The original issue price of each PLUS is $1,000. This price includes
costs associated with issuing, selling, structuring and hedging the PLUS, which are borne by you, and, consequently, the estimated
value of the PLUS on the pricing date is less than $1,000. We estimate that the value of each PLUS on the pricing date is $974.90.
In valuing the PLUS on the pricing date, we take into account
that the PLUS comprise both a debt component and a performance-based component linked to the underlying index. The estimated value
of the PLUS 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.
In determining the economic terms of the PLUS, including the
upside leverage factor and the minimum payment at maturity, we use an internal funding rate, which is likely to be lower than our
secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne
by you were lower or if the internal funding rate were higher, one or more of the economic terms of the PLUS would be more favorable
to you.
The price at which MS & Co. purchases the PLUS 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 PLUS are not fully deducted upon issuance,
for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the PLUS 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
PLUS, and, if it once chooses to make a market, may cease doing so at any time.
The PLUS offer leveraged exposure to any potential positive performance
of the S&P 500
®
Index. At maturity, if the underlying index has appreciated moderately in value, investors will
receive the stated principal amount of their investment plus moderately leveraged upside performance of the underlying index. However,
if the underlying index has depreciated in value, investors will lose 0.50% 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 the stated principal amount. Investors
may lose up to 50% of the stated principal amount of the PLUS. All payments on the PLUS are subject to our credit risk.
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the PLUS based on the following terms:
Stated principal amount:
|
$1,000 per PLUS
|
Upside leverage factor:
|
120%
|
Minimum payment at maturity:
|
$500 per PLUS
|
PLUS 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
120% of the appreciation of the underlying index over the
term of the PLUS.
|
§
|
If the underlying index appreciates 2%, the investor would receive a 2.40% return, or $1,024.00 per PLUS.
|
|
§
|
Par Scenario.
If the final index value is equal to the initial index value, the
investor would receive the $1,000 stated principal amount.
|
|
§
|
Downside Scenario.
If the final index value is less than the initial index value,
the investor would receive an amount that is less than the $1,000 stated principal amount, based on a 0.50% loss of principal for
each 1% decline in the underlying index. Under these circumstances, the payment at maturity will be less than the stated principal
amount per PLUS. The minimum payment at maturity is $500 per PLUS.
|
M
organ
S
tanley
F
inance
LLC
PLUS Based on the Value of the S&P 500
®
Index due July 26, 2024
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
§
|
If
the underlying index depreciates 60%, the investor would lose 30% of the investor’s principal and receive only $700 per
PLUS at maturity, or 70% of the stated principal amount.
|
M
organ
S
tanley
F
inance
LLC
PLUS Based on the Value of the S&P 500
®
Index due July 26, 2024
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the PLUS. For further discussion of these and other risks, you should read the section entitled “Risk
Factors” in the accompanying product supplement for PLUS, index supplement and prospectus. We also urge you to consult your
investment, legal, tax, accounting and other advisers in connection with your investment in the PLUS.
|
§
|
The PLUS do not pay interest and provide a minimum payment at maturity of only 50% of your principal.
The terms of the
PLUS differ from those of ordinary debt securities in that the PLUS do not pay interest, and provide a minimum payment at maturity
of only 50% of the stated principal amount of the PLUS, subject to our credit risk. If the final index value is less than the initial
index value, the payout at maturity will be an amount in cash that is less than the $1,000 stated principal amount of each PLUS
by an amount reflecting 50% of the decline in the value of the underlying index over the term of the PLUS.
Accordingly, investors
may lose up to 50% of the stated principal amount of the PLUS.
|
|
§
|
The market price of the PLUS will be influenced by many unpredictable factors.
Several factors, many of which are beyond
our control, will influence the value of the PLUS in the secondary market and the price at which MS & Co. may be willing to
purchase or sell the PLUS 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 in the market, time remaining until the PLUS mature, geopolitical
conditions and economic, financial, political, 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. Generally, the longer the time remaining to maturity, the more the market price of the PLUS will be
affected by the other factors described above. 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 PLUS if you try to sell your PLUS prior
to maturity.
|
|
§
|
The PLUS are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads may
adversely affect the market value of the PLUS.
You are dependent on our ability to pay all amounts due on the PLUS at maturity
and therefore you are subject to our credit risk. If we default on our obligations under the PLUS, your investment would be at
risk and you could lose some or all of your investment. As a result, the market value of the PLUS prior to maturity will be affected
by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase
in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the PLUS.
|
|
§
|
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 PLUS is not linked to the value of the underlying index at any time other than the valuation date.
The final index value will be based on the index closing value on the valuation date, subject to postponement 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 may 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 PLUS may be higher than the index
closing value on the valuation date, the payment at maturity will be based solely on the index closing value on the valuation date.
|
|
§
|
Investing in the PLUS is not equivalent to investing in the underlying index.
Investing in the PLUS is not equivalent
to investing in the underlying index or its component stocks. As an investor in the PLUS, 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.
|
|
§
|
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 PLUS in the original issue price reduce the economic terms of the PLUS, cause
the estimated value of the PLUS to be less than the original issue price and will adversely affect secondary market prices.
Assuming
no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may
be willing to purchase the PLUS in secondary market transactions will likely be
|
M
organ
S
tanley
F
inance
LLC
PLUS Based on the Value of the S&P 500
®
Index due July 26, 2024
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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 PLUS in the original issue price and the lower rate we are willing to pay as issuer make the economic terms of
the PLUS less favorable to you than they otherwise would be.
However, because the costs associated with issuing,
selling, structuring and hedging the PLUS are not fully deducted upon issuance, for a period of up to 6 months following the issue
date, to the extent that MS & Co. may buy or sell the PLUS 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.
|
§
|
Adjustments to the underlying index could adversely affect the value of the PLUS.
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 PLUS 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 estimated value of the PLUS is determined by reference to our pricing and valuation models, which may differ from those
of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the PLUS than those generated by others, including other dealers in the market, if they attempted to value the
PLUS. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers, including
MS & Co., would be willing to purchase your PLUS in the secondary market (if any exists) at any time. The value of your PLUS
at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy, including our
creditworthiness and changes in market conditions. See also “The market price of the PLUS will be influenced by many unpredictable
factors” above.
|
|
§
|
The PLUS will not be listed on any securities exchange and secondary trading may be limited.
The PLUS will not be listed
on any securities exchange. Therefore, there may be little or no secondary market for the PLUS. MS & Co. may, but is not obligated
to, make a market in the PLUS 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 PLUS, 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 PLUS. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the
PLUS easily. Since other broker-dealers may not participate significantly in the secondary market for the PLUS, the price at which
you may be able to trade your PLUS is likely to depend on the price, if any, at which MS & Co. is willing to transact. If,
at any time, MS & Co. were to cease making a market in the PLUS, it is likely that there would be no secondary market for the
PLUS. Accordingly, you should be willing to hold your PLUS to maturity.
|
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the PLUS.
As calculation agent, MS & Co. has determined the initial index value, will determine the final index value
and will calculate the amount of cash you 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. For further information regarding these types of determinations, see “Description
of PLUS—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 PLUS on
the pricing date.
|
|
§
|
Hedging and trading activity by our affiliates could potentially adversely affect the value of the PLUS.
One or more
of our affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related to the
PLUS (and to
|
M
organ
S
tanley
F
inance
LLC
PLUS Based on the Value of the S&P 500
®
Index due July 26, 2024
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
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 PLUS, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation
date approaches. Some of our affiliates also trade the stocks that constitute the underlying index and other financial instruments
related to the underlying index on a regular basis as part of their general broker-dealer and other businesses. Any of these hedging
or trading activities on or prior to the pricing date could have increased the initial index value, and, therefore, could have
increased the value at or above which the underlying index must close on the valuation date so that investors do not suffer a loss
on their initial investment in the PLUS. Additionally, such hedging or trading activities during the term of the PLUS, including
on the valuation date, could adversely affect the value of the underlying index on the valuation date, and, accordingly, the amount
of cash an investor will receive at maturity.
|
§
|
The U.S. federal income tax consequences of an investment in the PLUS are uncertain.
Please read the discussion under
“Additional Information—Tax considerations” in this document and the discussion under “United States Federal
Taxation” in the accompanying product supplement for PLUS (together, the “Tax Disclosure Sections”) concerning
the U.S. federal income tax consequences of an investment in the PLUS. If the Internal Revenue Service (the “IRS”)
were successful in asserting an alternative treatment, the timing and character of income on the PLUS might differ significantly
from the tax treatment described in the Tax Disclosure Sections. There is a risk that the IRS may seek to treat all or a portion
of the gain on the PLUS as ordinary income. Due to the large minimum amount payable at maturity, there is a substantial risk that
the IRS could seek to recharacterize the PLUS as debt instruments. In that event, U.S. Holders would be required to accrue into
income original issue discount on the PLUS every year at a “comparable yield” determined at the time of issuance and
recognize all income and gain in respect of the PLUS as ordinary income. Additionally, as discussed under “United States
Federal Taxation—FATCA” in the accompanying product supplement for PLUS, the withholding rules commonly referred to
as “FATCA” would apply to the PLUS if they were recharacterized as debt instruments. However, recently proposed regulations
(the preamble to which specifies that taxpayers are permitted to rely on them pending finalization) eliminate the withholding requirement
on payments of gross proceeds of a taxable disposition. We do not plan to request a ruling from the IRS regarding the tax treatment
of the PLUS, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections.
|
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which
very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While
the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated
after consideration of these issues could materially and adversely affect the tax consequences of an investment in the PLUS, possibly
with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax
consequences of an investment in the PLUS, including possible alternative treatments, the issues presented by this notice and any
tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
M
organ
S
tanley
F
inance
LLC
PLUS Based on the Value of the S&P 500
®
Index due July 26, 2024
Performance Leveraged Upside Securities
SM
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 19, 2019:
Bloomberg Ticker Symbol:
|
SPX
|
Current Index Value:
|
2,976.61
|
52 Weeks Ago:
|
2,804.49
|
52 Week High (on 7/15/2019):
|
3,014.30
|
52 Week Low (on 12/24/2018):
|
2,351.10
|
The following graph sets forth the daily index closing values
of the underlying index for each quarter in the period from January 1, 2014 through July 19, 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 19, 2019 was 2,976.61. 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.
S&P 500
®
Index Daily Index Closing Values
January 1, 2014 to July
19, 2019
|
|
M
organ
S
tanley
F
inance
LLC
PLUS Based on the Value of the S&P 500
®
Index due July 26, 2024
Performance Leveraged Upside Securities
SM
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 19, 2019)
|
3,014.30
|
2,964.33
|
2,976.61
|
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 500
®
,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. See “S&P 500
®
Index” in the accompanying index
supplement.
M
organ
S
tanley
F
inance
LLC
PLUS Based on the Value of the S&P 500
®
Index due July 26, 2024
Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Additional Terms of the PLUS
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
|
Interest:
|
None
|
Bull market or bear market PLUS:
|
Bull market PLUS
|
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 PLUS will be postponed to the second business day following that valuation date as postponed.
|
Denominations:
|
$1,000 per PLUS and integral multiples thereof
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
Issuer notice to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the 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 PLUS by mailing notice of such postponement by first
class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books, (ii) to
the trustee by facsimile confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its New York
office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile confirmed by mailing
such notice to the depositary by first class mail, postage prepaid. Any notice that is mailed to a registered holder of the PLUS
in the manner herein provided shall be conclusively presumed to have been duly given to such registered holder, whether or not
such registered holder receives the notice. The issuer shall give such notice as promptly as possible, and in no case later than
(i) with respect to notice of postponement of the maturity date, the business day immediately preceding the scheduled maturity
date and (ii) with respect to notice of the date to which the maturity date has been rescheduled, the business day immediately
following the actual valuation date 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 PLUS, on or prior to 10:30 a.m. (New York City time) on the business day preceding the maturity date, and (ii) deliver
the aggregate cash amount due with respect to the PLUS to the trustee for delivery to the depositary, as holder of the PLUS, on
the maturity date.
|
M
organ
S
tanley
F
inance
LLC
PLUS Based on the Value of the S&P 500
®
Index due July 26, 2024
Performance Leveraged Upside Securities
SM
Principal at Risk Securities