Buffered Auto-Callable Securities with Upside Participation Feature
at Maturity Based on the Performance of the S&P 500
®
Index due July 28, 2025 (the “securities”)
do not provide for the regular payment of interest and provide for the minimum return of only 10% of the stated principal amount
at maturity. The securities will be automatically redeemed if the index closing value on any of the first five annual determination
dates is greater than or equal to the initial index value, for an early redemption payment that will increase over the term of
the securities and that will correspond to a return of approximately 6.00%
per annum
, as described below. At maturity, if
the securities have not previously been redeemed and the final index value is greater than or equal to the initial index value,
investors will receive the greater of a (i) fixed positive return that will correspond to a return of approximately 6.00% per annum
and (ii) a return reflecting the appreciation of the underlying index over the term of the securities. If the securities are not
automatically redeemed prior to maturity and the final index value is less than the initial index value but greater than or equal
to the threshold level, which is 90% of the initial index value, investors will receive the stated principal of $1,000. However,
if the securities are not automatically redeemed prior to maturity and the final index value is less than the threshold level,
investors will be exposed on a 1:1 basis to the percentage decline in the index value beyond the buffer amount of 10%.
Accordingly,
90% of your principal is at risk (e.g., a 50% depreciation in the index will result in the payment at maturity of $600 per security).
Maturity:
|
Approximately 6 years
|
Automatic early redemption annually:
|
If, on any of the first five annual determination dates, the index closing value of the underlying index is greater than or equal to the initial index value, the securities will be automatically redeemed for the early redemption payment on the related early redemption date.
|
Early redemption payment:
|
The early redemption payment will be an amount in cash per stated
principal amount corresponding to a return of approximately 6.00%
per annum
for each annual determination date, as follows:
·
1
st
determination date: $1,060
·
2
nd
determination date: $1,120
·
3
rd
determination date: $1,180
·
4
th
determination date: $1,240
·
5
th
determination date: $1,300
No further payments will be made on the securities once they
have been redeemed.
|
Payment at maturity:
|
If the securities have not previously been redeemed, you will
receive at maturity a cash payment per security as follows:
·
If the final index value is
greater than or equal to
the initial index value:
the
greater of
(i) $1,360 or (ii) $1,000 x
index performance factor
·
If the final index value is
less than
the initial index value but
greater than or equal to
the threshold level:
$1,000
·
If the final index value is less than the threshold level:
$1,000 x (index performance factor + buffer amount)
In this scenario, the payment at maturity will
be less than the stated principal amount, subject to the minimum payment at maturity of $100 per security.
|
Buffer amount:
|
10%
|
Minimum payment at maturity:
|
$100 per security. You could lose up to 90% of the stated principal amount of the securities.
|
Morgan Stanley Finance LLC
Buffered Auto-Callable Securities with Upside Participation Feature at Maturity Based on the Performance of the S&P 500
®
Index due July 28, 2025
Principal at Risk Securities
The original issue price of each security is
$1,000. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by
you, and, consequently, the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value
of each security on the pricing date is $963.00.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
index. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying index, instruments based on the underlying index, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the early redemption payment amounts, the threshold level, the buffer amount 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 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
Buffered Auto-Callable Securities with Upside Participation Feature at Maturity Based on the Performance of the S&P 500
®
Index due July 28, 2025
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities will be automatically redeemed for an early redemption amount corresponding to a return of approximately
6.00%
per annum
if the index closing value on any of the first five annual determination dates is
greater than or equal
to
the initial index value.
The following scenarios are for illustrative purposes only to
demonstrate how an automatic early redemption payment or the payment at maturity (if the securities have not previously been redeemed)
are calculated, and do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or may not be
redeemed prior to maturity and the payment at maturity may be less than the stated principal amount of the securities, subject
to the minimum payment at maturity of $100 per security.
Scenario
1: The securities are redeemed prior to maturity
|
When the underlying index closes at or above the initial index value on one of the first five annual determination dates, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date, corresponding to a return of approximately 6.00%
per annum
. Investors do not participate in any appreciation of the underlying index.
|
Scenario
2: The securities are not redeemed prior to maturity, and investors receive a positive return at maturity
|
This scenario assumes that the underlying index closes below the initial index value on each of the first five annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes at or above the initial index value. At maturity, investors will receive a cash payment per security equal to the
greater of
(i) $1,360 or (ii) $1,000
times
the index performance factor. Under the terms of the securities, if the securities are not redeemed early, an investor would receive a payment at maturity of $1,360 per security if the final index value has increased by no more than 36% from the initial index value, and would receive $1,000 plus an amount that represents a 1-to-1 participation in the appreciation of the underlying index if the final index value has increased from the initial index value by more than 36%.
|
Scenario
3: The securities are not redeemed prior to maturity, and investors receive the stated principal amount at maturity
|
This scenario assumes that the underlying index closes below the initial index value on each of the first five annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes below the initial index value but at or above the threshold level of 90% of the initial index value. At maturity, investors will receive a cash payment equal to the stated principal amount of $1,000.
|
Scenario
4: The securities are not redeemed prior to maturity, and investors suffer a loss of principal at maturity
|
This scenario assumes that the underlying index closes below the initial index value on each of the first five annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes below the threshold level. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the index performance factor plus the buffer amount of 10%. Under these circumstances, the securities pay less than the stated principal amount by an amount proportionate to the decline in the final index value from the initial index value beyond the buffer amount of 10%, subject to the minimum payment at maturity of $100 per security.
|
Morgan Stanley Finance LLC
Buffered Auto-Callable Securities with Upside Participation Feature at Maturity Based on the Performance of the S&P 500
®
Index due July 28, 2025
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples are for illustrative purposes
only. Whether the securities are redeemed prior to maturity will be determined by reference to the index closing value on each
of the first five annual determination dates, and the payment at maturity will be determined by reference to the index closing
value on the final determination date. The actual initial index value and threshold level are set forth on the cover of this document.
Some numbers appearing in the examples below have been rounded for ease of analysis. All payments on the securities are subject
to our credit risk. The below examples are based on the following terms:
Hypothetical Initial Index Value:
|
3,000
|
Hypothetical Threshold Level:
|
2,700, which is 90% of the hypothetical initial index value
|
Early Redemption Payment:
|
The early redemption payment will be an amount in cash per stated
principal amount corresponding to a return of approximately 6.00%
per annum
for each annual determination date, as follows:
·
1
st
determination date: $1,060
·
2
nd
determination date: $1,120
·
3
rd
determination date: $1,180
·
4
th
determination date: $1,240
·
5
th
determination date: $1,300
No further payments will be made on the securities once they
have been redeemed.
|
Payment at Maturity:
|
If the securities have not previously been redeemed, you will
receive at maturity a cash payment per security as follows:
·
If the final index value is
greater than or equal to
the initial index value:
the
greater of
(i) $1,360 and (ii) $1,000 x
index performance factor
·
If the final index value is
less than
the initial index value but
greater than or equal to
the threshold level:
$1,000
·
If the final index value is
less than
the threshold level:
($1,000 × index performance factor) + $100
In this scenario, the payment at maturity will
be less than the stated principal amount, subject to the minimum payment at maturity of $100 per security.
|
Stated Principal Amount:
|
$1,000
|
Automatic Call:
Example 1 — the securities are redeemed
following the second determination date
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,800 (below the initial index value, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
3,200 (at or above the initial index value, securities are automatically redeemed)
|
$1,120
|
In this example, the index closing value on
the first determination date is below the initial index value, and the index closing value on the second determination date is
at or above the initial index value. Therefore the securities are automatically redeemed on the second early redemption date. Investors
will receive $1,120 per security on the related early redemption date, corresponding to an annual return of approximately 6.00%.
No further payments will be made on the securities once they have been redeemed, and investors do not participate in the appreciation
of the underlying index.
Morgan Stanley Finance LLC
Buffered Auto-Callable Securities with Upside Participation Feature at Maturity Based on the Performance of the S&P 500
®
Index due July 28, 2025
Principal at Risk Securities
Payment at Maturity
In the following examples, the index closing
value on the first five annual determination dates is less than the initial index value, and, consequently, the securities are
not automatically redeemed prior to, and remain outstanding until, maturity.
Example 1 — the final index value
is at or above the initial index value
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,800 (below the initial index value, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
2,500 (below the initial index value, securities are not redeemed)
|
--
|
3
rd
Determination Date
|
2,600 (below the initial index value, securities are not redeemed)
|
--
|
4
th
Determination Date
|
2,200 (below the initial index value, securities are not redeemed)
|
--
|
5
th
Determination Date
|
2,100 (below the initial index value, securities are not redeemed)
|
--
|
Final Determination Date
|
4,500 (at or above the initial index value)
|
the
greater of:
(i) $1,360 and
(ii) $1,000 ×
index performance factor = $1,000 x 150% = $1,500
Payment at maturity
= $1,500
|
In this example, the index closing value is
below the initial index value on each of the determination dates before the final determination date, and therefore the securities
are not redeemed prior to maturity. On the final determination date, the underlying index has appreciated 50% from the hypothetical
initial index value. At maturity, investors receive the
greater of
(i) $1,360 or (ii) $1,000
times
the index performance
factor. Because the underlying index has appreciated 50% from the hypothetical index value, the payment at maturity is $1,500 per
security.
Example 2 — the final index value
is at or above the initial index value
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,700 (below the initial index value, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
2,800 (below the initial index value, securities are not redeemed)
|
--
|
3
rd
Determination Date
|
2,300 (below the initial index value, securities are not redeemed)
|
--
|
4
th
Determination Date
|
2,400 (below the initial index value, securities are not redeemed)
|
--
|
5
th
Determination Date
|
2,150 (below the initial index value, securities are not redeemed)
|
--
|
Morgan Stanley Finance LLC
Buffered Auto-Callable Securities with Upside Participation Feature at Maturity Based on the Performance of the S&P 500
®
Index due July 28, 2025
Principal at Risk Securities
Final Determination Date
|
3,600 (at or above the initial index value)
|
the
greater of
(i) $1,360 and
(ii) $1,000 ×
index performance factor
= $1,000 x 120% = $1,200
Payment at maturity = $1,360
|
In this example, the index closing value is
below the initial index value on each of the determination dates before the final determination date, and therefore the securities
are not redeemed prior to maturity. On the final determination date, the underlying index has appreciated 20% from the hypothetical
initial index value. At maturity, investors receive the
greater of
(i) $1,360 or (ii) $1,000
times
the index performance
factor. Because the underlying index has appreciated 20% from the hypothetical index value, the payment at maturity is $1,360 per
security.
Example 3 — the final index value
is below the initial index value but at or above the threshold level
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,000 (below the initial index value, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
1,900 (below the initial index value, securities are not redeemed)
|
--
|
3
rd
Determination Date
|
2,100 (below the initial index value, securities are not redeemed)
|
--
|
4
th
Determination Date
|
2,300 (below the initial index value, securities are not redeemed)
|
--
|
5
th
Determination Date
|
2,250 (below the initial index value, securities are not redeemed)
|
--
|
Final Determination Date
|
2,800 (below the initial index value, but above the threshold level)
|
$1,000
|
In this example, the index closing value is
below the initial index value on each of the determination dates before the final determination date, and therefore the securities
are not redeemed prior to maturity. On the final determination date, the final index value is below the initial index value but
at or above the threshold level, and accordingly, investors receive a payment at maturity equal to the stated principal amount
of $1,000 per security.
Morgan Stanley Finance LLC
Buffered Auto-Callable Securities with Upside Participation Feature at Maturity Based on the Performance of the S&P 500
®
Index due July 28, 2025
Principal at Risk Securities
Example 4 — the final index value
is below the threshold level
Date
|
Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
2,200 (below the initial index value, securities are not redeemed)
|
--
|
2
nd
Determination Date
|
2,450 (below the initial index value, securities are not redeemed)
|
--
|
3
rd
Determination Date
|
2,300 (below the initial index value, securities are not redeemed)
|
--
|
4
th
Determination Date
|
2,500 (below the initial index value, securities are not redeemed)
|
--
|
5
th
Determination Date
|
2,100 (below the initial index value, securities are not redeemed)
|
--
|
Final Determination Date
|
1,500 (below the threshold level)
|
$1,000 x (index performance factor + buffer amount) = $1,000 x (50% + 10%) = $600
|
In this example, the index closing value is
below the initial index value on each of the determination dates before the final determination date, and therefore the securities
are not redeemed prior to maturity. Because the final index value is less than the threshold level, investors lose some of their
investment in an amount proportionate to the decline in the final index value from the initial index value beyond the buffer amount
of 10%. The payment at maturity is $600 per security, representing a loss of 40% of the stated principal amount.
If the securities are not redeemed prior
to maturity and the final index value is less than the threshold level, you will lose some or a significant portion of your investment
in the securities.
Morgan Stanley Finance LLC
Buffered Auto-Callable Securities with Upside Participation Feature at Maturity Based on the Performance of the S&P 500
®
Index due July 28, 2025
Principal at Risk Securities