Preliminary Terms No. 2,583
Opportunities in U.S. Equities
The securities offered are unsecured obligations of Morgan Stanley
Finance LLC (“MSFL”), fully and unconditionally guaranteed by Morgan Stanley, and have the terms described in the accompanying
product supplement, index supplement and prospectus, as supplemented or modified by this document. The securities do
not guarantee the repayment of principal and do not provide for the regular payment of interest. The securities will
be automatically redeemed if the index closing value of each of the Russell 2000® Index and the S&P 500®
Index, which we refer to as the underlying indices, on any of the annual determination dates is greater than or equal to 100% of
its respective initial index value, which we refer to as the respective call threshold level, for an early redemption payment that
will increase over the term of the securities, as described below. No further payments will be made on the securities
once they have been redeemed. At maturity, if the securities have not previously been redeemed and the final index value
of each underlying index is greater than or equal to its respective call threshold level, investors will receive a payment
at maturity of at least $1,420 per $1,000 security (to be determined on the pricing date). If the securities have not
previously been redeemed and the final index value of either underlying index is less than its respective call threshold
level but the final index value of each underlying index is greater than or equal to 70% of its respective initial index
value, which we refer to as the respective downside threshold level, investors will receive a payment at maturity of $1,100 per
$1,000 security. However, if the securities are not redeemed prior to maturity and the final index value of either
underlying index is less than its respective downside threshold level, investors will be exposed to the decline in the worst
performing underlying index on a 1-to-1 basis, and will receive a payment at maturity that is less than 70% of the stated principal
amount of the securities and could be zero. Accordingly, investors in the securities must be willing to accept
the risk of losing their entire initial investment. The securities are for investors who are willing to forego current
income and participation in the appreciation of either underlying index in exchange for the possibility of receiving an early redemption
payment or payment at maturity greater than the stated principal amount if each underlying index closes at or above the respective
call threshold level on an annual determination date or the final determination date, respectively. Because all payments
on the securities are based on the worst performing of the underlying indices, a decline beyond the respective downside threshold
level of either underlying index will result in a significant loss of your investment, even if the other underlying index has appreciated
or has not declined as much. Investors will not participate in any appreciation of either underlying index. The
securities are notes issued as part of MSFL’s Series A Global Medium-Term Notes program.
Determination Dates, Early
Redemption Dates and Early Redemption Payments
Determination Dates
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Early Redemption Dates
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Early Redemption Payments (per $1,000 Security)*
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1st determination date: 10/19/2020
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1st early redemption date: 10/26/2020
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At least $1,105
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2nd determination date: 10/18/2021
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2nd early redemption date: 10/25/2021
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At least $1,210
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3rd determination date: 10/18/2022
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3rd early redemption date: 10/25/2022
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At least $1,315
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Final determination date: 10/18/2023
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See “Maturity date” above.
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See “Payment at maturity” above.
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*The actual early redemption payment with respect to each determination
date will be determined on the pricing date and will be an amount in cash per stated principal amount corresponding to a return
of at least 10.50% per annum.
Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
Investment Summary
Jump Securities with Auto-Callable Feature
Principal at Risk Securities
The Jump Securities with Auto-Callable Feature due October 25,
2023 All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500®
Index (the “securities”) do not provide for the regular payment of interest. Instead the securities will
be automatically redeemed if the index closing value of each of the Russell 2000® Index and the S&P 500®
Index on any annual determination date is greater than or equal to its respective call threshold level, for an early redemption
payment that will increase over the term of the securities, as described below. No further payments will be made on
the securities once they have been redeemed. At maturity, if the securities have not previously been redeemed and the
final index value of each underlying index is greater than or equal to its respective call threshold level, investors will
receive a payment at maturity of at least $1,420 per $1,000 security. If the securities have not previously been redeemed
and the final index value of either underlying index is less than its respective call threshold level but the final
index value of each underlying index is greater than or equal to its respective downside threshold level, investors
will receive a payment at maturity of $1,100 per $1,000 security. However, if the securities are not redeemed prior
to maturity and the final index value of either underlying index is less than its respective downside threshold level, investors
will be exposed to the decline in the worst performing underlying index on a 1-to-1 basis, and will receive a payment at maturity
that is less than 70% of the stated principal amount of the securities and could be zero. Accordingly, investors in the securities
must be willing to accept the risk of losing their entire initial investment. Investors will not participate in
any appreciation in either underlying index.
Maturity:
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4 years
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Automatic early redemption:
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If, on any annual determination date, the index closing value of each underlying index is greater than or equal to its respective call threshold level, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date.
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Early redemption payment:
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The early redemption payment will be an amount in cash per stated
principal amount (corresponding to a return of at least 10.50% per annum) for each annual determination date, as follows*:
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· 1st determination date:
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At least $1,105
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· 2nd determination date:
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At least $1,210
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· 3rd determination date:
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At least $1,315
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*The actual early redemption payment with respect to each applicable
determination date will be determined on the pricing date.
No further payments will be made on the securities once they
have been redeemed.
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Payment at maturity:
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If the securities have not previously been redeemed, you will
receive at maturity a cash payment per security as follows:
·
If the final index value of each underlying
index is greater than or equal to its respective call threshold level:
At least $1,420 (to be determined on the pricing date)
·
If the final index value of
either underlying index is less than its respective call threshold level but the final index value of each underlying
index is greater than or equal to its respective downside threshold level:
$1,100
·
If the final index value of either
underlying index is less than its respective downside threshold level:
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Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
|
$1,000 × index performance factor
of the worst performing underlying index
Under these circumstances, investors will lose a significant
portion or all of their investment. Accordingly, investors in the securities must be willing to accept the risk of losing
their entire initial investment.
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The original issue price of each security is $1,000. This
price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date will be less than $1,000. We estimate that the value of each
security on the pricing date will be approximately $974.60, or within $22.50 of that estimate. Our estimate of the value
of the securities as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date, we take into account
that the securities comprise both a debt component and a performance-based component linked to the underlying indices. The
estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating
to the underlying indices, instruments based on the underlying indices, volatility and other factors including current and expected
interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at
which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities, including
the early redemption payment amounts, the call threshold levels and the downside threshold levels, we use an internal funding rate,
which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing,
selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the
economic terms of the securities would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying indices, may vary from, and be
lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market
credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and
other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are
not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may
buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
indices, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We
expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a market in the
securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
Key Investment Rationale
The securities do not provide for the regular payment of interest. Instead,
the securities will be automatically redeemed if the index closing value of each of the Russell 2000® Index
and the S&P 500® Index on any annual determination date is greater than or equal to its respective call threshold
level.
The following scenarios are for illustrative purposes only to
demonstrate how an automatic early redemption payment or the payment at maturity (if the securities have not previously been redeemed)
are calculated, and do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or
may not be redeemed prior to maturity and the payment at maturity may be less than 70% of the stated principal amount of the securities
and may be zero.
Scenario 1: The securities are redeemed prior to maturity
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When each underlying index closes at or above its respective call threshold level on any annual determination date, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date. Investors do not participate in any appreciation in either underlying index.
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Scenario 2: The securities are not redeemed prior to maturity, and investors receive a fixed positive return at maturity
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This scenario assumes that at least one underlying index closes below its respective call threshold level on each of the annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, each underlying index closes at or above its respective call threshold level. At maturity, investors will receive a cash payment equal to at least $1,420 per stated principal amount (to be determined on the pricing date). Investors do not participate in any appreciation in either underlying index.
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Scenario 3: The securities are not redeemed prior to maturity, and investors receive a lower fixed positive return at maturity
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This scenario assumes that at least one underlying index closes below its respective call threshold level on each of the annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, at least one underlying index closes below its respective call threshold level, but the final index value of each underlying index is greater than or equal to its respective downside threshold level. At maturity, investors will receive a cash payment equal to $1,100 per $1,000 security.
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Scenario 4: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
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This scenario assumes that at least one underlying index closes below its respective call threshold level on each of the annual determination dates. Consequently, the securities are not redeemed prior to maturity. On the final determination date, at least one underlying index closes below its respective downside threshold level. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the index performance factor of the worst performing underlying index. Under these circumstances, the payment at maturity will be significantly less than the stated principal amount and could be zero.
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Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
Hypothetical Examples
The following hypothetical examples are for illustrative purposes
only. Whether the securities are redeemed prior to maturity will be determined by reference to the index closing value
of each underlying index on each of the annual determination dates, and the payment at maturity, if any, will be determined by
reference to the index closing value of each underlying index on the final determination date. The actual early redemption
payment amounts, initial index values, call threshold levels and downside threshold levels will be determined on the pricing date. Some
numbers appearing in the examples below have been rounded for ease of analysis. All payments on the securities are subject
to our credit risk. The below examples are based on the following terms:
Hypothetical Early Redemption Payment:
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The hypothetical early redemption payment will be an amount in
cash per stated principal amount (corresponding to a return of approximately 10.50% per annum) for each annual determination
date, as follows:
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· 1st determination date:
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$1,105
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· 2nd determination date:
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$1,210
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· 3rd determination date:
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$1,315
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No further payments will be made on the securities once they have been redeemed.
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Payment at Maturity
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If the securities have not previously been redeemed, you will
receive at maturity a cash payment per security as follows:
·
If the final index value of each underlying
index is greater than or equal to its respective call threshold level:
$1,420 (the actual payment at maturity for this scenario
will be determined on the pricing date)
·
If the final index value of either underlying
index is less than its respective call threshold level but the final index value of each underlying index is greater
than or equal to its respective downside threshold level:
$1,100
·
If the final index value of either underlying
index is less than its respective downside threshold level:
$1,000 × index performance factor
of the worst performing underlying index.
Under these circumstances, you will lose a significant portion
or all of your investment.
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Stated Principal Amount:
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$1,000
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Hypothetical Initial Index Value:
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With respect to the RTY Index: 1,700
With respect to the SPX Index: 3,000
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Hypothetical Downside Threshold Level:
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With respect to the RTY Index: 1,190, which is 70% of its hypothetical
initial index value
With respect to the SPX Index: 2,100, which is 70% of its hypothetical
initial index value
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Hypothetical Call Threshold Level:
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With respect to the RTY Index: 1,700, which is 100% of its hypothetical
initial index value
With respect to the SPX Index: 3,000, which is 100% of its hypothetical
initial index value
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Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
Automatic Call:
Example 1 — the securities are redeemed following the
second determination date
Date
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RTY Index Closing Value
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SPX Index Closing Value
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Payment (per Security)
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1st Determination Date
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1,900 (at or above the call threshold level)
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2,800 (below the call threshold level)
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--
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2nd Determination Date
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1,850 (at or above the call threshold level)
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3,100 (at or above the call threshold level)
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$1,210
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In this example, on the first determination date, the index closing
value of one of the underlying indices is at or above its respective call threshold level, but the index closing value of the other
underlying index is below its respective call threshold level. Therefore, the securities are not redeemed. On the second
determination date, the index closing value of each underlying index is at or above the respective call threshold level. Therefore,
the securities are automatically redeemed on the second early redemption date. Investors will receive a payment of $1,210
per security on the related early redemption date. No further payments will be made on the securities once they have
been redeemed, and investors do not participate in the appreciation in either underlying index.
How to calculate the payment at maturity:
In the following examples, one or both of the underlying indices
close below the respective call threshold level(s) on each of the annual determination dates, and, consequently, the securities
are not automatically redeemed prior to, and remain outstanding until, maturity.
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RTY Index Final Index Value
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SPX Index Final Index Value
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Payment at Maturity (per Security)
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Example 1:
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2,000 (at or above its call threshold level)
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3,200 (at or above its call threshold level)
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$1,420
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Example 2:
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1,360 (below its call threshold level but at or above its downside threshold level)
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3,600 (at or above its call threshold level and downside threshold level)
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$1,100
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Example 3:
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2,125 (at or above its call threshold level and downside threshold level)
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1,500 (below its downside threshold level)
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$1,000 x (1,500 / 3,000) = $500
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Example 4:
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340 (below its downside threshold level)
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2,250 (below its call threshold level but at or above its downside threshold level)
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$1,000 x (340 / 1,700) = $200
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Example 5:
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340 (below its downside threshold level)
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1,200 (below its downside threshold level)
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$1,000 x (340 / 1,700) = $200
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In example 1, the final index value of each underlying index
is at or above its respective call threshold level. Therefore, investors receive $1,420 per security at maturity. Investors
do not participate in any appreciation in either underlying index.
In example 2, the final index value of one of the underlying
indices is at or above its call threshold level and downside threshold level, but the final index value of the other underlying
index is below its call threshold level and at or above its downside threshold level. The SPX Index has increased 20%
from its initial index value to its final index value and the RTY Index has declined 20% from its initial index value to its final
index value. Therefore, investors receive a payment at maturity equal to $1,100 per security. Investors do
not participate in any appreciation in either underlying index.
In example 3, the final index value of one of the underlying
indices is at or above its call threshold level and downside threshold level, but the final index value of the other underlying
index is below its respective downside threshold level. Therefore, investors are exposed to the downside performance
of the worst performing underlying index at maturity. The RTY Index has increased 25% from its initial index value to
its final index value and the SPX Index has declined 50% from its initial index value to its final
Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
index value. Therefore, investors receive at maturity
an amount equal to the stated principal amount times the index performance factor of the SPX Index, which is the worst performing
underlying index in this example.
In example 4, the final index value of one of the underlying
indices is below its call threshold level but at or above its downside threshold level, while the final index value of the other
underlying index is below its respective downside threshold level. Therefore, investors are exposed to the downside
performance of the worst performing underlying index at maturity. The SPX Index has declined 25% from its initial index
value to its final index value and the RTY Index has declined 80% from its initial index value to its final index value. Therefore,
investors receive at maturity an amount equal to the stated principal amount times the index performance factor of the RTY Index,
which is the worst performing underlying index in this example.
In example 5, the final index value of each underlying index
is below its respective downside threshold level, and investors receive at maturity an amount equal to the stated principal amount
times the index performance factor of the worst performing underlying index. The RTY Index has declined 80% from
its initial index value to its final index value and the SPX Index has declined 60% from its initial index value to its final index
value. Therefore, the payment at maturity equals the stated principal amount times the index performance factor
of the RTY Index, which is the worst performing underlying index in this example.
If the securities are not redeemed prior to maturity and the
final index value of either underlying index is below its respective downside threshold level, you will be exposed to the downside
performance of the worst performing underlying index at maturity, and your payment at maturity will be less than 70% of the stated
principal amount per security and could be zero.
Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
Risk Factors
The following is a list of certain key risk factors for investors
in the securities. For further discussion of these and other risks, you should read the section entitled “Risk
Factors” in the accompanying product supplement, index supplement and prospectus. We also urge you to consult
with your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
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§
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The securities do not pay interest or guarantee
the return of any principal. The terms of the securities differ from those of ordinary debt securities in that they
do not pay interest or guarantee the return of any of the principal amount at maturity. If the securities have not been
automatically redeemed prior to maturity and the final index value of either underlying index is less than its respective
downside threshold level of 70% of its initial index value, you will be exposed to the decline in the value of the worst performing
underlying index, as compared to its initial index value, on a 1-to-1 basis, and you will receive for each security that you hold
at maturity an amount equal to the stated principal amount times the index performance factor of the worst performing underlying
index. In this case, the payment at maturity will be less than 70% of the stated principal amount and could be zero.
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§
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The appreciation potential of the securities is
limited by the fixed early redemption payment or payment at maturity specified for each determination date. The
appreciation potential of the securities is limited to the fixed early redemption payment specified for each determination date
if each underlying index closes at or above its respective call threshold level on any annual determination date, or to the alternative
fixed upside payments at maturity if the securities have not been redeemed and the final index value of each underlying index is
at or above its call threshold level or downside threshold level, as applicable. In all cases, you will not participate
in any appreciation of either underlying index, which could be significant.
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§
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You are exposed to the price risk of each underlying
index. Your return on the securities is not linked to a basket consisting of each underlying index. Rather,
it will be contingent upon the independent performance of each underlying index. Unlike an instrument with a return
linked to a basket of underlying assets, in which risk is mitigated and diversified among all the components of the basket, you
will be exposed to the risks related to each underlying index. Poor performance by either underlying index over
the term of the securities may negatively affect your return and will not be offset or mitigated by any positive performance by
the other underlying index. To receive an early redemption payment, each underlying index must close at or above
its respective call threshold level on the applicable determination date. In addition, if the securities have not been
redeemed and at least one underlying index has declined to below its respective downside threshold level as of the final
determination date, you will be fully exposed to the decline in the worst performing underlying index over the term of the
securities on a 1-to-1 basis, even if the other underlying index has appreciated or has not declined as much. Under
this scenario, the value of any such payment at maturity will be less than 70% of the stated principal amount and could be zero. Accordingly,
your investment is subject to the price risk of each underlying index.
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§
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The market price will be influenced by many unpredictable
factors. Several factors, many of which are beyond our control, will influence the value of the securities in the
secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary market. We
expect that generally the level of interest rates available in the market and the value of each underlying index on any day, including
in relation to its respective initial index value, call threshold level and downside threshold level, will affect the value of
the securities more than any other factors. Other factors that may influence the value of the securities include:
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o
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the volatility (frequency and magnitude of changes in value) of the underlying indices,
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o
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks
of the underlying indices or securities markets generally and which may affect the value of each underlying index,
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o
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dividend rates on the securities underlying the underlying indices,
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o
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the time remaining until the securities mature,
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o
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interest and yield rates in the market,
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Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
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o
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the availability of comparable instruments,
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o
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the composition of the underlying indices and changes in the constituent stocks of such indices, and
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o
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any actual or anticipated changes in our credit ratings or credit spreads.
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Some or all of these factors will influence the price
that you will receive if you sell your securities prior to maturity. For example, you may have to sell your securities at a substantial
discount from the stated principal amount of $1,000 per security if the price of either underlying index at the time of sale is
near or below its downside threshold level or if market interest rates rise.
You cannot predict the future performance of either
underlying index based on its historical performance. The value(s) of one or both of the underlying indices may decrease
so that you will receive no return on your investment and receive a payment at maturity that is less than 70% of the stated principal
amount. See “Russell 2000® Index Overview” and “S&P 500® Index Overview”
below.
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§
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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 upon an early redemption or at maturity and therefore you
are subject to our credit risk. If we default on our obligations under the securities, your investment would be at risk
and you could lose some or all of your investment. As a result, the market value of the securities prior to maturity
will be affected by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in
our credit ratings or increase in the credit spreads charged by the market for taking our credit risk is likely to adversely affect
the market value of the securities.
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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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The securities are linked to the Russell 2000®
Index and are subject to risks associated with small-capitalization companies. As the Russell 2000®
Index is one of the underlying indices, and the Russell 2000® Index consists of stocks issued by companies with
relatively small market capitalization, the securities are linked to the value of small-capitalization companies. These
companies often have greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies
and therefore the Russell 2000® Index may be more volatile than indices that consist of stocks issued by large-capitalization
companies. Stock prices of small-capitalization companies are also more vulnerable than those of large-capitalization
companies to adverse business and economic developments, and the stocks of small-capitalization companies may be thinly traded. In
addition, small capitalization companies are typically less well-established and less stable financially than large-capitalization
companies and may depend on a small number of key personnel, making them more vulnerable to loss of personnel. Such
companies tend to have smaller revenues, less diverse product lines, smaller shares of their product or service markets, fewer
financial resources and less competitive strengths than large-capitalization companies and are more susceptible to adverse developments
related to their products.
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§
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Not equivalent to investing
in the underlying indices. Investing in the securities is not equivalent to investing in either underlying index
or the component stocks of either underlying index. Investors in the securities will not participate in any positive
performance of either underlying index, and will not have voting rights or rights to receive dividends or other distributions or
any other rights with respect to stocks that constitute either underlying index.
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§
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Reinvestment risk. The term of your
investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the
securities are redeemed prior to maturity, you will receive no further
|
Morgan Stanley Finance LLC
|
Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
Principal at Risk Securities
|
payments on the securities and may be forced to invest
in a lower interest rate environment and may not be able to reinvest at comparable terms or returns.
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§
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The securities will not be listed on any securities
exchange and secondary trading may be limited, and accordingly, you should be willing to hold your securities for the entire 4-year
term of the securities. The securities will not be listed on any securities exchange. Therefore, there
may be little or no secondary market for the securities. MS & Co. may, but is not obligated to, make a market in
the securities and, if it once chooses to make a market, may cease doing so at any time. When it does make a market,
it will generally do so for transactions of routine secondary market size at prices based on its estimate of the current value
of the securities, taking into account its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed
sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able
to resell the securities. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade
or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary market
for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any, at which
MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities,
it is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold
your securities to maturity.
|
|
§
|
The rate we are willing to pay for securities of
this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous
to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the
securities in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities
to be less than the original issue price and will adversely affect secondary market prices. Assuming no change in
market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to
purchase the securities in secondary market transactions will likely be significantly lower than the original issue price, because
secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the original
issue price and borne by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer
spread that any dealer would charge in a secondary market transaction of this type as well as other factors.
|
The inclusion of the costs of issuing, selling, structuring
and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer make the economic terms
of the securities less favorable to you than they otherwise would be.
However, because the costs associated with issuing,
selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months following
the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market
conditions, including those related to the underlying indices, and to our secondary market credit spreads, it would do so based
on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account
statements.
|
§
|
The estimated value of the securities is determined
by reference to our pricing and valuation models, which may differ from those of other dealers, and is not a maximum or minimum
secondary market price. These pricing and valuation models are proprietary and rely in part on subjective views
of certain market inputs and certain assumptions about future events, which may prove to be incorrect. As a result,
because there is no market-standard way to value these types of securities, our models may yield a higher estimated value of the
securities than those generated by others, including other dealers in the market, if they attempted to value the securities. In
addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers, including MS
& Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value of your
securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced
by many unpredictable factors” above.
|
|
§
|
Hedging and trading activity by our affiliates
could potentially affect the value of the securities. One or more of our affiliates and/or third-party dealers expect
to carry out hedging activities related to the securities (and to other instruments linked to the underlying indices or their component
stocks), including trading in the stocks that constitute the underlying indices as well as in other instruments related to the
underlying indices. As a result, these entities may be
|
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unwinding or adjusting hedge positions during the
term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the
final determination date approaches. Some of our affiliates also trade the stocks that constitute the underlying indices
and other financial instruments related to the underlying indices on a regular basis as part of their general broker-dealer and
other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase
the initial index value of an underlying index, and, therefore, could increase (i) the value at or above which such underlying
index must close on the determination dates so that the securities are redeemed prior to maturity for the early redemption payment
(depending also on the performance of the other underlying index) and (ii) the downside threshold level for such underlying index,
which is the value at or above which such underlying index must close on the final determination date so that you are not exposed
to the negative performance of the worst performing underlying index at maturity (depending also on the performance of the other
underlying index). Additionally, such hedging or trading activities during the term of the securities could potentially
affect the value of either underlying index on the determination dates, and, accordingly, whether we redeem the securities prior
to maturity and the amount of cash you will receive at maturity, if any.
|
§
|
The calculation agent, which is a subsidiary of
Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities. As calculation
agent, MS & Co. will determine the initial index values, the call threshold levels, the downside threshold levels, the final
index values, whether the securities will be redeemed on any early redemption date and the payment at maturity, if any. Moreover,
certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make
subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events and the selection of
a successor index or calculation of an index closing value in the event of a market disruption event or discontinuance of an underlying
index. These potentially subjective determinations may affect the payout to you upon an early redemption or at maturity,
if any. For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Postponement
of Determination Dates,” “—Alternate Exchange Calculation in Case of an Event of Default,” “—Discontinuance
of Any Underlying Index; Alteration of Method of Calculation” and “—Calculation Agent and Calculations”
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities
on the pricing date.
|
|
§
|
The U.S. federal income tax consequences of an
investment in the securities are uncertain. Please read the discussion under “Additional Information – Tax considerations”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for
auto-callable securities (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences
of an investment in the securities. If the Internal Revenue Service (the “IRS”) were successful in asserting
an alternative treatment for the securities, the timing and character of income on the securities might differ significantly from
the tax treatment described in the Tax Disclosure Sections. For example, under one possible treatment, the IRS could
seek to recharacterize the securities as debt instruments. In that event, U.S. Holders would be required to accrue into income
original issue discount on the securities every year at a “comparable yield” determined at the time of issuance and
recognize all income and gain in respect of the securities as ordinary income. Additionally, as discussed under “United
States Federal Taxation—FATCA” in the accompanying product supplement for auto-callable securities, the withholding
rules commonly referred to as “FATCA” would apply to the securities if they were recharacterized as debt instruments. However,
recently proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending finalization)
eliminate the withholding requirement on payments of gross proceeds of a taxable disposition (other than amounts treated as “FDAP
income,” as defined in the accompanying product supplement for auto-callable securities). The risk that financial instruments
providing for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized as debt
is greater than the risk of recharacterization for comparable financial instruments that do not have such features. We
do not plan to request a ruling from the IRS regarding the tax treatment of the securities, and the IRS or a court may not agree
with the tax treatment described in the Tax Disclosure Sections.
|
In 2007, the U.S. Treasury Department and the IRS
released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar
instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income
or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance
of factors such as the exchange-traded status
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of the instruments and the nature of the underlying
property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by
non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive
ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and
impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any
Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the
tax consequences of an investment in the securities, possibly with retroactive effect. Both U.S. and Non-U.S. Holders
should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including
possible alternative treatments, the issues presented by this notice and any tax consequences arising under the laws of any state,
local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
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Jump Securities with Auto-Callable Feature due October 25, 2023
All Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the S&P 500® Index
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|
Russell 2000® Index Overview
The Russell 2000® Index is an index calculated,
published and disseminated by FTSE Russell, and measures the composite price performance of stocks of 2,000 companies (the “Russell
2000 Component Stocks”) incorporated in the U.S. and its territories. All 2,000 stocks are traded on a major U.S.
exchange and are the 2,000 smallest securities that form the Russell 3000® Index. The Russell 3000®
Index is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of
the U.S. equity market. The Russell 2000® Index consists of the smallest 2,000 companies included
in the Russell 3000® Index and represents a small portion of the total market capitalization of the Russell
3000® Index. The Russell 2000® Index is designed to track the performance
of the small capitalization segment of the U.S. equity market. For additional information about the Russell 2000®
Index, see the information set forth under “Russell 2000® Index” in the accompanying index supplement.
Information as of market close on September 20, 2019:
Bloomberg Ticker Symbol:
|
RTY
|
52 Week High (on 9/20/2018):
|
1,720.184
|
Current Index Value:
|
1,559.765
|
52 Week Low (on 12/24/2018):
|
1,266.925
|
52 Weeks Ago:
|
1,720.184
|
|
|
|
|
|
|
The following graph sets forth the daily index closing values
of the RTY Index for the period from January 1, 2014 through September 20, 2019. The related table sets forth the published
high and low index closing values, as well as the end-of-quarter index closing values, of the RTY Index for each quarter in the
same period. The index closing value of the RTY Index on September 20, 2019 was 1,559.765. We obtained the
information in the table and graph below from Bloomberg Financial Markets, without independent verification. The historical
index closing values of the RTY Index should not be taken as an indication of future performance, and no assurance can be given
as to the value of the RTY Index at any time, including on the determination dates.
RTY Index Daily
Index Closing Values
January 1, 2014 to September
20, 2019
|
|
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|
Russell 2000® Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,208.651
|
1,093.594
|
1,173.038
|
Second Quarter
|
1,192.964
|
1,095.986
|
1,192.964
|
Third Quarter
|
1,208.150
|
1,101.676
|
1,101.676
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Fourth Quarter
|
1,219.109
|
1,049.303
|
1,204.696
|
2015
|
|
|
|
First Quarter
|
1,266.373
|
1,154.709
|
1,252.772
|
Second Quarter
|
1,295.799
|
1,215.417
|
1,253.947
|
Third Quarter
|
1,273.328
|
1,083.907
|
1,100.688
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
1,135.889
|
2016
|
|
|
|
First Quarter
|
1,114.028
|
953.715
|
1,114.028
|
Second Quarter
|
1,188.954
|
1,089.646
|
1,151.923
|
Third Quarter
|
1,263.438
|
1,139.453
|
1,251.646
|
Fourth Quarter
|
1,388.073
|
1,156.885
|
1,357.130
|
2017
|
|
|
|
First Quarter
|
1,413.635
|
1,345.598
|
1,385.920
|
Second Quarter
|
1,425.985
|
1,345.244
|
1,415.359
|
Third Quarter
|
1,490.861
|
1,356.905
|
1,490.861
|
Fourth Quarter
|
1,548.926
|
1,464.095
|
1,535.511
|
2018
|
|
|
|
First Quarter
|
1,610.706
|
1,463.793
|
1,529.427
|
Second Quarter
|
1,706.985
|
1,492.531
|
1,643.069
|
Third Quarter
|
1,740.753
|
1,653.132
|
1,696.571
|
Fourth Quarter
|
1,672.992
|
1,266.925
|
1,348.559
|
2019
|
|
|
|
First Quarter
|
1,590.062
|
1,330.831
|
1,539.739
|
Second Quarter
|
1,614.976
|
1,465.487
|
1,566.572
|
Third Quarter (through September 20, 2019)
|
1,585.599
|
1,456.039
|
1,559.765
|
|
|
|
|
The “Russell 2000® Index” is a trademark
of FTSE Russell. For more information, see “Russell 2000® Index” in the accompanying index
supplement.
Morgan Stanley Finance LLC
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Jump Securities with Auto-Callable Feature due October 25, 2023
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|
S&P 500® Index Overview
The S&P 500® Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies selected
to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500® Index
is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular
time as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941
through 1943. For additional information about the S&P 500® Index, see the information set forth
under “S&P 500® Index” in the accompanying index supplement.
Information as of market close on September 20, 2019:
Bloomberg Ticker Symbol:
|
SPX
|
52 Week High (on 7/26/2019):
|
3,025.86
|
Current Index Value:
|
2,992.07
|
52 Week Low (on 12/24/2018):
|
2,351.10
|
52 Weeks Ago:
|
2,930.75
|
|
|
|
|
|
|
The following graph sets forth the daily index closing values
of the SPX Index for the period from January 1, 2014 through September 20, 2019. The related table sets forth the published
high and low index closing values, as well as the end-of-quarter index closing values, of the SPX Index for each quarter in the
same period. The index closing value of the SPX Index on September 20, 2019 was 2,992.07. We obtained the
information in the table and graph below from Bloomberg Financial Markets, without independent verification. The historical
index closing values of the SPX Index should not be taken as an indication of future performance, and no assurance can be given
as to the value of the SPX Index at any time, including on the determination dates.
SPX Index Daily
Index Closing Values
January 1, 2014 to September
20, 2019
|
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|
S&P 500® Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
2015
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
|
Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
|
Fourth Quarter
|
2,271.72
|
2,085.18
|
2,238.83
|
2017
|
|
|
|
First Quarter
|
2,395.96
|
2,257.83
|
2,362.72
|
Second Quarter
|
2,453.46
|
2,328.95
|
2,423.41
|
Third Quarter
|
2,519.36
|
2,409.75
|
2,519.36
|
Fourth Quarter
|
2,690.16
|
2,529.12
|
2,673.61
|
2018
|
|
|
|
First Quarter
|
2,872.87
|
2,581.00
|
2,640.87
|
Second Quarter
|
2,786.85
|
2,581.88
|
2,718.37
|
Third Quarter
|
2,930.75
|
2,713.22
|
2,913.98
|
Fourth Quarter
|
2,925.51
|
2,351.10
|
2,506.85
|
2019
|
|
|
|
First Quarter
|
2,854.88
|
2,447.89
|
2,834.40
|
Second Quarter
|
2,954.18
|
2,744.45
|
2,941.76
|
Third Quarter (through September 20, 2019)
|
3,025.86
|
2,840.60
|
2,992.07
|
|
|
|
|
“Standard & Poor’s®,” “S&P®,”
“S&P 500®,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. See “S&P 500® Index” in the accompanying index
supplement.
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Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
|
Underlying Index publisher:
|
With respect to the RTY Index, FTSE Russell, or any successor
thereof.
With respect to the SPX Index, S&P Dow Jones Indices
LLC, or any successor thereof.
|
Index closing value:
|
With respect to the RTY Index, the index closing value on any
index business day shall be determined by the calculation agent and shall equal the closing value of the RTY Index, or any successor
index reported by Bloomberg Financial Services, or any successor reporting service the calculation agent may select, on such index
business day. In certain circumstances, the index closing value for the RTY Index shall be based on the alternate calculation of
the RTY Index described under “Discontinuance of an Underlying Index; Alteration of Method of Calculation” in the accompanying
product supplement. The closing value of the RTY Index reported by Bloomberg Financial Services may be lower or higher than the
official closing value of the RTY Index published by the underlying index publisher for the RTY Index.
With respect to the SPX Index, the index closing value on any
index business day shall be determined by the calculation agent and shall equal the official closing value of such underlying index,
or any successor underlying index, published at the regular official weekday close of trading on such index business day by the
underlying index publisher for such underlying index. In certain circumstances, the index closing value for the SPX Index shall
be based on the alternate calculation of such underlying index described under “Discontinuance of an Underlying Index; Alteration
of Method of Calculation” in the accompanying product supplement.
|
Downside threshold level:
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
Jump securities with auto-callable feature:
|
The accompanying product supplement refers to these jump securities with auto-callable feature as the “auto-callable securities.”
|
Issuer notices to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the final determination date, the issuer shall give notice of such postponement and, once it has been determined, of the date
to which the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice of such postponement
by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books,
(ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its
New York office and (iii) to the depositary by telephone or facsimile confirmed by mailing such notice to the depositary by first
class mail, postage prepaid. Any notice that is mailed to a registered holder of the securities in the manner herein
provided shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder
receives the notice. The issuer shall give such notice as promptly as possible, and in no case later than (i) with respect
to notice of postponement of the maturity date, the business day immediately preceding the scheduled maturity date and (ii) with
respect to notice of the date to which the maturity date has been rescheduled, the business day immediately following the final
determination date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable determination date, give notice of the early redemption of the
securities and the applicable early redemption payment, including specifying the payment date of the applicable amount due upon
the early redemption, (x) to each registered holder of the securities by mailing notice of such early redemption by first class
mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books, (y) to the trustee
by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its New York office and
(z) to the depositary by telephone or facsimile confirmed by mailing such notice to the depositary by first class mail, postage
prepaid and (ii) on or prior to the early redemption date, deliver the aggregate cash amount due with respect to the securities
to the trustee for delivery to the depositary, as holder of the securities. Any notice that is mailed to a registered
holder of the securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered
holder, whether or not such registered holder receives the notice.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee,
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on which notice the trustee may conclusively rely, and to the depositary of the amount of cash, if any, to be delivered with respect to each stated principal amount of the securities, on or prior to 10:30 a.m. (New York City time) on the business day preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to the securities, if any, to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.
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Additional Information About the Securities
Additional Information:
|
Minimum ticketing size:
|
$1,000 / 1 security
|
Tax considerations:
|
Although there is uncertainty
regarding the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in
the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, each security
should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. However,
because our counsel’s opinion is based in part on market conditions as of the date of this document, it is subject to confirmation
on the pricing date.
Assuming this treatment
of the securities is respected and subject to the discussion in “United States Federal Taxation” in the accompanying
product supplement for auto-callable securities, the following U.S. federal income tax consequences should result based on current
law:
§
A U.S. Holder should not be required to recognize
taxable income over the term of the securities prior to settlement, other than pursuant to a sale or exchange.
§
Upon sale, exchange or settlement
of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S.
Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain or loss if the investor has held
the securities for more than one year, and short-term capital gain or loss otherwise.
In 2007,
the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on
the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice
focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It
also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded
status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to
which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether
these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to
recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests
comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration
of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect.
As discussed
in the accompanying product supplement for auto-callable securities, Section 871(m) of the Internal Revenue Code of 1986, as amended,
and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty
rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments
linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”). Subject
to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of
one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January
1, 2021 that do not have a delta of one with respect to any Underlying Security. Based on the terms of the securities
and current market conditions, we expect that the securities will not have a delta of one with respect to any Underlying Security
on the pricing date. However, we will provide an updated determination in the pricing supplement. Assuming
that the securities do not have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the
securities should not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our determination
is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application
may depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying
Security. If withholding is required, we will not be required to pay any additional
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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.
Both U.S. and non-U.S. investors considering
an investment in the securities should read the discussion under “Risk Factors” in this document and the discussion
under “United States Federal Taxation” in the accompanying product supplement for auto-callable securities and consult
their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the securities, including
possible alternative treatments, the issues presented by the aforementioned notice and any tax consequences arising under the laws
of any state, local or non-U.S. taxing jurisdiction.
The discussion in
the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying product supplement for auto-callable securities, insofar as they purport to
describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis
Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
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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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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 4 above comprise
the agent’s commissions and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we will hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers. We
expect our hedging counterparties to take positions in the stocks constituting the underlying indices, in futures and/or options
contracts on the underlying indices or the component stocks of the underlying indices listed on major securities markets, or positions
in any other available securities or instruments that they may wish to use in connection with such hedging. Such purchase
activity could potentially increase the initial index value of an underlying index, and, as a result, increase (i) the level at
or above which such underlying index must close on the determination dates so that the securities are redeemed prior to maturity
for the early redemption payment (depending also on the performance of the other underlying index) and (ii) the downside threshold
level for such underlying index, which is the level at or above which such underlying index must close on the final determination
date so that you are not exposed to the negative performance of the worst performing underlying index at maturity (depending also
on the performance of the other underlying index). These entities may be unwinding or adjusting hedge positions during
the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as
the final determination date approaches. Additionally, our hedging activities, as well as our other trading activities,
during the term of the securities could potentially affect the value of either underlying index on the determination dates, and,
accordingly, whether we redeem the securities prior to maturity and the amount of cash you will receive at maturity, if any. For
further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product
supplement.
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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 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
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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 such persons, unless exemptive relief is available under
an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited
transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions
determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE
91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance
company separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In
addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and
the related lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises
any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved in the
transaction and provided further that the Plan pays no more, and receives no less, than “adequate consideration”
in connection with the transaction (the so-called “service provider” exemption). There can be no assurance
that any of these class or statutory exemptions will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with
respect to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets
include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or
any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive
relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase,
holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a
Plan, transferee or holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by
its purchase and holding of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities
on behalf of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is
subject to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or
Section 4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition of these securities will not
constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any
Similar Law.
Due to the complexity of these rules and the penalties
that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries
or other persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with
their counsel regarding the availability of exemptive relief.
The securities are contractual financial instruments. The
financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for,
individualized investment management or advice for the benefit of any purchaser or holder of the securities. The securities
have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of
any purchaser or holder of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i)
the purchaser or holder or its fiduciary has made and
shall make all investment decisions for the purchaser or holder and the purchaser or holder has not relied and shall not rely in
any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to (A) the design and
terms of the securities, (B) the purchaser or holder’s investment in the securities, or (C) the exercise of or failure to
exercise any rights we have under or with respect to the securities;
(ii)
we and our affiliates have acted
and will act solely for our own account in connection with (A) all transactions relating to the securities and (B) all hedging
transactions in
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connection with our obligations under the securities;
(iii)
any and all assets and positions
relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets and positions
held for the benefit of the purchaser or holder;
(iv)
our interests are adverse to
the interests of the purchaser or holder; and
(v)
neither we nor any of our affiliates
is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions, and any information
that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive
responsibility for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction
rules of ERISA or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law
is in no respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant
legal requirements with respect to investments by plans generally or any particular plan, or that such an investment is appropriate
for plans generally or any particular plan. In this regard, neither this discussion nor anything provided in this document is or
is intended to be investment advice directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers
of these securities should consult and rely on their own counsel and advisers as to whether an investment in these securities is
suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley, 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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Selected dealers and their financial advisors will receive a
structuring fee of $4 for each security. MS & Co. will not receive a sales commission with respect to the securities.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities,
including the early redemption payment amounts, such that for each security the estimated value on the pricing date will be no
lower than the minimum level described in “Investment Summary” beginning on page 3.
MS & Co. will conduct this offering in compliance with the
requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding
a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any
of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for auto-callable securities.
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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 and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus
in that registration statement, the product supplement for auto-callable securities, the index supplement and any other documents
relating to this offering that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley,
MSFL and this offering. You may get these documents without cost by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively,
Morgan Stanley, MSFL, any underwriter or any dealer participating in the offering will arrange to send you the prospectus, the
product supplement for auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at.www.sec.gov
as follows:
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Morgan Stanley Finance LLC
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Jump Securities with Auto-Callable Feature due October 25, 2023
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Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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