CALCULATION OF REGISTRATION FEE
|
|
Maximum Aggregate
|
|
Amount of Registration
|
Title of Each Class of Securities Offered
|
|
Offering Price
|
|
Fee
|
|
|
|
|
|
Contingent Income Auto-Callable Securities due 2022
|
|
$562,000
|
|
$68.11
|
|
|
|
|
|
Morgan Stanley Finance LLC
|
August 2019
Pricing Supplement No.
2,365
Registration Statement
Nos. 333-221595; 333-221595-01
Dated August 16, 2019
Filed pursuant to Rule
424(b)(2)
|
Structured
Investments
Opportunities
in U.S. Equities
Contingent Income Auto-Callable Securities due
August 19, 2022, with 6-month Initial Non-Call Period
Based on the Performance of the Common Stock
of Western Digital Corporation
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
The securities are unsecured obligations of Morgan Stanley Finance
LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The securities 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 the underlying stock is
at or above
the downside threshold level of 50% of the initial share price on the related observation date. If, however, the
determination closing price is
less than
the downside threshold 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 is
greater than or equal to
the initial share price on any quarterly redemption determination date (beginning approximately
six months 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 is
greater than or equal to
the downside threshold level, the payment at maturity will be the stated principal
amount and the related contingent quarterly coupon. If, however, the final share price is
less than
the downside
threshold level, investors will be fully exposed to the decline in the underlying stock 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 3-year term of the securities.
The 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 receiving no quarterly coupons over the entire 3-year term. Investors will not participate
in any appreciation of the underlying stock. 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.
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying stock:
|
Western Digital Corporation common stock
|
Aggregate principal amount:
|
$562,000
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security (see “Commissions and issue price” below)
|
Pricing date:
|
August 16, 2019
|
Original issue date:
|
August 21, 2019 (3 business days after the pricing date)
|
Maturity date:
|
August 19, 2022
|
Early redemption:
|
The securities are not subject to early redemption until six
months after the original issue date. Following this six-month initial non-call period, if, on any redemption determination date,
beginning on February 18, 2020, the determination closing price of the underlying stock is
greater than or equal to
the
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 is below the 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:
|
The closing price of the underlying stock on any redemption determination date or observation date, as applicable, other than the final observation date,
times
the adjustment factor on such redemption determination date or observation date, as applicable
|
Redemption determination dates:
|
Starting after six months, quarterly, beginning on February 18, 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 on February 21, 2020 (approximately six months 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
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate of
13%
(corresponding to approximately $32.50 per security per quarter)
will be paid on the securities on each coupon payment date
but only if
the determination closing price of the underlying stock is at or above the downside threshold level on
the related observation date.
If, on any observation date, the determination closing price
is less than the downside threshold level, we will pay no coupon for the applicable quarterly period. It is possible
that the underlying stock will remain below the downside threshold level for extended periods of time or even throughout the entire
3-year term of the securities so that you will receive few or no contingent quarterly coupons.
|
Downside threshold level:
|
$27.595, which is equal to 50% of the initial share price
|
Payment at maturity:
|
·
If the final share price is
greater than
or equal to
the downside threshold level: (i) the stated principal amount
plus
(ii) the contingent quarterly coupon
with respect to the final observation date; or
·
If the final share price is
less than
the downside threshold level: (i) the stated principal amount
multiplied by
(ii) the share performance factor. 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:
|
$960.50 per security. 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
|
$25
|
$975
|
Total
|
$562,000
|
$14,050
|
$547,950
|
|
(1)
|
Selected dealers and their financial advisors will
collectively receive from the agent, Morgan Stanley & Co. LLC, a fixed sales commission of $25 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
23.
|
The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 10.
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, references to “we,”
“us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context
requires.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
Terms continued from previous page
:
|
Initial share price:
|
$55.19, which is equal to the closing price of the underlying stock on the pricing date.
|
Final share price:
|
The closing price of the underlying stock on the final observation date
times
the adjustment factor on such 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 to postponement for non-trading days and certain market disruption events. We also refer to August 16, 2022 as the final observation date.
|
Adjustment factor:
|
1.0, subject to adjustment in the event of certain corporate events affecting the underlying stock
|
Share performance factor:
|
Final share price
divided by
the initial share price
|
CUSIP / ISIN:
|
61769HPU3 / US61769HPU31
|
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 18, 2019*
|
November 21, 2019*
|
February 18, 2020
|
February 21, 2020
|
May 18, 2020
|
May 21, 2020
|
August 17, 2020
|
August 20, 2020
|
November 16, 2020
|
November 19, 2020
|
February 16, 2021
|
February 19, 2021
|
May 17, 2021
|
May 20, 2021
|
August 16, 2021
|
August 19, 2021
|
November 16, 2021
|
November 19, 2021
|
February 16, 2022
|
February 22, 2022
|
May 16, 2022
|
May 19, 2022
|
August 16, 2022 (final observation date)
|
August 19, 2022 (maturity date)
|
|
|
*The securities are not subject to automatic early redemption
until the 2
nd
coupon payment date, which is February 21, 2020.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
Investment Summary
Contingent Income Auto-Callable Securities
Contingent Income Auto-Callable Securities due August 19, 2022,
with 6-month Initial Non-Call Period Based on the Performance of the Common Stock of Western Digital Corporation (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 the underlying stock is
at or above
50% of the initial share price, which
we refer to as the downside threshold level, on the related observation date. If the determination closing price is
less than
the downside threshold level on any observation date, we will pay no coupon for the related quarterly period. It
is possible that the determination closing price could remain below the downside threshold level for extended periods of time or
even throughout the entire 3-year term of the securities so that you will receive few or no contingent quarterly coupons during
the entire 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 the underlying stock were to be at or above the
downside threshold level on some quarterly observation dates, it may fluctuate below the downside threshold level on others. In
addition, if the securities have not been automatically called prior to maturity and the final share price is
below
the
downside threshold level, investors will be fully exposed to the decline in the underlying stock 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.
In addition, investors will not participate in any appreciation
of the underlying stock.
Maturity:
|
Approximately 3 years
|
Payment at maturity:
|
If the final share price is
greater than or equal to
the
downside threshold level, investors will receive the stated principal amount and the contingent quarterly coupon with respect to
the final observation date.
If the final share price is
less than
the downside threshold
level, investors 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.
|
Contingent quarterly coupon:
|
A
contingent
coupon at an annual rate of 13% (corresponding
to approximately $32.50 per security per quarter) will be paid on the securities on each coupon payment date
but only if
the determination closing price of the underlying stock is at or above the downside threshold level on the related observation
date.
If, on any observation date, the determination closing price
of the underlying stock is less than the downside threshold level, we will pay no coupon for the applicable quarterly period.
|
Automatic early redemption quarterly beginning on February 18, 2020:
|
If the determination closing price of the underlying stock is greater than or equal to the initial share price on any quarterly redemption determination date, beginning on February 18, 2020 (approximately six months 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.
|
The original issue price of each security is $1,000. This
price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value of each security
on the pricing date is $960.50.
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 stock. The
estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating
to the underlying stock, instruments based on the
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
underlying stock, 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 and the downside threshold level, we use an internal funding rate, which is likely to be lower
than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and
hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the securities
would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying stock, 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
stock, 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 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
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 the underlying stock
is
at or above
the downside threshold 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 3-year term of the securities in exchange for an opportunity to earn interest at a potentially above-market rate if the
underlying stock closes at or above the downside threshold level on each quarterly observation date until the securities are redeemed
early or reach maturity. The following scenarios are for illustrative 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 coupon may be
payable in none of, or some but not all of, the quarterly periods during the 3-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, the underlying
stock closes at or above the downside threshold level on some quarterly observation dates but below the downside threshold level
on the others. Investors receive the contingent quarterly coupon for the quarterly periods for which the determination
closing price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for
which the determination closing price is below the downside threshold level on the related observation date.
When the underlying stock closes at or above the initial share
price on a quarterly redemption determination date (beginning approximately six months after the original issue 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 the underlying stock closes at or above the downside threshold level on some quarterly observation dates but below the downside threshold level on the others, and the underlying stock closes below the initial share price on every quarterly redemption determination date. Consequently, the securities are not automatically redeemed, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price is below the downside threshold level on the related observation date. On the final observation date, the underlying stock closes at or above the downside threshold level. At maturity, investors will receive the stated principal amount and the contingent quarterly coupon with respect to the final observation date.
|
Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
|
This scenario assumes that the underlying stock closes at or above the downside threshold level on some quarterly observation dates and below the downside threshold level on the others, and the underlying stock closes below the initial share price on every quarterly redemption determination date. Consequently, the securities are not automatically redeemed, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price is below the downside threshold level on the related observation date. On the final observation date, the underlying stock closes below the downside threshold level. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the share performance factor. 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 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing price on each quarterly observation date, (2) the determination closing
price on each quarterly redemption determination date and (3) the final share price. Please see “Hypothetical
Examples” beginning on page 8 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 Six Months After the Original Issue Date)
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
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” starting on page 8.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
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 the securities have not been automatically redeemed early. 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 on each quarterly
observation date, whether the securities are redeemed prior to maturity will be determined by reference to the determination closing
price on each quarterly redemption determination date, and the payment at maturity will be determined by reference to the determination
closing price on the final observation date. The actual initial share price and downside threshold level are set forth
on the cover of this document. All payments on the securities, if any, are subject to our credit risk. The
numbers in the hypothetical examples below may have been rounded for the ease of analysis. The below examples are based
on the following terms:
Hypothetical Initial Share Price:
|
$60.00
|
Hypothetical Downside Threshold Level:
|
$30.00, which is 50% of the hypothetical initial share price
|
Contingent Quarterly Coupon:
|
13% per annum (corresponding to approximately $32.50 per quarter
per security)*
A contingent quarterly coupon is paid on each coupon payment
date
but only if the determination closing price of the underlying stock is at or above the downside threshold level on the
related observation date.
|
Automatic Early Redemption:
|
If the determination closing price is greater than or equal to the initial share price on any quarterly early redemption determination date (beginning approximately six months 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 been automatically redeemed early):
|
If the final share price is
greater than or equal to
the
downside threshold level: the stated principal amount and the contingent quarterly coupon with respect to the final
observation date
If the final share price is
less than
the downside threshold
level: (i) the stated principal amount
multiplied by
(ii) the share performance factor
|
Stated Principal Amount:
|
$1,000
|
* The actual contingent quarterly coupon will be an amount determined
by the calculation agent based on the number of days in the applicable payment period, calculated on a 30/360 basis. The
hypothetical contingent quarterly coupon of $32.50 is used in these examples for each of analysis.
In
Example 1
, the determination closing price of the underlying
stock is greater than or equal to the initial share price on one of the quarterly redemption determination dates (beginning on
February 18, 2020). Because the determination closing price is greater than or equal to the initial share price on such
a date, the securities are automatically redeemed on the related early redemption date. In Examples 2, 3 and 4, the
determination closing price is less than the initial share price on all of the redemption determination dates, and, consequently,
the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
Example 1
—The securities are automatically redeemed
following the quarterly redemption determination date in February 2021 as the determination closing price is greater than or equal
to the initial share price on such redemption determination date. The underlying stock declines substantially and the
determination closing price is at or above the downside threshold level on only 3 of the 5 quarterly observation dates prior to
(and excluding) the observation date immediately preceding the early redemption. Therefore, you would receive the contingent
quarterly coupons with respect to those 3 observation dates, totaling $32.50 × 3 = $97.50, but not for the other 2 observation
dates. The underlying stock in this example, however, recovers, and the determination closing price is equal to the
initial share price on the redemption determination date in February 2021. Upon early redemption, investors receive
the early redemption payment calculated as $1,000 + $32.50 = $1,032.50.
The total payment over the 18-month term of the securities is
$97.50 + $1,032.50 = $1,130.
Example 2
—The securities are not redeemed prior
to maturity, as the determination closing price is less than the initial share price on all quarterly redemption determination
dates. The determination closing price is at or above the downside threshold level on all 11 quarterly observation dates
prior to (and excluding) the final observation date, and the final share price is also at or above the downside threshold level. Therefore,
you would receive (i) the contingent quarterly coupons
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
with respect to the 11 observation dates prior to (and excluding)
the final observation date, totaling $32.50 × 11 = $357.50, and (ii) the payment at maturity calculated as $1,000.00 + $32.50
= $1,032.50.
The total payment over the 3-year term of the securities is $357.50
+ $1,032.50 = $1,390.
This example illustrates the scenario where you receive a contingent
quarterly coupon on every coupon payment date throughout the term of the securities and receive your principal back at maturity,
resulting in an annual interest rate of 13% over the 3-year term of the securities. This example, therefore, represents
the maximum amount payable over the 3-year term of the securities. To the extent that coupons are not paid on every
coupon payment date, the effective rate of interest on the securities will be less than 13% per annum and could be zero.
Example 3
—The securities are not redeemed prior
to maturity, as the determination closing price is less than the initial share price on all quarterly redemption determination
dates. The determination closing price is at or above the downside threshold level on 2 out of the 11 quarterly observation
dates prior to (and excluding) the final observation date. The final share price is $50.00, which is above the downside
threshold level. In this scenario, you receive a payment at maturity equal to the stated principal amount and the contingent
quarterly coupon with respect to the final observation date. Therefore, you would receive (i) the contingent quarterly
coupons with respect to those 2 observation dates prior to (and excluding) the final observation date, totaling $32.50 ×
2 = $65.00, but not for the other 9 observation dates, and (ii) the payment at maturity calculated as $1,000.00 + $32.50 = $1,032.50.
The total payment over the 3-year term of the securities is $65.00
+ $1,032.50 = $1,097.50.
Example 4
—The securities are not redeemed prior
to maturity, as the determination closing price is less than the initial share price on all quarterly redemption determination
dates. The determination closing price is below the downside threshold level on all of the quarterly observation dates,
including the final observation date, on which the final share price is $24.00. Therefore, you would receive no contingent
quarterly coupons, and the payment at maturity would be calculated as $1,000.00 × $24.00 / $60.00 = $400.
The total payment over the 3-year term of the securities is $0
+ $400 = $400.
If the securities are not automatically redeemed prior to
maturity and the final share price is less than the downside threshold level, you will lose a significant portion or all of your
investment in the securities.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
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 repayment of any principal. If the securities have not been automatically redeemed prior to maturity and if the
final share price is less than the downside threshold level of 50% of the initial share price, you will be exposed to the decline
in the closing price of the underlying stock, 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 share performance factor. In
this case, the payment at maturity will be less than 50% of the stated principal amount and could be zero.
|
|
§
|
The securities do not provide for the regular payment
of interest.
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 the underlying stock is
at or above
50% of the initial share price, which we refer to
as the downside threshold level, on the related observation date. If, on the other hand, the determination closing price
is lower than the downside threshold 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 will remain below the downside threshold
level for extended periods of time or even throughout the entire 3-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.
|
|
§
|
The contingent quarterly coupon, if any, is based
on the determination closing price of the underlying stock on only 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 the underlying stock 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 value of the underlying stock on quarterly observation dates, if the determination closing price of the underlying
stock on any observation date is below the downside threshold level, you will receive no coupon for the related interest period,
even if the level of the underlying stock was at or above the downside threshold level on other days during that interest period.
|
|
§
|
Investors will not participate in any appreciation
in the price of the underlying stock.
Investors will not participate in any appreciation in the price of the underlying
stock from the initial share price, and the return on the securities will be limited to the contingent quarterly coupons, if any,
that are paid with respect to each observation date on which the determination closing price is greater than or equal to the downside
threshold level.
|
|
§
|
The market price will be influenced by many unpredictable
factors.
Several factors, many of which are beyond our control, will influence the value of the securities in the
secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary market. We
expect that generally the level of interest rates available in the market and the value of the underlying stock on any day, including
in relation to the downside threshold level, will affect the value of the securities more than any other factors. Other
factors that may influence the value of the securities include:
|
|
o
|
the trading price and volatility (frequency and magnitude of changes in value) of the underlying stock,
|
|
o
|
whether the determination closing price of the underlying stock has been below the downside threshold level on any observation
date,
|
|
o
|
dividend rates on the underlying stock,
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stock
and which may affect the final share price of the underlying stock,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some or all of these factors will influence the price
that you will receive if you sell your securities prior to maturity. 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 the underlying stock at the time
of sale is below the downside threshold level, or if market interest rates rise.
The price of the underlying stock may be, and has
recently been, volatile, and we can give you no assurance that the volatility will lessen. See “Western Digital
Corporation Overview” below. The price of the underlying stock may decrease and be below the downside threshold
level on each observation date so that you will receive no return on your investment. Additionally, the price of the
underlying stock may decrease and be below the downside threshold level on the final observation date so that you will lose more
than 50% or all of your initial investment in the securities. There can be no assurance that the determination closing
price of the underlying stock will be at or above the downside threshold level on any observation date so that you will receive
a coupon payment on the securities for the applicable interest period, or that it will be at or above the downside threshold level
on the final observation date so that you do not suffer a significant loss on your initial investment in the securities.
|
§
|
The securities are subject to our credit risk,
and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the securities.
You
are dependent on our ability to pay all amounts due on the securities at maturity or on any coupon payment date, 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 six months of the term of the securities.
|
|
§
|
Investing in the securities is not equivalent to
investing in the common stock of Western Digital Corporation.
Investors in the securities will not have voting rights
or rights to receive dividends or other distributions or any other rights with respect to the underlying stock, and investors will
not participate in any appreciation of the underlying stock
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
over the term of the securities. As a result, any
return on the securities will not reflect the return you would realize if you actually owned shares of the underlying stock and
received the dividends paid or distributions made on them.
|
§
|
No affiliation with Western Digital Corporation.
Western
Digital Corporation is not an affiliate of ours, is not involved with this offering in any way, and has no obligation to consider
your interests in taking any corporate actions that might affect the value of the securities. We have not made any due
diligence inquiry with respect to Western Digital Corporation in connection with this offering.
|
|
§
|
We may engage in business with or involving Western
Digital Corporation without regard to your interests.
We or our affiliates may presently or from time to time engage
in business with Western Digital Corporation without regard to your interests and thus may acquire non-public information about
Western Digital Corporation. Neither we nor any of our affiliates undertakes to disclose any such information to you. In
addition, we or our affiliates from time to time have published and in the future may publish research reports with respect to
Western Digital Corporation, which may or may not recommend that investors buy or hold the underlying stock.
|
|
§
|
The antidilution adjustments the calculation agent
is required to make do not cover every corporate event that could affect the underlying stock.
MS & Co., as
calculation agent, will adjust the adjustment factor for certain corporate events affecting the underlying stock, such as stock
splits, stock dividends and extraordinary dividends, and certain other corporate actions involving the issuer of the underlying
stock, such as mergers. However, the calculation agent will not make an adjustment for every corporate event that can
affect the underlying stock. For example, the calculation agent is not required to make any adjustments if the issuer
of the underlying stock or anyone else makes a partial tender or partial exchange offer for the underlying stock, nor will adjustments
be made following the final observation date. In addition, no adjustments will be made for regular cash dividends, which are expected
to reduce the price of the underlying stock by the amount of such dividends. If an event occurs that does not require
the calculation agent to adjust the adjustment factor, the market price of the securities may be materially and adversely affected.
For example, if the record date for a regular cash dividend were to occur on or shortly before an observation date, this may decrease
the determination closing price to be less than the downside threshold level (resulting in no contingent quarterly coupon being
paid with respect to such date) or the final share price to be less than the downside threshold level (resulting in a loss of a
significant portion of all of your investment in the securities), materially and adversely affecting your return.
|
|
§
|
The securities will not be listed on any securities
exchange and secondary trading may be limited. Accordingly, you should be willing to hold your securities for the entire
3-year term of the securities.
The securities will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the securities. MS & Co. may, but is not obligated to, make a market
in the securities, and, if it once chooses to make a market, may cease doing so at any time. When it does make a market,
it will generally do so for transactions of routine secondary market size at prices based on its estimate of the current value
of the securities, taking into account its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed
sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able
to resell the securities. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell
the securities easily. Since other broker-dealers may not participate significantly in the secondary market for the
securities, the price at which you may be able to trade your securities is likely to depend on the price, if any, at which MS &
Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it is likely
that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
|
|
§
|
The rate we are willing
to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market
credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling,
structuring and hedging the securities in the original issue price reduce the economic terms of the securities, cause the estimated
value of the securities to be less than the original issue price and will adversely affect secondary market prices.
Assuming
no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may
be willing to purchase the securities in secondary market transactions will likely be significantly lower than the original issue
price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included
in the original issue price and borne by you and because the secondary market prices will reflect our
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
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 stock, 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 notes in the secondary market (if any exists) at any time. The value of your securities
at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy, including our
creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
Hedging and trading activity by our affiliates
could potentially affect the value of the securities.
One or more of our affiliates and/or third-party dealers have
carried out, and will continue to carry out, hedging activities related to the securities (and to other instruments linked to the
underlying stock), including trading in the underlying stock. 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 stock and other
financial instruments related to the underlying stock on a regular basis as part of their general broker-dealer and other businesses. Any
of these hedging or trading activities on or prior to the pricing date could have increased the initial share price, and, therefore,
could have increased (i) the price at or above which the underlying stock must close on the redemption determination dates so that
the securities are redeemed prior to maturity for the early redemption payment and (ii) the downside threshold level, which is
the price at or above which the underlying stock must close on each observation date in order for you to earn a contingent quarterly
coupon, and, if the securities are not called prior to maturity, in order for you to avoid being exposed to the negative price
performance of the underlying stock at maturity. Additionally, such hedging or trading activities during the term of
the securities could affect the price of the underlying stock 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 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. has determined the initial share price and the downside threshold level and will determine the final share
price, whether the contingent quarterly coupon will be paid on each coupon payment date, whether the securities will be redeemed
on any early redemption date, whether a market disruption event has occurred, whether to make any adjustments to the adjustment
factor and the payment that you will receive at maturity, if any. Moreover, certain determinations made by MS &
Co., in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect
to the occurrence or nonoccurrence of market disruption events and certain adjustments to the adjustment factor. 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” and related definitions
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities
on the pricing date.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
§
|
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 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 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
Western Digital Corporation Overview
Western Digital Corporation is a developer, manufacturer and
provider of data storage devices for the information technology industry. The underlying stock is registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Information provided to or filed with the Securities
and Exchange Commission by Western Digital Corporation pursuant to the Exchange Act can be located by reference to the Securities
and Exchange Commission file number 001-8703 through the Securities and Exchange Commission’s website at .www.sec.gov. In
addition, information regarding Western Digital Corporation may be obtained from other sources including, but not limited to, press
releases, newspaper articles and other publicly disseminated documents.
Neither the issuer nor the agent makes any representation
that such publicly available documents or any other publicly available information regarding the issuer of the underlying stock
is accurate or complete.
Information as of market close on August 16, 2019:
Bloomberg Ticker Symbol:
|
WDC
|
Exchange:
|
Nasdaq
|
Current Stock Price:
|
55.19
|
52 Weeks Ago:
|
65.06
|
52 Week High (on 8/16/2018):
|
65.06
|
52 Week Low (on 12/24/2018):
|
35.06
|
Current Dividend Yield:
|
3.57%
|
|
|
The following table sets forth the published high and low closing
prices of, as well as dividends on, the underlying stock for each quarter from January 1, 2016 through August 16, 2019. The closing
price of the underlying stock on August 16, 2019 was $55.19. The associated graph shows the closing prices of the underlying
stock for each day from January 1, 2014 through August 16, 2019. We obtained the information in the table and graph below from
Bloomberg Financial Markets, without independent verification. The historical performance of the underlying stock should
not be taken as an indication of its future performance, and no assurance can be given as to the price of the underlying stock
at any time, including on the redemption determination dates or the observation dates.
Common Stock of Western Digital Corporation (CUSIP 958102105)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2016
|
|
|
|
First Quarter
|
60.40
|
40.10
|
0.50
|
Second Quarter
|
50.81
|
35.44
|
0.50
|
Third Quarter
|
58.86
|
43.17
|
0.50
|
Fourth Quarter
|
70.35
|
53.07
|
0.50
|
2017
|
|
|
|
First Quarter
|
83.75
|
69.43
|
0.50
|
Second Quarter
|
93.67
|
82.14
|
0.50
|
Third Quarter
|
95.01
|
79.19
|
0.50
|
Fourth Quarter
|
92.91
|
77.11
|
0.50
|
2018
|
|
|
|
First Quarter
|
106.45
|
80.09
|
0.50
|
Second Quarter
|
92.51
|
76.77
|
0.50
|
Third Quarter
|
80.08
|
54.98
|
0.50
|
Fourth Quarter
|
58.36
|
35.06
|
0.50
|
2019
|
|
|
|
First Quarter
|
52.61
|
35.65
|
0.50
|
Second Quarter
|
55.39
|
36.24
|
0.50
|
Third Quarter (through August 16, 2019)
|
57.36
|
47.94
|
0.50
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
We make no representation as to the amount of dividends, if any,
that Western Digital Corporation may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable
Securities, you will not be entitled to receive dividends, if any, that may be payable on the common stock of Western Digital Corporation.
Common Stock of Western Digital Corporation – Daily Closing Prices
January 1, 2014 to August 16, 2019
|
|
* The red solid line indicates the downside threshold level of
27.595, which is 50% of the initial share price.
This document relates only to the securities referenced hereby
and does not relate to the underlying stock or other securities of Western Digital Corporation. We have derived all disclosures
contained in this document regarding Western Digital Corporation stock 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 Western Digital Corporation. Neither we nor the agent makes any representation
that such publicly available documents or any other publicly available information regarding Western Digital Corporation 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 underlying stock (and therefore the price of the underlying stock at the time we priced the securities) have
been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material
future events concerning Western Digital Corporation could affect the value received with respect to the securities and therefore
the value of the securities.
Neither the issuer nor any of its affiliates makes any representation
to you as to the performance of the underlying stock.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
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.
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 previously scheduled contingent payment date, as applicable, to but excluding the following scheduled contingent 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.
|
Underlying stock:
|
The accompanying product supplement refers to the underlying stock as the “underlying shares.”
|
Underlying stock issuer:
|
Western Digital Corporation. The accompanying product supplement refers to the underlying stock issuer as the “underlying company.”
|
Downside threshold level:
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
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 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 or early redemption payment made on that postponed date.
|
Antidilution adjustments:
|
The following replaces in its entirety the portion of the
section entitled “Antidilution Adjustments” in the accompanying product supplement for auto-callable securities from
the start of paragraph 5 to the end of such section.
5. If (i) there occurs any reclassification or change of the
underlying stock, including, without limitation, as a result of the issuance of any tracking stock by the underlying stock issuer,
(ii) the underlying stock issuer or any surviving entity or subsequent surviving entity of the underlying stock issuer (the “successor
corporation”) has been subject to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory
exchange of securities of the underlying stock issuer or any successor corporation with another corporation occurs (other than
pursuant to clause (ii) above), (iv) the underlying stock issuer is liquidated, (v) the underlying stock issuer issues to all of
its shareholders equity securities of an issuer other than the underlying stock issuer (other than in a transaction described in
clause (ii), (iii) or (iv) above) (a “spin-off event”) or (vi) a tender or exchange offer or going-private transaction
is consummated for all the outstanding shares of the underlying stock (any such event in clauses (i) through (vi), a “reorganization
event”), the method of determining whether an early redemption has occurred and the amount payable upon an early redemption
date or at maturity for each security will be as follows:
·
Upon
any redemption determination date following the effective date of a reorganization event and prior to the final observation date: If
the exchange property value (as defined below) is greater than or equal to the initial share price, the securities will be automatically
redeemed for an early redemption payment.
·
Upon
the final observation date, if the securities have not previously been automatically redeemed: You will receive for
each security that you hold a payment at maturity equal to:
Ø
If
the exchange property value on the final observation date is greater than or equal to the downside threshold level:
(i) the
stated principal amount plus (ii) the contingent quarterly coupon with respect to the final observation date; or
Ø
If
the exchange property value on the final observation date is less than the downside threshold level:
(i) the stated
principal amount multiplied by (ii) the share performance factor. For purposes of calculating the share performance factor, the
“final share price” will be deemed to equal the exchange property value on the final observation date.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
Following the effective date of a reorganization event, the contingent
quarterly coupon will be payable for each observation date on which the exchange property value is greater than or equal to the
downside threshold level.
In the event exchange property consists of securities, those
securities will, in turn, be subject to the antidilution adjustments set forth in paragraphs 1 through 5.
For purposes of determining whether or not the exchange property
value is less than the initial share price or downside threshold level, “exchange property value” means (x) for any
cash received in any reorganization event, the value, as determined by the calculation agent, as of the date of receipt, of such
cash received for one share of the underlying stock, as adjusted by the adjustment factor at the time of such reorganization event,
(y) for any property other than cash or securities received in any such reorganization event, the market value, as determined by
the Calculation Agent in its sole discretion, as of the date of receipt, of such exchange property received for one share of the
underlying stock, as adjusted by the adjustment factor at the time of such reorganization event and (z) for any security received
in any such reorganization event, an amount equal to the determination closing price, as of the day on which the exchange property
value is determined, per share of such security multiplied by the quantity of such security received for each share of the underlying
stock, as adjusted by the adjustment factor at the time of such reorganization event.
For purposes of paragraph 5 above, in the case of a consummated
tender or exchange offer or going-private transaction involving consideration of particular types, exchange property shall be deemed
to include the amount of cash or other property delivered by the offeror in the tender or exchange offer (in an amount determined
on the basis of the rate of exchange in such tender or exchange offer or going-private transaction). In the event of
a tender or exchange offer or a going-private transaction with respect to exchange property in which an offeree may elect to receive
cash or other property, exchange property shall be deemed to include the kind and amount of cash and other property received by
offerees who elect to receive cash.
Following the occurrence of any reorganization event referred
to in paragraph 5 above, all references in this offering document and in the related product supplement with respect to the securities
to “the underlying stock” shall be deemed to refer to the exchange property and references to a “share”
or “shares” of the underlying stock shall be deemed to refer to the applicable unit or units of such exchange property,
unless the context otherwise requires.
No adjustment to the adjustment factor will be required unless
such adjustment would require a change of at least 0.1% in the adjustment factor then in effect. The adjustment factor
resulting from any of the adjustments specified above will be rounded to the nearest one hundred-thousandth, with five one-millionths
rounded upward. Adjustments to the adjustment factor will be made up to the close of business on the final observation
date.
No adjustments to the adjustment factor or method of calculating
the adjustment factor will be required other than those specified above. The adjustments specified above do not cover
all events that could affect the determination closing price or the final share price of the underlying stock, including, without
limitation, a partial tender or exchange offer for the underlying stock.
The calculation agent shall be solely responsible for the determination
and calculation of any adjustments to the adjustment factor or method of calculating the adjustment factor and of any related determinations
and calculations with respect to any distributions of stock, other securities or other property or assets (including cash) in connection
with any corporate event described in paragraphs 1 through 5 above, and its determinations and calculations with respect thereto
shall be conclusive in the absence of manifest error.
The calculation agent will provide information as to any adjustments
to the adjustment factor or to the method of calculating the amount payable at maturity of the securities made pursuant to paragraph
5 above upon written request by any investor in the securities.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
Issuer notices to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the final 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
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
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 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 contingent 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, if any, to be delivered with respect to the securities, on or prior to 10:30 a.m. (New York City time) on the business day
preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to the securities, if any, to the trustee
for delivery to the depositary, as holder of the securities, on the maturity date.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
Additional Information About the Securities
Listing:
|
The securities will not be listed on any securities exchange.
|
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 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
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
treatment is more likely than not to be upheld, and that alternative
treatments are possible.
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 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
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
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 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
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
paid or deemed paid to Non-U.S. Holders with respect to certain
financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”). Subject
to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of
one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January
1, 2021 that do not have a delta of one with respect to any Underlying Security. Based on our determination that the
securities do not have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the securities
should not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances,
including whether you enter into other transactions with respect to an Underlying Security. If 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 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
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
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 hedged our anticipated exposure
in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers. We
expect our hedging counterparties to have taken positions in the underlying stock and in futures and/or options contracts on the
underlying stock. Such purchase activity could have increased the initial share price, and, therefore, could have increased
(i) the price at or above which the underlying stock must close on any redemption determination date so that the securities are
redeemed prior to maturity for the early redemption payment and (ii) the downside threshold level, which is the price at or above
which the underlying stock must close on each observation date in order for you to earn a contingent quarterly coupon, and, if
the securities are not called prior to maturity, in order for you to avoid being exposed to the negative price performance of the
underlying stock at maturity. 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 the underlying stock on the redemption determination dates and 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 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 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
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
purchasing such securities on behalf of or with “plan assets”
of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S.
law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”)
or (b) its purchase, holding and disposition of these securities will not constitute or result in a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The securities are contractual financial instruments. The
financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for,
individualized investment management or advice for the benefit of any purchaser or holder of the securities. The securities
have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of
any purchaser or holder of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i)
the purchaser or holder or its fiduciary has made and
shall make all investment decisions for the purchaser or holder and the purchaser or holder has not relied and shall not rely in
any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to (A) the design and
terms of the securities, (B) the purchaser or holder’s investment in the securities, or (C) the exercise of or failure to
exercise any rights we have under or with respect to the securities;
(ii)
we and our affiliates have acted
and will act solely for our own account in connection with (A) all transactions relating to the securities and (B) all hedging
transactions in connection with our obligations under the securities;
(iii)
any and all assets and positions
relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets and positions
held for the benefit of the purchaser or holder;
(iv)
our interests are adverse to
the interests of the purchaser or holder; and
(v)
neither we nor any of our affiliates
is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions, and any information
that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect
a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements
with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally
or any particular plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be
investment advice directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these securities
should consult and rely on their own counsel and advisers as to 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 $25 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
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due August 19, 2022
Based on the Performance of the Common Stock of Western Digital Corporation
Principal at Risk Securities
|
|
securities.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for auto-callable securities.
|
Validity of the securities:
|
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith),
provided
that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 16, 2017, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 16, 2017.
|
Where you can find more information:
|
Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for 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 product supplement for auto-callable securities
and prospectus 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.
|
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
Historical Stock Chart
From Jun 2024 to Jul 2024
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
Historical Stock Chart
From Jul 2023 to Jul 2024