The original issue price of each security is $1,000. This
price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date will be less than $1,000. We estimate that the value of each
security on the pricing date will be approximately $950.40, or within $22.50 of that estimate. Our estimate of the value
of the securities as determined on the pricing date will be set forth in the final pricing supplement.
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 stocks. The
estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating
to the underlying stocks, instruments based on the underlying stocks, 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.
In determining the economic terms of the securities, including
the contingent quarterly coupon rate and the downside threshold levels, we use an internal funding rate, which is likely to be
lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring
and hedging costs borne by you were lower or if the internal funding rate were higher, one or more terms of the securities would
be more favorable to you.
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying stocks, 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
stocks, 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.
The securities do not provide for the regular payment of interest. Instead,
the securities will pay a contingent quarterly coupon
but only if
the determination closing price of
each underlying
stock
is
at or above
its respective downside threshold level on the related observation date. The securities
have been designed for investors who are willing to forgo market floating interest rates and risk the loss of principal and accept
the risk of receiving few or no coupon payments for the entire 3-year term of the securities in exchange for an opportunity to
earn interest at a potentially above-market rate if both underlying stocks close at or above their respective downside threshold
levels on each quarterly observation date, unless the securities are redeemed early. The following scenarios are for
illustration purposes only to demonstrate how the coupon and the payment at maturity (if the securities have not previously been
redeemed) are calculated, and do not attempt to demonstrate every situation that may occur. Accordingly, the securities
may or may not be redeemed, the contingent coupon may be payable in none of, or some but not all of, the quarterly periods during
the 3-year term of the securities, and the payment at maturity may be less than 50% of the stated principal amount of the securities
and may be zero.
Scenario 1: The securities are redeemed prior to maturity
|
This scenario assumes that, prior to early redemption, both underlying
stocks close at or above their respective downside threshold levels on some quarterly observation dates, but one or both underlying
stocks close below the respective downside threshold level(s) on the others. Investors receive the contingent quarterly
coupon for the quarterly periods for which the determination closing prices of both underlying stocks are at or above their respective
downside threshold levels on the related observation date, but not for the quarterly periods for which the determination closing
price(s) of one or both underlying stocks are below the respective downside threshold level(s) on the related observation date.
When both underlying stocks close at or above their respective
initial share prices on a quarterly redemption determination date (beginning after six months), the securities will be automatically
redeemed for the stated principal amount
plus
the contingent quarterly coupon with respect to the related observation date.
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
|
This scenario assumes that both underlying stocks close at or above their respective downside threshold levels on some quarterly observation dates, but one of both underlying stocks close below the respective downside threshold level(s) on the others, and at least one of the underlying stocks closes below its initial share price on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing prices of both underlying stocks are at or above their respective downside threshold levels on the related observation date, but not for the quarterly periods for which the determination closing price(s) of one or both underlying stocks are below the respective downside threshold level(s) on the related observation date. On the final observation date, both underlying stocks close at or above their respective downside threshold levels. At maturity, in addition to the contingent quarterly coupon with respect to the final observation date, investors will receive the stated principal amount.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
|
This scenario assumes that both underlying stocks close at or above their respective downside threshold levels on some quarterly observation dates, but one or both underlying stocks close below the respective downside threshold level(s) on the others, and at least one of the underlying stocks closes below its initial share prices on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing prices of both underlying stocks are greater than or equal to their respective downside threshold levels on the related observation date, but not for the quarterly periods for which the determination closing price(s) of one or both underlying stocks are below the respective downside threshold level(s) on the related observation date. On the final observation date, one or both underlying stocks close below the respective downside threshold level(s). At maturity, investors will receive an amount equal to the stated principal amount multiplied by the share performance factor of the worst performing underlying stock. Under these circumstances, the payment at maturity will be less than 50% of the stated principal amount and could be zero. No coupon will be paid at maturity in this scenario.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing prices on each quarterly observation date, (2) the determination closing
prices on each quarterly redemption determination date and (3) the final share prices. Please see “Hypothetical
Examples” below for an illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Quarterly Coupons (Beginning
on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Starting
in January 2020)
Morgan Stanley Finance LLC
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Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
For more information about the payout upon an early redemption
or at maturity in different hypothetical scenarios, see “Hypothetical Examples” below.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity,
if any, assuming the securities are not redeemed prior to maturity. The following examples are for illustrative purposes
only. Whether you receive a contingent quarterly coupon will be determined by reference to the determination closing
price of each underlying stock on each quarterly observation date, and the amount you will receive at maturity, if any, will be
determined by reference to the final share price of each underlying stock on the final observation date. The actual
initial share price and downside threshold level for each underlying stock will be determined on the pricing date. All
payments on the securities, if any, are subject to our credit risk. The below examples are based on the following terms:
Hypothetical Contingent Quarterly Coupon:
|
9.75% per annum (corresponding to approximately $24.375 per quarter
per security, the midpoint of the range set forth on the cover of this document)
1
With respect to each coupon payment date, a contingent quarterly
coupon is paid but only if the determination closing price of each underlying stock is at or above its respective downside threshold
level on the related observation date.
|
Payment at Maturity (if the securities are not redeemed prior to maturity):
|
If the final share price of
each
underlying stock is
greater
than or equal to
its respective downside threshold level: the stated principal amount and the contingent quarterly coupon with
respect to the final observation date
If the final share price of
either
underlying stock is
less than
its respective downside threshold level: (i) the stated principal amount
multiplied by
(ii) the share performance
factor of the worst performing underlying stock
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Share Price:
|
With respect to the BP Stock: $40.00
With respect to the MPC Stock: $55.00
|
Hypothetical Downside Threshold Level:
|
With respect to the BP Stock: $20.00, which is 50% of its hypothetical
initial share price
With respect to the MPC Stock: $27.50, which is 50% of its hypothetical
initial share price
|
1
The actual contingent quarterly coupon will be an
amount determined by the calculation agent based on the actual contingent quarterly coupon rate and the number of days in the applicable
payment period, calculated on a 30/360 day count basis. The hypothetical contingent quarterly coupon of $24.375 is used
in these examples for ease of analysis.
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date:
|
Determination Closing Price
|
Hypothetical Contingent Quarterly Coupon
|
|
BP Stock
|
MPC Stock
|
|
Hypothetical Observation Date 1
|
$32.00 (
at or above
its downside threshold level)
|
$34.00 (
at or above
its downside threshold level)
|
$24.375
|
Hypothetical Observation Date 2
|
$15.00 (
below
its downside threshold level)
|
$40.00 (
at or above
its downside threshold level)
|
$0
|
Hypothetical Observation Date 3
|
$35.00 (
at or above
its downside threshold level)
|
$23.00 (
below
its downside threshold level)
|
$0
|
Hypothetical Observation Date 4
|
$18.00 (
below
its downside threshold level)
|
$25.00 (
below
its downside threshold level)
|
$0
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
On hypothetical observation date 1, both the BP Stock and MPC
Stock close at or above their respective downside threshold levels. Therefore, a hypothetical contingent quarterly coupon
of $24.375 is paid on the relevant coupon payment date.
On each of hypothetical observation dates 2 and 3, one underlying
stock closes at or above its downside threshold level but the other underlying stock closes below its downside threshold level. Therefore,
no contingent quarterly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 4, each underlying stock closes
below its respective downside threshold level and accordingly no contingent quarterly coupon is paid on the relevant coupon payment
date.
You will not receive a contingent quarterly coupon on any
coupon payment date if the determination closing price of either underlying stock is below its respective downside threshold level
on the related observation date.
How to calculate the payment at maturity:
In the following examples, one or both underlying stocks close
below the respective initial share price(s) on each redemption determination date, and, consequently, the securities are not automatically
redeemed prior to, and remain outstanding until, maturity.
|
Final Share Price
|
Payment at Maturity
|
|
BP Stock
|
MPC Stock
|
|
Example 1:
|
$50.00 (
at or above
its downside threshold level)
|
$65.00 (
at or above
its downside threshold level)
|
$1,024.375 (the stated principal amount
plus
the contingent quarterly coupon with respect to the final observation date)
|
Example 2:
|
$18.00 (
below
its downside threshold level)
|
$60.00 (
at or above
its initial share price)
|
$1,000 x share performance factor of the worst performing underlying stock = $1,000 x ($18.00 / $40.00) = $450.00
|
Example 3:
|
$30.00 (
at or above
its downside threshold level)
|
$22.00 (
below
its downside threshold level)
|
$1,000 x ($22.00 / $55.00) = $400.00
|
Example 4:
|
$16.00 (
below
its downside threshold level)
|
$19.25 (
below
its downside threshold level)
|
$1,000 x ($19.25 / $55.00) = $350.00
|
Example 5:
|
$12.00 (
below
its downside threshold level)
|
$19.25 (
below
its downside threshold level)
|
$1,000 x ($12.00 / $40.00 = $300.00
|
In example 1, the final share prices of both the BP Stock and
MPC Stock are at or above their respective downside threshold levels. Therefore, investors receive at maturity the stated
principal amount of the securities and the hypothetical contingent quarterly coupon with respect to the final observation date.
However, investors do not participate in any appreciation of either underlying stock.
In example 2, the final share price of one underlying stock is
above its initial share price, but the final share price of the other underlying stock is below its downside threshold level. Therefore,
investors are exposed to the downside performance of the worst performing underlying stock at maturity and receive an amount equal
to the stated principal amount
times
the share performance factor of the worst performing underlying stock.
In example 3, the final share price of one underlying stock is
at or above its downside threshold level, but the final share price of the other underlying stock is below its downside threshold
level. Therefore, investors are exposed to the downside performance of the worst performing underlying stock at maturity
and receive at maturity an amount equal to the stated principal amount times the share performance factor of the worst performing
underlying stock.
In examples 4 and 5, the final share prices of both underlying
stocks are below their respective downside threshold levels, and investors receive at maturity an amount equal to the stated principal
amount
times
the share performance factor of the worst performing underlying stock. In example 4, the BP Stock
has declined 60% from its initial share price to its final share price, while
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
the MPC Stock has declined 65% from its initial share price to
its final share price. Therefore, the payment at maturity equals the stated principal amount
times
the share
performance factor of the MPC Stock, which is the worst performing underlying stock in this example. In example 5, the
BP Stock has declined 70% from its initial share price to its final share price, while the MPC Stock has declined 65% from its
initial share price. Therefore the payment at maturity equals the stated principal amount
times
the share performance
factor of the BP Stock, which is the worst performing underlying stock in this example.
If the final share price of EITHER underlying stock is below
its respective downside threshold level, you will be exposed to the downside performance of the worst performing underlying stock
at maturity, and your payment at maturity will be less than 50% of the stated principal amount per security and could be zero.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
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 and prospectus. You should also consult with your investment,
legal, tax, accounting and other advisers in connection with your investment in the securities.
|
§
|
The securities do not guarantee the return of any
principal.
The terms of the securities differ from those of ordinary debt securities in that they do not 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 share price of either underlying stock is less than its downside threshold level of 50% of its initial
share price, you will be exposed to the decline in the closing price of the worst performing underlying stock, as compared to the
initial share price, on a 1-to-1 basis, and you will receive for each security that you hold at maturity an amount equal to the
stated principal amount
times
the share performance factor of the worst performing underlying stock. In this
case, the payment at maturity will be less than 50% of the stated principal amount and could be zero.
You could lose
up to your entire investment in the securities.
|
|
§
|
The securities do not provide for the regular payment
of interest and may pay no interest over the entire term of the securities.
The terms of the securities differ from
those of ordinary debt securities in that they do not provide for the regular payment of interest. Instead, the securities
will pay a contingent quarterly coupon
but only if
the determination closing price of each underlying stock is
at or
above
50% of its respective initial share price, which we refer to as the respective downside threshold level, on the related
observation date. If, on the other hand, the determination closing price of
either
underlying stock is lower
than its downside threshold level on the relevant observation date for any interest period, we will pay no coupon on the applicable
coupon payment date. It is possible that the determination closing price of either underlying stock could remain below
the respective downside threshold level for extended periods of time or even throughout the entire 3-year term of the securities
so that you will receive few or no contingent quarterly coupons. If you do not earn sufficient contingent coupons over
the term of the securities, the overall return on the securities may be less than the amount that would be paid on a conventional
debt security of ours of comparable maturity.
|
|
§
|
You are exposed to the price risk of both underlying
stocks, with respect to both the contingent quarterly coupons, if any, and the payment at maturity, if any.
Your
return on the securities is not linked to a basket consisting of both underlying stocks. Rather, it will be contingent
upon the independent performance of each underlying stock. Unlike an instrument with a return linked to a basket of
underlying assets, in which risk is mitigated and diversified among all the components of the basket, you will be exposed to the
risks related to both underlying stocks. Poor performance by
either
underlying stock over the term of the securities
may negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying stock. To
receive
any
contingent quarterly coupons,
both
underlying stocks must close at or above their respective downside
threshold levels on the applicable observation date. In addition, if
either
underlying stock has declined to
below its respective downside threshold level as of the final observation date, you will be
fully exposed
to the decline
in the worst performing underlying stock over the term of the securities on a 1-to-1 basis, even if the other underlying stock
has appreciated. Under this scenario, the payment at maturity will be less than 50% of the stated principal amount and
could be zero. Accordingly, your investment is subject to the price risk of both underlying stocks.
|
|
§
|
The contingent coupon, if any, is based only on
the determination closing prices of the underlying stocks on the related quarterly observation date at the end of the related interest
period
.
Whether the contingent coupon will be paid on any coupon payment date will be determined at the end
of the relevant interest period based on the determination closing price of each underlying stock on the relevant quarterly observation
date. As a result, you will not know whether you will receive the contingent coupon on any coupon payment date until
near the end of the relevant interest period. Moreover, because the contingent coupon is based solely on the price of
each underlying stock on quarterly observation dates, if the determination closing price of either underlying stock on any observation
date is below the respective downside threshold level, you will receive no coupon for the related interest period, even if the
price(s) of one or both underlying stocks were higher on other days during that interest period.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
|
§
|
Investors will not participate in any appreciation
in the price of either underlying stock.
Investors will not participate in any appreciation in the price of either
underlying stock from its initial share price, and the return on the securities will be limited to the contingent quarterly coupon,
if any, that is paid with respect to each observation date on which both determination closing prices are greater than or equal
to their respective downside threshold levels, if any.
|
|
§
|
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 prices of the underlying stocks on any day, including
in relation to the respective downside threshold levels, 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 trading price and volatility (frequency and magnitude of changes in value) of the underlying stocks,
|
|
o
|
whether the determination closing price of either underlying stock has been below its respective downside threshold level on
any observation date,
|
|
o
|
dividend rates on the underlying stocks,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stocks
and which may affect the prices of the underlying stocks,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some or all of these factors will influence the price
that you will receive if you sell your securities prior to maturity. For example, you may have to sell your securities
at a substantial discount from the stated principal amount of $1,000 per security if the price of either underlying stock at the
time of sale is near or below its downside threshold level or if market interest rates rise.
The price of either or both underlying stocks may
be, and have recently been, volatile, and we can give you no assurance that the volatility will lessen. The prices of
either or both the underlying stocks may decrease and be below the respective downside threshold level(s) on each observation date
so that you will receive no return on your investment or receive a payment at maturity that is less than 50% of the stated principal
amount. There can be no assurance that the determination closing prices of both underlying stocks will be at or above
their respective downside threshold levels on any observation date so that you will receive a coupon payment on the securities
for the applicable interest period or, with respect to the final observation date, so that you do no suffer a significant loss
on your initial investment in the securities. See “BP p.l.c. Overview” and “Marathon Petroleum Corporation
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 amounts due on the securities on each coupon payment date, upon automatic redemption and
at maturity and therefore you are subject to our credit risk. The securities are not guaranteed by any other entity. If
we default on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment. As
a result, the market value of the securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any
actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit
risk is likely to adversely affect the market value of the securities.
|
|
§
|
There are risks associated with investments in
securities linked to the value of equity securities issued by a foreign company.
The ordinary shares of BP p.l.c. are
issued by a foreign company. Investments in securities
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
linked to the value of any equity securities issued
by a foreign company involve risks associated with the securities markets in those countries, including risks of volatility in
those markets, governmental intervention in those markets and cross-shareholdings in companies in certain countries. Also, there
is generally less publicly available information about foreign companies than about U.S. companies that are subject to the reporting
requirements of the Securities and Exchange Commission, and foreign companies are subject to accounting, auditing and financial
reporting standards and requirements different from those applicable to U.S. reporting companies. The prices of securities issued
by foreign companies may be affected by political, economic, financial and social factors in those countries, or global regions,
including changes in government, economic and fiscal policies and currency exchange laws.
|
§
|
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 more contingent quarterly coupons and may be forced to invest in
a lower interest rate environment and may not be able to reinvest at comparable terms or returns. However, under no
circumstances will the securities be redeemed in the first six months of the term of the securities.
|
|
§
|
Investing in the securities is not equivalent to
investing in the ordinary shares of BP p.l.c. or the common stock of Marathon Petroleum Corporation.
Investors in
the securities will not participate in any appreciation in the underlying stocks, and will not have voting rights or rights to
receive dividends or other distributions or any other rights with respect to the underlying stocks. As a result, any
return on the securities will not reflect the return you would realize if you actually owned shares of the underlying stocks and
received the dividends paid or distributions made on them.
|
|
§
|
No affiliation with BP p.l.c. or Marathon Petroleum
Corporation.
BP p.l.c. and Marathon Petroleum Corporation are not affiliates of ours, are not involved with this
offering in any way, and have no obligation to consider your interests in taking any corporate actions that might affect the value
of the securities. We have not made any due diligence inquiry with respect to BP p.l.c. or Marathon Petroleum Corporation
in connection with this offering.
|
|
§
|
We may engage in business with or involving BP
p.l.c. or Marathon Petroleum Corporation without regard to your interests.
We or our affiliates may presently or
from time to time engage in business with BP p.l.c. or Marathon Petroleum Corporation without regard to your interests and thus
may acquire non-public information about BP p.l.c. or Marathon Petroleum Corporation. Neither we nor any of our affiliates
undertakes to disclose any such information to you. In addition, we or our affiliates from time to time have published
and in the future may publish research reports with respect to BP p.l.c. or Marathon Petroleum Corporation, which may or may not
recommend that investors buy or hold the underlying stock(s).
|
|
§
|
The antidilution adjustments the calculation agent
is required to make do not cover every corporate event that could affect the underlying stocks.
MS & Co., as
calculation agent, will adjust the adjustment factors for certain corporate events affecting the underlying stocks, such as stock
splits, stock dividends and extraordinary dividends, and certain other corporate actions involving the issuers of the underlying
stocks, such as mergers. However, the calculation agent will not make an adjustment for every corporate event that can
affect the underlying stocks. For example, the calculation agent is not required to make any adjustments if the issuers
of the underlying stocks or anyone else makes a partial tender or partial exchange offer for the underlying stocks, nor will adjustments
be made following
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
the final observation date. In addition,
no adjustments will be made for regular cash dividends, which are expected to reduce the price of the underlying stocks by the
amount of such dividends. If an event occurs that does not require the calculation agent to adjust an adjustment factor,
such as a regular cash dividend, the market price of the securities and your return on the securities may be materially and adversely
affected. For example, if the record date for a regular cash dividend were to occur on or shortly before an observation date, this
may decrease the determination closing price of an underlying stock to be less than the respective downside threshold level (resulting
in no contingent quarterly coupon being paid with respect to such date) or the final share price to be less than the respective
downside threshold level (resulting in a loss of a significant portion of all of your investment in the securities), materially
and adversely affecting your return.
|
§
|
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 3-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.
|
|
§
|
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.
|
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 stocks, 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
&
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
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 expect
to carry out hedging activities related to the securities (and to other instruments linked to the underlying stocks), including
trading in the underlying stocks. Some of our affiliates also trade the underlying stocks and other financial instruments
related to the underlying stocks on a regular basis as part of their general broker-dealer and other businesses. As
a result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy
may involve greater and more frequent dynamic adjustments to the hedge as the final observation date approaches. Any
of these hedging or trading activities on or prior to the pricing date could potentially increase the initial share price of an
underlying stock, and, therefore, could increase (i) the value at or above which such underlying stock must close on the redemption
determination dates so that the securities are redeemed prior to maturity for the early redemption payment (depending also on the
performance of the other underlying stock) and (ii) the downside threshold level for such underlying stock, which is the value
at or above which the underlying stock must close on the observation dates so that you receive a contingent quarterly coupon on
the securities (depending also on the performance of the other underlying stock), and, with respect to the final observation date,
so that you are not exposed to the negative performance of the worst performing underlying stock at maturity (depending also on
the performance of the other underlying stock). Additionally, such hedging or trading activities during the term of
the securities could potentially affect the value of either underlying stock on the redemption determination dates and the observation
dates, and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent quarterly coupon on the
securities and the amount of cash you will receive at maturity, if any (depending also on the performance of the other underlying
stock).
|
|
§
|
The calculation agent, which is a subsidiary of
Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities.
As calculation
agent, MS & Co. will determine the initial share prices, the downside threshold levels, the final share prices, the payment
at maturity, if any, whether you receive a contingent quarterly coupon on each coupon payment date and/or at maturity, whether
the securities will be redeemed on any early redemption date, whether a market disruption event has occurred and whether to make
any adjustments to the adjustment factors. 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 certain adjustments to the adjustment factors. These potentially subjective
determinations may affect the payout to you upon an automatic early redemption or at maturity, if any. For further information
regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable Securities Linked
to Underlying Shares” and “—Calculation Agent and Calculations” and related definitions in the accompanying
product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.
|
|
§
|
The U.S. federal income tax consequences of an
investment in the securities are uncertain.
There is no direct legal authority as to the proper treatment of the
securities for U.S. federal income tax purposes, and, therefore, significant aspects of the tax treatment of the securities are
uncertain.
|
Please read the discussion under “Additional
Information—Tax considerations” in this document concerning the U.S. federal income tax consequences of an investment
in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction
with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in
adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We
do not plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting
an alternative treatment for the securities, the timing and character of income or loss on the securities might differ significantly
from the tax treatment
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
described herein. For example, under one
possible treatment, the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders
(as defined below) would be required to accrue into income original issue discount on the securities every year at a “comparable
yield” determined at the time of issuance (as adjusted based on the difference, if any, between the actual and the projected
amount of any contingent payments on the securities) and recognize all income and gain in respect of the securities as ordinary
income. The risk that financial instruments providing for buffers, triggers or similar downside protection features,
such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable financial
instruments that do not have such features.
Non-U.S. Holders (as defined below) should note
that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision, and will not be required to pay any
additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department and the IRS
released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar
instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character
and timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences
of an investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax
consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
BP p.l.c. Overview
BP p.l.c. is a British multinational oil and gas company headquarted
in London, United Kingdom. The BP Stock is registered under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Information provided to or filed with the Securities and Exchange Commission by BP p.l.c. pursuant to the Exchange
Act can be located by reference to the Securities and Exchange Commission file number 001-06262 through the Securities and Exchange
Commission’s website at.www.sec.gov. In addition, information regarding BP p.l.c. may be obtained from other publicly available
sources.
Neither the issuer nor the agent makes any representation that any such publicly available information is accurate
or complete.
Information as of market close on June 28, 2019:
Bloomberg Ticker Symbol:
|
BP
|
Exchange:
|
NYSE
|
Current Stock Price:
|
$41.70
|
52 Weeks Ago:
|
$45.67
|
52 Week High (on 7/10/2018):
|
$47.05
|
52 Week Low (on 12/24/2018):
|
$36.65
|
Current Dividend Yield:
|
5.90%
|
|
|
The following table sets forth the published high and low closing
prices of, as well as dividends on, the BP Stock for each quarter from January 1, 2016 through June 28, 2019. The closing price
of the BP Stock on June 28, 2019 was $41.70. The associated graph shows the closing prices of BP Stock for each day from January
1, 2014 through June 28, 2019. We obtained the information in the table and graph below from Bloomberg Financial Markets, without
independent verification. The historical performance of the BP Stock should not be taken as an indication of its future
performance, and no assurance can be given as to the price of the BP Stock at any time, including the redemption determination
dates or the observation dates.
Ordinary Shares of BP p.l.c. (CUSIP 055622104)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2016
|
|
|
|
First Quarter
|
32.37
|
27.64
|
0.595
|
Second Quarter
|
35.51
|
28.93
|
0.595
|
Third Quarter
|
36.91
|
33.00
|
0.595
|
Fourth Quarter
|
37.40
|
32.98
|
0.595
|
2017
|
|
|
|
First Quarter
|
38.57
|
33.31
|
0.595
|
Second Quarter
|
36.96
|
34.00
|
0.595
|
Third Quarter
|
38.43
|
34.00
|
0.595
|
Fourth Quarter
|
42.03
|
38.26
|
0.595
|
2018
|
|
|
|
First Quarter
|
43.94
|
38.70
|
0.595
|
Second Quarter
|
47.79
|
39.91
|
0.595
|
Third Quarter
|
47.05
|
41.53
|
0.61
|
Fourth Quarter
|
46.99
|
36.65
|
0.61
|
2019
|
|
|
|
First Quarter
|
44.53
|
38.59
|
0.61
|
Second Quarter (through June 28, 2019)
|
45.23
|
40.44
|
0.61
|
|
|
|
|
We make no representation as to the amount of dividends, if any,
that BP p.l.c. may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable Securities,
you will not be entitled to receive dividends, if any, that may be payable on the ordinary shares of BP p.l.c.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
Ordinary Shares of BP p.l.c. – Daily Closing Prices
January 1, 2014 to June 28, 2019
|
|
* The red horizontal line indicates the hypothetical downside
threshold level, assuming the closing price of the BP Stock on June 28, 2019 were the initial share price.
This document relates only to the securities offered hereby
and does not relate to the BP Stock or other securities of BP p.l.c. We have derived all disclosures contained in this
document regarding BP p.l.c. stock from the publicly available documents described above. In connection with the offering
of the securities, neither we nor the agent has participated in the preparation of such documents or made any due diligence inquiry
with respect to BP p.l.c. Neither we nor the agent makes any representation that such publicly available documents or
any other publicly available information regarding BP p.l.c. is accurate or complete. Furthermore, we cannot give any
assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of
the publicly available documents described above) that would affect the trading price of the BP Stock (and therefore the price
of the BP Stock at the time we price the securities) have been publicly disclosed. Subsequent disclosure of any such
events or the disclosure of or failure to disclose material future events concerning BP p.l.c. could affect the value received
with respect to the securities and therefore the value of the securities.
Neither the issuer nor any of its affiliates makes any representation
to you as to the performance of the BP Stock.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
Marathon Petroleum Corporation Overview
Marathon Petroleum Corporation is a petroleum product refiner,
marketer and transporter. The MPC Stock is registered under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Information provided to or filed with the Securities and Exchange Commission by Marathon Petroleum Corporation pursuant
to the Exchange Act can be located by reference to the Securities and Exchange Commission file number 001-35054 through the Securities
and Exchange Commission’s website at www.sec.gov. In addition, information regarding Marathon Petroleum Corporation may be
obtained from other publicly available sources.
Neither the issuer nor the agent makes any representation that any such publicly
available information is accurate or complete.
Information as of market close on June 28, 2019:
Bloomberg Ticker Symbol:
|
MPC
|
Exchange:
|
NYSE
|
Current Stock Price:
|
$55.88
|
52 Weeks Ago:
|
$69.49
|
52 Week High (on 10/3/2018):
|
$86.39
|
52 Week Low (on 5/31/2019):
|
$45.99
|
Current Dividend Yield:
|
3.79%
|
|
|
The following table sets forth the published high and low closing
prices of, as well as dividends on, the MPC Stock for each quarter from January 1, 2016 through June 28, 2019. The closing price
of the MPC Stock on June 28, 2019 was $55.88. The associated graph shows the closing prices of MPC Stock for each day from January
1, 2014 through June 28, 2019. We obtained the information in the table and graph below from Bloomberg Financial Markets, without
independent verification. The historical performance of the MPC Stock should not be taken as an indication of its future
performance, and no assurance can be given as to the price of the MPC Stock at any time, including the redemption determination
dates or the observation dates.
Common Stock of Marathon Petroleum Corporation (CUSIP 56585A102)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2016
|
|
|
|
First Quarter
|
51.24
|
30.73
|
0.32
|
Second Quarter
|
41.46
|
32.81
|
0.32
|
Third Quarter
|
43.74
|
35.48
|
0.36
|
Fourth Quarter
|
51.12
|
40.96
|
0.36
|
2017
|
|
|
|
First Quarter
|
52.93
|
47.71
|
0.36
|
Second Quarter
|
55.03
|
48.19
|
0.36
|
Third Quarter
|
56.53
|
49.45
|
0.40
|
Fourth Quarter
|
66.84
|
55.72
|
0.40
|
2018
|
|
|
|
First Quarter
|
73.68
|
62.79
|
0.46
|
Second Quarter
|
82.93
|
69.20
|
0.46
|
Third Quarter
|
85.79
|
69.60
|
0.46
|
Fourth Quarter
|
86.39
|
54.32
|
0.46
|
2019
|
|
|
|
First Quarter
|
67.18
|
57.50
|
0.53
|
Second Quarter (through June 28, 2019)
|
63.60
|
45.99
|
0.53
|
|
|
|
|
We make no representation as to the amount of dividends, if any,
that Marathon Petroleum Corporation may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable
Securities, you will not be entitled to receive dividends, if any, that may be payable on the common stock of Marathon Petroleum
Corporation.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
Common Stock of Marathon Petroleum Corporation – Daily Closing Prices
January 1, 2014 to June 28, 2019
|
|
* The red horizontal line indicates the hypothetical downside
threshold level, assuming the closing price of the MPC Stock on June 28, 2019 were the initial share price.
This document relates only to the securities offered hereby
and does not relate to the MPC Stock or other securities of Marathon Petroleum Corporation. We have derived all disclosures
contained in this document regarding Marathon Petroleum Corporation stock from the publicly available documents described above. In
connection with the offering of the securities, neither we nor the agent has participated in the preparation of such documents
or made any due diligence inquiry with respect to Marathon Petroleum Corporation. Neither we nor the agent makes any
representation that such publicly available documents or any other publicly available information regarding Marathon Petroleum
Corporation is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the
date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above)
that would affect the trading price of the MPC Stock (and therefore the price of the MPC Stock at the time we price the securities)
have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material
future events concerning Marathon Petroleum Corporation could affect the value received with respect to the securities and therefore
the value of the securities.
Neither the issuer nor any of its affiliates makes any representation
to you as to the performance of the MPC Stock.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
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.
If the terms described herein are inconsistent with those described in the accompanying product supplement or prospectus, the terms described herein shall control.
|
Interest period:
|
The quarterly period from and including the original issue date (in the case of the first interest period) or the previously scheduled coupon payment date, as applicable, to but excluding the following scheduled coupon payment date, with no adjustment for any postponement thereof.
|
Record date:
|
The record date for each coupon payment date shall be the date one business day prior to such scheduled coupon payment date;
provided
, however, that any coupon payable at maturity (or upon early redemption) shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
|
Underlying stock:
|
The accompanying product supplement refers to the underlying stock as the “underlying shares.”
|
Underlying stock issuer:
|
With respect to the BP Stock, BP p.l.c.
With respect to the MPC Stock, Marathon Petroleum Corporation
The accompanying product supplement refers to the underlying
stock issuer as the “underlying company.”
|
Downside threshold level:
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
Day count convention:
|
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
|
Postponement of coupon payment dates (including the maturity date) and early redemption dates:
|
If any observation date or redemption determination date for any underlying stock is postponed due to a non-trading day or certain market disruption events with respect to such underlying stock so that it falls less than two business days prior to the relevant scheduled coupon payment date (including the maturity date) or early redemption date, as applicable, the coupon payment date (or the maturity date) or the early redemption date will be postponed to the second business day following that observation date or redemption determination date as postponed, and no adjustment will be made to any coupon payment, early redemption payment or payment at maturity made on that postponed date.
|
Antidilution adjustments:
|
The following replaces in its entirety the portion of the
section entitled “Antidilution Adjustments” in the accompanying product supplement for auto-callable securities from
the start of paragraph 5 to the end of such section.
5. If, with respect to either or both underlying stocks, (i)
there occurs any reclassification or change of such underlying stock, including, without limitation, as a result of the issuance
of any tracking stock by the underlying stock issuer for such underling stock, (ii) such underlying stock issuer or any surviving
entity or subsequent surviving entity of such underlying stock issuer (the “successor corporation”) has been subject
to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory exchange of securities of such underlying
stock issuer or any successor corporation with another corporation occurs (other than pursuant to clause (ii) above), (iv) such
underlying stock issuer is liquidated, (v) such underlying stock issuer issues to all of its shareholders equity securities of
an issuer other than such underlying stock issuer (other than in a transaction described in clause (ii), (iii) or (iv) above) (a
“spin-off event”) or (vi) a tender or exchange offer or going-private transaction is consummated for all the outstanding
shares of such underlying stock (any such event in clauses (i) through (vi), a “reorganization event”), the method
of determining whether an early redemption has occurred and the amount payable upon an early redemption date or at maturity for
each security will be as follows:
·
Upon
any redemption determination date following the effective date of a reorganization event and prior to the final observation date: If
the exchange property value (as defined below) is greater than or equal to its initial share price, and the determination closing
price (or exchange property value, if applicable) of the other underlying stock is also greater than or equal to its initial share
price, the securities will be automatically redeemed for an early redemption payment.
·
Upon
the final observation date, if the securities have not previously been automatically redeemed: You will receive for
each security that you hold a payment at maturity equal
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
|
to:
Ø
If
the exchange property value on the final observation date is greater than or equal to the respective downside threshold level,
and the final share price of the other underlying stock (or exchange property value, as applicable) is also greater than its downside
threshold level:
(i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the final observation
date.
Ø
If
the exchange property value on the final observation date is less than the respective downside threshold level, or if the final
share price (or exchange property value, if applicable) of the other underlying stock is less than its downside threshold level:
Ø
If
the worst performing underlying stock has not undergone a reorganization event as described in paragraph 5 above:
(i) the stated
principal amount multiplied by (ii) the share performance factor of the worst performing underlying stock.
Ø
If
the worst performing underlying stock has undergone a reorganization event as described in paragraph 5 above:
(i) the stated
principal amount multiplied by (ii) the share performance factor of the worst performing underlying stock. For purposes
of calculating the share performance factor, the “final share price” of the worst performing underlying stock will
be deemed to equal the cash value, determined as of the final observation date, of the securities, cash or any other assets distributed
to holders of the worst performing underlying stock in or as a result of any such reorganization event, including (A) in the case
of the issuance of tracking stock, the reclassified share of such worst performing underlying stock, (B) in the case of a spin-off
event, the share of such worst performing underlying stock with respect to which the spun-off security was issued, and (C) in the
case of any other reorganization event where such worst performing underlying stock continues to be held by the holders receiving
such distribution, such worst performing underlying stock (collectively, the “exchange property”), per share of such
worst performing underlying stock times the adjustment factor for such worst performing underlying stock on the final observation
date.
Following the effective date of a reorganization event, the contingent
quarterly coupon will be payable for each observation date on which the exchange property value is greater than or equal to the
downside threshold level and the determination closing price (or exchange property value, as applicable) of the other underlying
stock is also greater than or equal to its downside threshold level.
If exchange property includes a cash component, investors will
not receive any interest accrued on such cash component. In the event exchange property consists of securities, those
securities will, in turn, be subject to the antidilution adjustments set forth in paragraphs 1 through 5.
For purposes of determining whether or not the exchange property
value is less than the initial share price, or less than the downside threshold level, or for determining the worst performing
underlying stock, “exchange property value” means (x) for any cash received in any reorganization event, the value,
as determined by the calculation agent, as of the date of receipt, of such cash received for one share of such underlying stock,
as adjusted by the adjustment factor at the time of such reorganization event, (y) for any property other than cash or securities
received in any such reorganization event, the market value, as determined by the calculation agent in its sole discretion, as
of the date of receipt, of such exchange property received for one share of such underlying stock, as adjusted by the adjustment
factor at the time of such reorganization event and (z) for any security received in any such reorganization event, an amount equal
to the determination closing price, as of the day on which the exchange property value is determined, per share of such security
multiplied by the quantity of such security received for each share of such underlying stock, as adjusted by the adjustment factor
at the time of such reorganization event.
For purposes of paragraph 5 above, in the case of a consummated
tender or exchange offer or going-private transaction involving consideration of particular types, exchange property shall be deemed
to include the amount of cash or other property delivered by the offeror in the tender or exchange offer (in an amount determined
on the basis of the rate of exchange in such tender or exchange offer or going-private transaction). In the event of
a tender or exchange offer or a going-private transaction with respect to exchange property in which an offeree may elect to receive
cash or other property, exchange property shall be deemed to
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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include the kind and amount of cash and other property received
by offerees who elect to receive cash.
Following the occurrence of any reorganization event referred
to in paragraph 5 above, all references in this offering document and in the related product supplement with respect to the securities
to such “underlying stock” shall be deemed to refer to the exchange property and references to a “share”
or “shares” of such underlying stock shall be deemed to refer to the applicable unit or units of such exchange property,
unless the context otherwise requires.
No adjustment to the adjustment factor will be required unless
such adjustment would require a change of at least 0.1% in the adjustment factor then in effect. The adjustment factor
resulting from any of the adjustments specified above will be rounded to the nearest one hundred-thousandth, with five one-millionths
rounded upward. Adjustments to the adjustment factor will be made up to the close of business on the final observation
date.
No adjustments to the adjustment factor or method of calculating
the adjustment factor will be required other than those specified above. The adjustments specified above do not cover
all events that could affect the determination closing price or the final share price of such underlying stock, including, without
limitation, a partial tender or exchange offer for such underlying stock.
The calculation agent shall be solely responsible for the determination
and calculation of any adjustments to the adjustment factor or method of calculating the adjustment factor and of any related determinations
and calculations with respect to any distributions of stock, other securities or other property or assets (including cash) in connection
with any corporate event described in paragraphs 1 through 5 above, and its determinations and calculations with respect thereto
shall be conclusive in the absence of manifest error.
The calculation agent will provide information as to any adjustments
to an adjustment factor or to the method of calculating the amount payable at maturity of the securities made pursuant to paragraph
5 above upon written request by any investor in the securities.
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Trustee:
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The Bank of New York Mellon
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Calculation agent:
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MS & Co.
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Issuer notices to registered security holders, the trustee and the depositary:
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In the event that the maturity date is postponed due to postponement
of the final observation date, the issuer shall give notice of such postponement and, once it has been determined, of the date
to which the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice of such postponement
by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books,
(ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its
New York office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile confirmed by
mailing such notice to the depositary by first class mail, postage prepaid. Any notice that is mailed to a registered
holder of the securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered
holder, whether or not such registered holder receives the notice. The issuer shall give such notice as promptly as
possible, and in no case later than (i) with respect to notice of postponement of the maturity date, the business day immediately
preceding the scheduled maturity date and (ii) with respect to notice of the date to which the maturity date has been rescheduled,
the business day immediately following the final observation date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable redemption determination date, give notice of the early redemption
and the early redemption payment, including specifying the payment date of the amount due upon the early redemption, (x) to each
registered holder of the securities by mailing notice of such early redemption by first class mail, postage prepaid, to such registered
holder’s last address as it shall appear upon the registry books, (y) to the trustee by facsimile confirmed by mailing such
notice to the trustee by first class mail, postage prepaid, at its New York office and (z) to the depositary by telephone or facsimile
confirmed by mailing such notice to the depositary by first class mail, postage prepaid, and (ii) on or prior to the early redemption
date, deliver the aggregate cash amount due with respect to the securities to the trustee for delivery to the depositary, as holder
of the securities. Any notice that is mailed to a registered holder of the securities in the manner herein provided
shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder receives
the notice. This notice shall be given by the issuer or, at the issuer’s request, by the trustee in the name and at the expense
of the issuer, with any such request to be accompanied by a copy of the notice to be given.
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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|
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash to be delivered as contingent quarterly coupon, if any, with respect to each security on or prior to 10:30 a.m. (New York
City time) on the business day preceding each coupon payment date, and (ii) deliver the aggregate cash amount due, if any, with
respect to the contingent quarterly coupon to the trustee for delivery to the depositary, as holder of the securities, on the applicable
coupon payment date.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash to be delivered with respect to each stated principal amount of the securities, on or prior to 10:30 a.m. (New York City time)
on the business day preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to the securities
to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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Additional Information About the Securities
Minimum ticketing size:
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$1,000 / 1 security
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Tax considerations:
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Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the securities
issued under this document and is superseded by the following discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of the ownership and disposition of the securities. This
discussion applies only to investors in the securities who:
·
purchase
the securities in the original offering; and
·
hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
This discussion does not describe all of the tax consequences
that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject to special rules,
such as:
·
certain
financial institutions;
·
insurance
companies;
·
certain
dealers and traders in securities or commodities;
·
investors
holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive
sale transaction;
·
U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated
investment companies;
·
real
estate investment trusts; or
·
tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of
the Code, respectively.
If an entity that is classified as a partnership for U.S. federal
income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend on the status
of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner in such a partnership,
you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing of the securities
to you.
As the law applicable to the U.S. federal income taxation of
instruments such as the securities is technical and complex, the discussion below necessarily represents only a general summary.
The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences
or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative pronouncements,
judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to any of which subsequent
to the date hereof may affect the tax consequences described herein. Persons considering the purchase of the securities
should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular situations
as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial or administrative authorities
that directly address the
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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|
treatment of the securities or instruments that are similar to
the securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will agree with the tax
treatment described herein. We intend to treat a security for U.S. federal income tax purposes as a single financial
contract that provides for a coupon that will be treated as gross income to you at the time received or accrued in accordance with
your regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment
of the securities is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively
that this treatment is more likely than not to be upheld, and that alternative treatments are possible. Moreover, our counsel’s
opinion is based on market conditions as of the date of this preliminary pricing supplement and is subject to confirmation on the
pricing date.
You should consult your tax adviser regarding all aspects
of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments of the securities). Unless
otherwise stated, the following discussion is based on the treatment of each security as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are a U.S. Holder. As
used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal income tax purposes:
·
a
citizen or individual resident of the United States;
·
a
corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
·
an
estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as set forth above is
respected, the following U.S. federal income tax consequences should result.
Tax Basis
. A U.S. Holder’s
tax basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon Payments
. Any
coupon payment on the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in accordance
with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities
. Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal
to the difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the
securities sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement
and may not include sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such
gain or loss recognized should be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year
at the time of the sale, exchange or settlement, and should be short-term capital gain or loss otherwise. The ordinary
income treatment of the coupon payments, in conjunction with the capital loss treatment of any loss recognized upon the sale, exchange
or settlement of the securities, could result in adverse tax consequences to holders of the securities because the deductibility
of capital losses is subject to limitations.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due to the absence of authorities that directly address the proper
tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment
described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the securities
under Treasury regulations governing
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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|
contingent payment debt instruments (the “Contingent Debt
Regulations”). If the IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the
timing and character of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to
accrue into income original issue discount on the securities every year at a “comparable yield” determined at the time
of their issuance, adjusted upward or downward to reflect the difference, if any, between the actual and the projected amount of
any contingent payments on the securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange
or other disposition of the securities would be treated as ordinary income, and any loss realized would be treated as ordinary
loss to the extent of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter. The
risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the securities,
would be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not
have such features.
Other alternative federal income tax treatments of the securities
are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the
securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal
income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether
to require holders of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment. It
also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded
status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates. While
it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. U.S. Holders
should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including
possible alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may
be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information
is timely furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments
on the securities and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder
provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S. Holder. As
used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax
purposes:
·
an
individual who is classified as a nonresident alien;
·
a
foreign corporation; or
·
a
foreign estate or trust.
The term “Non-U.S. Holder” does not include any of
the following holders:
·
a
holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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|
United States for U.S. federal income tax purposes;
·
certain
former citizens or residents of the United States; or
·
a
holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in
the United States.
Such holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required
to pay any additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction
in, the 30% withholding tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that
it is not a U.S. person and is eligible for such an exemption or reduction under an applicable tax treaty. If you are
a Non-U.S. Holder, you should consult your tax adviser regarding the tax treatment of the securities, including the possibility
of obtaining a refund of any withholding tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code and Treasury regulations promulgated
thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend
equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices
that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m)
generally applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as
determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However,
pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have a delta of
one with respect to any Underlying Security. Based on the terms of the securities and current market conditions, we
expect that the securities will not have a delta of one with respect to any Underlying Security on the pricing date. However,
we will provide an updated determination in the pricing supplement. Assuming that the securities do not have a delta
of one with respect to any Underlying Security, our counsel is of the opinion that the securities should not be Specified Securities
and, therefore, should not be subject to Section 871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances,
including whether you enter into other transactions with respect to an Underlying Security. If Section 871(m) withholding
is required, we will not be required to pay any additional amounts with respect to the amounts so withheld. You should
consult your tax adviser regarding the potential application of Section 871(m) to the securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax. Prospective
investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers regarding
the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect
of amounts paid to the Non-U.S. Holder, unless such
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
|
|
Non-U.S. Holder complies with certification procedures to establish
that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount
of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S.
federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely
furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements. FATCA
generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies
to payments of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain
financial instruments treated as providing for U.S.-source interest or dividends. Under recently proposed regulations
(the preamble to which specifies that taxpayers are permitted to rely on them pending finalization), no withholding will apply
on payments of gross proceeds. While the treatment of the securities is unclear, you should assume that any coupon payment
with respect to the securities will be subject to the FATCA rules. If withholding applies to the securities, we will
not be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should
consult their tax advisers regarding the potential application of FATCA to the securities.
The discussion in the preceding paragraphs, insofar as it
purports to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full
opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
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Use of proceeds and hedging:
|
The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter
into hedging transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost
of the agent’s commissions. The costs of the securities borne by you and described beginning on page 3 above comprise
the agent’s commissions and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we will hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers. We
expect our hedging counterparties to take positions in the underlying stocks, in futures and/or options contracts on the underlying
stocks, or positions in any other available securities or instruments that they may wish to use in connection with such hedging. Such
purchase activity could potentially increase the initial share price of an underlying stock, and, therefore, could increase (i)
the value at or above which such underlying stock must close on the redemption determination dates so that the securities are redeemed
prior to maturity for the early redemption payment (depending also on the performance of the other underlying stock) and (ii) the
downside threshold level for such underlying stock, which is the value at or above which the underlying stock must close on the
observation dates so that you receive a contingent quarterly coupon on the securities (depending also on the performance of the
other underlying stock), and, with respect to the final observation date, so that you are not exposed to the negative performance
of the underlying stock at maturity (depending also on the performance of the other underlying stock). These entities
may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and
more frequent dynamic adjustments to the hedge as the final observation date approaches. Additionally, our hedging activities,
as well as our other trading activities, during the term of the securities could potentially affect the value of either underlying
stock on the redemption determination dates and other observation dates, and, accordingly, whether we redeem the securities prior
to maturity, whether we pay a contingent quarterly coupon on the securities and the amount of cash you will receive at maturity,
if any (depending on the performance of the other underlying stock). 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:
|
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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|
the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s
particular circumstances before authorizing an investment in the securities. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent
with the documents and instruments governing the Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit
transactions between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning
of ERISA or the Code would likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect
to which MS & Co. or any of its affiliates is a service provider or other party in interest, unless the securities are acquired
pursuant to an exemption from the “prohibited transaction” rules. A violation of these “prohibited
transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those
persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined
by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company
separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In
addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and
the related lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises
any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved in the
transaction and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in
connection with the transaction (the so-called “service provider” exemption). There can be no assurance
that any of these class or statutory exemptions will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with respect
to many Plans, the securities 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
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Morgan Stanley Finance LLC
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Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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manner intended to reflect the individualized needs and objectives
of any purchaser or holder of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i)
the purchaser or holder or its fiduciary has made and
shall make all investment decisions for the purchaser or holder and the purchaser or holder has not relied and shall not rely in
any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to (A) the design and
terms of the securities, (B) the purchaser or holder’s investment in the securities, or (C) the exercise of or failure to
exercise any rights we have under or with respect to the securities;
(ii)
we and our affiliates have acted
and will act solely for our own account in connection with (A) all transactions relating to the securities and (B) all hedging
transactions in connection with our obligations under the securities;
(iii)
any and all assets and positions
relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets and positions
held for the benefit of the purchaser or holder;
(iv)
our interests are adverse to
the interests of the purchaser or holder; and
(v)
neither we nor any of our affiliates
is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions, and any information
that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect
a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements
with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally
or any particular plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be
investment advice directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these securities
should consult and rely on their own counsel and advisers as to whether an investment in these securities is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations:
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Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the securities, either directly or indirectly.
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Supplemental information regarding 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 security they sell.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities,
including the contingent quarterly coupon rate, such that for each security the estimated value on the pricing date will be no
lower than the minimum level described in “Investment Summary” beginning on page 3.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for auto-callable securities.
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Where you can find more information:
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MSFL and Morgan Stanley have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities) with the Securities and
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 20, 2022, With 6-month Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the Ordinary Shares of BP p.l.c. and the Common Stock of Marathon Petroleum Corporation
Principal at Risk Securities
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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
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 and the product supplement for auto-callable securities
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
Prospectus dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement for auto-callable securities or in the prospectus.
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