August
2019
Preliminary
Terms No. 2,388
Registration
Statement Nos. 333-221595; 333-221595-01
Dated
August 9, 2019
Filed
pursuant to Rule 433
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities
in U.S. Equities
Contingent Income Auto-Callable Securities due
August 23, 2024, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the
Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
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 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. Instead, the securities will pay a contingent
quarterly coupon
but only if
the determination closing
price of
each of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
,
which we refer to as the underlying shares,
is
at or above
60%
of its respective initial share price, which we refer to as the respective coupon barrier level,
on
the related observation date. If, however, the determination closing price of
either of the underlying shares
is less than
its respective coupon barrier level on any observation date, we will pay no interest for the related quarterly period. In addition,
the securities will be automatically redeemed if the determination closing
price of each of the underlying shares is
greater
than or equal to
its respective initial share price
on any quarterly
redemption determination date (beginning approximately one year after the original issue date) for the early redemption payment
equal to the sum of the stated principal amount plus the related contingent quarterly coupon. At maturity, if
the securities
have not previously been redeemed and the final share price of each of the underlying shares is
greater than or equal to
50% of its respective initial share price, which we refer to as the respective downside threshold level, the payment at maturity
will be the stated principal amount and, if the final share price of each of the underlying shares is also greater than or equal
to its respective coupon barrier level, the related contingent quarterly coupon. However, if the final share price of
either
of the underlying shares
is less than its respective downside threshold level, investors will be exposed to the decline in
the worst performing underlying on a 1-to-1 basis, and will receive a payment at maturity that is less than 50% 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 and also the risk of not receiving any contingent quarterly coupons throughout
the 5-year term of the securities.
These long-dated securities are for investors who are willing to risk their principal and
seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of losing a significant portion
or all of their investment, and the risk of receiving no quarterly interest over the entire 5-year term and in exchange for the
possibility of an automatic early redemption prior to maturity. Because the payment of contingent quarterly coupons is based on
the worst performing of the underlying shares, the fact that the securities are linked to two underlyings does not provide any
asset diversification benefits and instead means that a decline of either of the underlying shares below the relevant downside
threshold level will result in no contingent quarterly coupons, even if the other underlying shares close at or above their respective
downside threshold level. Because all payments on the securities are based on the worst performing of the underlying shares, a
decline beyond the respective coupon barrier level or respective downside threshold level, as applicable, of either of the underlying
shares will result in no contingent quarterly coupon payments and a significant loss of your investment, even if the other underlying
has appreciated or has not declined as much. Investors will not participate in any appreciation of either of the underlying shares.
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 shares:
|
The SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF (the “XOP Shares”) and the SPDR
®
S&P
®
Regional Banking ETF (the “KRE Shares”)
|
Aggregate principal amount:
|
$
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security
|
Pricing date:
|
August 20, 2019
|
Original issue date:
|
August 23, 2019 (3 business days after the pricing date)
|
Maturity date:
|
August 23, 2024
|
Early redemption:
|
The securities are not subject to automatic
early redemption until one year after the original issue date.
Following this initial 1-year non-call period, if, on any redemption
determination date, beginning on August 20, 2020, the determination closing price of
each of the underlying shares
is greater
than or equal to its respective initial share price, the securities will be automatically redeemed for an early redemption payment
on the related early redemption date. No further payments will be made on the securities once they have been redeemed.
The securities will not be redeemed early
on any early redemption date if the determination closing price of either of the underlying shares is below its respective initial
share price on the related redemption determination date.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold
plus
(ii) the contingent quarterly coupon with respect to the related observation date.
|
Determination closing price:
|
With respect to each of the underlying shares, the closing price of such underlying on any redemption determination date or observation date (other than the final observation date),
times
the adjustment factor for such underlying on such redemption determination date or observation date, as applicable
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate
of at least 7.50% (corresponding to approximately $18.75 per quarter per security, to be determined on the pricing date) will
be paid on the securities on each coupon payment date
but only if
the determination closing price of
each of
the underlying shares
is at or above its respective coupon barrier level on the related observation date.
If, on any observation date, the determination closing
price of either of the underlying shares is less than its respective coupon barrier level, no contingent quarterly coupon will
be paid with respect to that observation date. It is possible that one or both of the underlying shares will remain below their
respective coupon barrier levels for extended periods of time or even throughout the entire 5-year term of the securities so that
you will receive few or no contingent quarterly coupons.
|
Payment at maturity:
|
·
If
the final share price of
each of the underlying shares
is
greater than or equal to
its respective downside threshold
level: (i) the stated principal amount, and, if the final share price of each of the underlying shares is also
greater than
or equal to
its respective coupon barrier level, (ii) the contingent quarterly coupon with respect to the final observation
date
·
If
the final share price of
either of the underlying shares is less than
its respective downside threshold level: (i) the
stated principal amount
multiplied by
(ii) the underlying performance factor of the worst performing underlying
Under these circumstances, the payment
at maturity will be less than 50% of the stated principal amount and could be zero.
|
|
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 $905.10 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, MS & Co., 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 33.
|
The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 13.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement
and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related product
supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Terms of the Securities” and “Additional Information About the Securities” at the end of this document.
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
Prospectus
dated November 16, 2017
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Terms continued from previous page:
|
Redemption determination dates:
|
Quarterly, beginning August 20, 2020, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject to postponement for non-trading days and certain market disruption events
|
Early redemption dates:
|
Quarterly, beginning August 25, 2020 (approximately one year after the original issue date), as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below. If any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day
|
Coupon barrier level:
|
With respect to the XOP Shares, $ , which is equal to
60% of its initial share price
With respect to the KRE Shares, $ , which is equal to
60% of its initial share price
|
Downside threshold level:
|
With respect to the XOP Shares, $ , which is equal to
50% of its initial share price
With respect to the KRE Shares, $ , which is equal to
50% of its initial share price
|
Initial share price:
|
With respect to the XOP Shares, $ , which is its closing
price on the pricing date
With respect to the KRE Shares, $ , which is its closing
price on the pricing date
|
Coupon payment dates:
|
Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below. If any such day is not a business day, that coupon payment will be made on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day. The contingent quarterly coupon, if any, with respect to the final observation date shall be paid on the maturity date.
|
Observation dates:
|
Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject, independently in the case of each of the underlying shares, to postponement for non-trading days and certain market disruption events. We also refer to August 20, 2024 as the final observation date.
|
Final share price:
|
With respect to each of the underlying shares, the closing price of such underlying on the final observation date
times
the adjustment factor for such underlying on such date
|
Adjustment factor:
|
With respect to each of the underlying shares, 1.0, subject to adjustment in the event of certain events affecting such underlying
|
Worst performing underlying:
|
The underlying with the larger percentage decrease from the respective initial share price to the respective final share price
|
Underlying performance factor:
|
Final share price
divided by
the initial share price
|
CUSIP / ISIN:
|
61769HQL2 / US61769HQL23
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Observation Dates, Redemption
Determination Dates, Coupon Payment Dates and Early Redemption Dates
Observation Dates / Redemption Determination Dates
|
Coupon Payment Dates / Early Redemption Dates
|
November 20, 2019*
|
November 25, 2019*
|
February 20, 2020*
|
February 25, 2020*
|
May 20, 2020*
|
May 26, 2020*
|
August 20, 2020
|
August 25, 2020
|
November 20, 2020
|
November 25, 2020
|
February 22, 2021
|
February 25, 2021
|
May 20, 2021
|
May 25, 2021
|
August 20, 2021
|
August 25, 2021
|
November 22, 2021
|
November 26, 2021
|
February 22, 2022
|
February 25, 2022
|
May 20, 2022
|
May 25, 2022
|
August 22, 2022
|
August 25, 2022
|
November 21, 2022
|
November 25, 2022
|
February 21, 2023
|
February 24, 2023
|
May 22, 2023
|
May 25, 2023
|
August 21, 2023
|
August 24, 2023
|
November 20, 2023
|
November 24, 2023
|
February 20, 2024
|
February 23, 2024
|
May 20, 2024
|
May 23, 2024
|
August 20, 2024 (final observation date)
|
August 23, 2024 (maturity date)
|
* The securities are not subject to automatic early redemption
until the fourth coupon payment date, which is August 25, 2020.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
Contingent Income Auto-Callable Securities due August 23, 2024,
With 1-Year Initial Non-Call Period All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF (the “securities”)
do not provide for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon
but only
if
the determination closing price of
each of the SPDR
®
S&P
®
Oil & Gas Exploration
& Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
, which we refer to as the underlying
shares, is
at or above
60% of its respective initial share price, which we refer to as the respective coupon barrier level,
on the related observation date. If, however, the determination closing price of
either of the underlying shares
is less
than its respective coupon barrier level on any observation date, we will pay no interest for the related quarterly period. It
is possible that the determination closing price of either of the underlying shares could remain below the respective coupon barrier
level for extended periods of time or even throughout the entire 5-year term of the securities so that you will receive few or
no contingent quarterly coupons during the term of the securities. We refer to these coupons as contingent, because there is no
guarantee that you will receive a coupon payment on any coupon payment date. Even if both underlying shares were to be at or above
their respective coupon barrier levels on some quarterly observation dates, one or both of the underlying shares may fluctuate
below the respective coupon barrier level(s) on others. In addition, the securities will be automatically redeemed if the determination
closing price of each of the underlying shares is
greater than or equal to
its respective initial share price on any quarterly
redemption determination date (beginning approximately one year after the original issue date) for the early redemption payment
equal to the sum of the stated principal amount plus the related contingent quarterly coupon. At maturity, if the securities have
not previously been redeemed and the final share price of each of the underlying shares is
greater than or equal to
50%
of its respective initial share price, which we refer to as the respective downside threshold level, the payment at maturity will
be the stated principal amount and, if the final share price of each of the underlying shares is also greater than or equal to
its respective coupon barrier level, the related contingent quarterly coupon. However, if the final share price of
either of
the underlying shares
is less than its respective downside threshold level, investors will be exposed to the decline in the
worst performing underlying on a 1-to-1 basis, and will receive a payment at maturity that is less than 50% 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 and also the risk of not receiving any contingent quarterly coupons throughout the 5-year
term of the securities.
Investors will not participate in any appreciation in the price of either of the underlying shares.
Maturity:
|
5 years
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate
of at least 7.50% (corresponding to approximately $18.75 per quarter per security, to be determined on the pricing date) will
be paid on the securities on each coupon payment date
but only if
the determination closing price of
each of the underlying
shares
is at or above its respective coupon barrier level on the related observation date.
If on any observation date, the determination closing
price of either of the underlying shares is less than its respective coupon barrier level, we will pay no coupon for the applicable
quarterly period.
|
Automatic early redemption beginning after one year:
|
If the determination closing price of
each of the underlying shares
is greater than or equal to its respective initial share price on any quarterly redemption determination date, beginning on August 25, 2020 (approximately one year after the original issue date), the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount
plus
the contingent quarterly coupon with respect to the related observation date.
|
Payment at maturity:
|
If the securities have not previously been redeemed
and the final share price of
each of the underlying shares
is
greater than or equal to its respective downside threshold
level
, the payment at maturity will be the stated principal amount and, if the final share price of each of the underlying
shares is also greater than or equal to its respective coupon barrier level, the related contingent quarterly coupon.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
If the final share price of
either of the underlying shares
is less than its respective downside threshold level, investors will receive a payment at maturity based on the decline in the worst performing underlying over the term of the securities. Under these circumstances, the payment at maturity will be less than 50% 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.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
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 will be less than $1,000. We estimate that the
value of each security on the pricing date will be approximately $905.10, 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
shares. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying shares, instruments based on the underlying shares, 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 contingent quarterly coupon rate, the coupon barrier levels 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 shares, 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
shares, 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
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities will pay a contingent quarterly coupon
but only if
the determination closing price of
each of
the underlying shares
is
at or above its respective coupon barrier level
on the related observation date. The securities
have been designed for investors who are willing to forgo market floating interest rates and accept the risk of receiving no coupon
payments for the entire 5-year term of the securities in exchange for an opportunity to earn interest at a potentially above market
rate if each underlying closes at or above its respective coupon barrier level on each quarterly observation date until the securities
are redeemed early or reach maturity. The following scenarios are for illustration purposes only to demonstrate how the coupon
and 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, the contingent quarterly coupon may be
payable in none of, or some but not all of, the quarterly periods during the 5-year term of the securities, and the payment at
maturity may be less than 50% of the stated principal amount of the securities and may be zero.
Scenario
1: The securities are redeemed prior to maturity
|
This scenario assumes that, prior to early redemption, each of
the underlying shares closes at or above its respective coupon barrier level on some quarterly observation dates, but one or both
of the underlying shares close below the respective coupon barrier level(s) on the others. Investors receive the contingent quarterly
coupon for the quarterly periods for which the determination closing price of each of the underlying shares is at or above its
respective coupon barrier level on the related observation date, but not for the quarterly periods for which the determination
closing price of one or both of the underlying shares is below the respective coupon barrier level(s) on the related observation
date.
Starting on August 25, 2020, when each of the underlying shares
closes at or above its respective initial share price on a quarterly redemption determination date, the securities will be automatically
redeemed for the stated principal amount
plus
the contingent quarterly coupon with respect to the related observation date.
|
Scenario
2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
|
This scenario assumes that each of the underlying shares closes at or above its respective coupon barrier level on some quarterly observation dates, but one or both of the underlying shares close below the respective coupon barrier level(s) on the others, and at least one of the underlying shares closes below its initial share price on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price of each of the underlying shares is at or above its respective coupon barrier level on the related observation date, but not for the quarterly periods for which the determination closing price of one or both of the underlying shares is below the respective coupon barrier level(s) on the related observation date. On the final observation date, each of the underlying shares closes at or above its respective downside threshold level. At maturity, in addition to the contingent quarterly coupon with respect to the final observation date, investors will receive the stated principal amount.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Scenario
3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
|
This scenario assumes that each of the underlying shares closes at or above its respective coupon threshold level on some quarterly observation dates, but one or both of the underlying shares close below the respective coupon threshold level(s) on the others, and at least one of the underlying shares closes below its initial share price on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price of each of the underlying shares is greater than or equal to its respective coupon barrier level on the related observation date, but not for the quarterly periods for which the determination closing price of one or both of the underlying shares is below the respective coupon barrier level(s) on the related observation date. On the final observation date, one or both of the underlying shares close below the respective downside threshold level(s). At maturity, investors will receive an amount equal to the stated principal amount multiplied by the underlying performance factor of the worst performing underlying. Under these circumstances, the payment at maturity will be less than 50% of the stated principal amount and could be zero. No coupon will be paid at maturity in this scenario.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing prices on each quarterly observation date (starting after one year),
(2) the determination closing prices on each quarterly redemption determination date and (3) the final share prices. Please see
“Hypothetical Examples” below for an illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Quarterly Coupons
(Beginning on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Beginning
Approximately One Year After the Original Issue Date)
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
For more information about the payout upon
an early redemption or at maturity in different hypothetical scenarios, see “Hypothetical Examples” below.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity,
if any, assuming the securities are not redeemed prior to maturity. The following examples are for illustrative purposes only.
Whether you receive a contingent quarterly coupon will be determined by reference to the determination closing price of each of
the underlying shares on each quarterly observation date, and the amount you will receive at maturity, if any, will be determined
by reference to the final share price of each of the underlying shares on the final observation date. The actual initial share
price, coupon barrier level and downside threshold level for each of the underlying shares will be determined on the pricing date.
All payments on the securities, if any, are subject to our credit risk. The below examples are based on the following terms:
Hypothetical Contingent Quarterly Coupon:
|
7.50% per annum (corresponding to approximately $18.75
per quarter per security)
1
With respect to each coupon payment date, a contingent
quarterly coupon is paid but only if the determination closing price of each of the underlying shares is at or above its respective
coupon barrier level on the related observation date.
|
Automatic Early Redemption:
|
If the determination closing price of
each of the underlying shares
is greater than or equal to its respective initial share price on any quarterly redemption determination date, beginning approximately one year after the original issue date, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent quarterly coupon with respect to the related observation date. No further payments will be made on the securities once they have been redeemed.
|
Payment at Maturity (if the securities have not been automatically redeemed prior to maturity):
|
If the final share price of
each of the underlying
shares
is
greater than or equal to its respective downside threshold level
: the stated principal amount and, if the
final share price of each of the underlying shares is
greater than or equal to
its respective coupon barrier level, the
contingent quarterly coupon with respect to the final observation date
If the final share price of
either of the underlying
shares is less than
its respective downside threshold level: (i) the stated principal amount
multiplied by
(ii) the
underlying performance factor of the worst performing underlying
|
Stated Principal Amount:
|
$10
|
Hypothetical Initial share price:
|
With respect to the XOP Shares: $20.00
With respect to the KRE Shares: $50.00
|
Hypothetical Coupon Barrier Level:
|
With respect to the XOP Shares: $12.00, which is 60%
of its hypothetical initial share price
With respect to the KRE Shares: $30.00, which is 60%
of its hypothetical initial share price
|
Hypothetical Downside Threshold Level:
|
With respect to the XOP Shares: $10.00, which is 50%
of its hypothetical initial share price
With respect to the KRE Shares: $25.00, which is 50%
of its hypothetical initial share price
|
1
The actual contingent quarterly
coupon will be an amount determined by the calculation agent based on the actual contingent quarterly coupon rate and the number
of days in the applicable payment period, calculated on a 30/360 day-count basis. The hypothetical contingent quarterly coupon
of $18.75 is used in these examples for ease of analysis.
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date:
|
Determination Closing Price
|
Hypothetical Contingent Quarterly Coupon
|
|
XOP Shares
|
KRE Shares
|
|
Hypothetical Observation Date 1
|
$15.00 (
at or above
coupon barrier level)
|
$40.00 (
at or above
coupon barrier level)
|
$18.75
|
Hypothetical Observation Date 2
|
$8.00 (
below
coupon barrier level)
|
$35.00 (
at or above
coupon barrier level)
|
$0
|
Hypothetical Observation Date 3
|
$17.00 (
at or above
coupon barrier level)
|
$20.00 (
below
coupon barrier level)
|
$0
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Hypothetical Observation Date 4
|
$5.00 (
below
coupon barrier level)
|
$11.00 (
below
coupon barrier level)
|
$0
|
On hypothetical observation date 1, each of the underlying shares
closes at or above its respective coupon barrier level. Therefore, a hypothetical contingent quarterly coupon of $18.75 is paid
on the relevant coupon payment date.
On each of hypothetical observation dates 2 and 3, one of the
underlying shares closes at or above its respective coupon barrier level but the other underlying closes below its respective coupon
barrier level. Therefore, no contingent quarterly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 4, each of the underlying shares
closes below its respective coupon barrier level and accordingly no contingent quarterly coupon is paid on the relevant coupon
payment date.
You will not receive a contingent quarterly coupon on any
coupon payment date if the determination closing price of either of the underlying shares is below its respective coupon barrier
level on the related observation date.
How to calculate the payment at maturity:
In the following examples, one or both of the underlying shares
close below the respective initial share price(s) on each redemption determination date, and, consequently, the securities are
not automatically redeemed prior to, and remain outstanding until, maturity.
|
Final Price
|
Payment at Maturity
|
|
XOP Shares
|
KRE Shares
|
|
Example 1:
|
$15.00 (
at or above
the downside threshold level and the coupon barrier level)
|
$35.00 (
at or above
the downside threshold level and the coupon barrier level)
|
$1,018.75 (the stated principal amount
plus
the contingent quarterly coupon with respect to the final observation date)
|
Example 2:
|
$24.00 (
at or above
the downside threshold level)
|
$20.00 (
below
the downside threshold level)
|
$1,000 x ($20.00 / $50.00) = $400.00
|
Example 3:
|
$4.00 (
below
the downside threshold level)
|
$22.50 (
below
the downside threshold level)
|
$1,000 x ($4.00 / $20.00) = $200.00
|
Example 4:
|
$8.00 (
below
the downside threshold level)
|
$15.00 (
below
the downside threshold level)
|
$1,000 x ($15.00 / $50.00) = $300.00
|
In example 1, the final share price of each of the underlying
shares is at or above its respective downside threshold level and coupon barrier level. Therefore, investors receive at maturity
the stated principal amount of the securities and the hypothetical contingent quarterly coupon with respect to the final observation
date. Investors do not participate in any appreciation of either of the underlying shares.
In example 2, the final share price of one of the underlying
shares is at or above its downside threshold level, but the final share price of the other underlying is below its respective downside
threshold level. Therefore, investors are exposed to the downside performance of the worst performing underlying at maturity. The
XOP Shares have increased 20% from their initial share price to their final share price, while the KRE Shares have declined 60%
from their initial share price to their final share price. Therefore, investors receive at maturity an amount equal to the stated
principal amount times the underlying performance factor of the KRE Shares, which are the worst performing underlying in this example.
In example 3, the final share price of each of the underlying
shares is below its respective downside threshold level, and investors receive at maturity an amount equal to the stated principal
amount
times
the underlying performance factor of the worst performing underlying. The XOP Shares have declined 80% from
their initial share price to their final share price, and the KRE Shares have declined 55% from their initial share price to their
final share price. Therefore, the payment at maturity equals the stated principal amount
times
the underlying performance
factor of the XOP Shares, which are the worst performing underlying in this example.
In example 4, the final share price of each of the underlying
shares is below its respective downside threshold level, and investors receive at maturity an amount equal to the stated principal
amount
times
the underlying performance factor of the worst performing underlying. The XOP Shares have declined 60% from
their initial share price to their final share price, and the KRE Shares have declined 70% from their initial share price to their
final share price. Therefore, the payment at maturity equals the stated principal amount
times
the underlying performance
factor of the KRE Shares, which are the worst performing underlying in this example.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
If the securities are not called prior to maturity and the
final share price of EITHER of the underlying shares is below its respective downside threshold level, you will be exposed to the
downside performance of the worst performing underlying at maturity, and your payment at maturity will be less than 50% of the
stated principal amount per security and could be zero.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
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 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 guarantee the return of any principal.
The
terms of the securities differ from those of ordinary debt securities in that they do not guarantee the return of any of the principal
amount at maturity. If the securities have not been automatically redeemed prior to maturity and if the final share price of
either
of the underlying shares
is less than its downside threshold level of 50% of its initial share price, you will be exposed to
the decline in the closing price of the worst performing underlying, as compared to the initial share price, 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
underlying performance factor of the worst performing underlying. In this case, the payment at maturity will be less than 50% of
the stated principal amount and could be zero.
You could lose up to your entire investment in the securities.
|
|
§
|
The securities do not provide for the regular payment of interest
and may pay no interest over the entire term of the securities.
The terms of the securities differ from those of ordinary
debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent
quarterly coupon
but only if
the determination closing price of
each of the underlying shares
is
at or above
60% of its respective initial share price, which we refer to as the coupon barrier level, on the related observation date. If,
on the other hand, the determination closing price of
either of the underlying shares
is lower than its respective coupon
barrier level on the relevant observation date for any interest period, we will pay no coupon on the applicable coupon payment
date. It is possible that the determination closing price of one or both of the underlying shares could remain below the respective
coupon barrier level(s) for extended periods of time or even throughout the entire 5-year term of the securities so that you will
receive few or no contingent quarterly coupons. If you do not earn sufficient contingent quarterly coupons over the term of the
securities, the overall return on the securities may be less than the amount that would be paid on a conventional debt security
of ours of comparable maturity.
|
|
§
|
You are exposed to the price risk of each of the underlying shares,
with respect to both the contingent quarterly coupons, if any, and the payment at maturity, if any.
Your
return on the securities is not linked to a basket consisting of each of the underlying shares. Rather, it will be contingent upon
the independent performance of each of the underlying shares. 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 of the underlying shares. Poor performance by
either
of the underlying shares
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. To receive
any
contingent quarterly coupons,
each
of the underlying shares
must close at or above its respective coupon barrier level on the
applicable observation date. In addition, if
either of
the underlying shares
has declined to below its respective downside threshold level as of
the final observation date, you will be
fully exposed
to the decline in the worst performing underlying over the term of the securities on a 1-to-1
basis, even if the other underlying has appreciated. Under this scenario, the value of any such payment at maturity will be less
than 50% of the stated principal amount and could be zero. Accordingly, your investment is subject to the price risk of each of
the underlying shares.
|
|
§
|
Because the securities are linked to the performance of the worst performing underlying, you are exposed to greater risks
of receiving no contingent quarterly coupons and sustaining a significant loss on your investment than if the securities were linked
to just one of the underlying shares.
The risk that you will not receive any contingent quarterly coupons, or that you
will suffer a significant loss on your investment, is greater if you invest in the securities as opposed to substantially similar
securities that are linked to the performance of just one of the underlying shares. With two underlying shares, it is more likely
that either of the underlying shares will close below its coupon barrier level on any observation date, or below its downside threshold
level on the final observation date, than if the securities were linked to only one of the underlying shares. Therefore, it is
more likely that you will not receive any
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
contingent quarterly coupons and
that you will suffer a significant loss on your investment. In addition, because each underlying must close above its initial share
price on a quarterly determination date in order for the securities to be called prior to maturity, the securities are less likely
to be called on any redemption determination date than if the securities were linked to just one of the underlying shares.
|
§
|
The contingent quarterly coupon, if any, is based only on the determination closing prices of the underlying shares on the
related quarterly observation date at the end of the related interest period
.
Whether the contingent quarterly coupon will be paid on any coupon payment date will be determined at the end of the
relevant interest period based on the determination closing price of each of the underlying shares on the relevant quarterly observation
date. As a result, you will not know whether you will receive the contingent quarterly coupon on any coupon payment date until
near the end of the relevant interest period. Moreover, because the contingent quarterly coupon is based solely on the price of
each of the underlying shares on quarterly observation dates, if the determination closing price of either of the underlying shares
on any observation date is below its respective coupon barrier level, you will receive no coupon for the related interest period
even if the price of the other underlying was higher on other days during that interest period.
|
|
§
|
Investors will not participate in any appreciation in the price of either of the underlying shares.
Investors will not
participate in any appreciation in the price of the underlying shares from their initial share prices, and the return on the securities
will be limited to the contingent quarterly coupon that is paid with respect to each observation date on which each determination
closing price is greater than or equal to its respective downside threshold level, if any.
|
|
§
|
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 prices of the
underlying
shares
on any day, including in relation to the respective
coupon barrier levels and the respective downside threshold levels, 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 trading price and volatility (frequency and magnitude of changes in value) of the underlying shares and the stocks constituting
their respective share underlying indices,
|
|
o
|
whether the determination closing price of either of the underlying shares has been below its respective coupon barrier level
on any observation date,
|
|
o
|
dividend rates on the stocks constituting the share underlying indices,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying shares
or equity markets generally and which may affect the prices of the underlying shares,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the occurrence of certain events affecting the underlying shares that may or may not require an adjustment to an adjustment
factor,
|
|
o
|
the composition of the underlying shares and changes in the constituents of the underlying shares, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Generally, the longer the time remaining
to maturity, the more the market price of the securities will be affected by the other factors described above.
Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity
.
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 of the underlying shares at the time of sale is near or below
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
its
coupon barrier level, and especially if either of the underlying shares has closed near or below its downside threshold level or
if market interest rates rise.
The
price of any or both of the underlying shares may be, and have recently been, volatile, and we can give you no assurance that the
volatility will lessen.
The prices of one or both of the underlying shares may decrease and be below the respective coupon
barrier level(s) on each observation date so that you will receive no return on your investment and receive a payment at maturity
that is less than 50% of the stated principal amount. There can be no assurance that the determination closing prices of both of
the underlying shares will be at or above their respective coupon barrier levels on any observation date so that you will receive
a coupon payment on the securities for the applicable interest period, or, with respect to the final observation date, so that
you do no suffer a significant loss on your initial investment in the securities.
See
“
SPDR
®
S&P
®
Oil &
Gas Exploration & Production ETF Overview
”
and
“
SPDR
®
S&P
®
Regional
Banking ETF Overview
”
below
.
|
§
|
Each of the underlying shares is subject to risks associated with investments concentrated in a particular sector.
All
or substantially all of the equity securities held by the XOP Shares are companies whose primary business is directly associated
with the oil and gas production sector. All or substantially all of the equity securities held by the KRE Shares are issued by
companies whose business is associated with the regional banking sector. Each of the underlying shares may therefore be subject
to increased price volatility, as each is concentrated in a single specific industry and market sector, and each of the underlying
shares may be more susceptible to adverse economic, market, political or regulatory events affecting that particular industry or
market sector. Therefore, the securities are exposed to concentration risks relating to the industry and market sector reflected
in each of the underlying shares.
|
|
§
|
Investing in the securities exposes investors to risks associated with investments in securities with a concentration in
the oil and gas exploration and production industry
. The stocks included in the S&P
®
Oil & Gas Exploration
& Production Select Industry Index and that are generally tracked by the XOP Shares are stocks of companies whose primary business
is associated with the exploration and production of oil and gas. As a result, the value of the securities may be subject to greater
volatility and may be more adversely affected by a single economic, political or regulatory occurrence affecting this industry
than a different investment linked to securities of a more broadly diversified group of issuers or issuers in a less volatile industry.
The oil and gas industry is significantly affected by a number of factors that influence worldwide economic conditions and oil
and gas prices, such as natural disasters, supply disruptions, geopolitical events and other factors that may offset or magnify
each other, including:
|
|
o
|
worldwide and domestic supplies of, and demand for, crude oil and natural gas;
|
|
o
|
the cost of exploring for, developing, producing, refining and marketing crude oil and natural gas;
|
|
o
|
changes in weather patterns and climatic changes;
|
|
o
|
the ability of the members of Organization of Petroleum Exporting Countries (OPEC) and other producing nations to agree to
and maintain production levels;
|
|
o
|
the worldwide military and political environment, uncertainty or instability resulting from an escalation or additional outbreak
of armed hostilities or further acts of terrorism in the United States, or elsewhere;
|
|
o
|
the price and availability of alternative and competing fuels;
|
|
o
|
domestic and foreign governmental regulations and taxes;
|
|
o
|
employment levels and job growth; and
|
|
o
|
general economic conditions worldwide.
|
These or other factors or the absence
of such factors could cause a downturn in the oil and natural gas industries generally or regionally and could cause the value
of some or all of the component stocks included in the S&P
®
Oil & Gas Exploration & Production Select
Industry Index to decline during the term of the securities.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
§
|
There are risks associated with investments in securities with a concentration in the regional banking sector
.
The stocks included in the S&P
®
Regional Banks Select Industry Index and that are generally tracked by the KRE
Shares are issued by companies whose primary lines of business are directly associated with the regional banking sector. The performance
of bank stocks may be affected by governmental regulation that may limit the amount and types of loans and other financial commitments
that banks can make, the interest rates and fees they can charge and the amount of capital they must maintain. Profitability is
largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change. Credit
losses resulting from financial difficulties of borrowers can negatively impact the banking sector. Banks may also be subject to
severe price competition. The regional banking industry is highly competitive, and thus, failure to maintain or increase market
share may adversely affect profitability.
|
|
§
|
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
on each coupon payment date, upon automatic redemption and at maturity and therefore you are subject to our credit risk. The securities
are not guaranteed by any other entity. 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.
|
|
§
|
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 more contingent quarterly coupons and may be forced to invest in a lower interest
rate environment and may not be able to reinvest at comparable terms or returns. However, under no circumstances will the securities
be redeemed in the first year of the term of the securities.
|
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the underlying
shares.
MS & Co., as calculation agent, will adjust the adjustment factors for certain events affecting the underlying
shares. However, the calculation agent will not make an adjustment for every event that can affect the underlying shares. If an
event occurs that does not require the calculation agent to adjust an adjustment factor, the market price of the
securities
may be materially and adversely affected.
|
|
§
|
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.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
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 shares, 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.
|
|
§
|
Adjustments to the underlying shares or the indices tracked by the underlying shares could adversely affect the value of
the securities.
The investment advisor to each of the underlying shares (SSGA Funds Management Inc.) seeks investment results
that correspond generally to the price and yield performance, before fees and expenses, of the relevant share underlying index.
Pursuant to its investment strategy or otherwise, the investment advisor may add, delete or substitute the stocks composing the
respective underlying shares. Any of these actions could adversely affect the price of the respective underlying shares and, consequently,
the value of the securities. The publishers of the share underlying indices are responsible for calculating and maintaining the
share underlying indices. They may add, delete or substitute the securities constituting the share underlying indices or make other
methodological changes that could change the value of the share underlying indices, and, consequently, the price of the underlying
shares and the value of the securities. The publishers of the share underlying indices may discontinue or suspend calculation or
publication of a share underlying index at any time. In these circumstances, the calculation agent will have the sole discretion
to substitute a successor index that is comparable to the discontinued share underlying index and will be permitted to consider
indices that are calculated and published by the calculation agent or any of its affiliates.
|
|
§
|
The performance and market price of either of the underlying shares, particularly during periods of market volatility, may
not correlate with the performance of its respective share underlying index, the performance of
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
the component securities of such
share underlying index or the net asset value per share of such underlying shares.
The underlying shares do not fully
replicate their respective share underlying indices, and each may hold securities that are different than those included in its
respective share underlying index. In addition, the performance of each of the underlying shares will reflect additional
transaction costs and fees that are not included in the calculation of the share underlying indices. All of these factors
may lead to a lack of correlation between the performance of each of the underlying shares and its respective share underlying
index. In addition, corporate actions (such as mergers and spin-offs) with respect to the equity securities underlying each
of the underlying shares may impact the variance between the performance of each of the underlying shares and its respective share
underlying index. Finally, because the shares of each of the underlying shares are traded on an exchange and are subject
to market supply and investor demand, the market price of one share of each of the underlying shares may differ from the net asset
value per share of such underlying shares.
In particular, during periods of
market volatility, or unusual trading activity, trading in the securities underlying each of the underlying shares may be disrupted
or limited, or such securities may be unavailable in the secondary market. Under these circumstances, the liquidity of each
of the underlying shares may be adversely affected, market participants may be unable to calculate accurately the net asset value
per share of each of the underlying shares, and their ability to create and redeem shares of each of the underlying shares may
be disrupted. Under these circumstances, the market price of shares of each of the underlying shares may vary substantially from
the net asset value per share of each of the underlying shares or the level of its respective share underlying index.
For all of the foregoing reasons,
the performance of each of the underlying shares may not correlate with the performance of its respective share underlying index,
the performance of the component securities of such share underlying index or the net asset value per share of such underlying
shares. Any of these events could materially and adversely affect the prices of each of the underlying shares and, therefore,
the value of the securities. Additionally, if market volatility or these events were to occur on the final observation date, the
calculation agent would maintain discretion to determine whether such market volatility or events have caused a market disruption
event to occur, and such determination would affect the payment at maturity of the securities. If the calculation agent determines
that no market disruption event has taken place, the payment at maturity would be based solely on the published closing price per
share of each of the underlying shares on the final observation date, even if either of the underlying shares is underperforming
its respective share underlying index or the component securities of such share underlying index and/or trading below the net asset
value per share of such underlying shares.
|
§
|
Investing in the securities is not equivalent to investing in any of the underlying shares.
Investors in the securities
will not participate in any appreciation in any of the underlying shares, and will not have voting rights or rights to receive
dividends or other distributions or any other rights with respect to the XOP Shares, the KRE Shares or any of their constituents.
|
|
§
|
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 shares and the share underlying indices), including trading in the underlying shares. 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 observation date approaches. Some of our affiliates also
trade the underlying shares and other financial instruments related to the underlying shares and the share 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 share price of either of the underlying shares, and, therefore, could
increase (i) the price at or above which such underlying must close on the redemption 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), (ii)
the coupon barrier level for such underlying, which is the price at or above which such underlying must close on the observation
dates so that you receive a contingent quarterly coupon on the securities (depending also on the performance of the other underlying)
and (iii) the downside threshold level for such underlying, which is the value at or above which such underlying must close on
the final observation date so that you are not exposed to the negative performance of the worst performing
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
underlying at maturity with respect
to the final observation date (depending also on the performance of the other underlying). Additionally, such hedging or trading
activities during the term of the securities could potentially affect the value of either of the underlying shares on the redemption
determination dates and the observation dates, and, accordingly, whether we redeem the securities prior to maturity, whether we
pay a contingent quarterly coupon on the securities 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 share prices, the coupon barrier levels and
the downside threshold levels, the final share prices, the payment at maturity, if any, whether you receive a contingent quarterly
coupon on each coupon payment date and/or at maturity, whether the securities will be redeemed on any early redemption date, whether
a market disruption event has occurred and whether to make any adjustments to the adjustment factors. 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 or calculation of the determination closing
price in the event of a market disruption event. These potentially subjective determinations may affect the payout to you upon
an automatic early redemption or at maturity, if any. For further information regarding these types of determinations, see “Description
of Auto-Callable Securities—Auto-Callable Securities Linked to Underlying Shares” 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.
There is no direct legal
authority as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects
of the tax treatment of the securities are uncertain.
|
Please read the discussion under
“Additional Information—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders (as defined below) 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 (as adjusted based on the difference,
if any, between the actual and the projected amount of any contingent payments on the securities) and recognize all income and
gain in respect of the securities as ordinary income. 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.
Non-U.S. Holders (as defined
below) should note that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision, and will
not be required to pay any additional amounts with respect to amounts withheld.
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. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that 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. The notice focuses on a number of
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
issues, the most relevant of which
for holders of the securities are the character and timing of income or loss and the degree, if any, to which income realized by
non-U.S. investors should be subject to withholding tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding
the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments, the issues
presented by this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF Overview
The SPDR
®
S&P
®
Oil
& Gas Exploration & Production ETF is an exchange-traded fund that seeks to provide investment results that, before fees
and expenses, correspond generally to the total return performance of publicly traded equity securities of companies included in
the S&P
®
Oil & Gas Exploration & Production Select Industry Index. The SPDR
®
S&P
®
Oil
& Gas Exploration & Production ETF is managed by SPDR
®
Series Trust (the “Trust”), a registered
investment company that consists of numerous separate investment portfolios, including the SPDR
®
S&P
®
Oil
& Gas Exploration & Production ETF. Information provided to or filed with the Securities and Exchange Commission by the
Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission file
numbers 333-57793 and 811-08839, respectively, through the Commission’s website at www.sec.gov. In addition, information
may be obtained from other publicly available sources.
Neither the issuer nor the agent makes any representation that any such
publicly available information regarding the SPDR
®
S&P
®
Oil & Gas Exploration & Production
ETF is accurate or complete.
Information as of market close on August 7, 2019:
Bloomberg Ticker Symbol:
|
XOP UP
|
Current Price:
|
$21.86
|
52 Weeks Ago:
|
$42.36
|
52 Week High (on 10/3/2018):
|
$44.57
|
52 Week Low (on 8/7/2019):
|
$21.86
|
The following graph sets forth the daily closing
values of the XOP Shares for the period from January 1, 2014 through August 7, 2019. The related table sets forth the published
high and low closing prices, as well as the end-of-quarter closing prices, of the XOP Shares for each quarter in the same period.
The closing price of the XOP Shares on August 7, 2019 was $21.86. We obtained the information in the table and graph below from
Bloomberg Financial Markets, without independent verification. The historical closing prices of the XOP Shares should not be taken
as an indication of future performance, and no assurance can be given as to the price of the XOP Shares at any time, including
the redemption determination dates or the observation dates.
XOP Shares– Daily Closing Prices
January 1, 2014 to August 7, 2019
|
|
*The red
solid line indicates the hypothetical downside threshold level, and the black solid line indicates the hypothetical coupon barrier
level, assuming the closing price of the XOP Shares on August 7, 2019 were the initial share price.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF (CUSIP: 78464A730)
|
High ($)
|
Low ($)
|
Period End ($)
|
2014
|
|
|
|
First Quarter
|
71.83
|
64.04
|
71.83
|
Second Quarter
|
83.45
|
71.19
|
82.28
|
Third Quarter
|
82.08
|
68.83
|
68.83
|
Fourth Quarter
|
66.84
|
42.75
|
47.86
|
2015
|
|
|
|
First Quarter
|
53.94
|
42.55
|
51.66
|
Second Quarter
|
55.63
|
46.43
|
46.66
|
Third Quarter
|
45.22
|
31.71
|
32.84
|
Fourth Quarter
|
40.53
|
28.64
|
30.22
|
2016
|
|
|
|
First Quarter
|
30.96
|
23.60
|
30.35
|
Second Quarter
|
37.50
|
29.23
|
34.81
|
Third Quarter
|
39.12
|
32.75
|
38.46
|
Fourth Quarter
|
43.42
|
34.73
|
41.42
|
2017
|
|
|
|
First Quarter
|
42.21
|
35.17
|
37.44
|
Second Quarter
|
37.89
|
30.17
|
31.92
|
Third Quarter
|
34.37
|
29.09
|
34.09
|
Fourth Quarter
|
37.64
|
32.25
|
37.18
|
2018
|
|
|
|
First Quarter
|
39.85
|
32.38
|
35.22
|
Second Quarter
|
44.22
|
34.03
|
43.06
|
Third Quarter
|
44.52
|
39.10
|
43.29
|
Fourth Quarter
|
44.57
|
24.12
|
26.53
|
2019
|
|
|
|
First Quarter
|
31.61
|
27.10
|
30.74
|
Second Quarter
|
32.98
|
24.86
|
27.25
|
Third Quarter (through August 7, 2019)
|
27.20
|
21.86
|
21.86
|
This document relates only to the securities offered hereby
and does not relate to the XOP Shares. We have derived all disclosures contained in this document regarding the Trust from the
publicly available documents described above. In connection with the offering of the securities, neither we nor the agent has participated
in the preparation of such documents or made any due diligence inquiry with respect to the Trust. Neither we nor the agent makes
any representation that such publicly available documents or any other publicly available information regarding the Trust is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price
of the XOP Shares (and therefore the price of the XOP Shares at the time we price the securities) have been publicly disclosed.
Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the Trust
could affect the value received with respect to the securities and therefore the value of the securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the XOP Shares.
We and/or our affiliates may presently or from time to time engage
in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or
more of our affiliates may publish research reports with respect to the XOP Shares. The statements in the preceding two sentences
are not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the
securities, you should undertake an independent investigation of the Trust as in your judgment is appropriate to make an informed
decision with respect to an investment linked to the XOP Shares.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
“Standard
& Poor’s
®
”, “S&P
®
”, “S&P 500
®
”, “SPDR
®
”
and “SPDR
®
Series Trust” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”),
an affiliate of The McGraw-Hill Companies, Inc. (“MGH”). The securities are not sponsored, endorsed, sold, or promoted
by S&P, MGH or the Trust. S&P, MGH and the Trust make no representations or warranties to the owners of the securities
or any member of the public regarding the advisability of investing in the securities. S&P, MGH and the Trust have no obligation
or liability in connection with the operation, marketing, trading or sale of the securities.
The S&P
®
Oil
& Gas Exploration & Production Select Industry Index.
The S&P
®
Oil & Gas Exploration
& Production Select Industry Index is an equal-weighted index designed to measure the performance of the oil and gas exploration
and production sub-industry portion of the S&P
®
Total Market Index, a benchmark that measures the performance
of the U.S. equity market.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
SPDR
®
S&P
®
Regional Banking ETF Overview
The SPDR
®
S&P
®
Regional
Banking ETF is an exchange-traded fund managed by SSgA Funds Management, Inc., which seeks to provide investment results that correspond
generally to the price and yield performance, before fees and expenses, of the S&P
®
Regional Banks Select
Industry Index. SPDR
®
Series Trust (the “Trust”) is a registered investment company
that consists of numerous separate investment portfolios, including the SPDR
®
S&P
®
Regional
Banking ETF. Information provided to or filed with the Commission by the Trust pursuant to the Securities Act of 1933 and the Investment
Company Act of 1940 can be located by reference to Commission file numbers 333-57793 and 811-08839, respectively, through the Commission’s
website at www.sec.gov. In addition, information may be obtained from other publicly available sources.
Neither the issuer
nor the agent makes any representation that any such publicly available information regarding the SPDR
®
S&P
®
Regional Banking ETF is accurate or complete.
Information as of market close on August 7, 2019:
Ticker Symbol:
|
KRE UP
|
Current Stock Price:
|
$50.42
|
52 Weeks Ago:
|
$62.40
|
52 Week High (on 8/21/2018):
|
$64.28
|
52 Week Low (on 12/24/2018):
|
$44.22
|
The following graph sets forth the daily closing price of the
KRE Shares for the period from January 1, 2014 through August 7, 2019. The related table sets forth the published high and low
closing prices, as well as the end-of-quarter closing prices, of the KRE Shares for each quarter in the same period. The closing
price of the KRE Shares on August 7, 2019 was $50.42. We obtained the information in the table and graph below from Bloomberg Financial
Markets, without independent verification. The historical closing prices of the KRE Shares should not be taken as an indication
of future performance, and no assurance can be given as to the price of the KRE Shares at any time, including the redemption determination
dates or the observation dates.
KRE Shares – Daily Closing Prices
January 1, 2014 to August 7, 2019
|
|
*The red solid
line indicates the hypothetical downside threshold level, and the black solid line indicates the hypothetical coupon barrier level,
assuming the closing price of the KRE Shares on August 7, 2019 were the initial share price.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
SPDR
®
S&P
®
Regional Banking ETF (CUSIP: 78464A698)
|
High ($)
|
Low ($)
|
Period End ($)
|
2014
|
|
|
|
First Quarter
|
42.47
|
36.84
|
41.38
|
Second Quarter
|
42.16
|
37.30
|
40.32
|
Third Quarter
|
41.14
|
37.61
|
37.86
|
Fourth Quarter
|
41.18
|
36.05
|
40.70
|
2015
|
|
|
|
First Quarter
|
41.58
|
36.54
|
40.83
|
Second Quarter
|
45.37
|
40.78
|
44.16
|
Third Quarter
|
45.03
|
38.56
|
41.18
|
Fourth Quarter
|
45.93
|
40.47
|
41.92
|
2016
|
|
|
|
First Quarter
|
40.89
|
32.89
|
37.64
|
Second Quarter
|
41.98
|
35.51
|
38.35
|
Third Quarter
|
43.09
|
36.85
|
42.27
|
Fourth Quarter
|
56.46
|
41.71
|
55.57
|
2017
|
|
|
|
First Quarter
|
59.36
|
52.59
|
54.61
|
Second Quarter
|
55.75
|
51.71
|
54.95
|
Third Quarter
|
56.76
|
49.59
|
56.76
|
Fourth Quarter
|
60.35
|
54.35
|
58.85
|
2018
|
|
|
|
First Quarter
|
65.03
|
58.91
|
60.39
|
Second Quarter
|
65.74
|
59.21
|
61.00
|
Third Quarter
|
64.28
|
59.42
|
59.42
|
Fourth Quarter
|
60.15
|
44.22
|
46.79
|
2019
|
|
|
|
First Quarter
|
57.21
|
47.38
|
51.34
|
Second Quarter
|
56.64
|
50.22
|
53.43
|
Third Quarter (through August 7, 2019)
|
55.41
|
50.42
|
50.42
|
This document relates only to the securities offered hereby
and does not relate to the KRE Shares. We have derived all disclosures contained in this document regarding the Trust
from the publicly available documents described above. In connection with the offering of the securities, neither we
nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the Trust. Neither
we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding
the Trust is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the
date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above)
that would affect the trading price of the KRE Shares (and therefore the price of the KRE Shares at the time we price the securities)
have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material
future events concerning the Trust could affect the value received with respect to the securities and therefore the value of the
securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the KRE Shares.
We and/or our affiliates may presently or from time to time engage
in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information
with respect to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In
addition, one or more of our affiliates may publish research reports with respect to the KRE Shares. The statements
in the preceding two sentences are not intended to affect the rights of investors in the
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
securities under the securities laws. As a prospective
purchaser of the securities, you should undertake an independent investigation of the Trust as in your judgment is appropriate
to make an informed decision with respect to an investment linked to the KRE Shares.
“Standard & Poor’s
®
”,
“S&P
®
”, “S&P 500
®
”, “SPDR
®
” and “SPDR
®
Series
Trust” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”), an affiliate of The
McGraw-Hill Companies, Inc. (“MGH”). The securities are not sponsored, endorsed, sold, or promoted by S&P, MGH
or the Trust. S&P, MGH and the Trust make no representations or warranties to the owners of the securities or any member of
the public regarding the advisability of investing in the securities. S&P, MGH and the Trust have no obligation or liability
in connection with the operation, marketing, trading or sale of the securities.
The S&P
®
Regional
Banks Select Industry Index.
The S&P
®
Regional Banks Select Industry
Index is a modified equal-weighted index designed to measure the performance of the regional banks sub-industry group of the S&P
®
Total
Market Index, a benchmark that measures the performance of the U.S. equity market.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Terms:
|
If the terms described herein are inconsistent with those described in the accompanying product supplement or prospectus, the terms described herein shall control.
|
Interest
period:
|
The quarterly period from and including the original issue date (in the case of the first interest period) or the previous scheduled coupon payment date, as applicable, to but excluding the following scheduled coupon payment date, with no adjustment for any postponement thereof.
|
Record
date:
|
The record date for each coupon payment date shall be the date one business day prior to such scheduled coupon payment date;
provided
, however, that any coupon payable at maturity (or upon early redemption) shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
|
Share
underlying indices:
|
With respect to the XOP Shares, the S&P
®
Oil
& Gas Exploration & Production Select Industry Index
With respect to the KRE Shares, the S&P
®
Regional
Banks Select Industry Index
|
Share
underlying index publishers:
|
With respect to each of the XOP Shares and the KRE Shares, S&P Dow Jones Indices LLC, or any successor thereof.
|
Day
count convention:
|
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
|
Postponement
of coupon payment dates (including the maturity date) and early redemption dates:
|
If any observation date or redemption determination date is postponed due to a non-trading day or certain market disruption events with respect to either of the underlying shares so that it falls less than two business days prior to the relevant scheduled coupon payment date (including the maturity date) or early redemption date, as applicable, the coupon payment date (or the maturity date) or the early redemption date will be postponed to the second business day following that observation date or redemption determination date as postponed, and no adjustment will be made to any coupon payment, early redemption payment or payment at maturity made on that postponed date.
|
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 observation date, the issuer shall give notice of such postponement and, once it has been determined, of the date
to which the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice of such postponement
by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books,
(ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its
New York office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile confirmed by
mailing such notice to the depositary by first class mail, postage prepaid. Any notice that is mailed to a registered holder of
the securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered holder,
whether or not such registered holder receives the notice. The issuer shall give such notice as promptly as possible, and in no
case later than (i) with respect to notice of postponement of the maturity date, the business day immediately preceding the scheduled
maturity date and (ii) with respect to notice of the date to which the maturity date has been rescheduled, the business day immediately
following the final observation 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 redemption determination date, give notice of the
early redemption and the early redemption payment, including specifying the payment date of the 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 such registered
holder receives the notice. This notice shall be given by the issuer or, at the issuer’s request, by the trustee in the
name and at the expense of the issuer, with any such request to be
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
accompanied by a copy of the notice to be given.
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 to be delivered as contingent quarterly coupon, if any, with respect to each security on or prior to 10:30 a.m. (New York
City time) on the business day preceding each coupon payment date, and (ii) deliver the aggregate cash amount due, if any, with
respect to the contingent quarterly coupon to the trustee for delivery to the depositary, as holder of the securities, on the applicable
coupon payment date.
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 to be delivered with respect to each stated principal amount of the securities, on or prior to 10:30 a.m. (New
York City time) on the business day preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to
the securities to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
Additional Information About the Securities
Additional Information:
|
Minimum
ticketing size:
|
$1,000 / 1 security
|
Tax considerations:
|
Prospective investors should note that the discussion under the section called “United States Federal Taxation”
in the accompanying product supplement does not apply to the securities issued under this document and is superseded by the following
discussion.
The following is a general discussion of the material U.S. federal income tax consequences and certain estate tax consequences
of the ownership and disposition of the securities. This discussion applies only to investors in the securities who:
·
purchase
the securities in the original offering; and
·
hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
·
certain
financial institutions;
·
insurance
companies;
·
certain
dealers and traders in securities or commodities;
·
investors
holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive
sale transaction;
·
U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated
investment companies;
·
real
estate investment trusts; or
·
tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of
the Code, respectively.
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the securities is technical and complex, the discussion below necessarily represents only a general
summary. The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences
or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial
or administrative authorities that directly address the
|
|
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
treatment of the securities or instruments
that are similar to the securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will
agree with the tax treatment described herein. We intend to treat a security for U.S. federal income tax purposes as a single financial
contract that provides for a coupon that will be treated as gross income to you at the time received or accrued in accordance with
your regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities
is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively that this treatment
is more likely than not to be upheld, and that alternative treatments are possible. Moreover, our counsel’s opinion is based
on market conditions as of the date of this preliminary pricing supplement and is subject to confirmation on the pricing date.
You should consult your tax adviser regarding
all aspects of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments
of the securities). Unless otherwise stated, the following discussion is based on the treatment of each security as described in
the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal
income tax purposes:
·
a
citizen or individual resident of the United States;
·
a
corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
·
an
estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as
set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis
. A U.S. Holder’s tax basis in the securities should equal the amount paid by the U.S. Holder to
acquire the securities.
Tax Treatment of Coupon Payments
. Any coupon payment on the securities should be taxable as ordinary income to a
U.S. Holder at the time received or accrued, in accordance with the U.S. Holder’s regular method of accounting for U.S.
federal income tax purposes.
Sale, Exchange or Settlement of the
Securities
. Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could
result in adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due to the absence of authorities that directly address
the proper tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the
treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the
securities under Treasury regulations governing
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
contingent payment debt instruments (the “Contingent Debt
Regulations”). If the IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the
timing and character of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to
accrue into income original issue discount on the securities every year at a “comparable yield” determined at the time
of their issuance, adjusted upward or downward to reflect the difference, if any, between the actual and the projected amount of
any contingent payments on the securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange
or other disposition of the securities would be treated as ordinary income, and any loss realized would be treated as ordinary
loss to the extent of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter. 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.
Other alternative federal income tax treatments of the securities
are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the
securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether to require holders
of “prepaid forward contracts” and similar 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; 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; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, 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. 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 and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely
furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides proof
of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S. Holder.
As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax
purposes:
·
an
individual who is classified as a nonresident alien;
·
a
foreign corporation; or
·
a
foreign estate or trust.
The term “Non-U.S. Holder” does
not include any of the following holders:
·
a
holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
United States for U.S. federal
income tax purposes;
·
certain
former citizens or residents of the United States; or
·
a
holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in
the United States.
Such holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code 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 Section 871(m) withholding is required, we
will not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser
regarding the potential application of Section 871(m) to the securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
Non-U.S. Holder complies with certification procedures to establish
that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup
withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income
tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the
IRS.
FATCA
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies to payments
of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain financial
instruments treated as providing for U.S.-source interest or dividends. Under recently proposed regulations (the preamble to which
specifies that taxpayers are permitted to rely on them pending finalization), no withholding will apply on payments of gross proceeds
(other than amounts treated as FDAP income). While the treatment of the securities is unclear, you should assume that any coupon
payment with respect to the securities will be subject to the FATCA rules. If withholding applies to the securities, we will not
be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their
tax advisers regarding the potential application of FATCA to the securities.
The
discussion in the preceding paragraphs, insofar as it purports to describe provisions of U.S. federal income tax laws or legal
conclusions with respect thereto, constitutes 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 underlying shares or any component stocks of the share underlying
indices, or positions in any other available securities or instruments that they may wish to use in connection with such hedging,
in futures and/or options contracts on the underlying shares or any of their constituents. Such purchase activity could potentially
increase the initial share price of one or both of the underlying shares and, therefore, could increase (i) the price at or above
which such underlying must close on the redemption 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), (ii) the coupon barrier level for such
underlying, which is the price at or above which such underlying must close on the observation dates so that you receive a contingent
quarterly coupon on the securities (depending also on the performance of the other underlying) and (iii) the downside threshold
level for such underlying, which is the value at or above which such underlying must close on the final observation date so that
you are not exposed to the negative performance of the worst performing underlying at maturity with respect to the final observation
date (depending also on the performance of the other underlying). 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 observation 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 of the underlying shares on the redemption determination
dates and other observation dates, and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent
quarterly coupon on the securities and the amount of cash you will receive at maturity, if any.
|
Benefit plan investor considerations:
|
Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to Title I of
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s
particular circumstances before authorizing an investment in the securities. Accordingly, among other factors, the fiduciary should
consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with
the documents and instruments governing the Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions
between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and 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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk Securities
|
the securities. The securities have not been designed and will
not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i)
the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii)
we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii)
any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv)
our
interests are adverse to the interests of the purchaser or holder; and
(v)
neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these securities should consult
and rely on their own counsel and advisers as to 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 contingent quarterly coupon rate, 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.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due August 23, 2024
, with 1-Year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF and the SPDR
®
S&P
®
Regional Banking ETF
Principal at Risk 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) 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 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 and the product supplement for auto-callable securities 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
Prospectus dated November 16, 2017
Terms used but not defined in this document are defined
in the product supplement for auto-callable securities or in the prospectus.
|
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