values (
all below
the call threshold level, securities are not redeemed)
|
--
|
Final Determination Date
|
2,610 (below the call threshold level, but has decreased from the initial index value by an amount less than or equal to the buffer amount of 20%)
|
$1,000.00
|
In this example, the index closing value is
below the call threshold level on each of the determination dates before the final determination date, and therefore the securities
are not redeemed prior to maturity. On the final determination date, the final index value is below the call threshold level but
has decreased from the initial index value by an amount less than or equal to the buffer amount of 20%, and accordingly, investors
receive a payment at maturity equal to the stated principal amount of $1,000 per security.
Example 3 — the final index value
has decreased from the initial index value by an amount greater than the buffer amount of 20%
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,500 (below the call threshold level, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
2,200 (below the call threshold level, securities are not redeemed)
|
--
|
3
rd
Determination Date
|
2,600 (below the call threshold level, securities are not redeemed)
|
--
|
4
th
Determination Date
|
2,500 (below the call threshold level, securities are not redeemed)
|
--
|
5
th
to 8
th
Determination Dates
|
Various closing values (
all below
the call threshold level, securities are not redeemed)
|
--
|
Final Determination Date
|
1,450 (below the call threshold level and has decreased from the initial index value by an amount greater than the buffer amount of 20%)
|
$1,000 + [$1,000 × (index return + 20%) × downside factor] = $1,000 + [$1,000 × (-50% + 20%) × 1.25] = $625.00
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
In this example, the index closing value is
below the call threshold level on each of the determination dates before the final determination date, and therefore the securities
are not redeemed prior to maturity. On the final determination date, the final index value has decreased from the initial index
value by an amount greater than the buffer amount of 20%, and accordingly, investors lose 1.25% for every 1% by which the underlying
index has declined over the term of the securities beyond the buffer amount, and will receive a payment at maturity that is significantly
less than the stated principal amount of the securities. The payment at maturity is $625.00 per security, representing a loss of
37.50% on your investment.
If the securities are not redeemed prior
to maturity and the final index value is less than the initial index value by an amount greater than the buffer amount of 20%,
you will lose some or all of your investment in the securities.
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
Risk Factors
The
following is a list of certain key risk factors for investors in the securities. For further discussion of these and other risks,
you should read the section entitled “Risk Factors” in the accompanying product supplement, index supplement and prospectus.
We also urge you to consult with your investment, legal, tax, accounting and other advisers
in connection with your
investment in the securities
.
|
§
|
The securities do not pay interest or guarantee the return of any
principal.
The terms of the securities differ from those of ordinary debt securities in that they do not pay interest
or guarantee the return of any of the principal amount at maturity. If the securities have not been automatically redeemed prior
to maturity and if the final index value has declined from the initial index value by an amount greater than the buffer amount
of 20%, you will receive for each security that you hold at maturity an amount that is less than the stated principal amount by
an amount proportionate to the decline in the value of the underlying index beyond the buffer amount
times
the downside
factor of 1.25.
As there is no minimum payment at maturity on the securities, you could lose your entire investment.
|
|
§
|
The appreciation potential of the securities is limited by the fixed
early redemption payment or payment at maturity specified for each determination date.
The
appreciation potential of the securities is limited to the fixed early redemption payments specified for each determination date,
if the underlying index closes at or above the call threshold level on any of the first eight determination dates, or to the fixed
$1,375.00 upside payment at maturity, if the securities have not been redeemed prior to maturity and the final index value is at
or above the call threshold level. In all cases, you will not participate in any appreciation of the underlying index, which could
be significant.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control, will influence the value of the securities
in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary
market. We expect that generally the level of interest rates available in the market and the value of the
underlying
index
on any day will affect the value of the securities
more than any other factors. Other factors that may influence the value of the securities include:
|
|
o
|
the volatility (frequency and magnitude of changes in value) of the S&P 500
®
Index,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks
of the underlying index or securities markets generally and which may affect the value of the underlying index,
|
|
o
|
dividend rates on the securities underlying the S&P 500
®
Index,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the composition of the S&P 500
®
Index and changes in the constituent stocks of such index, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Generally, the longer the time remaining
to maturity, the more the market price of the securities will be affected by the other factors described above.
Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity.
You
cannot predict the future performance of the S&P 500
®
Index based on its historical performance. There can be
no assurance that the closing value of the underlying index will be at or above the call threshold level on any of the semi-annual
determination dates (beginning after one year) or that the final index level will not decrease from the initial index value by
an amount greater than the buffer amount of 20% so that you do not suffer a loss on your initial investment in the securities.
See “S&P 500
®
Index Overview” below.
|
§
|
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
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
amounts due on the securities upon
an early redemption or at maturity and therefore you are subject to our credit risk. If we default on our obligations under the
securities, your investment would be at risk and you could lose some or all of your investment. As a result, the market value of
the securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any actual or
anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit risk is
likely to adversely affect the market value of the securities.
|
§
|
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.
|
|
§
|
Reinvestment risk.
The term
of your investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities
are redeemed prior to maturity, you will receive no further payments on the securities and may be forced to invest in a lower interest
rate environment and may not be able to reinvest at comparable terms or returns.
However, under no circumstances
will the securities be redeemed in the first year of the term of the securities.
|
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be limited
,
and
accordingly, you should be willing to hold your securities for the entire 5-year term of the securities.
The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary
market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any,
at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it
is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
|
|
§
|
Not equivalent to investing in the underlying index.
Investing in the securities is not equivalent to investing in
the underlying index or its component stocks. Investors in the securities will not participate in any appreciation of the underlying
index, and will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to
stocks that constitute the underlying index.
|
|
§
|
The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well
as other factors.
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying index, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
Hedging and trading activity by our affiliates could potentially affect the value of the securities.
One or more of
our affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related to the securities
(and to other instruments linked to the underlying index or its component stocks), including trading in the stocks that constitute
the underlying index as well as in other instruments related to the underlying index. As a result, these entities may be unwinding
or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent
dynamic adjustments to the hedge as the final determination date approaches. Some of our affiliates also trade the stocks that
constitute the underlying index and other financial instruments related to the underlying index on a regular basis as part of their
general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing date could have
increased the initial index value, and, therefore, could have increased (i) the value at or above which the underlying index must
close on the determination dates so that the securities are redeemed prior to maturity for the early redemption payment, or so
that you receive a positive return at maturity, and (ii) the value at or above which the underlying index must close on the final
determination date so that you are not exposed to the negative performance of the underlying index at maturity. Additionally, such
hedging or trading activities during the term of the securities could potentially affect the value of the underlying index on the
determination dates, and, accordingly, whether we redeem the securities prior to maturity and the amount of cash you will receive
at maturity, if any.
|
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. has determined the initial index value and the call threshold level and
will determine whether the securities will be redeemed on any early redemption date, the final index value and the payment you
will receive at maturity, if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent,
may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of
market disruption events and the selection of a successor index or calculation of the index closing value in the event of a market
disruption event or discontinuance of the underlying index, may adversely affect the payout to you at maturity, if any. For further
information regarding these types of determinations, see "Description of Auto-Callable Securities—Postponement of Determination
Dates," "—Alternate Exchange Calculation in Case of an Event of Default,” "—Discontinuance of
Any Underlying Index; Alteration of Method of Calculation” and "—Calculation Agent and Calculations" in the
accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing
date.
|
|
§
|
Adjustments to the underlying index could adversely affect the value of the securities.
The publisher of the underlying
index may add, delete or substitute the component stocks of the underlying index or make other
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
methodological changes that could
change the value of the underlying index. Any of these actions could adversely affect the value of the securities. The publisher
of the underlying index may also discontinue or suspend calculation or publication of the underlying index at any time. In these
circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable
to the discontinued index. MS & Co. could have an economic interest that is different than that of investors in the securities
insofar as, for example, MS & Co. is permitted to consider indices that are calculated and published by MS & Co. or any
of its affiliates. If MS & Co. determines that there is no appropriate successor index, the determination of whether the securities
will be redeemed on any subsequent early redemption date or the payment at maturity, as applicable, will be based on whether the
value of the underlying index based on the closing prices of the securities constituting the underlying index at the time of such
discontinuance, without rebalancing or substitution, computed by MS & Co. as calculation agent in accordance with the formula
for calculating the underlying index last in effect prior to such discontinuance is greater than or equal to the call threshold
level or 80% of the initial index value, as applicable.
|
§
|
The U.S. federal income tax consequences of an investment in the securities 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 auto-callable securities (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 for the securities, 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 product supplement for auto-callable
securities, 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 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
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
S&P 500
®
Index Overview
The S&P 500
®
Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies selected
to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500
®
Index is based
on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time
as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941 through
1943. For additional information about the S&P 500
®
Index, see the information set forth under “S&P
500
®
Index” in the accompanying index supplement.
Information as of market close on June 27, 2019:
Bloomberg Ticker Symbol:
|
SPX
|
Current Index Closing Value:
|
2,924.92
|
52 Weeks Ago:
|
2,699.63
|
52 Week High (on 6/20/2019):
|
2,954.18
|
52 Week Low (on 12/24/2018):
|
2,351.10
|
The following graph sets forth the published high and low index
closing values, as well as end-of-quarter index closing values, of the underlying index for each quarter in the period from January
1, 2014 through June 27, 2019. The related table sets forth the published high and low closing values, as well as end-of-quarter
closing values, of the underlying index for each quarter in the same period. The index closing value of the underlying index on
June 27, 2019 was 2,924.92. We obtained the information in the table and graph below from Bloomberg Financial Markets, without
independent verification. The underlying index has at times experienced periods of high volatility, and you should not take the
historical values of the underlying index as an indication of its future performance.
S&P 500
®
Index
Daily Index
Closing Values
January 1,
2014 to June 27, 2019
|
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
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
|
2,257.83
|
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
|
2,529.12
|
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 June 27, 2019)
|
2,954.18
|
2,744.45
|
2,924.92
|
“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
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Terms:
|
If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
|
Postponement of the maturity date and early redemption dates:
|
If any determination date is postponed due to a non-index business day or certain market disruption events so that it falls less than two business days prior to the relevant scheduled early redemption date or maturity date, the early redemption date or maturity date will be postponed to the second business day following that determination date as postponed, and no adjustment will be made to any early redemption payment or the payment at maturity made on such postponed date.
|
Underlying index publisher:
|
S&P Dow Jones Indices LLC or any successor thereof
|
Jump securities with auto-callable feature:
|
The accompanying product supplement refers to these jump securities with auto-callable feature as the “auto-callable securities.”
|
Denominations:
|
$1,000 per security and integral multiples thereof
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
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 final determination date, the issuer shall give notice of such postponement and, once it has been determined, of the date
to which the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice of such postponement
by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books,
(ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its
New York office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile confirmed by
mailing such notice to the depositary by first class mail, postage prepaid. Any notice that is mailed to a registered holder of
the securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered holder,
whether or not such registered holder receives the notice. The issuer shall give such notice as promptly as possible, and in no
case later than (i) with respect to notice of postponement of the maturity date, the business day immediately preceding the scheduled
maturity date and (ii) with respect to notice of the date to which the maturity date has been rescheduled, the business day immediately
following the final determination date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable determination date, give notice of the early redemption and
the early redemption payment, including specifying the payment date of the amount due upon the early redemption, (x) to each registered
holder of the securities by mailing notice of such early redemption by first class mail, postage prepaid, to such registered holder’s
last address as it shall appear upon the registry books, (y) to the trustee by facsimile confirmed by mailing such notice to the
trustee by first class mail, postage prepaid, at its New York office and (z) to the depositary by telephone or facsimile confirmed
by mailing such notice to the depositary by first class mail, postage prepaid and (ii) on or prior to the early redemption date,
deliver the aggregate cash amount due with respect to the securities to the trustee for delivery to the depositary, as holder of
the securities. Any notice that is mailed to a registered holder of the securities in the manner herein provided shall be conclusively
presumed to have been duly given to such registered holder, whether or not such registered holder receives the notice. This notice
shall be given by the issuer or, at the issuer’s request, by the trustee in the name and at the expense of the issuer, with
any such request to be accompanied by a copy of the notice to be given.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash, if any, to be delivered with respect to each security on or prior to 10:30 a.m. (New York City time) on the business day
preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to the securities, if any, to the trustee
for delivery to the depositary, as holder of the securities, on the maturity date.
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
®
Index due July 2, 2024, With 1-year Initial Non-Call Period
Principal at Risk Securities
Additional Information About the Securities
Additional Information:
|
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, each security should
be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
|
|
Assuming this treatment of the securities
is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement
for auto-callable securities, the following U.S. federal income tax consequences should result based on current law:
|
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§
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.
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§
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.
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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 securities, possibly with retroactive effect.
As discussed
in the accompanying product supplement for auto-callable securities, 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 our determination that the securities do not have a delta of one
with respect to any Underlying Security, our counsel is of the opinion that the securities should not be Specified Securities and,
therefore, should not be subject to Section 871(m).
Our determination
is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may
depend on your particular circumstances, including whether you 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 securities.
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Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
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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 product supplement for auto-callable securities 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 product supplement for auto-callable securities, 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.
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Use of proceeds and hedging:
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The proceeds we receive from the sale of the securities will
be used for general corporate purposes. We will receive, in aggregate, $1,000 per security issued. The costs of the securities
borne by you and described beginning on page 3 above comprise the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we hedged 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 have taken positions in the securities constituting the underlying index and in futures and/or options
contracts on the underlying index or its component stocks listed on major securities markets. Such purchase activity could have
increased the initial index value, and, therefore, could have increased (i) the value at or above which the underlying index must
close on the determination dates so that the securities are redeemed prior to maturity for the early redemption payment, or so
that you receive a positive return at maturity, and (ii) the value at or above which the underlying index must close on the final
determination date so that you are not exposed to the negative performance of the underlying index at maturity. These entities
may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and
more frequent dynamic adjustments to the hedge as the final determination date approaches. Additionally, our hedging activities,
as well as our other trading activities, during the term of the securities could potentially affect the value of the underlying
index on the determination dates, and, accordingly, whether we redeem the securities prior to maturity and the amount of cash 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 product supplement.
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Benefit plan investor considerations:
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Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including
MS & Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions
between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such 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
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Morgan Stanley Finance LLC
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(“PTCEs”) that may provide exemptive relief
for direct or indirect prohibited transactions resulting from the purchase or holding of the securities. Those class exemptions
are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1
(for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by
independent qualified professional asset managers). In addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) provide
an exemption for the purchase and sale of securities and the related lending transactions, provided that neither the issuer of
the securities nor any of its affiliates has or exercises any discretionary authority or control or renders any investment advice
with respect to the assets of the Plan involved in the transaction and provided further that the Plan pays no more, and receives
no less, than “adequate consideration” in connection with the transaction (the so-called “service provider”
exemption). There can be no assurance that any of these class or statutory exemptions will be available with respect to transactions
involving the securities.
Because we may be considered a party in interest with
respect to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets
include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or
any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive
relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase,
holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee
or holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and
holding of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf
of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject
to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section
4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition of these securities will not constitute
or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar
Law.
Due to the complexity of these rules and the penalties
that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries
or other persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with
their counsel regarding the availability of exemptive relief.
The securities are contractual financial instruments.
The financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy
for, individualized investment management or advice for the benefit of any purchaser or holder of the securities. The securities
have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of
any purchaser or holder of the securities.
Each purchaser or holder of any securities
acknowledges and agrees that:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii) any and all assets
and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets
and positions held for the benefit of the purchaser
or holder;
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Morgan Stanley Finance LLC
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(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive
responsibility for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction
rules of ERISA or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect
a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements
with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally
or any particular plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be
investment advice directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these securities
should consult and rely on their own counsel and advisers as to whether an investment in these securities is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations:
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Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the securities, either directly or indirectly.
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Supplemental information regarding plan of distribution; conflicts of interest:
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MS & Co. will act as the agent for this offering and will
not receive a sales commission in connection with sales of the securities.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for auto-callable securities.
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Validity of the securities:
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In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith),
provided
that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to
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Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature Based on the Performance of the S&P 500
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the trustee, all as stated in the letter of such counsel dated November 16, 2017, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 16, 2017.
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Where you can find more information:
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MSFL and Morgan Stanley have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration
statement, the product supplement for auto-callable securities, the index supplement and any other documents relating to this offering
that MSFL and Morgan Stanley have filed with the SEC for more complete information about 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, Morgan Stanley, any underwriter or any dealer participating in the offering will arrange to send you the prospectus,
the product supplement for auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov
as follows:
Product
Supplement for Auto-Callable Securities dated November 16, 2017
Index
Supplement dated November 16, 2017
Prospectus
dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement for auto-callable securities, in the index supplement or in the prospectus.
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