August
2019
Preliminary Terms No. 2,347
Registration Statement Nos. 333-221595;
333-221595-01
Dated August 2, 2019
Filed pursuant to Rule 433
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S. Equities
Jump Securities with Auto-Callable Feature due
August 30, 2024
All Payments on the Securities Based on the Worst
Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
The securities
offered are unsecured obligations of
Morgan Stanley Finance LLC (“MSFL”), fully and unconditionally guaranteed
by Morgan Stanley,
and have the terms described in the accompanying product
supplement, index supplement and prospectus, as supplemented or modified by this document. The securities do not guarantee the
repayment of principal and do not provide for the regular payment of interest. The securities will be automatically redeemed if
the index closing value
of
each
of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index, which we refer to as the underlying indices,
on any of the annual
determination dates is greater than or equal to its respective initial index value, for an early redemption payment that will increase
over the term of the securities, as described below. No further payments will be made on the securities once they have been redeemed.
At maturity, if
the securities have not previously been redeemed and the final index value of
each
underlying index
is
greater than
its respective initial index value, investors will receive the stated principal amount of their investment
plus a return reflecting 100% of the upside performance of the worst performing underlying index.
If
the securities have not previously been redeemed and the final index value of
either underlying index is less than or equal
to
its respective initial index value but the final index value of
each underlying index is greater than or equal to
60% of its respective initial index value, which we refer to as the respective downside threshold level, investors will receive
a payment at maturity of $1,000 per $1,000 security. However, if the securities are not redeemed prior to maturity and the final
index value of
either underlying index is
less than its respective downside threshold level, investors will be exposed to
the decline in the worst performing underlying index on a 1-to-1 basis, and will receive a payment at maturity that is less than
60% of the stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities must
be willing to accept the risk of losing their entire initial investment.
These long-dated securities are for investors who
are willing to risk their principal and forego current income in exchange for the possibility of receiving an early redemption
payment greater than the stated principal amount if each underlying index closes at or above the respective initial index value
on an annual determination date or an equity index-based return at maturity if each underlying index closes above the respective
initial index value on the final determination date. Because all payments on the securities are based on the worst performing of
the underlying indices, a decline beyond the respective downside threshold level of either underlying index will result in a significant
loss of your investment, even if the other underlying index has appreciated or has not declined as much. The securities are notes
issued as part of MSFL’s Series A Global Medium-Term Notes program.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These securities are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
SUMMARY
TERMS
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying indices:
|
Dow Jones Industrial Average
SM
(the “INDU Index”) and Russell 2000
®
Index (the “RTY Index”)
|
Aggregate principal amount:
|
$
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security
|
Pricing date:
|
August 27, 2019
|
Original issue date:
|
August 30, 2019 (3 business days after the pricing date)
|
Maturity date:
|
August 30, 2024
|
Early redemption:
|
If, on any annual determination date prior to the final determination
date, beginning on August 28, 2020, the index closing value of
each
underlying index is
greater than or equal to
its respective initial index value, the securities will be automatically redeemed for the applicable early redemption payment on
the related early redemption date.
The securities will not be redeemed early on any early redemption
date if the index closing value of either underlying index is below its respective initial index value on the related determination
date.
|
Early redemption payment:
|
The early redemption payment will be an amount in cash per stated
principal amount (corresponding to a return of at least 7.50%
per annum
, to be determined on the pricing date) for each
annual determination date, as set forth under “Determination Dates, Early Redemption Dates and Early Redemption Payments”
below.
No further payments will be made on the securities once they
have been redeemed.
|
Determination dates:
|
Annually. See “Determination Dates, Early Redemption Dates
and Early Redemption Payments” below.
The determination dates are subject to postponement for non-index
business days and certain market disruption events.
|
Early redemption dates:
|
See “Determination Dates, Early Redemption Dates and Early Redemption Payments” below. If any such day is not a business day, the early redemption payment, if payable, will be paid on the next business day, and no adjustment will be made to the early redemption payment.
|
Downside threshold level:
|
With respect to the INDU Index, , which is 60% of its initial
index value
With respect to the RTY Index, , which is 60% of its initial
index value
|
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 of
each underlying index
is
greater than
its respective initial index value:
$1,000 + ($1,000 × index percent change
of the worst performing underlying index)
·
If the final index value of
either underlying index is less than or equal to
its respective initial index value but
the final index value of
each underlying index is greater than or equal to
its respective downside threshold
level:
$1,000
·
If the final index value of
either underlying index
is
less than
its respective downside threshold level:
$1,000 × index performance factor of
the worst performing underlying index
Under these circumstances, you will lose more than
40%, and possibly all, of your investment.
|
|
Terms continued on the following page
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
Approximately $944.40 per security, or within $30.00 of that estimate. See “Investment Summary” beginning on page 3.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions
(1)
|
Proceeds to us
(2)
|
Per security
|
$1,000
|
$
|
$
|
Total
|
$
|
$
|
$
|
(1)
|
Selected dealers and their financial advisors will collectively receive from the agent, Morgan Stanley & Co. LLC, a
fixed sales commission of $ for each security they sell. 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.
|
(2)
|
See “Use of proceeds and hedging” on page 21.
|
The securities involve risks
not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 9.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement,
index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related product
supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Information About the Securities” at the end of this document.
As used in this document, “we,”
“us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context
requires.
Product Supplement for Auto-Callable Securities dated November 16, 2017
Index Supplement dated November 16, 2017
Prospectus dated November 16, 2017
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
Principal at Risk Securities
Terms continued from previous page:
|
Initial index value:
|
With respect to the INDU Index, , which is its index closing
value on the pricing date
With respect to the RTY Index, , which is its index closing value
on the pricing date
|
Final index value:
|
With respect to each underlying index, the respective index closing value on the final determination date
|
Worst performing underlying index:
|
The underlying index with the lesser index percent change
|
Index percent change:
|
With respect to each underlying index, (final index value – initial index value) / initial index value
|
Index performance factor:
|
With respect to each underlying index, the final index value
divided by
the initial index value
|
CUSIP / ISIN:
|
61769HPH2 / US61769HPH20
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Determination Dates, Early
Redemption Dates and Early Redemption Payments
Determination Dates
|
Early Redemption Dates
|
Early Redemption Payments (per $1,000 Security)*
|
1
st
determination date:
|
8/28/2020
|
1
st
determination date:
|
9/2/2020
|
At least $1,075
|
2
nd
determination date:
|
8/27/2021
|
2
nd
determination date:
|
9/1/2021
|
At least $1,150
|
3
rd
determination date:
|
8/29/2022
|
3
rd
determination date:
|
9/1/2022
|
At least $1,225
|
4
th
determination date:
|
8/28/2023
|
4
th
determination date:
|
8/31/2023
|
At least $1,300
|
Final determination date:
|
8/27/2024
|
Maturity Date
|
See “Payment at maturity” above.
|
*The
actual early redemption payment with respect to each determination date will be determined on the pricing date and will be an amount
in cash per stated principal amount corresponding to a return of at least 7.50%
per annum
.
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
Principal at Risk Securities
Investment Summary
Jump Securities with Auto-Callable Feature
Principal at Risk Securities
The Jump Securities with Auto-Callable Feature due August 30,
2024 All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell
2000
®
Index (the “securities”) do not provide for the regular payment of interest. Instead, beginning
after one year,
the securities will be automatically redeemed if the index
closing value
of
each of
the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
on any annual determination date is greater than or equal to its respective
initial index value, for an early redemption payment that will increase over the term of the securities, as described below. No
further payments will be made on the securities once they have been redeemed. At maturity, if
the securities have not previously
been redeemed and the final index value of each underlying index is
greater than
its respective initial index value, investors
will receive the stated principal amount of their investment
plus
a return reflecting 100% of the upside performance of
the worst performing underlying index.
If
the securities have not
previously been redeemed and the final index value of
either
underlying index is
less than or equal to
its respective
initial index value but the final index value of
each
underlying index is
greater than or equal to
its respective
downside threshold level, investors will receive a payment of maturity of $1,000 per $1,000 security. However, if the securities
are not redeemed prior to maturity and the final index value of
either underlying index is
less than its respective downside
threshold level, investors will be exposed to the decline in the worst performing underlying index on a 1-to-1 basis, and will
receive a payment at maturity that is less than 60% of the stated principal amount of the securities and could be zero.
Accordingly,
investors in the securities must be willing to accept the risk of losing their entire initial investment.
Maturity:
|
5 years
|
Automatic early redemption:
|
If, on any annual determination date prior to the final determination date, the index closing value of each underlying index is greater than or equal to its respective initial index value, the securities will be automatically redeemed for the applicable 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 at least 7.50%
per annum
, to be determined on the pricing date) for each
annual determination date (beginning after one year), as follows*:
·
1
st
determination date: At least $1,075
·
2
nd
determination date: At least $1,150
·
3
rd
determination date: At least $1,225
·
4
th
determination date: At least $1,300
*The actual early redemption payment with respect to each applicable
determination date will be determined on the pricing date.
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 of
each
underlying index is
greater than
its respective initial index value:
$1,000 + ($1,000 × index percent change of the
worst performing underlying index)
·
If the final index value of
either
underlying index is
less than or equal to
its respective initial index value but
the final index value of
each
underlying index is
greater than or equal to
its respective downside threshold level:
$1,000
·
If the final index value of
either
underlying index is
less than
its respective downside threshold level:
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
Principal at Risk Securities
|
$1,000 × index performance factor
of the worst performing underlying index
Under these circumstances, investors will lose a significant
portion or all of their investment. Accordingly, investors in the securities must be willing to accept the risk of losing their
entire initial investment.
|
The original issue price of each security is
$1,000. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by
you, and, consequently, the estimated value of the securities on the pricing date will be less than $1,000. We estimate that the
value of each security on the pricing date will be approximately $944.40, or within $30.00 of that estimate. Our estimate of the
value of the securities as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
indices. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying indices, instruments based on the underlying indices, 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 and the downside threshold levels, we use an internal funding rate, which is likely
to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and
hedging costs borne by you were lower or if the internal funding rate were higher, one or more 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 indices, 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
indices, 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
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
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 if the index closing
value
of
each of
the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
on
any annual determination date is greater than or equal to its respective 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 60% of the stated principal amount of the securities and
may be zero.
Scenario
1: The securities are redeemed prior to maturity
|
When each underlying index closes at or above its respective initial index value on any annual determination date prior to the final determination date, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date. Investors do not participate in any appreciation in either underlying index.
|
Scenario
2: The securities are not redeemed prior to maturity, and investors receive a fixed positive return at maturity
|
This scenario assumes that at least one underlying index closes below its respective initial index value on each of the annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, each underlying index closes above its respective initial index value. At maturity, investors will receive the stated principal amount of their investment
plus
a return reflecting 100% of the upside performance of the worst performing underlying index.
|
Scenario
3: The securities are not redeemed prior to maturity, and investors receive the return of principal at maturity
|
This scenario assumes that at least one underlying index closes below its respective initial index value on each of the annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, at least one underlying index closes at or below its respective initial index value, but the final index value of each underlying index is greater than or equal to its respective downside threshold level. At maturity, investors will receive a cash payment equal to $1,000 per $1,000 security.
|
Scenario
4: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
|
This scenario assumes that at least one underlying index closes below its respective initial index value on each of the annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, at least one underlying index closes below its respective downside threshold level. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the index performance factor of the worst performing underlying index. Under these circumstances, the payment at maturity will be significantly less than the stated principal amount and could be zero.
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
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 of each
underlying index on each of the annual determination dates, and the payment at maturity, if any, will be determined by reference
to the index closing value of each underlying index on the final determination date. The actual early redemption payment with respect
to each applicable determination date, initial index values and downside threshold levels will be determined on the pricing date.
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 Early Redemption Payment:
|
The hypothetical early redemption payment will be an amount in
cash per stated principal amount (corresponding to a return of approximately 7.50%
per annum
) for each annual determination
date (beginning after one year), as follows:
·
1
st
determination date: $1,075
·
2
nd
determination date: $1,150
·
3
rd
determination date: $1,225
·
4
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 of
each
underlying index is
greater than
its respective initial index value:
$1,000 + ($1,000 × index percent change of the
worst performing underlying index)
·
If the final index value of
either
underlying index is
less than or equal to
its respective initial index value but
the final index value of
each
underlying index is
greater than or equal to
its respective downside threshold level:
$1,000
·
If the final index value of
either
underlying index is
less than
its respective downside threshold level:
$1,000 × index performance factor
of the worst performing underlying index.
Under these circumstances, you will lose a significant portion
or all of your investment.
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Index Value:
|
With respect to the INDU Index: 27,000
With respect to the RTY Index: 1,500
|
Hypothetical Downside Threshold Level:
|
With respect to the INDU Index: 16,200, which is 60% of its hypothetical
initial index value
With respect to the RTY Index: 900, which is 60% of its hypothetical
initial index value
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
Principal at Risk Securities
Automatic Call:
Example 1 — the securities are redeemed
following the second determination date
Date
|
INDU Index Closing Value
|
RTY Index Closing Value
|
Payment (per Security)
|
1
st
Determination Date
|
29,000 (
at or above
the initial index value)
|
1,000 (
below
the initial index value)
|
--
|
2
nd
Determination Date
|
28,000 (
at or above
the initial index value)
|
1,750 (
at or above
the initial index value)
|
$1,150
|
In this example, on the first determination date, the index closing
value of one of the underlying indices is at or above its respective initial index value, but the index closing value of the other
underlying index is below its respective initial index value. Therefore, the securities are not redeemed. On the second determination
date, the index closing value of each underlying index is at or above the respective initial index value. Therefore, the securities
are automatically redeemed on the second early redemption date. Investors will receive a payment of $1,150 per security on the
related early redemption date. No further payments will be made on the securities once they have been redeemed, and investors do
not participate in the appreciation in either underlying index.
How to calculate the payment at maturity:
In the following examples, one or both of the underlying indices
close below the respective initial index value(s) on each of the annual determination dates, and, consequently, the securities
are not automatically redeemed prior to, and remain outstanding until, maturity.
|
INDU Index Final Index Value
|
RTY Index Final Index Value
|
Payment at Maturity (per Security)
|
Example 1:
|
29,700 (
above
its initial index value)
|
2,100 (
above
its initial index value)
|
$1,000 + ($1,000 × 10%) = $1,100
|
Example 2:
|
21,600 (
at or below
its initial index value but
at or above
its downside threshold level)
|
1,800 (
above
its initial index value and downside threshold level)
|
$1,000
|
Example 3:
|
33,750 (
above
its initial index value and downside threshold level)
|
600 (
below
its downside threshold level)
|
$1,000 x (600 / 1,500) = $400
|
Example 4:
|
5,400 (
below
its downside threshold level)
|
1,125 (
below
its initial index value but
at or above
its downside threshold level)
|
$1,000 x (5,400 / 27,000) = $200
|
Example 5:
|
5,400 (
below
its downside threshold level)
|
600 (
below
its downside threshold level)
|
$1,000 x (5,400 / 27,000) = $200
|
In example 1, the final index value of each underlying index
is above its respective initial index value. The INDU Index has appreciated by 10% while the RTY Index has appreciated by 40%.
Therefore, investors receive at maturity the stated principal amount
plus
a return reflecting 100% of the appreciation of
the worst performing underlying index, which is the INDU Index in this example. Investors receive $1,100 per security at maturity.
In example 2, the final index value of one of the underlying
indices is above its initial index value and downside threshold level, but the final index value of the other underlying index
is below its initial index value and at or above its downside threshold level. The RTY Index has increased 20% from its initial
index value to its final index value and the INDU Index has declined 20% from its initial index value to its final index value.
Therefore, investors receive $1,000 per security at maturity. Investors do not participate in any appreciation in either underlying
index.
In example 3, the final index value of one of the underlying
indices is above its initial index value and downside threshold level, but the final index value of the other underlying index
is below its respective downside threshold level. Therefore, investors are exposed to the downside performance of the worst performing
underlying index at maturity. The INDU Index has increased 25% from its initial index value to its final index value and the RTY
Index has declined 60% from its initial index value to its final index
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
Principal at Risk Securities
value. Therefore, investors receive at maturity an amount equal
to the stated principal amount times the index performance factor of the RTY Index, which is the worst performing underlying index
in this example.
In example 4, the final index value of one of the underlying
indices is at or below its initial index value but at or above its downside threshold level, while the final index value of the
other underlying index is below its respective downside threshold level. Therefore, investors are exposed to the downside performance
of the worst performing underlying index at maturity. The RTY Index has declined 25% from its initial index value to its final
index value and the INDU Index has declined 80% from its initial index value to its final index value. Therefore, investors receive
at maturity an amount equal to the stated principal amount times the index performance factor of the INDU Index, which is the worst
performing underlying index in this example.
In example 5, the final index value of each underlying index
is below its respective downside threshold level, and investors receive at maturity an amount equal to the stated principal amount
times
the index performance factor of the worst performing underlying index. The INDU Index has declined 80% from its initial
index value to its final index value and the RTY Index has declined 60% from its initial index value to its final index value.
Therefore, the payment at maturity equals the stated principal amount
times
the index performance factor of the INDU Index,
which is the worst performing underlying index in this example.
If the securities are not redeemed prior to maturity and the
final index value of either underlying index is below its respective downside threshold level, you will be exposed to the downside
performance of the worst performing underlying index at maturity, and your payment at maturity will be less than 60% of the stated
principal amount per security and could be zero.
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index
Principal at Risk Securities
Risk Factors
The
following is a list of certain key risk factors for investors in the securities. For further discussion of these and other risks,
you should read the section entitled “Risk Factors” in the accompanying product supplement, index supplement and prospectus.
We also urge you to consult with your investment, legal, tax, accounting and other advisers
in connection with your
investment in the securities
.
|
§
|
The securities do not pay interest or guarantee the return of any
principal.
The terms of the securities differ from those of ordinary debt securities in that they do not pay interest
or guarantee the return of any of the principal amount at maturity. If the securities have not been automatically redeemed prior
to maturity and the final index value of
either underlying index
is less than its respective downside threshold level of
60% of its initial index value, you will be exposed to the decline in the value of the worst performing underlying index, as compared
to its initial index value, on a 1-to-1 basis, and you will receive for each security that you hold at maturity an amount equal
to the stated principal amount
times
the index performance factor of the worst performing underlying index. In this case,
the payment at maturity will be less than 60% of the stated principal amount and could be zero.
|
|
§
|
If the securities are redeemed prior to maturity, the appreciation
potential of the securities is limited by the fixed early redemption payment specified for each determination date.
If
each underlying index closes at or above its respective initial index value on any annual determination date prior to the final
determination date, the securities will be automatically redeemed. In this scenario, the appreciation potential of the securities
is limited to the fixed early redemption payment specified for each determination date, and no further payments will be made on
the securities once they have been redeemed.
In addition, if the securities are redeemed prior to maturity,
you
will not participate in any appreciation of either underlying index, which could be significant. Moreover, the fixed early redemption
payment may be less than the payment at maturity you would receive for the same level of appreciation of the
worst performing
underlying index had the securities not been automatically redeemed and instead remained outstanding until maturity.
|
|
§
|
You are exposed to the price risk of each underlying index.
Your
return on the securities is not linked to a basket consisting of each underlying index. Rather, it will be contingent upon the
independent performance of each underlying index. Unlike an instrument with a return linked to a basket of underlying assets, in
which risk is mitigated and diversified among all the components of the basket, you will be exposed to the risks related to each
underlying index. Poor performance by
either underlying index
over the term of
the securities may negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying
index. To receive an early redemption payment,
each underlying index
must close
at or above its respective initial index value on the applicable determination date. In addition, if the securities have not been
redeemed and
at least one underlying index
has declined to below its respective
downside threshold level as of the final determination date, you will be
fully exposed
to
the decline in the worst performing underlying index over the term of the securities on a 1-to-1 basis, even if the other underlying
index has appreciated or has not declined as much. Under this scenario, the value of any such payment at maturity will be less
than 60% of the stated principal amount and could be zero. Accordingly, your investment is subject to the price risk of each underlying
index.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control, will influence the value of the securities
in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary
market. We expect that generally the level of interest rates available in the market and the value of each
underlying
index
on any day, including in relation to its respective
initial index value and downside threshold level, will affect the value of the securities more than any other factors. Other factors
that may influence the value of the securities include:
|
|
o
|
the volatility (frequency and magnitude of changes in value) of the underlying indices,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks
of the underlying indices or securities markets generally and which may affect the value of each underlying index,
|
|
o
|
dividend rates on the securities underlying the
underlying
indices,
|
|
o
|
the time remaining until the securities mature,
|
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®
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Principal at Risk Securities
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the composition of the underlying indices and changes in the constituent stocks of such indices, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity
. Generally,
the longer the time remaining to maturity, the more the market price of the securities will be affected by the other factors described
above.
For example, you may have to sell your securities
at a substantial discount from the stated principal amount of $1,000 per security if the price of either underlying index at the
time of sale is near or below its downside threshold level or if market interest rates rise.
You cannot predict the future performance
of either underlying index based on its historical performance. The value(s) of one or both of the underlying indices may decrease
so that you will receive no return on your investment and receive a payment at maturity that is less than 60% of the stated principal
amount.
See “
Dow Jones Industrial Average
SM
Overview”
and “
Russell 2000
®
Index Overview”
below
.
|
§
|
The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads
may adversely affect the market value of the securities.
You are dependent on our ability to pay all amounts due on the securities
upon an early redemption or at maturity and therefore you are subject to our credit risk. If we default on our obligations under
the securities, your investment would be at risk and you could lose some or all of your investment. As a result, the market value
of the securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any actual
or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit risk
is likely to adversely affect the market value of the securities.
|
|
§
|
As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should
be treated
pari passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders
of Morgan Stanley-issued securities.
|
|
§
|
The securities are linked to the Russell 2000
®
Index and are subject to risks associated with small-capitalization companies.
As the Russell 2000
®
Index is
one of the underlying indices, and the Russell 2000
®
Index consists of stocks issued by companies with relatively
small market capitalization, the securities are linked to the value of small-capitalization companies. These companies often have
greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies and therefore the Russell
2000
®
Index may be more volatile than indices that consist of stocks issued by large-capitalization companies. Stock
prices of small-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business
and economic developments, and the stocks of small-capitalization companies may be thinly traded. In addition, small capitalization
companies are typically less well-established and less stable financially than large-capitalization companies and may depend on
a small number of key personnel, making them more vulnerable to loss of personnel. Such companies tend to have smaller revenues,
less diverse product lines, smaller shares of their product or service markets, fewer financial resources and less competitive
strengths than large-capitalization companies and are more susceptible to adverse developments related to their products.
|
|
§
|
Not equivalent to investing in the underlying indices.
Investing in the securities
is not equivalent to investing in either underlying index or the component stocks of either underlying index. Investors in the
securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to
stocks that constitute either underlying index.
|
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Principal at Risk Securities
|
§
|
Reinvestment risk.
The term
of your investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities
are redeemed prior to maturity, you will receive no further payments on the securities and may be forced to invest in a lower interest
rate environment and may not be able to reinvest at comparable terms or returns.
|
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be limited
,
and
accordingly, you should be willing to hold your securities for the entire 5-year term of the securities.
The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary
market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any,
at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it
is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
|
|
§
|
The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well
as other factors.
|
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying indices, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers, and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
Hedging and trading activity by our affiliates could potentially affect the value of the securities.
One or more of
our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other instruments
linked to the underlying indices or their component stocks), including trading in the stocks that constitute the
|
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underlying indices as well as in
other instruments related to the underlying indices. As a result, these entities may be unwinding or adjusting hedge positions
during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge
as the final determination date approaches. Some of our affiliates also trade the stocks that constitute the underlying indices
and other financial instruments related to the underlying indices on a regular basis as part of their general broker-dealer and
other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial
index value of an underlying index, and, therefore, could increase (i) the value at or above which such underlying index must close
on the determination dates so that the securities are redeemed prior to maturity for the early redemption payment (depending also
on the performance of the other underlying index) and (ii) the downside threshold level for such underlying index, which is the
value at or above which such underlying index must close on the final determination date so that you are not exposed to the negative
performance of the worst performing underlying index at maturity (depending also on the performance of the other underlying index).
Additionally, such hedging or trading activities during the term of the securities could potentially affect the value of either
underlying index on the determination dates, and, accordingly, whether we redeem the securities prior to maturity and the amount
of cash you will receive at maturity, if any.
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. will determine the initial index values, the downside threshold levels,
the final index values, whether the securities will be redeemed on any early redemption date and the payment at maturity, if any.
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 an index closing value in the event of a market disruption event or discontinuance of an
underlying index. These potentially subjective determinations may affect the payout to you upon an early redemption or at maturity,
if any. For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Postponement
of Determination Dates,” “—Alternate Exchange Calculation in Case of an Event of Default,” “—Discontinuance
of Any Underlying Index; Alteration of Method of Calculation” and “—Calculation Agent and Calculations”
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing
date.
|
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain
. 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 auto-callable securities (together, the “Tax Disclosure
Sections”) concerning the U.S. federal income tax consequences of an investment in the securities. If the Internal Revenue
Service (the “IRS”) were successful in asserting an alternative treatment for the securities, the timing and character
of income on the securities might differ significantly from the tax treatment described in the Tax Disclosure Sections. For example,
under one possible treatment, the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders
would be required to accrue into income original issue discount on the securities every year at a “comparable yield”
determined at the time of issuance and recognize all income and gain in respect of the securities as ordinary income. Additionally,
as discussed under “United States Federal Taxation—FATCA” in the accompanying product supplement for auto-callable
securities, the withholding rules commonly referred to as “FATCA” would apply to the securities if they were recharacterized
as debt instruments. However, recently proposed regulations (the preamble to which specifies that taxpayers are permitted to rely
on them pending finalization) eliminate the withholding requirement on payments of gross proceeds of a taxable disposition (other
than amounts treated as “FDAP income,” as defined in the accompanying product supplement for auto-callable securities).
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.
|
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
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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.
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Dow Jones Industrial Average
SM
Overview
The Dow Jones Industrial AverageSM is a price-weighted index
composed of 30 common stocks that is published by S&P Dow Jones Indices LLC, the marketing name and a licensed trademark of
CME Group Inc., as representative of the broad market of U.S. industry. For additional information about the Dow Jones Industrial
Average
SM
, see the information set forth under “Dow Jones Industrial Average
SM
” in the accompanying
index supplement.
Information as of market close on July 30, 2019:
Bloomberg Ticker Symbol:
|
INDU
|
52 Week High (on 7/15/2019):
|
27,359.16
|
Current Index Value:
|
27,198.02
|
52 Week Low (on 12/24/2018):
|
21,792.20
|
52 Weeks Ago:
|
25,306.83
|
|
|
The following graph sets forth the daily index closing values
of the INDU Index for the period from January 1, 2014 through July 30, 2019. The related table sets forth the published high and
low index closing values, as well as the end-of-quarter index closing values, of the INDU Index for each quarter in the same period.
The index closing value of the INDU Index on July 30, 2019 was 27,198.02. We obtained the information in the table and graph below
from Bloomberg Financial Markets, without independent verification. The historical index closing values of the INDU Index should
not be taken as an indication of future performance, and no assurance can be given as to the value of the INDU Index at any time,
including on the determination dates.
INDU Index Daily Index Closing Values
January 1, 2014 to July 30, 2019
|
|
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Dow Jones Industrial Average
SM
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
16,530.94
|
15,372.80
|
16,457.66
|
Second Quarter
|
16,947.08
|
16,026.75
|
16,826.60
|
Third Quarter
|
17,279.74
|
16,368.27
|
17,042.90
|
Fourth Quarter
|
18,053.71
|
16,117.24
|
17,823.07
|
2015
|
|
|
|
First Quarter
|
18,288.63
|
17,164.95
|
17,776.12
|
Second Quarter
|
18,312.39
|
17,596.35
|
17,619.51
|
Third Quarter
|
18,120.25
|
15,666.44
|
16,284.70
|
Fourth Quarter
|
17,918.15
|
16,272.01
|
17,425.03
|
2016
|
|
|
|
First Quarter
|
17,716.66
|
15,660.18
|
17,685.09
|
Second Quarter
|
18,096.27
|
17,140.24
|
17,929.99
|
Third Quarter
|
18,636.05
|
17,840.62
|
18,308.15
|
Fourth Quarter
|
19,974.62
|
17,888.28
|
19,762.60
|
2017
|
|
|
|
First Quarter
|
21,115.55
|
19,732.40
|
20,663.22
|
Second Quarter
|
21,528.99
|
20,404.49
|
21,349.63
|
Third Quarter
|
22,412.59
|
21,320.04
|
22,405.09
|
Fourth Quarter
|
24,837.51
|
22,557.60
|
24,719.22
|
2018
|
|
|
|
First Quarter
|
26,616.71
|
23,533.20
|
24,103.11
|
Second Quarter
|
25,322.31
|
23,644.19
|
24,271.41
|
Third Quarter
|
26,743.50
|
24,174.82
|
26,458.31
|
Fourth Quarter
|
26,828.39
|
21,792.20
|
23,327.46
|
2019
|
|
|
|
First Quarter
|
26,091.95
|
22,686.22
|
25,928.68
|
Second Quarter
|
26,753.17
|
24,815.04
|
26,599.96
|
Third Quarter (through July 30, 2019)
|
27,359.16
|
26,717.43
|
27,198.02
|
“Dow Jones,” “Dow Jones Industrial Average,”
“Dow Jones Indexes” and “DJIA” are service marks of Dow Jones Trademark Holdings LLC. See “Dow Jones
Industrial Average
SM
” in the accompanying index supplement.
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Russell 2000
®
Index Overview
The Russell 2000
®
Index is an index calculated,
published and disseminated by FTSE Russell, and measures the composite price performance of stocks of 2,000 companies incorporated
in the U.S. and its territories. All 2,000 stocks are traded on a major U.S. exchange and are the 2,000 smallest securities 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 2000
®
Index consists of the smallest 2,000 companies included in the Russell 3000
®
Index and represents a small
portion of the total market capitalization of the Russell 3000
®
Index. The Russell 2000
®
Index is designed to track the performance of the small capitalization segment of the U.S. equity market. For additional information
about the Russell 2000
®
Index, see the information set forth under “Russell 2000
®
Index”
in the accompanying index supplement.
Information as of market close on July 30, 2019:
Bloomberg Ticker Symbol:
|
RTY
|
52 Week High (on 8/31/2018):
|
1,740.753
|
Current Index Value:
|
1,585.599
|
52 Week Low (on 12/24/2018):
|
1,266.925
|
52 Weeks Ago:
|
1,653.132
|
|
|
The following graph sets forth the daily index closing values
of the RTY Index for the period from January 1, 2014 through July 30, 2019. The related table sets forth the published high and
low index closing values, as well as the end-of-quarter index closing values, of the RTY Index for each quarter in the same period.
The index closing value of the RTY Index on July 30, 2019 was 1,585.599. We obtained the information in the table and graph below
from Bloomberg Financial Markets, without independent verification. The historical index closing values of the RTY Index should
not be taken as an indication of future performance, and no assurance can be given as to the value of the RTY Index at any time,
including on the determination dates.
RTY Index Daily Index
Closing Values
January 1, 2014 to July
30, 2019
|
|
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Russell 2000
®
Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,208.651
|
1,093.594
|
1,173.038
|
Second Quarter
|
1,192.960
|
1,095.986
|
1,192.960
|
Third Quarter
|
1,208.150
|
1,101.676
|
1,101.676
|
Fourth Quarter
|
1,219.109
|
1,049.303
|
1,204.696
|
2015
|
|
|
|
First Quarter
|
1,266.373
|
1,154.709
|
1,252.772
|
Second Quarter
|
1,295.799
|
1,215.417
|
1,253.947
|
Third Quarter
|
1,273.328
|
1,083.907
|
1,100.688
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
1,135.889
|
2016
|
|
|
|
First Quarter
|
1,114.028
|
953.715
|
1,114.028
|
Second Quarter
|
1,188.954
|
1,089.646
|
1,151.923
|
Third Quarter
|
1,263.438
|
1,139.453
|
1,251.646
|
Fourth Quarter
|
1,388.073
|
1,156.885
|
1,357.130
|
2017
|
|
|
|
First Quarter
|
1,413.635
|
1,345.598
|
1,385.920
|
Second Quarter
|
1,425.985
|
1,345.244
|
1,415.359
|
Third Quarter
|
1,490.861
|
1,356.905
|
1,490.861
|
Fourth Quarter
|
1,548.926
|
1,464.095
|
1,535.511
|
2018
|
|
|
|
First Quarter
|
1,610.706
|
1,463.793
|
1,529.427
|
Second Quarter
|
1,706.985
|
1,492.531
|
1,643.069
|
Third Quarter
|
1,740.753
|
1,653.132
|
1,696.571
|
Fourth Quarter
|
1,672.992
|
1,266.925
|
1,348.559
|
2019
|
|
|
|
First Quarter
|
1,590.062
|
1,330.831
|
1,539.739
|
Second Quarter
|
1,614.976
|
1,465.487
|
1,566.572
|
Third Quarter (through July 30, 2019)
|
1,585.599
|
1,544.783
|
1,585.599
|
The
“Russell 2000
®
Index” is a trademark of FTSE Russell. For more information, see “Russell 2000
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
All Payments on the Securities Based on the Worst Performing of the Dow Jones Industrial Average
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Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Terms:
|
If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
|
Underlying Index publisher:
|
With respect to the INDU Index, S&P Dow Jones Indices LLC,
or any successor thereof.
With respect to the RTY Index, FTSE Russell, or any successor
thereof.
|
Index closing value:
|
With respect to the INDU Index, the index closing value on any
index business day shall be determined by the calculation agent and shall equal the official closing value of such underlying index,
or any successor underlying index, published at the regular official weekday close of trading on such index business day by the
underlying index publisher for such underlying index. In certain circumstances, the index closing value for the INDU Index shall
be based on the alternate calculation of such underlying index described under “Discontinuance of an Underlying Index; Alteration
of Method of Calculation” in the accompanying product supplement.
With respect to the RTY Index, the index closing value on any
index business day shall be determined by the calculation agent and shall equal the closing value of the RTY 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 RTY Index shall be based on the alternate calculation of
the RTY Index described under “Discontinuance of an Underlying Index; Alteration of Method of Calculation” in the accompanying
product supplement. The closing value of the RTY Index reported by Bloomberg Financial Services may be lower or higher than the
official closing value of the RTY Index published by the underlying index publisher for the RTY Index.
|
Downside threshold level:
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
Jump securities with auto-callable feature:
|
The accompanying product supplement refers to these jump securities with auto-callable feature as the “auto-callable securities.”
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
Issuer notices to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the final determination 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 depositary by telephone or facsimile confirmed by mailing such notice to the depositary by first
class mail, postage prepaid. Any notice that is mailed to a registered holder of the securities in the manner herein provided shall
be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder receives the
notice. The issuer shall give such notice as promptly as possible, and in no case later than (i) with respect to notice of postponement
of the maturity date, the business day immediately preceding the scheduled maturity date and (ii) with respect to notice of the
date to which the maturity date has been rescheduled, the business day immediately following the final determination date as postponed.
In the event that the securities are subject to early
redemption, the issuer shall, (i) on the business day following the applicable determination date, give notice of the early redemption
of the securities and the applicable early redemption payment, including specifying the payment date of the applicable amount
due upon the early redemption, (x) to each registered holder of the securities by mailing notice of such early redemption by first
class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books, (y) to
the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its New York
office and (z) to the depositary by telephone or facsimile confirmed by mailing such notice to the depositary by first class mail,
postage prepaid and (ii) on or prior to the early redemption date, deliver the aggregate cash amount due with respect to the securities
to the trustee for delivery to the depositary, as holder of the securities. Any notice that is mailed to a registered holder of
the securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered holder,
whether or not
|
Morgan Stanley Finance LLC
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such registered holder receives the notice.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash, if any, 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, if any, to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.
|
Morgan Stanley Finance LLC
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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, each security
should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
However, because our counsel’s opinion is based in part on market conditions as of the date of this document, it is subject
to confirmation on the pricing date.
Assuming this treatment
of the securities is respected and subject to the discussion in “United States Federal Taxation” in the accompanying
product supplement for auto-callable securities, the following U.S. federal income tax consequences should result based on current
law:
§
A U.S. Holder should not be required to recognize taxable income over the term of the securities prior to settlement, other than
pursuant to a sale or exchange.
§
Upon sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between
the amount realized and the U.S. Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain
or loss if the investor has held the securities for more than one year, and short-term capital gain or loss otherwise.
In 2007,
the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on
the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in
particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks
for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status
of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which
income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these
instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize
certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate
transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues
could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect.
As discussed
in the accompanying product supplement for auto-callable securities, Section 871(m) of the Internal Revenue Code of 1986, as amended,
and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty
rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments
linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain
exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of one or more
Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”).
However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have
a delta of one with respect to any Underlying Security. Based on the terms of the securities and current market conditions, we
expect that the securities will not have a delta of one with respect to any Underlying Security on the pricing date. However, we
will provide an updated determination in the pricing supplement. Assuming that the securities do not have a delta of one with respect
to any Underlying Security, our counsel is of the opinion that the securities should not be Specified Securities and, therefore,
should not be subject to Section 871(m).
Our
determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application
may depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying
Security. If withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld.
You should consult your tax adviser
|
Morgan Stanley Finance LLC
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regarding
the potential application of Section 871(m) to the securities.
Both U.S. and non-U.S. investors considering
an investment in the securities should read the discussion under “Risk Factors” in this document and the discussion
under “United States Federal Taxation” in the accompanying product supplement for auto-callable securities 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 auto-callable securities, insofar as they purport to describe provisions of U.S. federal income
tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the
material U.S. federal tax consequences of an investment in the securities.
|
Use of proceeds and hedging:
|
The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we will hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers.
We expect our hedging counterparties to take positions in the stocks constituting the underlying indices, in futures and/or options
contracts on the underlying indices or the component stocks of the underlying indices listed on major securities markets, or positions
in any other available securities or instruments that they may wish to use in connection with such hedging. Such purchase activity
could potentially increase the initial index value of an underlying index, and, as a result, increase (i) the level at or above
which such underlying index must close on the determination dates so that the securities are redeemed prior to maturity for the
early redemption payment (depending also on the performance of the other underlying index) and (ii) the downside threshold level
for such underlying index, which is the level at or above which such underlying index must close on the final determination date
so that you are not exposed to the negative performance of the worst performing underlying index at maturity (depending also on
the performance of the other underlying index). These entities may be unwinding or adjusting hedge positions during the term of
the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the final determination
date approaches. Additionally, our hedging activities, as well as our other trading activities, during the term of the securities
could potentially affect the value of either underlying index on the determination dates, and, accordingly, whether we redeem the
securities prior to maturity and the amount of cash 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.
|
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
|
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4975 of the Code for such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited
transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined
by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company
separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In
addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and
the related lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises
any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved in the
transaction and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in
connection with the transaction (the so-called “service provider” exemption). There can be no assurance that any of
these class or statutory exemptions will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with
respect to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets
include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or
any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive
relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase,
holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee
or holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and
holding of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf
of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject
to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section
4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition of these securities will not constitute
or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar
Law.
Due to the complexity of these rules and the penalties
that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries
or other persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with
their counsel regarding the availability of exemptive relief.
The securities are contractual financial instruments. The financial
exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the securities. The securities have not been designed
and will not be administered in a 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
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
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®
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|
held for the benefit of the purchaser
or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive
responsibility for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction
rules of ERISA or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect
a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements
with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally
or any particular plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be
investment advice directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these securities
should consult and rely on their own counsel and advisers as to whether an investment in these securities is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
|
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, which may include our affiliates, and their
financial advisors will collectively receive from the agent a fixed sales commission of $ for each security they sell.
MS & Co. is an affiliate of MSFL and a wholly owned
subsidiary of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable,
hedging the securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities,
including the early redemption payments, such that for each security the estimated value on the pricing date will be no lower than
the minimum level described in “Investment Summary” beginning on page 3.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for auto-callable securities.
|
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 auto-callable securities and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration
statement, the product supplement for auto-callable securities, the index supplement and any other documents relating to this offering
that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering.
You may get these documents without cost by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, Morgan Stanley, MSFL,
any underwriter or any dealer participating in the offering will arrange to send you the prospectus, the product supplement for
auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov
as follows:
Product
Supplement for Auto-Callable Securities dated November 16, 2017
Index
Supplement dated November 16, 2017
|
Morgan Stanley Finance LLC
Jump Securities with Auto-Callable Feature due August 30, 2024
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|
Prospectus
dated November 16, 2017
Terms used but not defined in this document are defined in the
product supplement for auto-callable securities, in the index supplement or in the prospectus.
|
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