July
2019
Preliminary
Terms No. 2,255
Registration
Statement Nos. 333-221595; 333-221595-01
Dated
July 11, 2019
Filed
pursuant to Rule 433
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S. Equities
Trigger Participation Securities Based on the
Value of the S&P 500
®
Index due January 15, 2021
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal
at Risk Securities
The securities are unsecured obligations
of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The securities
will pay no interest, do not guarantee any return of principal at maturity and have the terms described in the accompanying product
supplement for Participation Securities, index supplement and prospectus, as supplemented or modified by this document. At maturity,
if the underlying index has
appreciated
in value, investors will receive the stated principal amount of their investment
plus a return reflecting 100% of the upside performance of the underlying index. If the underlying index
depreciates
in
value but the final index value is greater than or equal to the trigger level, investors will receive the stated principal amount
of their investment. However, if the underlying index has
depreciated
in value so that the final index value is less than
the trigger level, investors will lose a significant portion or all of their investment, resulting in a 1% loss for every 1% decline
in the index value over the term of the securities. Under these circumstances, the payment at maturity will be less than 80% of
the stated principal amount and could be zero. Accordingly, you may lose your entire investment. The securities are for investors
who seek an equity index-based return and who are willing to risk their principal and forgo current income in exchange for the
limited protection against loss that applies only if the final index value is greater than or equal to the trigger level.
Investors
may lose their entire initial investment in the securities
. The securities are notes issued as part of MSFL’s Series
A Global Medium-Term Notes program.
All payments are subject to
our credit risk. If we default on our obligations, you could lose some or all of your investment. These securities are not secured
obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or
assets.
SUMMARY
TERMS
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Maturity
date:
|
January 15, 2021
|
Underlying
index:
|
S&P 500
®
Index
|
Aggregate principal amount:
|
$
|
Payment
at maturity:
|
If the final index value
is
greater than
the initial index value: $1,000 + upside payment
If the final index value
is
less than or equal to
the initial index value but is
greater than or equal to
the trigger level: $1,000
If the final index value
is
less than
the trigger level: $1,000 × index performance factor
Under these circumstances,
the payment at maturity will be less than the stated principal amount of $1,000 and will represent a loss of more than
20%, and possibly all, of your investment
.
|
Upside
payment:
|
$1,000 × participation rate × index percent increase
|
Participation
rate:
|
100%
|
Index
percent increase:
|
(final index value – initial index value) / initial index value
|
Index
performance factor:
|
final index value / initial index value
|
Initial
index value:
|
, which is the index closing value on the pricing date
|
Final
index value:
|
The index closing value on the valuation date
|
Trigger
level:
|
, which is 80% of the initial index value
|
Valuation
date:
|
January 12, 2021, subject to adjustment for non-index business days and certain
market disruption events
|
Stated
principal amount:
|
$1,000 per security
|
Issue
price:
|
$1,000 per security (see “Commissions and issue price” below)
|
Pricing
date:
|
July 12, 2019
|
Original
issue date:
|
July 17, 2019 (3 business days after the pricing date)
|
CUSIP / ISIN:
|
61769HLM5
/ US61769HLM50
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL
and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution;
conflicts of interest.”
|
Estimated value on the pricing date:
|
Approximately $988.60 per security, or within $10.00 of that estimate. See
“Investment Summary” beginning on page 2.
|
Commissions and issue price:
|
Price
to public
(1)
|
Agent’s
commissions and fees
(2)
|
Proceeds
to us
(2)
|
Per security
|
$1,000
|
$
|
$
|
Total
|
$
|
$
|
$
|
|
(1)
|
The securities will be
sold only to investors purchasing the securities in fee-based advisory accounts.
|
|
(2)
|
MS & Co. expects
to sell all of the securities that it purchases from us to an unaffiliated dealer at a price of $ per security, for further sale
to certain fee-based advisory accounts at the price to public of $1,000 per security. See “Supplemental information regarding
plan of distribution; conflicts of interest.” For additional information, see “Plan of Distribution (Conflicts of
Interest)” in the accompanying product supplement.
|
|
(3)
|
See “Use of proceeds
and hedging” on page 13.
|
The securities
involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page
5.
The Securities
and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this
document or the accompanying product supplement, index supplement and prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The securities
are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental
agency or instrumentality, nor are they obligations of, or guaranteed by, a bank.
You should
read this document together with the related product supplement, index supplement and prospectus, each of which can be accessed
via the hyperlinks below. Please also see “Additional Terms of the Securities” and “Additional Information About
the Securities” at the end of this document.
References
to “we,” “us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively,
as the context requires.
Product Supplement for Participation Securities dated November 16, 2017
Index Supplement dated November 16, 2017
Prospectus dated November 16, 2017
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
Investment Summary
Trigger Participation Securities
Principal at
Risk Securities
The Trigger Participation Securities Based on the Value of the
S&P 500
®
Index due January 15, 2021 (the “securities”) can be used:
|
§
|
To achieve similar levels of upside exposure to the underlying index as a direct investment
|
|
§
|
To provide limited protection against a loss of principal in the event of a decline of the underlying index as of the valuation
date but only if the final index value
is greater than or equal to
the trigger level
|
Maturity:
|
Approximately 1.5 years
|
Participation
rate:
|
100%
|
Trigger
level:
|
80% of the initial index value
|
Minimum
payment at maturity:
|
None. You could lose your entire initial investment in the securities.
|
Interest:
|
None
|
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 $988.60, or within $10.00 of that estimate. Our estimate of the
value of the securities as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
index. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying index, instruments based on the underlying index, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the participation rate and the trigger level, we use an internal funding rate, which is likely to be lower than our secondary
market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne by you were
lower or if the internal funding rate were higher, one or more of the economic terms of the securities would be more favorable
to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the
securities in the secondary market, absent changes in market conditions, including those related to the underlying index, may vary
from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary
market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type
and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not
fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy
or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
index, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that
those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to,
make a market in the securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
Key Investment Rationale
The securities offer exposure to any positive performance of
the underlying index. At maturity, an investor will receive an amount in cash based upon the closing value of the underlying index
on the valuation date. The securities are unsecured obligations of ours, and all payments on the securities are subject to our
credit risk.
Investors may lose their entire initial investment in the securities.
Trigger
Feature
|
At maturity, even if the underlying index has declined over the term of the securities, you will receive your stated principal amount but only if the final index value is
greater than or equal to
the trigger level.
|
Upside
Scenario
|
The final index value is greater than the initial index value, and, at maturity, the securities redeem for the stated principal amount of $1,000
plus
a return reflecting 100% of the increase in the value of the underlying index.
|
Par
Scenario
|
The final index value is less than or equal to the initial index value but is greater than or equal to the trigger level. In this case, you receive the stated principal amount of $1,000 at maturity even though the underlying index has depreciated.
|
Downside
Scenario
|
The final index value is less than the trigger level. In this case, the securities redeem for at least 20% less than the stated principal amount, and this decrease will be by an amount proportionate to the full decline in the value of the underlying index over the term of the securities.
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
How the Securities Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the securities based on the following terms:
Stated
principal amount:
|
$1,000 per security
|
Participation
rate:
|
100%
|
Trigger
level:
|
80% of the initial index value
|
Securities
Payoff Diagram
|
|
How it works
|
§
|
Upside Scenario:
If the final index value is greater
than the initial index value, investors will receive the $1,000 stated principal amount plus 100% of the appreciation of the underlying
index over the term of the securities.
|
|
§
|
If the underlying index appreciates 5%, investors will receive a 5% return, or $1,050.00 per
security.
|
|
§
|
Par Scenario:
If the final index value is less than
or equal to the initial index value but is greater than or equal to the trigger level, investors will receive the $1,000 stated
principal amount.
|
|
§
|
If the underlying index depreciates 10%, investors will receive the $1,000 stated principal amount.
|
|
§
|
Downside Scenario:
If the final index value is less
than the trigger level, investors will receive an amount significantly less than the $1,000 stated principal amount, based on a
1% loss of principal for each 1% decline in the underlying index.
|
|
§
|
If the underlying index depreciates 80%, investors will lose 80% of their principal and receive
only $200 per security at maturity, or 20% of the stated principal amount.
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement for Participation Securities, index 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 pay interest or guarantee return of any principal.
The terms of the securities differ from those of ordinary debt securities in that the securities do not pay interest or guarantee
payment of any principal at maturity. If the final index value is less than the trigger level (which is 80% of the initial index
level), the payout at maturity will be an amount in cash that is at least 20% less than the $1,000 stated principal amount of each
security, and this decrease will be by an amount proportionate to the full decrease in the value of the underlying index. There
is no minimum payment at maturity on the securities, and you could lose your entire investment.
|
|
§
|
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, including: the value, volatility
(frequency and magnitude of changes in value) and dividend yield of the underlying index, interest and yield rates, time remaining
to maturity, geopolitical conditions and economic, financial, political and regulatory or judicial events that affect the underlying
index or equities markets generally and which may affect the final index value of the underlying index, and any actual or anticipated
changes in our credit ratings or credit spreads. The value of the underlying index may be, and has recently been, volatile, and
we can give you no assurance that the volatility will lessen. See “S&P 500
®
Index Overview” below.
You may receive less, and possibly significantly less, than the stated principal amount per security if you try to sell your securities
prior to maturity.
|
|
§
|
The
securities
are subject to our credit risk, and any actual
or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the
securities
.
You are dependent on our ability to pay all amounts due on the securities at maturity and therefore you are subject to our credit
risk. If we default on our obligations under the securities, your investment would be at risk and you could lose some or all of
your investment. As a result, the market value of the securities prior to maturity will be affected by changes in the market’s
view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase in the credit spreads charged
by the market for taking our credit risk is likely to adversely affect the market value of the securities.
|
|
§
|
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.
|
|
§
|
The amount payable on the securities is not linked to the value of the underlying index at any time other than the valuation
date.
The final index value will be the index closing value on the valuation date, subject to adjustment for non-index business
days and certain market disruption events. Even if the value of the underlying index appreciates prior to the valuation date but
then drops by the valuation date, the payment at maturity will be less, and may be significantly less, than it would have been
had the payment at maturity been linked to the value of the underlying index prior to such drop. Although the actual value of the
underlying index on the stated maturity date or at other times during the term of the securities may be higher than the final index
value, the payment at maturity will be based solely on the index closing value on the valuation date.
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
|
§
|
Investing in the securities is not equivalent to investing in the
underlying index.
Investing in the securities is not equivalent to investing in the underlying
index or its component stocks. As an investor in the securities, you will not have voting rights or rights to receive dividends
or other distributions or any other rights with respect to stocks that constitute the underlying index.
|
|
§
|
Adjustments to the underlying index could adversely affect the value
of the securities.
The underlying index publisher may add, delete or substitute the stocks constituting the underlying
index or make other methodological changes that could change the value of the underlying index. The underlying index publisher
may discontinue or suspend calculation or publication of the underlying index at any time. In these circumstances, the calculation
agent will have the sole discretion to substitute a successor index that is comparable to the discontinued underlying index and
is not precluded from considering indices that are calculated and published by the calculation agent or any of its affiliates.
If the calculation agent determines that there is
no appropriate successor index, the payment at maturity on the securities will be an amount based on the closing prices at maturity
of the securities composing the underlying index at the time of such discontinuance, without rebalancing or substitution, computed
by the calculation agent in accordance with the formula for calculating the underlying index last in effect prior to discontinuance
of the underlying index.
|
|
§
|
The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well
as other factors.
|
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying index, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be limited.
The securities will
not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS & Co.
may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so at any
time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on
its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
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 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 index value, the trigger level and the final
index value, including whether the underlying index has decreased to below the trigger level, and will calculate the amount of
cash, if any, you will receive at maturity. Moreover, certain determinations made by MS & Co., in its capacity as calculation
agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence
of market disruption events and the selection of a successor index or calculation of the final index value in the event of a market
disruption event or discontinuance of the underlying index. These potentially subjective determinations may adversely affect the
payout to you at maturity, if any. For further information regarding these types of determinations, see “Description of Participation
Securities—Postponement of Valuation Date(s)” 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.
|
|
§
|
Hedging and trading activity by our affiliates could potentially adversely affect the value of the securities.
One or
more of our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other
instruments linked to the underlying index or its component stocks), including trading in the stocks that constitute the underlying
index as well as in other instruments related to the underlying index. As a result, these entities may be unwinding or adjusting
hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the valuation date approaches. MS & Co. and some of our other affiliates also trade the stocks that constitute
the underlying index and other financial instruments related to the underlying index on a regular basis as part of their general
broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing date could increase the
initial index value, and, therefore, could increase the trigger level, which is the level at or above which the underlying index
must close on the valuation date so that investors do not suffer a significant loss on their initial investment in the securities.
Additionally, such hedging or trading activities during the term of the securities, including on the valuation date, could potentially
affect whether the value of the underlying index on the valuation date is below the trigger level, and, therefore, whether an investor
would receive significantly less than the stated principal amount of the securities at maturity.
|
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain.
Please read the discussion
under “Additional Information—Tax considerations” in this document and the discussion under “United States
Federal Taxation” in the accompanying product supplement for participation securities (together, the “Tax Disclosure
Sections”) concerning the U.S. federal income tax consequences of an investment in the securities. If the Internal Revenue
Service (the “IRS”) were successful in asserting an alternative treatment, the timing and character of income on the
securities might differ significantly from the tax treatment described in the Tax Disclosure Sections. For example, under one possible
treatment, the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders would be required
to accrue into income original issue discount on the securities every year at a “comparable yield” determined at the
time of issuance and recognize all income and gain in respect of the securities as ordinary income. Additionally, as discussed
under “United States Federal Taxation—FATCA” in the accompanying product supplement for participation securities,
the withholding rules commonly referred to as “FATCA” would apply to the securities if they were recharacterized as
debt instruments. However, recently proposed regulations (the preamble to which specifies that taxpayers are permitted to rely
on them pending finalization) eliminate the withholding requirement on payments of gross proceeds of a taxable disposition (other
than amounts treated as interest). The risk that financial instruments providing for buffers, triggers or similar downside protection
features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable
financial instruments that do not have such features. We do not plan to request a ruling from the IRS regarding the
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which
very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While
the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated
after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities,
possibly with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income
tax consequences of an investment in the securities, including possible alternative treatments, the issues presented by this notice
and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
S&P 500
®
Index Overview
The S&P 500
®
Index, which is calculated,
maintained and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies
selected to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500
®
Index
is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular
time as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941
through 1943. For additional information about the S&P 500
®
Index, see the information set forth under
“S&P 500
®
Index” in the accompanying index supplement.
Information as of market close on July 5, 2019:
Bloomberg
Ticker Symbol:
|
SPX
|
Current Index
Value:
|
2,990.41
|
52 Weeks Ago:
|
2,736.61
|
52 Week High
(on 7/3/2019):
|
2,995.82
|
52 Week Low
(on 12/24/2018):
|
2,351.10
|
The following graph sets forth the daily closing
values of the underlying index for each quarter in the period from January 1, 2014 through July 5, 2019. The related table sets
forth the published high and low closing values, as well as end-of-quarter closing values, of the underlying index for each quarter
in the same period. The index closing value of the underlying index on July 5, 2019 was 2,990.41. We obtained the information in
the table and graph below from Bloomberg Financial Markets, without independent verification. The underlying index has at times
experienced periods of high volatility. You should not take the historical values of the underlying index as an indication of its
future performance, and no assurance can be given as to the index closing value of the underlying index on the valuation date.
Underlying Index Historical
Performance – Daily Index Closing Values
January 1, 2014 to July
5, 2019
|
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
S&P 500
®
Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
2015
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
|
Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
|
Fourth Quarter
|
2,271.72
|
2,085.18
|
2,238.83
|
2017
|
|
|
|
First Quarter
|
2,395.96
|
2,257.83
|
2,362.72
|
Second Quarter
|
2,453.46
|
2,328.95
|
2,423.41
|
Third Quarter
|
2,519.36
|
2,409.75
|
2,519.36
|
Fourth Quarter
|
2,690.16
|
2,529.12
|
2,673.61
|
2018
|
|
|
|
First Quarter
|
2,872.87
|
2,581.00
|
2,640.87
|
Second Quarter
|
2,786.85
|
2,581.88
|
2,718.37
|
Third Quarter
|
2,930.75
|
2,713.22
|
2,913.98
|
Fourth Quarter
|
2,925.51
|
2,351.10
|
2,506.85
|
2019
|
|
|
|
First Quarter
|
2,854.88
|
2,447.89
|
2,834.40
|
Second Quarter
|
2,954.18
|
2,744.45
|
2,941.76
|
Third Quarter (through July 5, 2019)
|
2,995.82
|
2,964.33
|
2,990.41
|
““Standard & Poor’s
®
,”
“S&P
®
,” “S&P 500
®
,” “Standard & Poor’s 500”
and “500” are trademarks of Standard and Poor’s Financial Services LLC. For more information, see “S&P
500
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
Additional Terms of the Securities
Please read this information
in conjunction with the summary terms on the front cover of this document.
Additional
Terms:
|
|
If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
|
Underlying
index publisher:
|
S&P Dow Jones Indices LLC or any successor thereof
|
Denominations:
|
$1,000 per security and integral multiples thereof
|
Interest:
|
None
|
Postponement
of maturity date:
|
If the scheduled valuation date is not an index business day or if a market disruption event occurs on that day so that the valuation date as postponed falls less than two business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the second business day following that valuation date as postponed.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation
agent:
|
MS & Co.
|
Issuer
notice to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the valuation date, the issuer shall give notice of such postponement and, once it has been determined, of the date to which
the maturity date has been rescheduled (i) to each registered holder of the 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 actual valuation date for determining the final index value.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee and to the depositary of the amount of cash to be delivered with respect to each stated principal
amount of the 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.
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
Additional Information About the Securities
Additional
Information:
|
|
Minimum
ticketing size:
|
$1,000 / 1 security
|
Tax
considerations:
|
Although there is uncertainty regarding
the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in the opinion
of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a security should be
treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. However,
because our counsel’s opinion is based in part on market conditions as of the date of this document, it is subject to confirmation
on the pricing date.
Assuming this treatment of the securities
is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement
for participation securities, the following U.S. federal income tax consequences should result based on current law:
§
A
U.S. Holder should not be required to recognize taxable income over the term of the securities prior to settlement, other than
pursuant to a sale or exchange.
§
Upon
sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the
amount realized and the U.S. Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain or
loss if the investor has held the securities for more than one year, and short-term capital gain or loss otherwise.
In
2007, the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments
on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses
in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks
for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status
of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which
income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these
instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize
certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate
transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues
could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect.
As discussed
in the accompanying product supplement for participation securities, Section 871(m) of the Internal Revenue Code of 1986, as amended,
and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty
rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments
linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain
exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of one or more
Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”).
However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have
a delta of one with respect to any Underlying Security. Based on 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 final 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 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.
Both U.S.
and non-U.S. investors considering an investment in the securities should read the discussion under “Risk Factors”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for
participation securities and
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
|
consult
their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the securities, including
possible alternative treatments, the issues presented by the aforementioned notice and any tax consequences arising under the laws
of any state, local or non-U.S. taxing jurisdiction.
The discussion
in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying product supplement for participation securities, insofar as they purport to
describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis
Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
|
Use of proceeds and hedging:
|
The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 2 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we will hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third-party dealers.
We expect our hedging counterparties to take positions in stocks of the underlying index, in futures or options contracts on the
underlying index or its component stocks listed on major securities markets or positions in any other available securities or instruments
that they may wish to use in connection with such hedging. Such purchase activity could increase the initial index value, and,
therefore, could increase the trigger level, which is the level at or above which the underlying index must close on the valuation
date so that investors do not suffer a significant loss on their initial investment in the securities. In addition, through our
affiliates, we are likely to modify our hedge position throughout the term of the securities, including on the valuation date,
by purchasing and selling the stocks constituting the underlying index, futures or options contracts on the underlying index or
its component stocks listed on major securities markets or positions in any other available securities or instruments that we may
wish to use in connection with such hedging activities. As a result, these entities may be unwinding or adjusting hedge positions
during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge
as the valuation date approaches. We cannot give any assurance that our hedging activities will not affect the value of the underlying
index, and, therefore, adversely affect the value of the securities or the payment you will receive at maturity, if any. For further
information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product supplement
for Participation Securities.
|
Benefit plan investor considerations:
|
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and 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 Section 4975(d)(20) of the Code provide an exemption for the purchase and sale of securities and the related lending
transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority
or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further
that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction
(the so-called “service provider” exemption). There can be no assurance that any of these class or statutory exemptions
will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with respect
to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
|
assets” by reason of any Plan’s investment in the
entity (a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase,
holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14
or the service provider exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser, including
any fiduciary purchasing on behalf of a Plan, transferee or holder of the securities will be deemed to have represented, in its
corporate and its fiduciary capacity, by its purchase and holding of the securities that either (a) it is not a Plan or a Plan
Asset Entity and is not purchasing such securities on behalf of or with “plan assets” of any Plan or with any assets
of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S. law that is substantially similar
to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its purchase, holding
and disposition of these securities will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA
or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The securities are contractual financial instruments. The financial
exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the securities. The securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i)
the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii)
we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii)
any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv)
our
interests are adverse to the interests of the purchaser or holder; and
(v)
neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the S&P 500
®
Index due January 15, 2021
Principal at Risk Securities
|
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.
|
Additional considerations:
|
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.
|
Supplemental information regarding plan of distribution; conflicts of interest:
|
MS & Co. expects to sell all of the securities that it purchases
from us to an unaffiliated dealer at a price of $ per security, for further sale to certain fee-based advisory accounts at the
price to public of $1,000 per security. MS & Co. will not receive a sales commission with respect to the securities.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities such
that for each security the estimated value on the pricing date will be no lower than the minimum level described in “Investment
Summary” beginning on page 2.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for Participation Securities.
|
Where you can find more information:
|
Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for Participation Securities and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration
statement, the product supplement for Participation Securities, the index supplement and any other documents relating to this offering
that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering.
You may get these documents without cost by visiting EDGAR on the SEC web site at
.
www.sec.gov.
Alternatively, Morgan Stanley or MSFL will arrange to send you the product supplement for Participation Securities, index supplement
and prospectus if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov
.
as
follows:
Product Supplement for Participation Securities dated November 16, 2017
Index Supplement dated November 16, 2017
Prospectus dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement for Participation Securities, in the index supplement or in the prospectus.
|
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