The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying prospectus supplement,
index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related prospectus
supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Terms of the Securities” and “Additional Information About the Securities” at the end of this document.
References to “we,” “us” and “our”
refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Call Observation Dates, Coupon
Payment Dates and Redemption Dates
Call Observation Dates
|
Coupon Payment Dates / Redemption Dates
|
May 22, 2020
|
June 1, 2020
|
November 23, 2020
|
December 1, 2020
|
May 24, 2021
|
June 1, 2021
|
November 22, 2021
|
November 30, 2021
|
May 23, 2022
|
May 31, 2022
|
November 22, 2022 (final call observation date)
|
November 30, 2022 (maturity date)
|
Morgan Stanley Finance LLC
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities
Investment Overview
Callable Contingent Income Securities
Principal at Risk Securities
Callable Contingent Income Securities due November 30, 2022 Payments
on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50®
Index (the “securities”) do not guarantee the repayment of principal and do not provide for the regular payment of
interest. Instead, the securities will pay a contingent semi-annual coupon but only if the index closing value of each
of the Russell 2000® Index and the EURO STOXX 50® Index (which we refer to together as the “underlying
indices”) is at or above 70% of its respective initial level, which we refer to as the respective coupon barrier,
on the related call observation date. If the index closing value of either underlying index is less than the coupon barrier
for such index on any call observation date, we will pay no coupon for the related semi-annual period. It is possible that the
index closing value of one or both underlying indices will remain below the respective coupon barrier(s) for extended periods of
time or even throughout the entire term of the securities so that you will receive few or no contingent semi-annual coupons during
the entire three-year term of the securities. Even if an underlying index were to be at or above the coupon barrier for such index
on some semi-annual call observation dates, it may fluctuate below the coupon barrier on others. In addition, even if one underlying
index were to be at or above the coupon barrier for such index on all semi-annual call observation dates, you will receive a contingent
semi-annual coupon only with respect to the call observation dates on which the other underlying index is also at or above the
coupon barrier for such index, if any. In addition, beginning on June 1, 2020, we will have the right to redeem the securities
at our discretion on any semi-annual redemption date for the redemption payment equal to the sum of the stated principal amount
plus any contingent semi-annual coupon otherwise due with respect to the related call observation date. At maturity, if the securities
have not been previously redeemed and if the final level of each underlying index is greater than or equal to 70% of the
respective initial level, which we refer to as the principal barrier, the payment at maturity will be the stated principal amount
and the related contingent semi-annual coupon. If, however, the final level of either underlying index is less than its
principal barrier, 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 based on the performance
of either index and also the risk of not receiving any semi-annual coupons throughout the entire term of the securities.
Maturity:
|
Approximately 3 years, unless redeemed earlier at our discretion
|
|
|
Contingent semi-annual coupon:
|
If, on any call observation date, the index closing value of
each underlying index is greater than or equal to its respective coupon barrier, we will pay a contingent semi-annual
coupon at an annual rate of at least 8.00% (corresponding to approximately $40.00 per semi-annual period per security) on the related
coupon payment date. The actual contingent semi-annual coupon rate will be determined on the trade date.
If, on any call observation date, the closing value of either
underlying index is less than the coupon barrier for such index, no contingent semi-annual coupon will be paid with
respect to that call observation date. It is possible that one or both underlying indices will remain below the respective coupon
barrier(s) for extended periods of time or even throughout the entire term of the securities so that you will receive few or no
contingent semi-annual coupons.
|
Early redemption at the option of the issuer:
|
Beginning on June 1, 2020, we have the right to redeem the securities
on any semi-annual redemption date for an early redemption payment equal to the stated principal amount plus any contingent semi-annual
coupon otherwise due with respect to the related call observation date. Any early redemption of the securities will be at our discretion
and will not automatically occur based on the performance of the underlying indices. It is more likely that we will redeem the
securities when it would otherwise be advantageous for you to continue to hold the securities. As such, we will be more likely
to redeem the securities when the index closing value of each underlying index on the call observation dates is at or above its
respective coupon barrier, which would otherwise result in an amount of interest payable on the securities that is greater than
instruments of a comparable maturity and credit rating trading in the market. In other words, we will be more likely to redeem
the securities at a time when the securities are paying an above-market coupon. If the securities are redeemed prior to maturity,
you will receive no more contingent semi-annual coupon payments, may be forced to invest in a lower interest rate environment and
may not be able to reinvest at comparable
|
Morgan Stanley Finance LLC
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities
|
terms or returns.
On the other hand, we will be less likely to exercise our redemption
right when the index closing value of either underlying index is below its respective coupon barrier and/or when the final level
of either underlying index is expected to be below the principal barrier, such that you will receive no contingent semi-annual
coupons and/or that you will suffer a significant loss on your initial investment in the securities at maturity. Therefore, if
we do not exercise our redemption right, it is more likely that you will receive few or no contingent semi-annual coupons and suffer
a significant loss at maturity.
|
Payment at maturity:
|
If the securities have not previously been redeemed, investors
will receive on the maturity date a payment at maturity determined as follows:
If the final level of each underlying index is greater
than or equal to its respective principal barrier: the stated principal amount and the contingent semi-annual coupon with respect
to the final call observation date.
If the final level of either underlying index is less
than its respective principal barrier: (i) the stated principal amount multiplied by (ii) the index performance factor
of the worst performing underlying index. Under these circumstances, the payment at maturity will be less than 70% of the stated
principal amount of the securities and could be zero.
|
|
|
We are using this preliminary pricing supplement to solicit from
you an offer to purchase the securities. You may revoke your offer to purchase the securities at any time prior to the time at
which we accept such offer by notifying the relevant agent. We reserve the right to change the terms of, or reject any offer to
purchase, the securities prior to their issuance. In the event of any material changes to the terms of the securities, we will
notify you.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities
The original issue price of each security is $1,000. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the trade date will be less than $1,000. We estimate that the value of each security on
the trade date will be approximately $977.90, or within $22.50 of that estimate. Our estimate of the value of the securities as
determined on the trade date will be set forth in the final pricing supplement.
What goes into the estimated value on the trade date?
In valuing the securities on the trade 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 contingent semi-annual coupon rate, the coupon barriers and the principal barriers, 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
trade 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 trade 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 settlement 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
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest
and instead will pay a contingent semi-annual coupon but only if the index closing value of each underlying index
is at or above 70% of its initial level, which we refer to as the respective coupon barrier, on the related call observation
date. These securities are for investors who are willing to risk their principal and seek an opportunity to earn interest at a
potentially above-market rate in exchange for the risk of receiving no semi-annual interest if either underlying index closes below
the coupon barrier for such index on the call observation dates, and the risk of an early redemption of the securities at our discretion.
The following scenarios are for illustration purposes only to demonstrate how the payment at maturity and contingent semi-annual
coupon (if the securities have not previously been redeemed) are determined, and do not attempt to demonstrate every situation
that may occur. Accordingly, the securities may or may not be redeemed by us at our discretion, the contingent semi-annual coupon
may be payable with respect to none of, or some but not all of, the semi-annual periods, and the payment at maturity may be less
than 70% of the stated principal amount and could be zero. Investors will not participate in any appreciation in either underlying
index.
Scenario 1: The securities are redeemed prior to maturity.
|
This scenario assumes that we redeem the securities at our discretion prior to the maturity date on one of the semi-annual redemption dates, starting on June 1, 2020, six months after the settlement date, for the redemption payment equal to the stated principal amount plus any contingent semi-annual coupon with respect to the relevant call observation date, as applicable. Prior to the optional early redemption, each underlying index closes at or above its respective coupon barrier on some or all of the semi-annual call observation dates. In this scenario, investors receive the contingent semi-annual coupon with respect to each such call observation date, but not for the semi-annual periods for which one of both underlying indices close below the respective coupon barrier on the related call observation date. No further payments will be made on the securities once they have been redeemed.
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity.
|
This scenario assumes that we do not exercise our redemption right on any of the semi-annual redemption dates, and, as a result, investors hold the securities to maturity. During the term of the securities, each underlying index closes at or above its respective coupon barrier on some semi-annual call observation dates, but one or both underlying indices close below the respective coupon barrier(s) for such index on the others. Investors will receive the contingent semi-annual coupon for the semi-annual periods for which the index closing value of each underlying index is at or above its respective coupon barrier on the related call observation date, but not for the semi-annual periods for which one or both underlying indices close below the respective coupon barrier(s) on the related call observation date. On the final call observation date, each underlying index closes at or above its principal barrier. At maturity, investors receive the stated principal amount and the contingent semi-annual coupon with respect to the final call observation date.
|
Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity.
|
This scenario assumes that we do not exercise our redemption right on any of the semi-annual redemption dates, and, as a result, investors hold the securities to maturity. During the term of the securities, one or both underlying indices close below the respective coupon barrier(s) on every semi-annual call observation date. Since one or both underlying indices close below the respective coupon barrier(s) on every semi-annual call observation date, investors do not receive any contingent semi-annual coupon. On the final call observation date, one or both underlying indices close below the respective principal barrier(s). 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 less than 70% of the stated principal amount and could be zero.
|
Morgan Stanley Finance LLC
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities
Underlying Indices Summary
Russell 2000® Index
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 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.
Information as of market close on October 18, 2019:
Bloomberg Ticker Symbol:
|
RTY
|
Current Index Value:
|
1,535.482
|
52 Weeks Ago:
|
1,560.752
|
52 Week High (on 5/6/2019):
|
1,614.976
|
52 Week Low (on 12/24/2018):
|
1,266.925
|
|
|
For additional information about the Russell 2000®
Index, see the information set forth under “Russell 2000® Index” in the accompanying index supplement.
Furthermore, for additional historical information, see “Russell 2000® Index Historical Performance”
below.
EURO STOXX 50® Index
The EURO STOXX 50® Index
was created by STOXX Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX
50® Index began on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The
EURO STOXX 50® Index is composed of 50 component stocks of market sector leaders from within the STOXX 600
Supersector Indices, which includes stocks selected from the Eurozone. The component stocks have a high degree of liquidity
and represent the largest companies across all market sectors.
Information as of market close on October 18, 2019:
Bloomberg Ticker Symbol:
|
SX5E
|
Current Index Value:
|
3,579.41
|
52 Weeks Ago:
|
3,211.59
|
52 Week High (on 10/16/2019):
|
3,599.25
|
52 Week Low (on 12/27/2018):
|
2,937.36
|
|
|
For additional information about the EURO STOXX 50®
Index, see the information set forth under “EURO STOXX 50® Index” in the accompanying index supplement.
Furthermore, for additional historical information, see “EURO STOXX 50® Index Historical Performance”
below.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent semi-annual coupon is paid with respect to a call observation date and how to calculate the payment at maturity.
The following examples are for illustrative purposes only. Whether you receive a contingent semi-annual coupon will be determined
by reference to the index closing value of each underlying index on each semi-annual call observation date, and the amount you
will receive at maturity, if any, will be determined by reference to the final level of each underlying index on the final call
observation date. Any early redemption of the securities will be at our discretion. The actual initial level, coupon barrier and
principal barrier for each underlying index will be determined on the trade date. All payments on the securities, if any, are subject
to our credit risk. The below examples are based on the following terms:
Hypothetical Contingent Semi-annual Coupon:
|
If, on any call observation date, the index closing value of
each underlying index is greater than or equal to its respective coupon barrier, we will pay a contingent semi-annual
coupon at an annual rate of 8.00% (corresponding to approximately $40.00 per semi-annual period per security) on the related coupon
payment date. The actual contingent semi-annual coupon rate will be determined on the trade date.
If, on any call observation date, the closing value of either
underlying index is less than the coupon barrier for such index, no contingent semi-annual coupon will be paid with
respect to that call observation date. It is possible that one or both underlying indices will remain below the respective coupon
barrier(s) for extended periods of time or even throughout the entire term of the securities so that you will receive few or no
contingent semi-annual coupons.
|
Optional Early Redemption:
|
Beginning on June 1, 2020, we will have the right to redeem the securities at our discretion on any semi-annual redemption date for a redemption payment equal to the stated principal amount plus any contingent semi-annual coupon otherwise due with respect to the related call observation date. If the securities are redeemed prior to maturity, you will receive no more contingent semi-annual coupon payments, may be forced to invest in a lower interest rate environment and may not be able to reinvest at comparable terms or returns.
|
Payment at Maturity (if the securities have not been redeemed early at our option):
|
If the final level of each underlying index is greater
than or equal to its respective principal barrier: the stated principal amount and the contingent semi-annual coupon with respect
to the final call observation date.
If the final level of either underlying index is less
than its respective principal barrier: (i) the stated principal amount multiplied by (ii) the index performance factor
of the worst performing underlying index. Under these circumstances, the payment at maturity will be less than 70% of the stated
principal amount of the securities and could be zero.
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Level:
|
With respect to the RTY Index: 1,200
With respect to the SX5E Index: 3,100
|
Hypothetical Coupon Barrier:
|
With respect to the RTY Index: 840, which is 70% of the hypothetical
initial level for such index
With respect to the SX5E Index: 2,170, which is 70% of the hypothetical
initial level for such index
|
Hypothetical Principal Barrier:
|
With respect to the RTY Index: 840, which is 70% of the hypothetical
initial level for such index
With respect to the SX5E Index: 2,170, which is 70% of the hypothetical
initial level for such index
|
|
|
* The actual semi-annual coupon will be an amount determined by
the calculation agent based on the actual contingent semi-annual coupon rate and the number of days in the applicable payment period,
calculated on a 30/360 basis. The hypothetical semi-annual coupon of $40.00 is used in these examples for ease of analysis.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities
How to determine whether a contingent semi-annual
coupon is payable with respect to a call observation date (if the securities have not been previously redeemed):
|
Index Closing Value
|
Contingent Semi-annual Coupon
|
|
RTY Index
|
SX5E Index
|
|
Hypothetical Call Observation Date 1
|
950 (at or above coupon barrier)
|
2,500 (at or above coupon barrier)
|
$40.00
|
Hypothetical Call Observation Date 2
|
1,200 (at or above coupon barrier)
|
1,000 (below coupon barrier)
|
$0
|
Hypothetical Call Observation Date 3
|
600 (below coupon barrier)
|
2,400 (at or above coupon barrier)
|
$0
|
Hypothetical Call Observation Date 4
|
500 (below coupon barrier)
|
1,500 (below coupon barrier)
|
$0
|
|
|
|
|
On hypothetical call observation date 1, both the RTY Index and
SX5E Index close at or above their respective coupon barriers. Therefore a contingent semi-annual coupon of $40.00 is paid on the
relevant coupon payment date.
On each of the hypothetical call observation dates 2 and 3, one
underlying index closes at or above its coupon barrier but the other underlying index closes below its coupon barrier. Therefore,
no contingent semi-annual coupon is paid on the relevant coupon payment date.
On hypothetical call observation date 4, each underlying index
closes below its respective coupon barrier and accordingly no contingent semi-annual coupon is paid on the relevant coupon payment
date.
How to calculate the payment
at maturity (if the securities have not been redeemed early at our option):
|
Final Level
|
Payment at Maturity
|
|
RTY Index
|
SX5E Index
|
|
Example 1:
|
1,500 (at or above the principal barrier)
|
3,800 (at or above the principal barrier)
|
$1,040.00 (the stated principal amount plus the contingent semi-annual coupon with respect to the final call observation date)
|
Example 2:
|
900 (at or above the principal barrier)
|
1,240 (below the principal barrier)
|
$1,000 x index performance factor of the worst performing underlying = $1,000 x (1,240 / 3,100) = $400
|
Example 3:
|
480 (below the principal barrier)
|
2,500 (at or above the principal barrier)
|
$1,000 x (480 / 1,200) = $400
|
Example 4:
|
360 (below the principal barrier)
|
1,240 (below the principal barrier)
|
$1,000 x (360 / 1,200) = $300
|
Example 5:
|
480 (below the principal barrier)
|
930 (below the principal barrier)
|
$1,000 x (930 / 3,100) = $300
|
|
|
|
|
In example 1, the final levels of both the RTY Index and SX5E
Index are at or above their principal barriers. Therefore, investors receive at maturity the stated principal amount of the securities
and the contingent semi-annual coupon with respect to the final call observation date. However, investors do not participate in
the appreciation of either underlying index.
In examples 2 and 3, the final level of one underlying index
is at or above its principal barrier but the final level of the other underlying index is below its principal barrier. Therefore,
investors are exposed to the downside performance of the worst performing underlying index at maturity and receive at maturity
an amount equal to the stated principal amount times the index performance factor of the worst performing underlying index.
Similarly, in examples 4 and 5, the final level of each underlying
index is below its respective principal barrier, and investors receive at maturity an amount equal to the stated principal amount
times the index performance factor of the worst performing underlying index.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities
In example 4, the RTY Index has declined 70% from its initial
level to its final level, while the SX5E Index has declined 60% from its initial level to its final level. 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. In example 5, the RTY Index has declined 60% from its initial level, while the SX5E Index has
declined 70% from its initial level to its final level. Therefore the payment at maturity equals the stated principal amount times
the index performance factor of the SX5E Index, which is the worst performing underlying index in this example.
If the securities have not been redeemed prior to maturity
and the final level of EITHER underlying index is below its respective principal barrier, 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 $700 per security and could
be zero.
Morgan Stanley Finance LLC
Callable Contingent Income Securities due November 30, 2022
Payments on the Securities Based on the Worst Performing of the Russell 2000® Index and the EURO STOXX 50® Index
Principal at Risk Securities