CALCULATION
OF REGISTRATION FEE
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Maximum Aggregate
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Amount of Registration
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Title of Each Class of Securities Offered
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Offering Price
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Fee
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Trigger Participation Securities due 2022
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$3,105,000
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$376.33
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July 2019
Pricing Supplement No. 2,261
Registration Statement Nos.
333-221595; 333-221595-01
Dated July 19, 2019
Filed pursuant to Rule 424(b)(2)
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S. Equities
Trigger Participation Securities Based on the
Value of the Russell 1000
®
Index due July 26, 2022
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 PLUS
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 103% 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 65% 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.
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FINAL TERMS
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Issuer:
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Morgan Stanley Finance LLC
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Guarantor:
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Morgan Stanley
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Maturity date:
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July 26, 2022
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Underlying index:
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Russell 1000
®
Index
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Aggregate principal amount:
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$3,105,000
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Payment at maturity:
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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 35%, and possibly all, of your
investment
.
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Upside payment:
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$1,000 × participation rate × index percent increase
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Participation rate:
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103%
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Index percent increase:
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(final index value – initial index value) / initial index value
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Index performance factor:
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final index value / initial index value
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Initial index value:
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1,669.272, which is the index closing value on July 15, 2019
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Final index value:
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The index closing value on the valuation date
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Trigger level:
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1,085.027, which is approximately 65% of the initial index value
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Valuation date:
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July 19, 2022, subject to adjustment for non-index business days and certain market disruption events
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Stated principal amount:
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$1,000 per security
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Issue price:
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$1,000 per security (see “Commissions and issue price” below)
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Pricing date:
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July 19, 2019
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Original issue date:
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July 26, 2019 (5 business days after the pricing date)
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CUSIP / ISIN:
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61769HLR4 / US61769HLR48
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Listing:
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The securities will not be listed on any securities exchange.
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
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Estimated value on the pricing date:
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$984.40 per security. See “Investment Summary” beginning on page 2.
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Commissions and issue price:
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Price to public
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Agent’s commissions
(1)
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Proceeds to us
(2)
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Per security
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$1,000
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$0
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$1,000
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Total
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$3,105,000
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$0
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$3,105,000
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(1)
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Selected dealers and their
financial advisors will receive a structuring fee of $4 per security from the agent or
its affiliates. 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.
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(2)
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See “Use of proceeds
and hedging” on page 13.
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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 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 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 PLUS dated November 16, 2017
Prospectus
dated November 16, 2017
Morgan
Stanley Finance LLC
Trigger
Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal
at Risk Securities
Investment Summary
Trigger Participation Securities
Principal at Risk Securities
The Trigger Participation Securities Based on the Value of the
Russell 1000
®
Index due July 26, 2022 (the “securities”) can be used:
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§
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To achieve similar levels of upside exposure to the underlying index as a direct investment
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§
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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
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Maturity:
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3 years
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Participation rate:
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103%
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Trigger level:
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65% of the initial index value
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Minimum payment at maturity:
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None. You could lose your entire initial investment in the securities.
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Interest:
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None
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The original issue price of each security is
$1,000. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by
you, and, consequently, the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value
of each security on the pricing date is $984.40.
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 Russell 1000
®
Index due July 26, 2022
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.
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Trigger Feature
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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.
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Upside Scenario
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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 103% of the increase in the value of the underlying index.
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Par Scenario
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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.
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Downside Scenario
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The final index value is less than the trigger level. In this case, the securities redeem for at least 35% 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 Russell 1000
®
Index due July 26, 2022
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:
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Stated principal amount:
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$1,000 per security
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Participation rate:
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103%
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Trigger level:
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65% of the initial index value
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Securities Payoff Diagram
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How it works
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§
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Upside Scenario:
If the final index
value is greater than the initial index value, investors will receive the $1,000 stated principal amount plus 103% of the appreciation
of the underlying index over the term of the securities.
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§
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If the underlying index appreciates 5%, investors will receive a 5.15% return, or $1,051.50 per
security.
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§
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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.
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§
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If the underlying index depreciates 10%, investors will receive the $1,000 stated principal amount.
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§
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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.
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§
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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 Russell 1000
®
Index due July 26, 2022
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 PLUS and prospectus. You should also consult with your investment,
legal, tax, accounting and other advisers in connection with your investment in the securities.
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§
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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 65% of the initial index
level), the payout at maturity will be an amount in cash that is at least 35% 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.
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§
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The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control, will influence the value of the 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 “Russell 1000
®
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.
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§
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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.
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§
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As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of Morgan Stanley.
Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of securities
issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should be treated
pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued
securities.
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§
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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.
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§
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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
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
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.
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§
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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.
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§
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The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the 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.
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§
|
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.
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§
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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,
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
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
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.
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|
§
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The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. has determined the initial index value and the trigger level, will determine
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.
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§
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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 have carried out, and will continue to carry out, hedging activities related
to the securities (and to other instruments linked to the underlying index or its component stocks), including trading in the stocks
that constitute the underlying index as well as in other instruments related to the underlying index. As a result, these entities
may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and
more frequent dynamic adjustments to the hedge as the 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 July 15, 2019 could have increased the initial index value, and, therefore, could have increased 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.
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§
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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 PLUS (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.
There is a risk that the IRS may seek to treat all or a portion of the gain on the securities
as ordinary income. For example, 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 PLUS,
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 “FDAP income”
as defined in the accompanying product supplement for PLUS). The risk that financial
instruments providing for buffers, triggers or similar downside protection features,
such as the securities, would be recharacterized as debt is greater than the risk of
recharacterization for comparable financial instruments that do not have such features.
We do not plan to request a ruling from the IRS regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure
Sections.
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk 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 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 Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
Russell 1000
®
Index Overview
The Russell 1000
®
Index is an index calculated,
published and disseminated by FTSE Russell, and measures the composite price performance of stocks of 1,000 companies incorporated
in the U.S. and its territories. All 1,000 stocks are traded on a major U.S. exchange and represent the 1,000 largest companies
that form the Russell 3000
®
Index. The Russell 3000
®
Index is composed of the 3,000 largest U.S.
companies as determined by market capitalization and represents approximately 98% of the U.S. equity market. The Russell 1000
®
Index
represents a large portion of the total market capitalization of the Russell 3000
®
Index. For additional information
about the Russell 1000
®
Index, see “Annex A—Russell 1000
®
Index” below.
Information as of market close on July 19,
2019:
|
Bloomberg Ticker Symbol:
|
RIY
|
|
Current Index Value:
|
1,649.199
|
|
52 Weeks Ago:
|
1,557.830
|
|
52 Week High (on 7/15/2019):
|
1,669.272
|
|
52 Week Low (on 12/24/2018):
|
1,298.019
|
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 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 1,649.199. 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 19, 2019
|
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
|
Russell 1000
®
Index
|
High
|
Low
|
Period End
|
|
2014
|
|
|
|
|
First Quarter
|
1,051.192
|
972.948
|
1,046.422
|
|
Second Quarter
|
1,095.132
|
1,013.010
|
1,094.589
|
|
Third Quarter
|
1,120.533
|
1,064.388
|
1,096.428
|
|
Fourth Quarter
|
1,161.448
|
1,034.485
|
1,144.369
|
|
2015
|
|
|
|
|
First Quarter
|
1,180.790
|
1,108.316
|
1,156.947
|
|
Second Quarter
|
1,189.546
|
1,149.200
|
1,152.643
|
|
Third Quarter
|
1,186.107
|
1,042.775
|
1,068.459
|
|
Fourth Quarter
|
1,170.525
|
1,070.388
|
1,131.885
|
|
2016
|
|
|
|
|
First Quarter
|
1,140.419
|
1,005.887
|
1,138.842
|
|
Second Quarter
|
1,174.369
|
1,106.461
|
1,161.573
|
|
Third Quarter
|
1,213.547
|
1,155.604
|
1,202.251
|
|
Fourth Quarter
|
1,260.057
|
1,154.659
|
1,241.658
|
|
2017
|
|
|
|
|
First Quarter
|
1,328.968
|
1,252.108
|
1,310.064
|
|
Second Quarter
|
1,359.499
|
1,291.265
|
1,343.516
|
|
Third Quarter
|
1,396.897
|
1,334.878
|
1,396.897
|
|
Fourth Quarter
|
1,490.055
|
1,402.715
|
1,481.806
|
|
2018
|
|
|
|
|
First Quarter
|
1,588.978
|
1,429.232
|
1,464.867
|
|
Second Quarter
|
1,548.457
|
1,432.048
|
1,509.959
|
|
Third Quarter
|
1,624.282
|
1,507.646
|
1,614.540
|
|
Fourth Quarter
|
1,619.354
|
1,298.019
|
1,384.262
|
|
2019
|
|
|
|
|
First Quarter
|
1,582.110
|
1,351.871
|
1,570.230
|
|
Second Quarter
|
1,635.815
|
1,520.385
|
1,629.020
|
|
Third Quarter (through July 19, 2019)
|
1,669.272
|
1,641.506
|
1,649.199
|
The “Russell 1000
®
Index” is a trademark
of FTSE Russell. For more information, see “Annex A—Russell 1000
®
Index.
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
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 or prospectus, the terms described herein shall control.
|
|
Underlying index publisher:
|
FTSE Russell or any successor thereof
|
|
Denominations:
|
$1,000 per security and integral multiples thereof
|
|
Interest:
|
None
|
|
Index closing value:
|
The index closing value on any index business day shall be determined by the calculation agent and shall equal the closing value of the underlying index or any successor index reported by Bloomberg Financial Services, or any successor reporting service the calculation agent may select, on such index business day. In certain circumstances, the index closing value for the underlying index will be based on the alternate calculation of the underlying index as described under “Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation” in the accompanying product supplement. The closing value of the underlying index reported by Bloomberg Financial Services may be lower or higher than the official closing value of the underlying index published by the underlying index publisher.
|
|
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 Russell 1000
®
Index due July 26, 2022
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.
|
|
|
Assuming this treatment of the securities is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement for PLUS, the following U.S. federal income tax consequences should result based on current law:
|
|
|
§
A U.S. Holder should not be required to recognize taxable income over the term of the
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.
|
|
|
There is
a risk that the Internal Revenue Service (the “IRS”) may seek to treat all or a portion of the gain on the securities
as ordinary income. For example, there is a risk that 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.
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.
As discussed
in the accompanying product supplement for PLUS, Section 871(m) of the Internal Revenue Code of 1986, as amended, and Treasury
regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding
tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S.
equities or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section
871(m) generally applies to securities that substantially replicate the economic performance of one or more Underlying Securities,
as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant
to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have a delta of one with
respect to any Underlying Security. Based on our determination that the securities do not have a delta of one with respect to any
Underlying Security, our counsel is of the opinion that the securities should not be Specified Securities and, therefore, should
not be subject to Section 871(m).
Our determination
is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may
depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying Security.
If withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld. You
should consult your tax adviser regarding the potential application of Section 871(m) to the securities.
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
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
|
|
Federal
Taxation” in the accompanying product supplement for PLUS and consult their tax advisers regarding all aspects of the U.S.
federal income tax consequences of an investment in the 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 PLUS, insofar as they purport to describe provisions
of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell
LLP regarding the material U.S. federal tax consequences of an investment in the 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 July 15, 2019, we hedged our anticipated exposure
in connection with the securities by entering into hedging transactions with our affiliates and/or third-party dealers. We expect
our hedging counterparties to have taken positions in stocks of the underlying index and in futures or options contracts on the
underlying index or its component stocks listed on major securities markets. Such purchase activity could have increased the initial
index value, and, therefore, could have increased 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 PLUS.
|
|
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
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
|
|
provide an exemption for the purchase and sale of securities
and the related lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises
any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved in the
transaction and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in
connection with the transaction (the so-called “service provider” exemption). There can be no assurance that any of
these class or statutory exemptions will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with respect
to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the Code (“Similar Law”) or (b) its purchase, holding and disposition of these securities will not constitute or result
in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The securities are contractual financial instruments. The financial
exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the securities. The securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i)
the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii)
we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii)
any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(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
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
|
|
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:
|
Selected dealers and their financial advisors will receive a
structuring fee of $4 for each 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.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for PLUS.
|
|
Validity of the securities:
|
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith),
provided
that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 16, 2017, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 16, 2017.
|
|
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 PLUS) with the Securities and Exchange Commission, or SEC, for the
offering to which this communication relates. You should read the prospectus in that registration statement, the product supplement
for PLUS 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 PLUS and prospectus if you so request by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov
.
as
follows:
Product
Supplement for PLUS dated November 16, 2017
Prospectus
dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement for PLUS or in the prospectus.
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
Annex A—Russell 1000
®
Index
The Russell 1000
®
Index is an index calculated,
published and disseminated by FTSE Russell, and measures the composite price performance of stocks of 1,000 companies incorporated
in the U.S. and its territories. All 1,000 stocks are traded on a major U.S. exchange and represent the 1,000 largest companies
that form the Russell 3000
®
Index. The Russell 3000
®
Index is composed of the 3,000 largest U.S.
companies as determined by market capitalization and represents approximately 98% of the U.S. equity market. The Russell 1000
®
Index
represents a large portion of the total market capitalization of the Russell 3000
®
Index. The Russell 1000
®
Index is reported by Bloomberg Financial Markets under ticker symbol “RIY.”
Selection of stocks underlying the Russell 1000
®
Index.
The Russell 1000
®
Index is a sub-group of the Russell 3000
®
Index. To be eligible for
inclusion in the Russell 3000
®
Index, and, consequently, the Russell 1000
®
Index, a company’s
stocks must be listed on the last trading day in May of a given year and FTSE Russell must have access to documentation verifying
the company’s eligibility for inclusion. Beginning September 2004, eligible initial public offerings are added to Russell
U.S. Indices at the end of each calendar quarter, based on total market capitalization rankings within the market-adjusted capitalization
breaks established during the most recent reconstitution. To be added to any Russell U.S. index during a quarter outside of reconstitution,
initial public offerings must meet additional eligibility criteria. As of May 2019, to be eligible for inclusion in the Russell
1000
®
Index, each company is required to have more than 5% of its voting rights (aggregated across all of its equity
securities) held by unrestricted shareholders. Companies already included in the Russell 1000
®
Index have a 5-year
grandfathering period to comply with this requirement, or they will be removed from the Russell 1000
®
Index in September
2022.
Only
companies that are determined to be part of the U.S. equity market are eligible for inclusion in the Russell 1000
®
Index. All securities eligible for inclusion must trade on a major U.S.
exchange. Bulletin board, pink sheet or over-the-counter traded securities are not eligible for inclusion. Stocks must have a close
price at or above $1.00 on their primary exchange or on another major U.S. exchange on the last trading day in May to be considered
eligible for inclusion. The following companies are specifically excluded from the Russell 1000
®
Index:
(i) companies with a total market capitalization less than $30 million; (ii) companies with only a small portion of their shares
available in the marketplace; (iii) royalty trusts, limited liability companies, closed-end investment companies (companies that
are required to report Acquired Fund Fees and Expenses, as defined by the Securities and Exchange Commission, including business
development companies, are not eligible for inclusion), blank check companies, special purpose acquisition companies, limited partnerships,
exchange-traded funds and mutual funds. In addition, preferred and convertible preferred stock, redeemable shares, participating
preferred stock, warrants, rights and trust receipts are not eligible for inclusion.
The primary
criteria used to determine the initial list of securities eligible for the Russell 3000
®
Index is total market capitalization,
which is defined as the price of the shares times the total number of available shares. All common stock share classes are combined
in determining market capitalization. For companies with multiple share classes, the pricing vehicle will be designated as the
share class with the highest two-year trading volume as of the rank day in May. In the absence of two years’ worth of data,
all available data will be used for this determination. If the difference between trading volumes for each share class is less
than 20%, the share class with the most available shares outstanding will be used as the pricing vehicle. Stocks must trade at
or above $1.00 on the last trading day in May of each year to be eligible for inclusion in the Russell 1000
®
Index. However, if a stock falls below $1.00 intra-year, it will not be
removed until the next reconstitution if it is still trading below $1.00.
The Russell 1000
®
Index is reconstituted annually
to reflect changes in the marketplace. The list of companies is ranked based on May 31 total market capitalization, with the actual
reconstitution effective on the first trading day following the final Friday of June each year. Changes in the constituents are
preannounced and subject to change if any corporate activity occurs or if any new information is received prior to release.
Capitalization Adjustments.
The Russell 1000
®
Index is a float-adjusted and market-capitalization weighted index. The current Russell 1000
®
Index value is calculated
by adding the market values of the Russell 1000
®
Index’s Russell 1000 Component Stocks, which are derived
by multiplying the price of each stock by the number of available shares, to arrive at the total market capitalization of the 1,000
stocks. The total market capitalization is then divided by a divisor, which represents the “adjusted” capitalization
of the Russell 1000
®
Index on the base date of December 31, 1986. To calculate the Russell 1000
®
Index, last sale prices will be used for exchange-traded stocks. If a component stock is not open for trading, the most recently
traded price for that security will be used in calculating the Russell 1000
®
Index. In order to provide continuity
for the Russell 1000
®
Index’s value, the divisor is adjusted
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
periodically to reflect events including changes in the number
of common shares outstanding for Russell 1000 Component Stocks, company additions or deletions, corporate restructurings and other
capitalization changes.
Available shares are assumed to be shares available for trading.
Exclusion of capitalization held by directors, senior executives and managers of the company is based on information recorded in
corporate filings with the Securities and Exchange Commission. Where FTSE Russell determines that a company is being excluded from
index membership solely on the basis of the minimum float requirement, FTSE Russell will use the best available information contained
in the Securities and Exchange Commission filings to determine the free float.
The following types of shares are considered unavailable and
are removed from total market capitalization to arrive at free float or available market capitalization:
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ESOP or LESOP shares – Shares held within employee share plans;
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Public company holdings – Shares held by public companies or
by non-listed subsidiaries of public companies;
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Lock-In clause shares – All Shares where the holders is subject
to a lock-in clause are considered unavailable for the duration of the lock-in clause. Free Float changes resulting from the expiry
of a lock-in will be implemented at the next quarterly review subsequent to there being a minimum of 20 business days between the
lock-in expiry date and the Tuesday before the first Friday of the review month. If the previously locked-in shares are sold by
way of a corporate event (such as a secondary offering), any change to the free float will be applied 2 business days following
completion and will not be subject to the minimum 20 business day rule;
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Active participation or strategic holding shares – Shares held
by an investor, investment company or an investment fund that is actively participating in the management of a company or is holding
shares in a company for strategic reasons as evidenced by specific statements to that effect in publicly available announcements,
or has successfully placed a current member to the board of directors of a company;
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On-going contractual agreement shares – Shares that are subject
to ongoing contractual agreements (such as swaps) where they would ordinarily be treated as restricted are considered unavailable;
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Sovereign Wealth Fund shares – Shares held by a Sovereign Wealth
Fund are considered unavailable where the Sovereign Wealth Fund’s owns 10% or more of the shares;
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Corporate insider shares – Corporate insider shares are defined
as those shares held by founders, promoters, former directors, founding venture capital and private equity firms, private companies,
and individuals (including employees) and shares held by several investors acting in concert that own 10% or more of the shares
outstanding. Portfolio holdings (such as pension fund, insurance fund or investment companies) are generally not considered unavailable.
However, where a single portfolio holding is 30% or greater it will be regarded as strategic and therefore unavailable;
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Legally restricted shares – Legally restricted shares are defined
as shares where the company’s shareholders are subject to legal restrictions, including foreign ownership restrictions, that
are more restrictive; and
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Direct government holders – holdings listed as “government
of” are considered unavailable and will be removed entirely from available shares;
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Indirect government holders – shares held by government investment
boards and/or investment arms will be treated similar to large private holdings and removed if the holding is greater than 10%;
and
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Government pensions – holdings by government pension plans are
considered institutional holdings and will not be removed from available shares.
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Corporate Actions Affecting the Russell 1000
®
Index.
The following summarizes the types of Russell 1000
®
Index maintenance adjustments and indicates whether
or not an index adjustment is required:
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“No Replacement” Rule – Securities that leave the
Russell 1000
®
Index, between reconstitution dates, for any reason (e.g., mergers, acquisitions or other similar
corporate activity) are not replaced. Thus, the number of securities in the Russell 1000
®
Index over the past year
will fluctuate according to corporate activity.
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Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Value of the Russell 1000
®
Index due July 26, 2022
Principal at Risk Securities
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Rule for Deletions – When a stock is acquired, delisted, or moves
to the pink sheets or bulletin boards on the floor of a U.S. securities exchange, the stock is deleted from the index at the close
on the effective date or when the stock is no longer trading on the exchange.
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When acquisitions or mergers take place within the Russell 1000
®
Index, the stock’s capitalization moves to the acquiring stock, hence, mergers have no effect on the index total capitalization.
Shares are updated for the acquiring stock at the time the transaction is final.
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Rule for Additions – The only additions between reconstitution
dates are as a result of spin-offs and initial public offerings. The only additions between reconstitution dates are as a result
of spin-offs and initial public offerings. Spin-off companies are added to the parent company’s index and capitalization
tier of membership (i) until the next annual reconstitution date, if the spin-off company is eligible for the Russell 1000
®
Index or (ii) for two business days, if the spin-off company is ineligible for the Russell 1000
®
Index.
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Updates to Share Capital Affecting the Russell 1000
®
Index.
In March, June, September, and December, the Russell 1000
®
Index is updated for changes to shares outstanding
as companies report changes in share capital to the Securities and Exchange Commission. The changes will be implemented quarterly,
on the third Friday of the month (after the close). In June, any change to shares outstanding will be implemented. In March, September,
and December, only cumulative changes to shares outstanding greater than 3% will be reflected in the Russell 1000
®
Index. This does not affect treatment of major corporate events, which are effective on the ex-date.
The securities are not sponsored, endorsed, sold or promoted
by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the owners of the securities or any member
of the public regarding the advisability of investing in securities generally or in the securities particularly or the ability
of the Russell 1000
®
Index to track general stock market performance or a segment of the same. FTSE Russell’s
publication of the Russell 1000
®
Index in no way suggests or implies an opinion by FTSE Russell as to the advisability
of investment in any or all of the securities upon which the Russell 1000
®
Index is based. The Russell 1000
®
Index is determined, composed and calculated by FTSE Russell without regard to Morgan Stanley or the securities. FTSE Russell is
not responsible for and has not reviewed the securities nor any associated literature or publications and FTSE Russell makes no
representation or warranty express or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right,
at any time and without notice, to alter, amend, terminate or in any way change the Russell 1000
®
Index. FTSE Russell
has no obligation or liability in connection with the administration, marketing or trading of the securities.
FTSE RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE RUSSELL 1000
®
INDEX OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN
STANLEY, INVESTORS, OWNERS OF THE CDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 1000
®
INDEX OR
ANY DATA INCLUDED THEREIN. FTSE RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL 1000
®
INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL FTSE RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The “Russell 1000
®
Index” is a trademark
of FTSE Russell. The securities are not sponsored, endorsed, sold or promoted by FTSE Russell and FTSE Russell makes no representation
regarding the advisability of investing in the securities.
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