In example 2, the final level for the XOP Shares has decreased
from its initial level by 10%, and the final level for the MXEA Index has decreased from its initial level by 11%. Because the
final level of each underlying is above its respective downside threshold value, investors receive at maturity the stated principal
amount plus the fixed upside payment of $320. Although both underlyings have depreciated, investors receive $1,320 per security
at maturity.
Final level
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XOP Shares: $36.00
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MXEA Index: 1,200
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Percent change
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XOP Shares: ($36.00 – $30.00) / $30.00 = 20%
MXEA Index: (1,200 – 2,000) / 2,000 = -40%
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Payment at maturity
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=
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$1,000 + [$1,000 × (percent change of the worst performing underlying + 25%)]
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=
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$1,000 + [$1,000 × (-40% + 25%)]
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=
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$850
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In example 3, the final level for the XOP Shares has increased
from its initial level by 20%, and the final level for the MXEA Index has decreased from its initial level by 40%. Because one
of the underlyings has declined below its respective downside threshold value, investors do not receive the upside payment and
are exposed to the negative performance of the MXEA Index, which is the worst performing underlying in this example. Under these
circumstances, investors lose 1% for every 1% decline in the value of the worst performing underlying beyond the buffer amount
of 25%. In this example, investors receive a payment at maturity equal to $850 per security, resulting in a loss of 15%.
EXAMPLE 4: The final levels of both underlyings are
less than their respective downside threshold values. Investors are therefore exposed to the negative performance of the worst
performing underlying, and will lose 1% for every 1% decline beyond the buffer amount of 25%.
Final level
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XOP Shares: $6.00
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MXEA Index: 800
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Percent change
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XOP Shares: ($6.00 – $30.00) / $30.00 = -80%
MXEA Index: (800 – 2,000) / 2,000 = -60%
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Payment at maturity
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=
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$1,000 + [$1,000 × (percent change of the worst performing underlying + 25%)]
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=
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$1,000 + [$1,000 × (-80% + 25%)]
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=
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$450
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In example 4, the final level for the XOP Shares has decreased
from its initial level by 80%, and the final level for the MXEA Index has decreased from its initial level by 60%. Because one
or more underlyings have declined below their respective downside threshold values, investors do not receive the upside payment
and are exposed to the negative performance of the XOP Shares, which is the worst performing underlying in this example. Under
these circumstances, investors lose 1% for every 1% decline in the value of the worst performing underlying beyond the buffer amount
of 25%. In this example, investors receive a payment at maturity equal to $450 per security, resulting in a loss of 55%.
Because the payment at maturity of the securities is based
on the worst performing of the underlyings, a decline in the final level of either underlying to below its respective downside
threshold value will result in a loss of some or a significant portion of your investment, even if the other underlying has appreciated
or has not declined as much. You could lose up to 75% of your investment in the securities.
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
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, index supplement and prospectus. You should also consult with
your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
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The securities do not pay interest and provide for the minimum payment at maturity of only 25% of your principal. The
terms of the securities differ from those of ordinary debt securities in that the securities do not pay interest and provide for
the minimum return of only 25% of the principal amount at maturity. At maturity, you will receive for each $1,000 stated principal
amount of securities that you hold an amount in cash based upon the final level of each underlying. If the final level of either
underlying is less than 75% of its respective initial level, you will lose 1% of your principal for every 1% decline in the
final level of the worst performing underlying beyond the buffer amount of 25%. You could lose up to 75% of the stated principal
amount of the securities.
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You are exposed to the price risk of both underlyings. Your return on the securities is not linked to a basket consisting
of both underlyings. Rather, it will be based upon the independent performance of each underlying. 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 both underlyings. Poor performance by either underlying over the term of the securities
will negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying. If
the final level of either underlying declines to below 75% of its respective initial level, you will be exposed to the negative
performance of the worst performing underlying at maturity, even if the other underlying has appreciated or has not declined as
much. Accordingly, your investment is subject to the price risk of both underlyings.
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Because the securities are linked to the performance of the worst performing underlying, you are exposed to greater risk
of sustaining a loss on your investment than if the securities were linked to just one underlying. The risk that you will suffer
a loss on your investment is greater if you invest in the securities as opposed to substantially similar securities that are linked
to the performance of just one underlying. With two underlyings, it is more likely that the final level of either underlying will
decline to below its respective downside threshold value than if the securities were linked to only one underlying. Therefore,
it is more likely that you will suffer a loss on your investment.
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Appreciation potential is fixed and limited. Where the final level of each underlying is greater than or equal to its
respective downside threshold value, the appreciation potential of the securities is limited to the fixed upside payment of $320
per security (32% of the stated principal amount), even if both underlyings have appreciated substantially.
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The amount payable on the securities is not linked to the values of the underlyings at any time other than the valuation
date. The final level of each underlying will be based on the closing level of such underlying on the valuation date, subject
to postponement for non-index business days and certain market disruption events. Even if the values of both underlyings appreciate
prior to the valuation date but the value of either underlying drops by the valuation date, the payment at maturity may be less,
and may be significantly less, than it would have been had the payment at maturity been linked to the values of the underlyings
prior to such drop. Although the actual values of the underlyings on the stated maturity date or at other times during the term
of the securities may be higher than their respective final levels, the payment at maturity will be based solely on the closing
levels on the valuation date.
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§
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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. Morgan Stanley
& Co. LLC, which we refer to as 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
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Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
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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Investing in the securities exposes investors to risks associated with investments in securities with a concentration in
the oil and gas exploration and production industry. The stocks included in the S&P® Oil & Gas Exploration
& Production Select Industry Index® (the “share underlying index”) and that are generally tracked
by the XOP Shares are stocks of companies whose primary business is associated with the exploration and production of oil and gas.
As a result, the value of the securities may be subject to greater volatility and may be more adversely affected by a single economic,
political or regulatory occurrence affecting this industry than a different investment linked to securities of a more broadly diversified
group of issuers or issuers in a less volatile industry. The oil and gas industry is significantly affected by a number of factors
that influence worldwide economic conditions and oil and gas prices, such as natural disasters, supply disruptions, geopolitical
events and other factors that may offset or magnify each other, including:
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worldwide and domestic supplies of, and demand for,
crude oil and natural gas;
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the cost of exploring for, developing, producing, refining
and marketing crude oil and natural gas;
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§
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changes in weather patterns and climatic changes;
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§
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the ability of the members of Organization of Petroleum
Exporting Countries (OPEC) and other producing nations to agree to and maintain production levels;
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§
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the worldwide military and political environment, uncertainty
or instability resulting from an escalation or additional outbreak of armed hostilities or further acts of terrorism in the United
States, or elsewhere;
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§
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the price and availability of alternative and competing
fuels;
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domestic and foreign governmental regulations and taxes;
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employment levels and job growth; and
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general economic conditions worldwide.
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These or other factors or the absence
of such factors could cause a downturn in the oil and natural gas industries generally or regionally and could cause the value
of some or all of the component stocks included in the share underlying index to decline during the term of the securities.
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§
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The market price of the securities may 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, including:
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the values of the underlyings at any time (including
in relation to their initial levels),
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§
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the volatility (frequency and magnitude of changes
in value) of the underlyings and of the stocks composing the share underlying index and the MXEA Index,
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§
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dividend rates on the securities underlying the share
underlying index and the MXEA Index,
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interest and yield rates in the market,
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§
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geopolitical conditions and economic, financial, political,
regulatory or judicial events that affect the component stocks of the underlyings or securities markets generally and which may
affect the value of the underlyings,
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§
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the time remaining until the maturity of the securities,
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§
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the composition of the underlyings and changes in the
constituent stocks of the share underlying index and the MXEA Index,
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
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§
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the occurrence of certain events affecting the XOP
Shares that may or may not require an adjustment to the adjustment factor, and
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§
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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 you will receive if you sell your securities prior to maturity. In particular, you may have to sell your securities
at a substantial discount from the stated principal amount if at the time of sale the value of either underlying is near, at or
below its respective downside threshold value.
You cannot predict the future performance
of the underlyings based on their historical performance. If the final level of either underlying is less than 75% of its respective
initial level, you will be exposed on a 1-to-1 basis to the decline in the final level of the worst performing underlying beyond
the buffer amount. There can be no assurance that the final level of each underlying will be greater than or equal to 75% of its
respective initial level so that you will receive at maturity an amount that is greater than the $1,000 stated principal amount
for each security you hold, or that you will not lose some or a significant portion of your investment.
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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
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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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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There are risks associated with investments in securities linked to the value of foreign equity securities. As the MSCI
EAFE® Index is one of the underlyings, the securities are linked to the value of foreign equity securities. Investments
in securities linked to the value of foreign equity securities involve risks associated with the securities markets in those countries,
including risks of volatility in those markets, governmental intervention in those markets and cross-shareholdings in companies
in certain countries. Also, there is generally less publicly available information about foreign companies than about U.S. companies
that are subject to the reporting requirements of the United States Securities and Exchange Commission, and foreign companies are
subject to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting
companies. The prices of securities issued in foreign markets may be affected by political, economic, financial and social factors
in those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws.
Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries
may differ favorably or unfavorably from the economy in the United States in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resources, self-sufficiency and balance of payment positions.
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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,
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Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
including MS & Co., are
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 underlyings, 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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The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price. These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price of the securities may be influenced
by many unpredictable factors” above.
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Investing in the securities is not equivalent to investing in the underlyings or the stocks composing the share underlying
index or the MXEA Index. Investing in the securities is not equivalent to investing in either underlying or the component stocks
of the share underlying index or the SPX Index. Investors in the securities will not have voting rights or rights to receive dividends
or other distributions or any other rights with respect to stocks that constitute the share underlying index or the MXEA Index.
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The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the XOP
Shares. MS & Co., as calculation agent, will adjust the adjustment factor for certain events affecting the XOP Shares.
However, the calculation agent will not make an adjustment for every event that could affect the XOP Shares. If an event occurs
that does not require the calculation agent to adjust the adjustment factor, the market price of the securities may be materially
and adversely affected.
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Adjustments to the XOP Shares or the index tracked by the XOP Shares could adversely affect the value of the securities.
The investment adviser to the SPDR® S&P® Oil & Gas Exploration & Production ETF, SSgA
Funds Management, Inc. (the “Investment Adviser”), seeks investment results that correspond generally to the price
and yield performance, before fees and expenses, of the S&P® Oil & Gas Exploration & Production Select
Industry Index®. Pursuant to its investment strategies or otherwise, the Investment Adviser may add, delete or substitute
the stocks composing SPDR® S&P® Oil & Gas Exploration & Production ETF. Any of these
actions could adversely affect the price of the XOP Shares and, consequently, the value of the securities. MSCI Inc. (“MSCI”)
is responsible for calculating and maintaining the S&P® Oil & Gas Exploration & Production Select Industry
Index®. MSCI may add, delete or substitute the stocks constituting the S&P® Oil & Gas Exploration
& Production Select Industry Index® or make other methodological changes that could change the level of the
S&P® Oil & Gas Exploration & Production Select Industry Index®. MSCI may discontinue
or suspend calculation or publication of the S&P® Oil & Gas Exploration & Production Select Industry
Index® at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a
successor index that is comparable to the discontinued S&P® Oil & Gas Exploration & Production Select
Industry Index® and is permitted to consider indices that are calculated and published by the calculation agent
or any of its affiliates. Any of these actions could adversely affect the price of the XOP Shares and, consequently, the value
of the securities.
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
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§
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Adjustments to the MXEA Index could adversely affect the value of the securities. The publisher of the MXEA Index may
add, delete or substitute the component stocks of such underlying or make other methodological changes that could change the value
of such underlying. Any of these actions could adversely affect the value of the securities. The publisher of the MXEA Index may
also discontinue or suspend calculation or publication of such underlying at any time. In these circumstances, MS & Co., as
the calculation agent, will have the sole discretion to substitute a successor index that is comparable to the discontinued index.
MS & Co. could have an economic interest that is different than that of investors in the securities insofar as, for example,
MS & Co. is permitted to consider indices that are calculated and published by MS & Co. or any of its affiliates. If MS
& Co. determines that there is no appropriate successor index, the payout on the securities at maturity will be an amount based
on the closing prices on the valuation date of the stocks underlying the relevant index at the time of such discontinuance, without
rebalancing or substitution, computed by the calculation agent in accordance with the formula for calculating such underlying index
last in effect prior to such discontinuance (depending also on the performance of the other underlying).
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The performance and market price of the XOP Shares, particularly during periods of market volatility, may not correlate
with the performance of the S&P® Oil & Gas Exploration & Production Select Industry Index®,
the performance of the component securities of the S&P® Oil & Gas Exploration & Production Select Industry
Index® or the net asset value per share of the XOP Shares. The XOP Shares do not fully replicate the S&P®
Oil & Gas Exploration & Production Select Industry Index® and may hold securities that are different than
those included in the S&P® Oil & Gas Exploration & Production Select Industry Index®.
In addition, the performance of the XOP Shares will reflect additional transaction costs and fees that are not included in the
calculation of the S&P® Oil & Gas Exploration & Production Select Industry Index®. All
of these factors may lead to a lack of correlation between the performance of XOP Shares and the S&P® Oil &
Gas Exploration & Production Select Industry Index®. In addition, corporate actions (such as mergers and spin-offs)
with respect to the equity securities underlying the XOP Shares may impact the variance between the performances of XOP Shares
and the S&P® Oil & Gas Exploration & Production Select Industry Index®. Finally, because
the shares of the XOP Shares are traded on an exchange and are subject to market supply and investor demand, the market price of
one share of the XOP Shares may differ from the net asset value per share of the XOP Shares.
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In particular, during periods of
market volatility, or unusual trading activity, trading in the securities underlying the XOP Shares may be disrupted or limited,
or such securities may be unavailable in the secondary market. Under these circumstances, the liquidity of the XOP Shares may be
adversely affected, market participants may be unable to calculate accurately the net asset value per share of the XOP Shares,
and their ability to create and redeem shares of the XOP Shares may be disrupted. Under these circumstances, the market price of
shares of the XOP Shares may vary substantially from the net asset value per share of the XOP Shares or the level of the S&P®
Oil & Gas Exploration & Production Select Industry Index®.
For all of the foregoing reasons,
the performance of the XOP Shares may not correlate with the performance of the S&P® Oil & Gas Exploration
& Production Select Industry Index®, the performance of the component securities of the S&P®
Oil & Gas Exploration & Production Select Industry Index® or the net asset value per share of the XOP Shares.
Any of these events could materially and adversely affect the price of the shares of the XOP Shares and, therefore, the value of
the securities. Additionally, if market volatility or these events were to occur on the final observation date, the calculation
agent would maintain discretion to determine whether such market volatility or events have caused a market disruption event to
occur, and such determination may affect the payment at maturity of the securities. If the calculation agent determines that no
market disruption event has taken place, the payment at maturity would be based on the published closing price per share of the
XOP Shares on the final observation date, even if the XOP Shares’ shares are underperforming the S&P®
Oil & Gas Exploration & Production Select Industry Index® or the component securities of the S&P®
Oil & Gas Exploration & Production Select Industry Index® and/or trading below the net asset value per share
of the XOP Shares.
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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. will determine the initial levels, the downside threshold values, the
final levels and the percent changes, if applicable, the payment that you will receive at maturity and whether to make any adjustments
to the adjustment factor. 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
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Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
and the selection of a successor
index or calculation of the closing levels in the event of a market disruption event or discontinuance of an underlying. These
potentially subjective determinations may adversely affect the payout to you at maturity. For further information regarding these
types of determinations, see “Description of Securities—Postponement of Valuation Date(s),” “—Discontinuance
of Any Underlying Index or Basket Index; Alteration of Method of Calculation,” “—Alternate Exchange Calculation
in case of an Event of Default” 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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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 expect to carry out hedging activities related to the securities (and to other
instruments linked to the underlyings or their component stocks), including trading in the stocks that constitute the
underlyings as well as in other instruments related to the underlyings. 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 valuation date approaches. Some of our affiliates also trade the stocks that constitute the
underlyings and other financial instruments related to the underlyings 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 level of an underlying, and, therefore, could increase the value at or above which such underlying index must close on
the valuation date so that you do not suffer a loss on your initial investment in the securities (depending also on the performance
of the other underlying index). Additionally, such hedging or trading activities during the term of the securities, including on
the valuation date, could adversely affect the value of either underlying on the valuation date, and, accordingly, the amount of
cash an investor will receive at maturity (depending also on the performance of the other underlying index).
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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 Jump 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, 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 Jump 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 Jump 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.
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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 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
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
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
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
SPDR®
S&P® Oil & Gas Exploration ETF Overview
The SPDR® S&P® Oil & Gas
Exploration & Production ETF is an exchange-traded fund that seeks to provide investment results that, before fees and expenses,
correspond generally to the total return performance of publicly traded equity securities of companies included in the S&P®
Oil & Gas Exploration & Production Select Industry Index®. The SPDR® S&P®
Oil & Gas Exploration & Production ETF is managed by SPDR® Series Trust (the “Trust”), a registered
investment company that consists of numerous separate investment portfolios, including the SPDR® S&P®
Oil & Gas Exploration & Production ETF. Information provided to or filed with the Securities and Exchange Commission by
the Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission
file numbers 333-57793 and 811-08839, respectively, through the Commission’s website at.www.sec.gov. In addition, information
may be obtained from other publicly available sources. Neither the issuer nor the agent makes any representation that any such
publicly available information regarding the SPDR® S&P® Oil & Gas Exploration & Production
ETF is accurate or complete.
Information as of market close on October 8, 2019:
Bloomberg Ticker Symbol:
|
XOP UP
|
Current Index Value:
|
$20.38
|
52 Weeks Ago:
|
$43.38
|
52 Week High (on 10/9/2018):
|
$43.95
|
52 Week Low (on 10/8/2019):
|
$20.38
|
|
|
The following graph sets forth the daily closing values of the
XOP Shares for the period from January 1, 2014 through October 8, 2019. The related table sets forth the published high and low
closing values, as well as end-of-quarter closing values, of the XOP Shares for each quarter in the same period. The closing value
of the XOP Shares on October 8, 2019 was $20.38. We obtained the information in the table and graph below from Bloomberg Financial
Markets, without independent verification. The XOP Shares has at times experienced periods of high volatility, and you should not
take the historical values of the XOP Shares as an indication of its future performance.
XOP Shares Daily Closing Values
January 1, 2014 to October 8, 2019
|
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
SPDR® S&P® Oil & Gas Exploration & Production ETF (CUSIP: 78464A730)
|
High ($)
|
Low ($)
|
Period End ($)
|
2014
|
|
|
|
First Quarter
|
71.83
|
64.04
|
71.83
|
Second Quarter
|
83.45
|
71.19
|
82.28
|
Third Quarter
|
82.08
|
68.83
|
68.83
|
Fourth Quarter
|
66.84
|
42.75
|
47.86
|
2015
|
|
|
|
First Quarter
|
53.94
|
42.55
|
51.66
|
Second Quarter
|
55.63
|
46.43
|
46.66
|
Third Quarter
|
45.22
|
31.71
|
32.84
|
Fourth Quarter
|
40.53
|
28.64
|
30.22
|
2016
|
|
|
|
First Quarter
|
30.96
|
23.60
|
30.35
|
Second Quarter
|
37.50
|
29.23
|
34.81
|
Third Quarter
|
39.12
|
32.75
|
38.46
|
Fourth Quarter
|
43.42
|
34.73
|
41.42
|
2017
|
|
|
|
First Quarter
|
42.21
|
35.17
|
37.44
|
Second Quarter
|
37.89
|
30.17
|
31.92
|
Third Quarter
|
34.37
|
29.09
|
34.09
|
Fourth Quarter
|
37.64
|
32.25
|
37.18
|
2018
|
|
|
|
First Quarter
|
39.85
|
32.38
|
35.22
|
Second Quarter
|
44.22
|
34.03
|
43.06
|
Third Quarter
|
44.52
|
39.10
|
43.29
|
Fourth Quarter
|
44.57
|
24.12
|
26.53
|
2019
|
|
|
|
First Quarter
|
31.61
|
27.10
|
30.74
|
Second Quarter
|
32.98
|
24.86
|
27.25
|
Third Quarter
|
27.20
|
20.60
|
22.36
|
Fourth Quarter (through October 8, 2019)
|
21.55
|
20.38
|
20.38
|
|
|
|
|
This document relates only to the securities offered hereby
and does not relate to the XOP Shares. We have derived all disclosures contained in this document regarding the Trust from the
publicly available documents described above. In connection with the offering of the securities, neither we nor the agent has participated
in the preparation of such documents or made any due diligence inquiry with respect to the Trust. Neither we nor the agent makes
any representation that such publicly available documents or any other publicly available information regarding the Trust is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price
of the XOP Shares (and therefore the price of the XOP Shares at the time we price the securities) have been publicly disclosed.
Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the Trust
could affect the value received with respect to the securities and therefore the value of the securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the XOP Shares.
We and/or our affiliates may presently or from time to time engage
in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or
more of our affiliates may publish research reports with respect to the XOP Shares. The statements in the preceding two sentences
are not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the
securities, you should undertake an independent investigation of the Trust as in your judgment is appropriate to make an informed
decision with respect to an investment linked to the XOP Shares.
“S&P®”, “SPDR®”
and “S&P® Oil & Gas Exploration & Production Select Industry Index®” are
trademarks of Standard & Poor’s Financial Services LLC (“S&P”), an affiliate of The McGraw-Hill Companies,
Inc. (“MGH”). The securities are not sponsored, endorsed, sold, or promoted by S&P, MGH or the Trust. S&P,
MGH and the Trust make no representations or warranties to the owners of the securities or any member of the public regarding the
advisability of investing in the Securities. S&P, MGH and the the Trust have no obligation or liability in connection with
the operation, marketing, trading or sale of the securities.
The S&P® Oil&
Gas Exploration & Production Select Industry Index®. The S&P®
Oil & Gas Exploration & Production Select Industry Index® is an equal-weighted index designed to measure
the performance of the oil and gas exploration and production sub-industry portion of the S&P® Total Market
Index, a benchmark that measures the performance of the U.S. equity market.
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
MSCI EAFE® Index Overview
The MSCI EAFE® Index is a stock index calculated,
published and disseminated by MSCI Inc. (“MSCI”). The MSCI EAFE® Index is a free float-adjusted market
capitalization index that is designed to measure the equity market performance of developed markets, excluding the United States
and Canada, and it consists of the following 21 developed market countries: Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland
and the United Kingdom. For additional information about the MSCI EAFE® Index, see the information set forth under
“MSCI International Equity Indices—MSCI EAFE® Index” and “—MSCI Global Investable
Market Indices Methodology” in the accompanying index supplement.
Information as of market close on October 8, 2019:
Bloomberg Ticker Symbol:
|
MXEA
|
Current Index Value:
|
1,851.23
|
52 Weeks Ago:
|
1,910.13
|
52 Week High (on 7/4/2019):
|
1,949.70
|
52 Week Low (on 12/25/2018):
|
1,683.36
|
|
|
The following graph sets forth the daily closing values of the
MXEA Index for the period from January 1, 2014 through October 8, 2019. The related table sets forth the published high and low
closing values, as well as end-of-quarter closing values, of the MXEA Index for each quarter in the same period. The closing value
of the MXEA Index on October 8, 2019 was 1,851.23. We obtained the information in the table below from Bloomberg Financial Markets,
without independent verification. The MXEA Index has at times experienced periods of high volatility, and you should not take the
historical values of the MXEA Index as an indication of its future performance.
MXEA Index Daily Closing Values
January 1, 2014 to October 8, 2019
|
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
MSCI EAFE® Index
|
High
|
Low
|
Period End
|
2014
|
|
|
|
First Quarter
|
1,940.23
|
1,796.86
|
1,915.69
|
Second Quarter
|
1,992.69
|
1,882.24
|
1,972.12
|
Third Quarter
|
1,995.49
|
1,846.08
|
1,846.08
|
Fourth Quarter
|
1,848.79
|
1,714.64
|
1,774.89
|
2015
|
|
|
|
First Quarter
|
1,900.90
|
1,697.01
|
1,849.34
|
Second Quarter
|
1,949.49
|
1,842.46
|
1,842.46
|
Third Quarter
|
1,894.42
|
1,609.50
|
1,644.40
|
Fourth Quarter
|
1,779.25
|
1,654.98
|
1,716.28
|
2016
|
|
|
|
First Quarter
|
1,716.28
|
1,492.43
|
1,652.04
|
Second Quarter
|
1,716.51
|
1,520.94
|
1,608.45
|
Third Quarter
|
1,734.72
|
1,573.30
|
1,701.69
|
Fourth Quarter
|
1,704.84
|
1,614.17
|
1,684.00
|
2017
|
|
|
|
First Quarter
|
1,812.06
|
1,676.93
|
1,792.98
|
Second Quarter
|
1,916.37
|
1,774.47
|
1,883.19
|
Third Quarter
|
1,981.48
|
1,874.10
|
1,973.81
|
Fourth Quarter
|
2,050.79
|
1,971.41
|
2,050.79
|
2018
|
|
|
|
First Quarter
|
2,186.65
|
1,989.61
|
2,005.67
|
Second Quarter
|
2,066.80
|
1,938.95
|
1,958.64
|
Third Quarter
|
2,011.48
|
1,905.44
|
1,973.60
|
Fourth Quarter
|
1,970.26
|
1,683.36
|
1,719.88
|
2019
|
|
|
|
First Quarter
|
1,907.49
|
1,708.59
|
1,875.43
|
Second Quarter
|
1,928.10
|
1,817.39
|
1,922.30
|
Third Quarter
|
1,949.70
|
1,797.33
|
1,889.36
|
Fourth Quarter (through October 8, 2019)
|
1,880.44
|
1,846.42
|
1,851.23
|
|
|
|
|
The “MSCI EAFE®
Index” is a trademark of MSCI. See “MSCI International Equity Indices” in the accompanying index supplement.
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
If the terms described herein are inconsistent with those described in the accompanying
product supplement, index supplement or prospectus, the terms described herein shall control.
|
Denominations:
|
$1,000 and integral multiples thereof
|
Share underlying index:
|
The S&P® Oil & Gas Exploration & Production Select Industry Index®
|
Share underlying index publisher:
|
S&P Dow Jones Inc., or any successor thereof
|
MXEA index publisher:
|
With respect to the MXEA Index, MSCI Inc., or any successor thereof.
|
Index
closing value:
|
With respect to the MXEA
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 MXEA 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 MXEA Index shall be based on the alternate calculation of the MXEA Index described under “Discontinuance of Any
Underlying Index or Basket Index; Alteration of Method of Calculation” in the accompanying product supplement.
|
Postponement of maturity date:
|
If the scheduled valuation date is not an index business day with respect to either underlying
or if a market disruption event occurs with respect to either underlying on that day so that the valuation date is postponed
and 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 valuation date as postponed with respect to either underlying.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation
agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”)
|
Issuer
notice to registered security holders, the trustee and the depositary:
|
In the event that the maturity
date is postponed due to postponement of the valuation date, the issuer shall give notice of such postponement and, once
it has been determined, of the date to which the maturity date has been rescheduled (i) to each registered holder of the
securities by mailing notice of such postponement by first class mail, postage prepaid, to such registered holder’s
last address as it shall appear upon the registry books, (ii) to the trustee by facsimile confirmed by mailing such notice
to the trustee by first class mail, postage prepaid, at its New York office and (iii) to The Depository Trust Company
(the “depositary”) by telephone or facsimile, confirmed by mailing such notice to the depositary by first
class mail, postage prepaid. Any notice that is mailed to a registered holder of the securities in the manner herein provided
shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder
receives the notice. The issuer shall give such notice as promptly as possible, and in no case later than (i) with respect
to notice of postponement of the maturity date, the business day immediately preceding the scheduled maturity date and
(ii) with respect to notice of the date to which the maturity date has been rescheduled, the business day immediately
following the actual valuation date.
The issuer shall, or shall
cause the calculation agent to, (i) provide written notice to the trustee and to the depositary of the amount of cash
to be delivered with respect to each stated principal amount of the securities, on or prior to 10:30 a.m. (New York City
time) on the business day preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to
the securities to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.
|
Morgan Stanley Finance LLC
Enhanced Buffered Jump Securities Based on the Value of the Worst Performing of the SPDR® S&P® Oil & Gas Exploration & Production ETF and the MSCI EAFE® Index due October 25, 2022
Principal at Risk Securities
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, a 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 Jump 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 Jump 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 final pricing supplement. Assuming that the securities do not have a delta of one with respect to any Underlying Security,
our counsel is of the opinion that the securities should not be Specified Securities and, therefore, should not be subject to Section
871(m).
Our determination is not binding on the IRS,
and the IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances,
including whether you enter into other transactions with respect to an Underlying Security. If withholding is required, we will
not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser 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 Jump 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 Jump 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
|