CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities Offered
|
|
Maximum
Aggregate Offering Price
|
|
Amount
of Registration Fee
|
Phoenix Auto-Callable Securities due 2020
|
|
$6,339,000
|
|
$768.29
|
September 2019
Pricing Supplement No. 2,537
Registration Statement Nos.
333-221595; 333-221595-01
Dated September 13, 2019
Filed pursuant to Rule 424(b)(2)
Morgan
Stanley Finance LLC
Structured Investments
Opportunities in International Equities
Phoenix Auto-Callable Securities due September
30, 2020
Based on the Performance of the Common Stock
of SVB Financial Group
Fully and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
Phoenix Auto-Callable Securities do not guarantee the payment
of interest or the repayment of principal. Instead, the securities offer the opportunity for investors to earn a contingent quarterly
coupon of $37.50 per quarter per security (plus any previously unpaid contingent quarterly coupons from prior determination dates)
but only with respect to each determination date on which the determination closing price of the underlying shares is greater than
or equal to 70% of the initial share price, which we refer to as the downside threshold level. In addition, if the determination
closing price of the underlying shares is greater than or equal to the initial share price on any determination date, the securities
will be automatically redeemed for an amount per security equal to the stated principal amount, the related contingent quarterly
coupon and any previously unpaid contingent quarterly coupons from prior determination dates. However, if the securities are not
automatically redeemed prior to maturity, the payment at maturity due on the securities will be determined as follows: (i) if the
final share price, as determined on five averaging dates, is greater than or equal to the downside threshold level, investors will
receive the stated principal amount, the related contingent quarterly coupon and any previously unpaid contingent quarterly coupons
from prior determination dates, or (ii) if the final share price is less than the downside threshold level, investors will be exposed
to the decline in the underlying shares on a 1-to-1 basis and will receive a payment at maturity that is less than 70% of the stated
principal amount of the securities and could be zero. Moreover, if the closing price of the underlying shares on any determination
date or the final share price is less than the downside threshold level, you will not receive any contingent quarterly coupon for
that quarterly period. Therefore, contingent quarterly coupons should not be viewed as guaranteed periodic interest payments. Investors
must be willing to accept the risk of not receiving any contingent quarterly coupons and also the risk of receiving a payment at
maturity that is significantly less than the stated principal amount of the securities and could be zero. Accordingly, investors
could lose their entire initial investment in 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 few
or no contingent quarterly coupons over the term of the securities. Investors will not participate in any appreciation of the underlying
shares. The securities are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally
guaranteed by Morgan Stanley, 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.
FINAL TERMS
|
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying shares:
|
SVB Financial Group common stock
|
Aggregate principal amount:
|
$6,339,000
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security (see “Commissions and issue price” below)
|
Pricing date:
|
September 13, 2019
|
Original issue date:
|
September 18, 2019 (3 business days after the pricing date)
|
Maturity date:
|
September 30, 2020
|
Early redemption:
|
If, on any of the three determination dates, the determination closing price of the underlying shares is greater than or equal to the initial share price, the securities will be automatically redeemed for an early redemption payment on the third business day following the related determination date. No further payments will be made on the securities once they have been redeemed.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the related determination date and any previously unpaid contingent quarterly coupons from prior determination dates.
|
Determination closing price:
|
The closing price of the underlying shares on any determination date times the adjustment factor on such determination date
|
Contingent quarterly coupon:
|
· If the determination closing price on any determination date or the final share price, as applicable, is greater than or
equal to the downside threshold level, we will pay a contingent quarterly coupon of $37.50 per quarter per security on the related
contingent payment date plus any previously unpaid contingent quarterly coupons with respect to any prior determination dates.
· If the determination closing price on any determination date or the final share price, as applicable, is less than the
downside threshold level, no contingent quarterly coupon will be paid with respect to that quarterly period.
If the contingent quarterly coupon is not paid on any coupon
payment date (because the closing price on any determination date is less than the downside threshold level), such unpaid contingent
quarterly coupon will be paid on a later coupon payment date but only if the determination closing price on such later determination
date is greater than or equal to the downside threshold level; provided, however, in the case of any such payment
of a previously unpaid contingent quarterly coupon, that no additional interest shall accrue or be payable in respect of such unpaid
contingent quarterly coupon from and after the end of the original interest period for such unpaid contingent quarterly coupon.
You will not receive such unpaid contingent quarterly coupons if the closing price is less than the downside threshold level on
each subsequent determination date. If the closing price is less than the downside threshold level on each determination date,
you will not receive any contingent quarterly coupons for the entire term of the securities.
|
Determination dates:
|
December 26, 2019, March 26, 2020 and June 25, 2020, subject to postponement for non-trading days and certain market disruption events
|
Contingent payment dates:
|
With respect to each determination date, the third business day after the related determination date. The payment of the contingent quarterly coupon, if any, with respect to the final quarterly period will be made on the maturity date.
|
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 quarterly period and any previously unpaid contingent quarterly coupons with respect to the prior determination dates
|
|
· 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 the stated principal amount, and will represent a loss of more than 30%, and up to all, of your investment.
|
Adjustment factor:
|
1.0, subject to adjustment in the event of certain corporate events affecting the underlying shares
|
Share performance factor:
|
Final share price divided by the initial share price
|
Downside threshold level:
|
$156.807, which is equal to 70% of the initial share price
|
Initial share price:
|
$224.01, which is equal to the closing price of the underlying shares on the pricing date
|
Final share price:
|
The arithmetic average of the closing price of the underlying shares on each of the five averaging dates, each as multiplied by the adjustment factor on such date
|
Averaging dates:
|
September 21, 2020, September 22, 2020, September 23, 2020, September 24, 2020 and September 25, 2020, subject to postponement for non-trading days and certain market disruption events.
|
CUSIP / ISIN:
|
61769HVG7 / US61769HVG72
|
Listing:
|
The securities will not be listed on any securities exchange.
|
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:
|
$982.60 per security. See “Investment Summary” beginning on page 2.
|
Commissions and issue price:
|
|
Price to public(1)
|
Agent’s commissions(1)(2)
|
Proceeds to issuer(3)
|
Per security
|
|
$1,000
|
$10
|
$990
|
Total
|
|
$6,339,000
|
$63,390
|
$6,275,610
|
|
(1)
|
J.P. Morgan Securities LLC and JPMorgan Chase Bank,
N.A. will act as placement agents for the securities. The placement agents will forgo fees for sales to certain fiduciary accounts.
The total fees represent the amount that the placement agents receive from sales to accounts other than such fiduciary accounts.
The placement agents will receive a fee from the Issuer or one of its affiliates that will not exceed $10 per $1,000 stated principal
amount of securities.
|
|
(2)
|
Please see “Supplemental information regarding plan of distribution; conflicts of interest” in this pricing
supplement for information about fees and commissions.
|
|
(3)
|
See “Use of proceeds and hedging” on page 21.
|
The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 8.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement
and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related product
supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional Terms of the
Securities” and “Additional Information About the Securities” at the end of this document.
As used in this document, “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Morgan Stanley Finance LLC
Phoenix Auto-Callable
Securities due September 30, 2020
Based on the Performance of the Common Stock
of SVB Financial Group
Principal at Risk Securities
Investment Summary
Phoenix Auto-Callable Securities
Principal at Risk Securities
The Phoenix Auto-Callable Securities due September
30, 2020 Based on the Performance of the Common Stock of SVB Financial Group, which we refer to as the securities, provide an opportunity
for investors to earn a contingent quarterly coupon of $37.50 per quarter per security (plus any previously unpaid contingent quarterly
coupons from prior determination dates) with respect to each quarterly determination date or the averaging dates, as applicable,
on which the determination closing price or the final share price, as applicable, is greater than or equal to 70% of the initial
share price, which we refer to as the downside threshold level. It is possible that the closing price of the underlying shares
could remain below the downside threshold level for extended periods of time or even throughout the term of the securities so that
you may receive few or no contingent quarterly coupons.
If the determination closing price is greater
than or equal to the initial share price on any of the three determination dates, 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 determination date and any previously unpaid contingent quarterly coupons from prior determination dates. No further
payments will be made on the securities once they have been redeemed. If the securities have not previously been redeemed and the
final share price, as determined on the five averaging dates, is greater than or equal to the downside threshold level, the payment
at maturity will be the sum of the stated principal amount, the contingent quarterly coupon with respect to the final quarterly
period and any previously unpaid contingent quarterly coupons with respect to the prior determination dates. However, if the securities
have not previously been redeemed and the final share price is less than the downside threshold level, investors will be exposed
to the decline in the final share price, as compared to the initial share price, on a 1-to-1 basis. In this case, the payment at
maturity will be less than 70% of the stated principal amount of the securities and could be zero. Investors in the securities
must be willing to accept the risk of losing their entire principal and also the risk of not receiving any contingent quarterly
coupon. In addition, investors will not participate in any appreciation of the underlying shares.
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 $982.60.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
shares. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying shares, instruments based on the underlying shares, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the contingent quarterly coupon rate 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 shares, may
vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our
secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction
of this type and other factors. However, because
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
the costs associated with issuing, selling,
structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 4 months following the issue
date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market conditions,
including those related to the underlying shares, and to our secondary market credit spreads, it would do so based on values higher
than the estimated value. We expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to,
make a market in the securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
quarterly coupon of $37.50 per quarter per security (plus any previously unpaid contingent quarterly coupons from prior determination
dates) with respect to each determination date or the averaging dates, as applicable, on which the determination closing price
or the final share price, as applicable, is greater than or equal to 70% of the initial share price, which we refer to as the downside
threshold level. The securities may be redeemed prior to maturity for the stated principal amount per security plus the
applicable contingent quarterly coupon and any previously unpaid contingent quarterly coupons, and the payment at maturity will
vary depending on the final share price, as follows:
Scenario 1
|
On any of the three determination dates,
the determination closing price is greater than or equal to the initial share price.
§
The securities will be automatically redeemed for (i) the stated principal amount plus (ii) the contingent quarterly
coupon with respect to the related determination date and any previously unpaid contingent quarterly coupons with respect to any
prior determination dates.
§
Investors will not participate in any appreciation of the underlying shares from the initial share price.
|
Scenario 2
|
The securities are not automatically redeemed
prior to maturity, and the final share price, as determined on the five averaging dates, is greater than or equal to the
downside threshold level.
§
The payment due at maturity will be (i) the stated principal amount plus (ii) the contingent quarterly coupon with
respect to the final quarterly period and any previously unpaid contingent quarterly coupons with respect to the prior determination
dates.
§
Investors will not participate in any appreciation of the underlying shares from the initial share price.
|
Scenario 3
|
The securities are not automatically redeemed
prior to maturity, and the final share price is less than the downside threshold level.
§
The payment due at maturity will be equal to (i) the stated principal amount multiplied by (ii) the share performance
factor.
§
Investors will lose a significant portion, and may lose all, of their principal in this scenario.
|
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
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 and (2) the final share price.
Diagram #1: Three Determination Dates
Diagram #2: Payment at Maturity if No Automatic
Early Redemption Occurs
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
Hypothetical Examples
The below examples are based on the following terms:
Hypothetical Initial Share Price:
|
$200.00
|
Hypothetical Downside Threshold Level:
|
$140.00, which is 70% of the hypothetical initial share price
|
Hypothetical Adjustment Factor:
|
1.0
|
Contingent Quarterly Coupon:
|
$37.50 per quarter per security
|
Stated Principal Amount:
|
$1,000 per security
|
In Examples 1 and 2, the closing price of the
underlying shares fluctuates over the term of the securities and the determination closing price of the underlying shares is greater
than or equal to the hypothetical initial share price of $200.00 on one of the determination dates. Because the determination closing
price is greater than or equal to the initial share price on one of the determination dates, the securities are automatically redeemed
following the relevant determination date. In Examples 3 and 4, the determination closing price on the determination dates is less
than the initial share price, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding
until, maturity.
|
Example 1
|
Example 2
|
Determination Dates / Averaging Dates
|
Hypothetical Determination Closing Price / Final Share Price
|
Hypothetical Contingent Quarterly Coupon
|
Early Redemption Amount*
|
Hypothetical Determination Closing Price / Final Share Price
|
Hypothetical Contingent Quarterly Coupon
|
Early Redemption Amount*
|
#1
|
$200.00
|
—*
|
$1,037.50
|
$170.00
|
$37.50
|
N/A
|
#2
|
N/A
|
N/A
|
N/A
|
$100.00
|
$0
|
N/A
|
#3
|
N/A
|
N/A
|
N/A
|
$230.00
|
—*
|
$1,075.00
|
Averaging Dates
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
* The Early Redemption Amount includes the
unpaid contingent quarterly coupon with respect to the determination date on which the determination closing price is greater than
or equal to the initial share price and the securities are redeemed as a result.
|
§
|
In Example 1, the securities are automatically redeemed following the first determination date, as the determination
closing price on the first determination date is equal to the initial share price. You receive the early redemption payment, calculated
as follows:
|
stated principal
amount + contingent quarterly coupon = $1,000.00 + $37.50 = $1,037.50
In this example, the early redemption feature
limits the term of your investment to approximately 3 months, and you may not be able to reinvest at comparable terms or returns.
If the securities are redeemed early, you will receive no further payments. Additionally, you will not participate in any appreciation
of the underlying shares.
|
§
|
In Example 2, the securities are automatically redeemed following the third determination date, as the determination
closing price on the third determination date is greater than the initial share price. As the determination closing price on the
first determination date is greater than the downside threshold level, you receive the contingent coupon of $37.50 with respect
to such determination date. Following the third determination date, you receive an early redemption amount of $1,075.00, which
includes the contingent quarterly coupon with respect to the third determination date and the previously unpaid contingent quarterly
coupon with respect to the second determination date.
|
In this example, the early redemption feature
limits the term of your investment to approximately 9 months, and you may not be able to reinvest at comparable terms or returns.
If the securities are redeemed early, you will receive no further payments. Further, although the underlying shares have appreciated
by 15% from the initial share price as of the third determination date, you receive only $1,075.00 per security and do not benefit
from such appreciation.
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
|
Example 3
|
Example 4
|
Determination Dates / Averaging Dates
|
Hypothetical Determination Closing Price / Final Share Price
|
Hypothetical Contingent Quarterly Coupon
|
Early Redemption Amount
|
Hypothetical Determination Closing Price / Final Share Price
|
Hypothetical Contingent Quarterly Coupon
|
Early Redemption Amount
|
#1
|
$100.00
|
$0
|
N/A
|
$97.00
|
$0
|
N/A
|
#2
|
$90.00
|
$0
|
N/A
|
$115.00
|
$0
|
N/A
|
#3
|
$110.00
|
$0
|
N/A
|
$110.00
|
$0
|
N/A
|
Averaging Dates
|
$120.00
|
$0
|
N/A
|
$180.00
|
—*
|
N/A
|
Payment at Maturity
|
$600.00
|
$1,150.00
|
* The final contingent quarterly coupon, if
any, will be paid at maturity.
Examples 3 and 4 illustrate the payment at
maturity per security based on the final share price.
|
§
|
In Example 3, the closing price of the underlying shares remains below the downside threshold level on every determination
date. As a result, you do not receive any contingent coupons during the term of the securities, and, at maturity, you are fully
exposed to the decline in the closing price of the underlying shares. As the final share price is less than the downside threshold
level, investors will receive a payment at maturity equal to the stated principal amount times the share performance factor, calculated
as follows:
|
stated principal amount
x share performance factor = $1,000.00 x ($120.00 / $200.00) = $1,000.00 x 60% = $600.00
In this example, the amount of cash you
receive at maturity is significantly less than the stated principal amount.
|
§
|
In Example 4, the closing price of the underlying shares decreases to a final share price of $180.00. Although the final
share price is less than the initial share price, because the final share price is still not less than the downside threshold level,
you receive the stated principal amount plus a contingent quarterly coupon with respect to the final quarterly period and the previously
unpaid contingent quarterly coupons with respect to the prior determination dates. Your payment at maturity is calculated as follows:
|
$1,037.50 + $112.50 = $1,150.00
In this example, although the final share
price represents a 10% decline from the initial share price, you receive the stated principal amount per security plus the final
contingent quarterly coupon and the previously unpaid contingent quarterly coupons with respect to the prior determination dates,
equal to a total payment of $1,150.00 per security at maturity, because the final share price is not less than the downside threshold
level.
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement and prospectus. You should also consult 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 the securities do not guarantee the payment of regular interest or the return of any of the principal amount
at maturity. Instead, if the securities have not been automatically redeemed prior to maturity and if the final share price is
less than the downside threshold level, you will be exposed to the decline in the final share price, as compared to the initial
share price, on a 1-to-1 basis. In this case, you will receive for each security that you hold at maturity a payment that will
be less than 70% of the stated principal amount and could be zero.
|
|
§
|
You will not receive any contingent quarterly coupon for any quarterly period when the determination closing price or the
final share price, as applicable, is less than the downside threshold level. Contingent quarterly coupons should not be viewed
as guaranteed periodic interest payments. A contingent quarterly coupon will be paid with respect to a quarterly period only if
the determination closing price or the final share price, as applicable, is greater than or equal to the downside threshold level.
If the determination closing price remains below the downside threshold level on each determination date over the term of the securities
and the final share price is also below the downside threshold level, you will not receive any contingent quarterly coupons.
|
|
§
|
The contingent quarterly coupon, if any, is based solely on the determination closing price or the final share price, as
applicable. Whether the contingent quarterly coupon will be paid with respect to a determination date or the averaging dates
will be based on the determination closing price or the final share price, as applicable. As a result, you will not know whether
you will receive the contingent quarterly coupon until near the end of the relevant quarterly period. Moreover, because the contingent
quarterly coupon is based solely on the determination closing price on a specific determination date or the final share price,
as applicable, if such determination closing price or final share price is less than the downside threshold level, you will not
receive any contingent quarterly coupon with respect to such determination date or the averaging dates, as applicable, even if
the closing price of the underlying shares was higher on other days during the term of the securities.
|
|
§
|
Investors will not participate in any appreciation in the price of the underlying shares. Investors will not participate
in any appreciation in the price of the underlying shares from the initial share price, and the return on the securities will be
limited to the contingent quarterly coupon, if any, that is paid with respect to each determination date or the averaging dates,
as applicable, on which the determination closing price or the final share price, as applicable, is greater than or equal to the
downside threshold level. It is possible that the closing price of the underlying shares could be below the downside threshold
level on most or all of the determination dates and/or that the final share price is below the downside threshold level so that
you will receive few or no contingent quarterly coupons and/or lose a significant portion or all of your investment. 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 automatic early redemption feature may limit the term of your investment to as short as approximately three months.
If the securities are redeemed early, you may not be able to reinvest at comparable terms or returns. The
term of your investment in the securities may be limited to as short as approximately three months by 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.
For the avoidance of doubt, the costs borne by investors in the securities, including the fees and commissions described on the
cover page of this document, will not be rebated if the securities are redeemed early.
|
|
§
|
The market price will be influenced by many unpredictable factors. Several factors
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. Although we expect that generally the closing price of the underlying shares on
|
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
any
day will affect the value of the securities more than any other single factor, other factors that may influence the value of the
securities include:
|
o
|
the trading price and volatility (frequency and magnitude of changes in value) of the underlying shares,
|
|
o
|
whether the determination closing price has been below the downside threshold level on any determination date,
|
|
o
|
dividend rates on the underlying shares,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
time remaining until the securities mature,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying shares
and which may affect the final share price of the underlying shares,
|
|
o
|
the occurrence of certain events affecting the underlying shares 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.
|
The
price of the underlying shares may be, and has recently been, volatile, and we can give you no assurance that the volatility will
lessen. See “SVB Financial Group Overview” below. You may receive less, and possibly significantly less, than the stated
principal amount per security if you try to sell your securities prior to maturity.
|
§
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The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads
may adversely affect the market value of the securities. You are dependent on our ability to pay all amounts due on the securities
on each contingent payment date, upon automatic redemption or at maturity, and therefore you are subject to our credit risk of
Morgan Stanley. 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 Morgan Stanley credit risk is likely to adversely affect the market value of the securities.
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§
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As a finance subsidiary, MSFL has no independent operations and will have no independent assets. As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of Morgan Stanley.
Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of securities
issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should be treated
pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued
securities.
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§
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Investing in the securities is not equivalent to investing in the Common Stock of SVB Financial Group. Investors
in the securities will not participate in any appreciation of the underlying shares, and will not have voting rights or rights
to receive dividends or other distributions or any other rights with respect to the underlying shares. As a result, any return
on the securities will not reflect the return you would realize if you actually owned shares of the underlying shares and received
the dividends paid or distributions made on them.
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§
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No affiliation with SVB Financial Group. SVB Financial Group 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 SVB Financial Group in connection with this offering.
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§
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We may engage in business with or involving SVB Financial Group without regard to your interests. We or our affiliates
may presently or from time to time engage in business with SVB Financial Group without regard to your interests and thus may acquire
non-public information about SVB Financial Group. Neither we nor any of our
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Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
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 SVB Financial Group, which may or may not recommend that investors buy or hold the underlying shares.
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§
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The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect
the underlying shares. MS & Co., as calculation agent, will adjust the adjustment factor for certain corporate events affecting
the underlying shares, such as stock splits, stock dividends and extraordinary dividends, and certain other corporate actions involving
the issuer of the underlying shares, such as mergers. However, the calculation agent will not make an adjustment for every corporate
event that can affect the underlying shares. For example, the calculation agent is not required to make any adjustments if the
issuer of the underlying shares or anyone else makes a partial tender or partial exchange offer for the underlying shares, nor
will adjustments be made following the last averaging date. In addition, no adjustments will be made for regular cash dividends,
which are expected to reduce the price of the underlying shares by the amount of such dividends. If an event occurs that does not
require the calculation agent to adjust the adjustment factor, such as a regular cash dividend, the market price of the securities
and your return on 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 a determination 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.
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§
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The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices. Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well
as other factors.
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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 4 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying shares, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
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§
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The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price. These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
|
§
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The securities will not be listed on any securities exchange and secondary trading may be limited. The securities will
not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS & Co.
may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so at any
time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on
its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary
market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any,
at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it
is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
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§
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Hedging and trading activity by our affiliates could potentially adversely affect the value of the securities. One or
more of our affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related
to the securities (and to other instruments linked to the underlying shares), including trading in the underlying shares. As a
result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy
may involve greater and more frequent dynamic adjustments to the hedge as the averaging dates approach. Some of our affiliates
also trade the underlying shares and other financial instruments related to the underlying shares 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, as a result, could have increased the downside threshold level, which is the price
at or above which the underlying shares must close on each determination 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 shares at maturity. Additionally, such hedging or trading activities during the term of the securities could
potentially affect the price of the underlying shares on the determination dates, and, accordingly, whether the securities are
automatically called prior to maturity, and, if the securities are not called prior to maturity, the payout to you at maturity,
if any.
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§
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The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities. As calculation agent, MS & Co. has determined the initial share price and the downside threshold level
and will determine the final share price, whether the contingent quarterly coupon will be paid on each contingent payment date,
whether you will receive any previously unpaid contingent quarterly coupons, whether the securities will be redeemed following
any determination date, whether a market disruption event has occurred, whether to make any adjustments to the adjustment factor
and the payment that you will receive upon an automatic early redemption or 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” in the accompanying product
supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.
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§
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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.
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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
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
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
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
SVB Financial Group Overview
SVB Financial Group operates as a financial services company.
The underlying shares are 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 SVB Financial Group pursuant to the Exchange Act can be located
by reference to the Securities and Exchange Commission file number 000-15637 through the Securities and Exchange Commission’s
website at .www.sec.gov. In addition, information regarding SVB Financial Group 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 shares is accurate or complete.
Information as of market close on September 13, 2019:
Bloomberg Ticker Symbol:
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SIVB
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Exchange:
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Nasdaq
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Current Share Price:
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$224.01
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52 Weeks Ago:
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$314.81
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52 Week High (on 9/20/2018):
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$327.67
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52 Week Low (on 12/24/2018):
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$180.49
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The following graph shows the closing prices
from January 1, 2014 through September 13, 2019. The closing price of the underlying shares on September 13, 2019 was $224.01.
We obtained the information in the table and graph below from Bloomberg Financial Markets, without independent verification. The
historical performance of the underlying shares should not be taken as an indication of its future performance, and no assurance
can be given as to the price of the underlying shares at any time, including on the determination dates or averaging dates.
Common Stock of SVB Financial Group – Daily Closing Prices
January 1, 2014 to September 13, 2019
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*The red solid line indicates the downside
threshold level of $156.807, which is 70% of the initial share price.
This document relates only to the securities
referenced hereby and does not relate to the underlying shares or other securities of SVB Financial Group. We have derived all
disclosures contained in this document regarding SVB Financial Group 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 SVB Financial Group. Neither we nor the agent makes any representation that such
publicly available documents or any other publicly available information regarding SVB Financial Group 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 in the preceding paragraph) that would affect the trading
price of the underlying shares (and therefore the price of the underlying shares at the time we priced the securities) have been
publicly disclosed.
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
Subsequent disclosure of any such events
or the disclosure of or failure to disclose material future events concerning SVB Financial Group could affect the amount 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 shares.
Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Terms:
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If the terms described herein are inconsistent with those described in the accompanying product supplement or prospectus, the terms described herein shall control.
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Record date:
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The record date for each contingent payment date shall be the date one business day prior to such scheduled contingent payment date; provided, however, that any contingent quarterly coupon payable at maturity or upon 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.
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Underlying shares issuer:
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SVB Financial Group. The accompanying product supplement refers to the underlying shares issuer as the “underlying company.”
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Denominations:
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$1,000 per security and integral multiples thereof
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Interest period:
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The quarterly period from and including the original issue date (in the case of the first interest period) or the previous scheduled contingent payment date, as applicable, to but excluding the following scheduled contingent payment date, with no adjustment for any postponement thereof.
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Postponement of contingent payment dates:
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If a contingent payment date is postponed as a result of the postponement of the relevant determination date, no adjustment shall be made to any contingent quarterly coupon paid on that postponed date.
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Postponement of averaging dates:
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If a market disruption event with respect to the underlying shares occurs on any scheduled averaging date or if any such scheduled averaging date is not a trading day, the closing price for such scheduled averaging date will be determined on the immediately succeeding trading day on which no market disruption event shall have occurred. Each succeeding averaging date will then be the next trading day following the preceding averaging date as postponed. The final share price will be determined on the date on which the closing prices for all scheduled averaging dates have been determined; provided that (i) the closing price for any averaging date will not be determined on a date later than the tenth business day after the last scheduled averaging date, (ii) the closing price for any remaining averaging dates that would otherwise fall after such tenth business day will be the closing price on such tenth business day and (iii) if such tenth business day is not a trading day or if there is a market disruption event on such date, the calculation agent will determine the closing price of the underlying shares on such date as the mean of the bid prices for the underlying shares for such date obtained from as many recognized dealers in such underlying shares, but not exceeding three, as will make such bid prices available to the calculation agent. Bids of MS & Co. or any of its affiliates may be included in the calculation of such mean, but only to the extent that any such bid is the highest of the bids obtained. If no bid prices are provided from any third-party dealers, the closing price will be determined by the calculation agent in its sole and absolute discretion (acting in good faith), taking into account any information that it deems relevant.
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Postponement of maturity date:
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If due to a market disruption event or otherwise, the last averaging date is postponed so that it falls less than two business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the second business day following that last averaging date as postponed.
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Antidilution adjustments:
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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 ordinary shares represented by the underlying shares (the “underlying ordinary shares”), including, without
limitation, as a result of the issuance of any tracking stock by the underlying shares issuer, (ii) the underlying shares issuer
or any surviving entity or subsequent surviving entity of the underlying shares 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 shares issuer or any successor corporation with another corporation occurs (other than pursuant to clause (ii)
above), (iv) the underlying shares issuer is liquidated, (v) the underlying shares issuer issues to all of its shareholders equity
securities of an issuer other than the underlying shares 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 ordinary shares (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 determination date following the effective date of a reorganization event: 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 last averaging 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 final exchange property value (as defined below) is greater than or equal to the downside threshold level: (i)
the stated principal amount plus (ii) the contingent quarterly coupon with respect
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Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
|
to
the final quarterly period and any previously unpaid contingent quarterly coupons from prior determination dates.
Ø
If the final exchange property value (as defined below) 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 final exchange property value (as defined below).
Following the effective date of a reorganization event, the contingent
quarterly coupon (and any previously unpaid contingent quarterly coupons from prior determination dates) will be payable for each
determination 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 less than the 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 shares, 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 shares, 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 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 shares, as adjusted by the adjustment factor at the time of such reorganization event.
“Final exchange property value” means the arithmetic
average of the exchange property values as of each of the five averaging dates.
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 shares” shall be deemed to refer to the exchange property and references to a
“share” or “shares” of the underlying shares 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 last averaging 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 shares, including,
without limitation, a partial tender or exchange offer for the underlying ordinary shares.
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.
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Trustee:
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The Bank of New York Mellon
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Calculation agent:
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MS & Co.
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Issuer notices to registered security holders, the trustee and the depositary:
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In the event that the maturity date is postponed due to postponement
of the last averaging 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
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Morgan Stanley Finance LLC
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
|
upon the registry books, (ii) to the trustee by facsimile, confirmed
by mailing such notice to the trustee by first class mail, postage prepaid, at its New York office and (iii) to The Depository
Trust Company (the “depositary”) by telephone or facsimile confirmed by mailing such notice to the depositary by first
class mail, postage prepaid. Any notice that is mailed to a registered holder of the securities in the manner herein provided
shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder receives
the notice. The issuer shall give such notice as promptly as possible, and in no case later than (i) with respect to notice
of postponement of the maturity date, the business day immediately preceding the scheduled maturity date and (ii) with respect
to notice of the date to which the maturity date has been rescheduled, the business day immediately following the last averaging
date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable determination date, give notice of the early redemption 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 contingent 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
Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
Additional Information About the Securities
Additional Information:
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|
Listing:
|
The securities will not be listed on any securities exchange.
|
Minimum ticketing size:
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$1,000 / 1 security
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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 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
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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 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
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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 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.
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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.
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Use of proceeds and hedging:
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The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the Agent’s
commissions. The costs of the securities borne by you and described beginning on page 2 above comprise the Agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to 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 shares and in futures and/or options contracts on the underlying
shares. Such purchase activity could have increased the initial share price, and, as a result, could have increased the downside
threshold level, which is the price at or above which the underlying shares must close on each determination date in order for
you to earn a contingent quarterly coupon, and, if the securities are not redeemed prior to maturity, in order for you to avoid
being exposed to the negative price performance of the underlying shares at maturity. In addition, through our affiliates, we are
likely to modify our hedge position throughout the term of the securities, including on the averaging dates, by purchasing and
selling the underlying shares, options contracts relating to the underlying shares or any other available securities or instruments
that we may wish to use in connection with such hedging activities. As a result, these entities may be unwinding or adjusting hedge
positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the averaging dates approach. We cannot give any assurance that our hedging activities will not affect the value
of the underlying shares, and, therefore, adversely affect the value of the securities or the payment you will receive at maturity,
if any.
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Benefit plan investor considerations:
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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
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satisfy the prudence and diversification requirements of ERISA
and would be consistent with the documents and instruments governing the Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions
between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and the related lending transactions,
provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control
or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further that the
Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called
“service provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available
with respect to transactions involving the securities.
Because we may be considered a party in interest with respect
to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the Code (“Similar Law”) or (b) its purchase, holding and disposition of these securities will not constitute or result
in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The securities are contractual financial instruments. The financial
exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of 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
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(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.
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Additional considerations:
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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.
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Supplemental information regarding plan of distribution; conflicts of interest:
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JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and its
affiliates will act as placement agents for the securities and will receive a fee from the Issuer or one of its affiliates that
will not exceed $10 per $1,000 stated principal amount of securities, but will forgo any fees for sales to certain fiduciary accounts.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for auto-callable securities.
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Validity of the securities:
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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.
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Where you can find more information:
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Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities) with the Securities and Exchange Commission,
or SEC, for the offering to which this communication relates. You should read the prospectus in that registration statement, the
product supplement for auto-callable securities and any other documents relating to this offering that Morgan Stanley and MSFL
have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering. You may get these documents
without cost by visiting EDGAR on the SEC web site at.www.sec.gov. Alternatively, Morgan Stanley,
MSFL, any underwriter or any dealer participating in the offering will arrange to send you the prospectus and the product supplement
for auto-callable securities if you so request by calling toll-free 1-(800)-584-6837.
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Phoenix Auto-Callable Securities due September 30, 2020
Based on the Performance of the Common Stock of SVB Financial Group
Principal at Risk Securities
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