CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities Offered
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Maximum Aggregate Offering Price
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Amount of Registration Fee
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Contingent Income Auto-Callable Securities due 2022
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$4,280,000
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$555.54
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June 2020
Pricing Supplement No. 4,391
Registration Statement Nos.
333-221595; 333-221595-01
Dated June 30, 2020
Filed pursuant to Rule 424(b)(2)
Morgan
Stanley Finance LLC
Structured
Investments
Opportunities in U.S. Equities
Contingent Income Auto-Callable Securities due
July 6, 2022
All Payments on the Securities Based on the Worst
Performing of the Russell 2000® Index and the S&P 500® Index
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
The securities are unsecured obligations of Morgan Stanley Finance
LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The securities have the terms
described in the accompanying product supplement, 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. Instead,
the securities will pay a contingent quarterly coupon but only if the index closing value of each of the Russell
2000® Index and the S&P 500® Index is at or above 65% of its respective initial
index value, which we refer to as the respective coupon threshold level, on the related observation date. However,
if the index closing value of either underlying index is less than its coupon threshold level on any observation
date, we will pay no interest for the related quarterly period. In addition, the securities will be automatically redeemed
if the index closing value of each underlying index is greater than or equal to its respective initial index value
on any quarterly redemption determination date, for the early redemption payment equal to the sum of the stated principal amount
plus the related contingent quarterly coupon. 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 65% of its respective initial index value, which we refer to as the respective
downside threshold level, the payment at maturity will be the stated principal amount and the related contingent quarterly coupon.
If, however, the final index value of either underlying index is less than its respective downside threshold level,
investors will be fully 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 65% 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 and also the risk of
not receiving any contingent quarterly coupons throughout the 2-year term of the securities. Because all payments
on the securities are based on the worst performing of the underlying indices, a decline beyond the respective coupon threshold
level or respective downside threshold level, as applicable, of either underlying index will result in few or no contingent coupon
payments or a significant loss of your investment, even if the other underlying index has appreciated or has not declined as much. The
securities are for investors who are willing to risk their principal based on the worst performing of two underlying indices and
who seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of receiving no quarterly
coupons over the entire 2-year term. 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.
All payments are subject to our credit risk. If
we default on our obligations, you could lose some or all of your investment. These securities are not secured obligations
and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
FINAL TERMS
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Issuer:
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Morgan Stanley Finance LLC
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Guarantor:
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Morgan Stanley
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Underlying indices:
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Russell 2000® Index (the “RTY Index”) and S&P 500® Index (the “SPX Index”)
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Aggregate principal amount:
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$4,280,000
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Stated principal amount:
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$1,000 per security
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Issue price:
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$1,000 per security (see “Commissions and issue price” below)
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Pricing date:
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June 30, 2020
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Original issue date:
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July 6, 2020 (4 business days after the pricing date)
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Maturity date:
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July 6, 2022
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Contingent quarterly coupon:
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A contingent coupon will be paid on the securities on
each coupon payment date but only if the index closing value of each underlying index is at or above its respective
coupon threshold level on the related observation date. If payable, the contingent quarterly coupon will be an
amount in cash per stated principal amount corresponding to a return of 8.75% per annum for each interest payment period
for each applicable observation date.
If, on any observation date, the index closing value of either
underlying index is less than its respective coupon threshold level, we will pay no coupon for the applicable quarterly period. It
is possible that either underlying index will remain below its respective coupon threshold level for extended periods of time or
even throughout the entire 2-year term of the securities so that you will receive few or no contingent quarterly coupons.
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Payment at maturity:
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If the securities have not been automatically redeemed prior
to maturity, the payment at maturity will be determined as follows:
If the final index value of each underlying index is greater
than or equal to its respective downside threshold level, investors will receive the stated principal amount and the contingent
quarterly coupon with respect to the final observation date.
If the final index value of either underlying index is
less than its respective downside threshold level, investors will receive (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 65% of the stated principal amount of the securities and could be zero.
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Terms continued on the following page
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
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Estimated value on the pricing date:
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$963.70 per security. See “Investment Summary” beginning on page 3.
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Commissions and issue price:
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Price to public
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Agent’s commissions and fees
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Proceeds to us(3)
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Per security
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$1,000
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$15(1)
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$5(2)
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$980
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Total
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$4,280,000
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$85,600
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$4,194,400
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(1)
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Selected dealers, including Morgan Stanley Wealth
Management (an affiliate of the agent), and their financial advisors will collectively receive from the agent, MS & Co., a
fixed sales commission of $15 for each security they sell. See “Supplemental information regarding plan of distribution;
conflicts of interest.” For additional information, see “Plan of Distribution (Conflicts of Interest)” in
the accompanying product supplement.
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(2)
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Reflects a structuring fee payable to Morgan Stanley
Wealth Management by the agent or its affiliates of $5 for each security
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(3)
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See “Use of proceeds and hedging” on page
28.
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The
securities involve risks not associated with an investment in ordinary debt securities. See “Risk Factors”
beginning on page 12.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement,
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 product
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.
As used in this document, “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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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Terms continued from previous page:
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Early redemption:
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If, on any redemption determination date, beginning on September
30, 2020, the index closing value of each underlying index is greater than or equal to its respective initial index
value, the securities will be automatically redeemed for an early redemption payment on the related early redemption date. No
further payments will be made on the securities once they have been redeemed.
The securities will not be redeemed early on any early redemption
date if the index closing value of either underlying index is below the respective initial index value for such underlying index
on the related redemption determination date.
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Early redemption payment:
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The early redemption payment will be an amount equal to the stated principal amount for each security you hold plus the contingent quarterly coupon with respect to the related observation date.
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Redemption determination dates:
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Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject to postponement for non-index business days and certain market disruption events.
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Early redemption dates:
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Beginning on October 5, 2020, quarterly. See “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below. If any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day.
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Downside threshold level:
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With respect to the RTY Index: 936.887, which is approximately
65% of its initial index value
With respect to the SPX Index: 2,015.189, which is approximately
65% of its initial index value
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Coupon threshold level:
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With respect to the RTY Index: 936.887, which is approximately
65% of its initial index value
With respect to the SPX Index: 2,015.189, which is approximately
65% of its initial index value
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Initial index value:
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With respect to the RTY Index: 1,441.365, which is its index
closing value on the pricing date
With respect to the SPX Index: 3,100.29, which is its index closing
value on the pricing date
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Final index value:
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With respect to each index, the respective index closing value on the final observation date
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Worst performing underlying:
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The underlying index with the larger percentage decrease from the respective initial index value to the respective final index value
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Index performance factor:
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Final index value divided by the initial index value
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Coupon payment dates:
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Quarterly, beginning October 5, 2020, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below; provided that if any such day is not a business day, that coupon payment will be made on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day. The contingent quarterly coupon, if any, with respect to the final observation date will be paid on the maturity date.
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Observation dates:
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Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject to postponement for non-index business days and certain market disruption events. We also refer to the observation date immediately prior to the scheduled maturity date as the final observation date.
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CUSIP / ISIN:
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61771BPN8 / US61771BPN81
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Listing:
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The securities will not be listed on any securities exchange.
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Observation Dates, Redemption
Determination Dates, Coupon Payment Dates and Early Redemption Dates
Observation Dates / Redemption Determination Dates
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Coupon Payment Dates / Early Redemption Dates
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September 30, 2020
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October 5, 2020
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December 30, 2020
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January 5, 2021
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March 30, 2021
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April 5, 2021
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June 30, 2021
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July 6, 2021
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September 30, 2021
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October 5, 2021
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December 30, 2021
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January 4, 2022
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March 30, 2022
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April 4, 2022
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June 30, 2022 (final observation date)
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July 6, 2022 (maturity date)
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
Contingent Income Auto-Callable Securities
Principal at Risk Securities
Contingent Income Auto-Callable Securities due July 6, 2022 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
pay a contingent quarterly coupon but only if the index closing value of each underlying index is at or above
its respective coupon threshold level on the related observation date. However, if the index closing value of either
underlying index is less than its respective coupon threshold level on any observation date, we will pay no interest
for the related quarterly period. If the index closing value of either underlying index is less than its
respective coupon threshold level on each observation date, you will not receive any contingent quarterly coupon for the
entire 2-year term of the securities. We refer to these coupons as contingent, because there is no guarantee that you
will receive a coupon payment on any coupon payment date. Even if each underlying index were to be at or above its respective
coupon threshold level on some quarterly observation dates, they may not all close at or above their respective coupon threshold
levels on other observation dates, in which case you will not receive some contingent quarterly coupon payments. In
addition, if the securities have not been automatically called prior to maturity and the final index value of either underlying
index is less than its respective downside threshold level, investors will be fully 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 65% 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 and also the risk of not receiving any contingent quarterly coupons throughout
the entire 2-year term of the securities.
Maturity:
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2 years
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Contingent quarterly coupon:
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A contingent quarterly coupon will be paid on the securities on each coupon payment date but only if the index closing value of each underlying index is at or above its respective coupon threshold level on the related observation date. If payable, the contingent quarterly coupon will be an amount in cash per stated principal amount corresponding to a return of 8.75% per annum for each interest payment period for each applicable observation date. If, on any observation date, the index closing value of either underlying index is less than the respective coupon threshold level, we will pay no coupon for the applicable quarterly period.
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Automatic early redemption:
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If the index closing value of each underlying index is greater than or equal to its initial index value on any quarterly redemption determination date, beginning on September 30, 2020, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent quarterly coupon with respect to the related observation date. 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 been automatically redeemed prior
to maturity, the payment at maturity will be determined as follows:
If the final index value of each underlying index is greater
than or equal to its respective downside threshold level, investors will receive the stated principal amount and the contingent
quarterly coupon with respect to the final observation date.
If the final index value of either underlying index is
less than its threshold level, investors will receive a payment at maturity equal to the stated principal amount times
the index performance factor of the worst performing underlying index. Under these circumstances, the payment at
maturity will be less than 65% of the stated principal amount of the securities and could be zero. No quarterly coupon
will be payable at maturity. Accordingly, investors in the securities must be willing to accept the risk of losing
their entire initial investment.
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
The original issue price of each security is $1,000. This
price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date is less than $1,000. We estimate that the value of each security
on the pricing date is $963.70.
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 contingent quarterly coupon rate, the coupon 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
|
Contingent Income Auto-Callable Securities due July 6, 2022
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 pay a contingent quarterly coupon but only if the index closing value of each underlying index
is at or above its respective coupon threshold level on the related observation date. However, if the index closing
value of either underlying index is less than its respective coupon threshold level on any observation date,
we will pay no interest for the related quarterly period. The securities have been designed for investors who are willing
to forgo market floating interest rates and accept the risk of receiving no coupon payments for the entire 2-year term of the securities
in exchange for an opportunity to earn interest at a potentially above-market rate if each underlying index closes at
or above its respective coupon threshold level on the quarterly observation dates until the securities are redeemed early or
reach maturity.
The following scenarios are for illustrative purposes only to
demonstrate how the coupon and the payment at maturity (if the securities have not previously been redeemed) are calculated, and
do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or may not be redeemed,
the contingent quarterly coupon may be payable in none of, or some but not all of, the quarterly periods during the 2-year term
of the securities and the payment at maturity may be less than 65% 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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This scenario assumes that, prior to early redemption, each underlying
index closes at or above its coupon threshold level on some quarterly observation dates, but one or both underlying indices
close below the respective coupon threshold level(s) on the others. Investors receive the contingent quarterly coupon,
corresponding to a return of 8.75% per annum, for the quarterly periods for which each index closing value is at or above
the respective coupon threshold level on the related observation date, but not for the quarterly periods for which any index closing
value is below the respective coupon threshold level on the related observation date.
When each underlying index closes at or above its respective
initial index value on a quarterly redemption determination date, the securities will be automatically redeemed for the
stated principal amount plus the contingent quarterly coupon with respect to the related observation date.
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Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
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This scenario assumes that each underlying index closes at or
above the respective coupon threshold level on some quarterly observation dates, but one or both underlying indices close below
the respective coupon threshold level(s) on the others, and each underlying index closes below its respective initial index value
on every quarterly redemption determination date. Consequently, the securities are not automatically redeemed, and investors
receive the contingent quarterly coupon, corresponding to a return of 8.75% per annum, for the quarterly periods for which
each index closing value is at or above the respective coupon threshold level on the related observation date, but not for the
quarterly periods for which any index closing value is below the respective coupon threshold level on the related observation date.
On the final observation date, each underlying index closes at
or above its downside threshold level. At maturity, investors will receive the stated principal amount and the contingent
quarterly coupon with respect to the final observation date.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
Scenario 3: 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 each underlying index closes at or
above its respective coupon threshold level on some quarterly observation dates, but one or both underlying indices close below
the respective coupon threshold level(s) on the others, and each underlying index closes below its respective initial index value
on every quarterly redemption determination date. Consequently, the securities are not automatically redeemed, and investors
receive the contingent quarterly coupon, corresponding to a return of 8.75% per annum, for the quarterly periods for which
each index closing value is at or above the respective coupon threshold level on the related observation date, but not for the
quarterly periods for which any index closing value is below the respective coupon threshold level on the related observation date.
On the final observation date, one or both underlying indices
close below the respective downside threshold level(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 65% of the stated principal amount and could be zero. No coupon will be paid
at maturity in this scenario.
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Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the index closing values on each quarterly observation date, (2) the index closing values on each
quarterly redemption determination date and (3) the final index values. Please see “Hypothetical Examples”
beginning on page 9 for illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Quarterly Coupons (Beginning
on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
Diagram #3: Payment at Maturity
if No Automatic Early Redemption Occurs
For more information about the payout upon an early redemption
or at maturity in different hypothetical scenarios, see “Hypothetical Examples” starting on page 9.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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 illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity,
if any, if the securities have not been automatically redeemed early. The following examples are for illustrative purposes
only. Whether you receive a contingent quarterly coupon will be determined by reference to the index closing value of
each underlying index on each quarterly observation date, and the amount you will receive at maturity, if any, will be determined
by reference to the final index value of each underlying index on the final observation date. The actual initial index
value, coupon threshold level and downside threshold level for each underlying index are set forth on the cover of this document. All
payments on the securities, if any, are subject to our credit risk. The numbers in the hypothetical examples below may
have been rounded for the ease of analysis. The below examples are based on the following terms:
Contingent Quarterly Coupon:
|
A contingent quarterly coupon will be paid on the securities on each coupon payment date but only if the index closing value of each underlying index is at or above its respective coupon threshold level on the related observation date. If payable, the contingent quarterly coupon will be an amount in cash per stated principal amount corresponding to a return of 8.75% per annum for each interest payment period for each applicable observation date. These hypothetical examples reflect the contingent quarterly coupon rate of 8.75% per annum (corresponding to approximately $21.875 per quarter per security*).
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Automatic Early Redemption:
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If the index closing value of each underlying index is greater than or equal to its respective initial index value on any quarterly redemption determination date, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent quarterly coupon with respect to the related observation date.
|
Payment at Maturity (if the securities have not been automatically redeemed early):
|
If the final index value of each underlying index is greater
than or equal to its respective downside threshold level, investors will receive the stated principal amount and the contingent
quarterly coupon with respect to the final observation date.
If the final index value of either underlying index is
less than its respective downside threshold level, investors will receive a payment at maturity 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 65% of the stated principal amount of the securities and could be zero.
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Stated Principal Amount:
|
$1,000 per security
|
Hypothetical Initial Index Value:
|
With respect to the RTY Index: 1,400
With respect to the SPX Index: 2,500
|
Hypothetical Coupon Threshold Level:
|
With respect to the RTY Index: 910, which is 65% of the hypothetical
initial index value for such index
With respect to the SPX Index: 1,625, which is 65% of the hypothetical
initial index value for such index
|
Hypothetical Downside Threshold Level:
|
With respect to the RTY Index: 910, which is 65% of the hypothetical
initial index value for such index
With respect to the SPX Index: 1,625, which is 65% of the hypothetical
initial index value for such index
|
* The actual contingent quarterly coupon will be an amount determined
by the calculation agent based on the number of days in the applicable payment period, calculated on a 30/360 basis. The
hypothetical contingent quarterly coupon of $21.875 is used in these examples for ease of analysis.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date:
|
Index Closing Value
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Contingent Quarterly Coupon
|
|
RTY Index
|
SPX Index
|
|
Hypothetical Observation Date 1
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1,000 (at or above the coupon threshold level)
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2,400 (at or above the coupon threshold level)
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$21.875
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Hypothetical Observation Date 2
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600 (below the coupon threshold level)
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2,200 (at or above the coupon threshold level)
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$0
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Hypothetical Observation Date 3
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1,150 (at or above the coupon threshold level)
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1,250 (below the coupon threshold level)
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$0
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Hypothetical Observation Date 4
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500 (below the coupon threshold level)
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1,400 (below the coupon threshold level)
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$0
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On hypothetical observation date 1, each underlying index closes
at or above its respective coupon threshold level. Therefore, a contingent quarterly coupon of $21.875 is paid on the
relevant coupon payment date.
On each of hypothetical observation dates 2 and 3, one underlying
index closes at or above its respective coupon threshold level, but the other underlying index closes below its respective coupon
threshold level. Therefore, no contingent quarterly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 4, each underlying index closes
below its respective coupon threshold level, and, accordingly, no contingent quarterly coupon is paid on the relevant coupon payment
date.
If the index closing value of either underlying index is less
than its respective coupon threshold level on each observation date, you will not receive any contingent quarterly coupons for
the entire 2-year term of the securities.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
How to calculate the payment at maturity (if
the securities have not been automatically redeemed):
If the index closing value of each underlying index is greater
than or equal to its initial index value on any quarterly redemption determination date, the securities will be automatically redeemed
for an early redemption payment equal to the stated principal amount for each security you hold plus the contingent quarterly
coupon with respect to the related observation date.
The examples below illustrate how to calculate the payment at
maturity if the securities have not been automatically redeemed prior to maturity.
|
Final Index Value
|
Payment at Maturity
|
|
RTY Index
|
SPX Index
|
|
Example 1:
|
630 (below the downside threshold level)
|
2,450 (at or above the downside threshold level)
|
$1,000 × index performance factor of the worst performing underlying index =
$1,000 × (630 / 1,400) = $450
|
Example 2:
|
1,100 (at or above the downside threshold level)
|
1,000 (below the downside threshold level)
|
$1,000 × (1,000 / 2,500) = $400
|
Example 3:
|
630 (below the downside threshold level)
|
750 (below the downside threshold level)
|
$1,000 × (750 / 2,500) = $300
|
Example 4:
|
420 (below the downside threshold level)
|
1,000 (below the downside threshold level)
|
$1,000 × (420 / 1,400) = $300
|
Example 5:
|
1,500 (at or above the downside threshold level)
|
3,000 (at or above the downside threshold level)
|
The stated principal amount + the contingent
quarterly coupon with respect to the final observation date.
For more information, please see
above under “How to determine whether a contingent quarterly coupon is payable with respect to an observation date.”
|
In examples 1 and 2, the final index value of one underlying
index is at or above the respective downside threshold level, but the final index value of the other underlying index is below
the respective downside threshold level. 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 multiplied by the index
performance factor of the worst performing underlying index. Moreover, investors do not receive any contingent quarterly
coupon for the final quarterly period.
Similarly, in examples 3 and 4, 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. In example 3, the
RTY Index has declined 55% from its initial index value to its final index value and the SPX Index has declined 70% from its initial
index value to its final index value. Therefore, the payment at maturity equals the stated principal amount multiplied
by the index performance factor of the SPX Index, which is the worst performing underlying index in this example. In
example 4, the RTY Index has declined 70% from its initial index value to its final index value and the SPX Index has declined
60% from its initial 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. Moreover,
investors do not receive the contingent quarterly coupon for the final quarterly period.
In example 5, the final index value of each underlying index
is at or above its respective downside threshold level. Therefore, investors receive at maturity the stated principal
amount of the securities plus the contingent quarterly coupon with respect to the final observation date. However,
investors do not participate in any appreciation of the underlying indices.
If 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 $650 per security and could be zero.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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.
|
§
|
The securities do not guarantee the return of any
principal. The terms of the securities differ from those of ordinary debt securities in that they do not guarantee
the repayment of any principal. If the securities have not been automatically redeemed prior to maturity, and if the
final index value of either underlying index is less than its threshold level of 65% of its initial index value, you will
be exposed to the decline in the index closing 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 multiplied by the index performance factor of the worst performing underlying index. In this case,
the payment at maturity will be less than 65% of the stated principal amount and could be zero.
|
|
§
|
The securities do not provide for the regular payment
of interest. The terms of the securities differ from those of ordinary debt securities in that they do not provide
for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon but only if
the index closing value of each underlying index is at or above its respective coupon threshold level on the
related observation date. If the index closing value of either underlying index is lower than its coupon threshold
level on the relevant observation date for any interest period, we will pay no coupon on the applicable coupon payment date. It
is possible that the index closing value of either underlying index will be less than its respective coupon threshold level
for extended periods of time or even throughout the entire term of the securities so that you will receive few or no contingent
quarterly coupons. If you do not earn sufficient contingent quarterly coupons over the term of the securities,
the overall return on the securities may be less than the amount that would be paid on a conventional debt security of ours of
comparable maturity.
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|
§
|
You are exposed to the price risk of each underlying
index, with respect to both the contingent quarterly coupons, if any, and the payment at maturity, if any. Your
return on the securities is not linked to a basket consisting of the underlying indices. 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
will negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying indices. To
receive any contingent quarterly coupons, each underlying index must close at or above its respective coupon threshold
level on the applicable observation date. In addition, if the securities have not been automatically redeemed early
and either underlying index has declined to below its respective downside threshold level as of the final observation 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 will be less than 65% of the stated principal amount and could be zero. Accordingly, your investment
is subject to the price risk of each underlying index.
|
|
§
|
Because the securities are linked to the performance
of the worst performing underlying index, you are exposed to greater risks of receiving no contingent quarterly coupons and sustaining
a significant loss on your investment than if the securities were linked to just one index. The risk that you will
not receive any contingent quarterly coupons, or that you will suffer a significant 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
index. With two underlying indices, it is more likely that either underlying index will close below its coupon threshold
level on any observation date, and below its downside threshold level on the final observation date, than if the securities were
linked to only one underlying index. Therefore, it is more likely that you will not receive any contingent quarterly
coupons and that you will suffer a significant loss on your investment. In addition, because each underlying index must
close above its initial index value on a quarterly redemption determination date in order for the securities to be called prior
to
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
maturity, the securities are less likely to be called
on any early redemption date than if the securities were linked to just one underlying index.
|
§
|
The contingent quarterly coupon, if any, is based
on the value of each underlying index on only the related quarterly observation date at the end of the related interest period. Whether
the contingent quarterly coupon will be paid on any coupon payment date will be determined at the end of the relevant interest
period based on the index closing value of each underlying index on the relevant quarterly observation date. As a result,
you will not know whether you will receive the contingent quarterly coupon on any coupon payment date until near the end of the
relevant interest period. Moreover, because the contingent quarterly coupon is based solely on the value of each underlying
index on quarterly observation dates, if the index closing value of either underlying index on any observation date is below the
coupon threshold level for such index, you will not receive the contingent quarterly coupon for the related interest period, even
if the level of such underlying index was at or above its respective coupon threshold level on other days during that interest
period, and even if the index closing value of the other underlying index is at or above its respective coupon threshold level.
|
|
§
|
Investors will not participate in any appreciation
in either underlying index. Investors will not participate in any appreciation in either underlying index from the
initial index value for such index, and the return on the securities will be limited to the contingent quarterly coupons, if any,
that are paid with respect to each observation date on which the index closing value of each underlying index is greater than or
equal to its respective coupon threshold level, if any.
|
|
§
|
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 coupon threshold level, downside threshold level and initial index value, will affect the value of
the securities more than any other factors. Other factors that may influence the value of the securities include:
|
|
o
|
the volatility (frequency and magnitude of changes in value) of the underlying indices,
|
|
o
|
whether the index closing value of either underlying index has been below its respective coupon threshold level on any observation
date,
|
|
o
|
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,
|
|
o
|
dividend rates on the securities underlying the underlying indices,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the composition of the underlying indices and changes in the constituent stocks of such indices, and
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|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some or all of these factors will influence the price
that you will receive if you sell your securities prior to maturity. In particular, if either underlying index has closed near
or below its coupon threshold level and downside threshold level, the market value of the securities is expected to decrease substantially,
and you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security.
You cannot predict the future performance of either
underlying index based on its historical performance. The value of either underlying index may decrease and be below
the respective coupon threshold level for such index on each observation date so that you will receive no return on your investment,
and either or both of the underlying indices may close below the respective downside threshold level(s) on the final observation
date so that you will lose more than 35% or all of your initial investment in the securities. There can be no assurance
that the index closing value of each
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
underlying index will be at or above the respective
coupon threshold level on any observation date so that you will receive a coupon payment on the securities for the applicable interest
period, or that it will be at or above its respective downside threshold level on the final observation date so that you do not
suffer a significant loss on your initial investment in the securities. See “Russell 2000® Index
Overview” and “S&P 500® Index Overview” below.
|
§
|
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, upon early redemption or on any coupon payment
date, and therefore you are subject to our credit risk. The securities are not guaranteed by any other entity. If
we default on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment. As
a result, the market value of the securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any
actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit
risk is likely to adversely affect the market value of the securities.
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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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|
§
|
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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|
§
|
Reinvestment risk. The term of your
investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the
securities are redeemed prior to maturity, you will receive no more contingent quarterly coupons and may be forced to invest in
a lower interest rate environment and may not be able to reinvest at comparable terms or returns.
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|
§
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The securities will not be listed on any securities
exchange and secondary trading may be limited. Accordingly, you should be willing to hold your securities for the entire
2-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
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
secondary market size at prices based on its estimate
of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility, the notional
size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood
that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in
the secondary market for the securities, the price at which you may be able to trade your securities is likely to depend on the
price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market
in the securities, it is likely that there would be no secondary market for the securities. Accordingly, you should
be willing to hold your securities to maturity.
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§
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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.
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|
§
|
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 unwinding or adjusting hedge positions during the term of the
securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the final observation
date approaches. Some of our affiliates also trade the 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 level at or above which such underlying index must close on any redemption
determination date so that the securities are redeemed prior to maturity for the early redemption payment (depending
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
also on the performance of the other underlying index),
(ii) the level at or above which such underlying index must close on each observation date in order for you to earn a contingent
quarterly coupon (depending also on the performance of the other underlying index) and (iii) the level at or above which such underlying
index must close on the final observation 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 affect the value of an underlying index on the redemption determination
dates and the observation dates, and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent
quarterly coupon on the securities and the amount of cash you receive at maturity, if any (depending also on the performance of
the other underlying index).
|
§
|
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 value, coupon threshold level and downside threshold level for each underlying
index, whether you receive a contingent quarterly coupon on each coupon payment date and/or at maturity, 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 the index closing value in the event of a market disruption event or discontinuance of an underlying index. These
potentially subjective determinations may adversely affect the payout to you 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.
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|
§
|
Adjustments to the underlying indices could adversely
affect the value of the securities. The publisher of each underlying index may add, delete or substitute the component
stocks of such underlying index or make other methodological changes that could change the value of such underlying index. Any
of these actions could adversely affect the value of the securities. The publisher of each underlying index may also
discontinue or suspend calculation or publication of such underlying index 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 on any observation date, the determination
of whether a contingent quarterly coupon will be payable on the securities on the applicable coupon payment date, whether the securities
will be redeemed and/or the amount payable at maturity, if any, will be based on the value of such underlying index, based on the
closing prices of the stocks constituting such underlying index at the time of such discontinuance, without rebalancing or substitution,
computed by MS & Co. as calculation agent in accordance with the formula for calculating such underlying index last in effect
prior to such discontinuance, as compared to the relevant initial index value, coupon threshold level or downside threshold level,
as applicable (depending also on the performance of the other underlying indices).
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|
§
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The U.S. federal income tax consequences of an
investment in the securities are uncertain. There is no direct legal authority as to the proper treatment of the
securities for U.S. federal income tax purposes, and, therefore, significant aspects of the tax treatment of the securities are
uncertain.
|
Please read the discussion under “Additional
Information—Tax considerations” in this document concerning the U.S. federal income tax consequences of an investment
in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction
with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in
adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We
do not plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree
Morgan Stanley Finance LLC
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Contingent Income Auto-Callable Securities due July 6, 2022
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
|
with the tax treatment described herein. If
the IRS were successful in asserting an alternative treatment for the securities, the timing and character of income or loss on
the securities might differ significantly from the tax treatment described herein. For example, under one possible treatment,
the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders (as defined below)
would be required to accrue into income original issue discount on the securities every year at a “comparable yield”
determined at the time of issuance (as adjusted based on the difference, if any, between the actual and the projected amount of
any contingent payments on the securities) and recognize all income and gain in respect of the securities as ordinary income. The
risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the securities,
would be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not
have such features.
Non-U.S. Holders (as defined below) should note
that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision, and will not be required to pay any
additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department and the IRS
released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar
instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character
and timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences
of an investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax
consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
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Contingent Income Auto-Callable Securities due July 6, 2022
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
|
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 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 June 30, 2020:
Bloomberg Ticker Symbol:
|
RTY
|
52 Week High (on 1/16/2020):
|
1,705.215
|
Current Index Value:
|
1,441.365
|
52 Week Low (on 3/18/2020):
|
991.160
|
52 Weeks Ago:
|
1,569.663
|
|
|
|
|
|
|
The following graph sets forth the daily index closing values
of the RTY Index for the period from January 1, 2015 through June 30, 2020. The related table sets forth the published
high and low index closing values, as well as end-of-quarter index closing values, of the RTY Index for each quarter for the period
from January 1, 2015 through June 30, 2020. The index closing value of the RTY Index on June 30, 2020 was 1,441.365. We
obtained the information in the graph and table below from Bloomberg Financial Markets, without independent verification. The
RTY Index has experienced periods of high volatility, and you should not take the historical values of the RTY Index as an indication
of its future performance.
RTY Index Daily Index
Closing Values
January 1, 2015 to June
30, 2020
|
|
* The red line in the graph indicates both the downside threshold level and the coupon threshold level of 936.887, which is approximately 65% of the initial index value.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
Russell 2000® Index
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High
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Low
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Period End
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2015
|
|
|
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First Quarter
|
1,266.373
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1,154.709
|
1,252.772
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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
|
1,585.599
|
1,456.039
|
1,523.373
|
Fourth Quarter
|
1,678.010
|
1,472.598
|
1,668.469
|
2020
|
|
|
|
First Quarter
|
1,705.215
|
991.160
|
1,153.103
|
Second Quarter
|
1,536.895
|
1,052.053
|
1,441.365
|
|
|
|
|
The “Russell 2000® Index” is a trademark
of FTSE Russell. See “Russell 2000® Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
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 June 30, 2020:
Bloomberg Ticker Symbol:
|
SPX
|
52 Week High (on 2/19/2020):
|
3,386.15
|
Current Index Value:
|
3,100.29
|
52 Week Low (on 3/23/2020):
|
2,237.40
|
52 Weeks Ago:
|
2,964.33
|
|
|
|
|
|
|
The following graph sets forth the daily index closing values
of the SPX Index for the period from January 1, 2015 through June 30, 2020. The related table sets forth the published
high and low index closing values, as well as end-of-quarter index closing values, of the SPX Index for each quarter for the period
from January 1, 2015 through June 30, 2020. The index closing value of the SPX Index on June 30, 2020 was 3,100.29. We
obtained the information in the graph and table below from Bloomberg Financial Markets, without independent verification. The
SPX Index has experienced periods of high volatility, and you should not take the historical values of the SPX Index as an indication
of its future performance.
SPX Index Daily Index Closing Values
January 1, 2015 to June 30, 2020
|
|
* The red line in the graph indicates both the downside threshold
level and the coupon threshold level of 2,015.189, which is approximately 65% of the initial index value.
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
S&P 500® Index
|
High
|
Low
|
Period End
|
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
|
3,025.86
|
2,840.60
|
2,976.74
|
Fourth Quarter
|
3,240.02
|
2,887.61
|
3,230.78
|
2020
|
|
|
|
First Quarter
|
3,386.15
|
2,237.40
|
2,584.59
|
Second Quarter
|
3,232.39
|
2,470.50
|
3,100.29
|
|
|
|
|
“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.
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
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
underlying index (as defined under “Discontinuance of an Underlying Index; Alteration of Method of Calculation” in
the accompanying product supplement), 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.
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 the SPX Index, or
any successor index as defined under “Discontinuance of Any Underlying Index; Alteration of Method of Calculation”
in the accompanying product supplement), published at the regular official weekday close of trading on such index business day
by the underlying index publisher for the SPX Index, as determined by the calculation agent. In certain circumstances,
the index closing value for the SPX Index will be based on the alternate calculation of the SPX Index as described under “Discontinuance
of Any Underlying Index; Alteration of Method of Calculation” in the accompanying product supplement.
|
Interest period:
|
The quarterly period from and including the original issue date (in the case of the first interest period) or the previous scheduled coupon payment date, as applicable, to but excluding the following scheduled coupon payment date, with no adjustment for any postponement thereof.
|
Record date:
|
The record date for each coupon payment date shall be the date one business day prior to such scheduled coupon payment date; provided, however, that any coupon payable at maturity (or upon early redemption) shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
|
Threshold level:
|
The accompanying product supplement refers to the threshold level as the “trigger level.”
|
Day count convention:
|
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
|
Postponement of coupon payment dates (including the maturity date) and early redemption dates:
|
If any observation date or redemption determination date is postponed due to a non-index business day or certain market disruption events so that it falls less than two business days prior to the relevant scheduled coupon payment date (including the maturity date) or early redemption date, as applicable, the coupon payment date (or the maturity date) or the early redemption date will be postponed to the second business day following that observation date or redemption determination date as postponed, and no adjustment will be made to any coupon payment or early redemption payment made on that postponed date.
|
Denominations:
|
$1,000 per security and integral multiples thereof
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
Issuer notices to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the final observation date, the issuer shall give notice of such postponement and, once it has been determined, of the date
to which the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice of such postponement
by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books,
(ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its
New York office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile confirmed by
mailing such notice to the depositary by first class mail,
|
Morgan Stanley Finance LLC
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|
|
postage prepaid. Any notice that is mailed to a registered
holder of the securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered
holder, whether or not such registered holder receives the notice. The issuer shall give such notice as promptly as
possible, and in no case later than (i) with respect to notice of postponement of the maturity date, the business day immediately
preceding the scheduled maturity date, and (ii) with respect to notice of the date to which the maturity date has been rescheduled,
the business day immediately following the final observation date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable redemption determination date, give notice of the early redemption
and the early redemption payment, including specifying the payment date of the amount due upon the early redemption, (x) to each
registered holder of the securities by mailing notice of such early redemption by first class mail, postage prepaid, to such registered
holder’s last address as it shall appear upon the registry books, (y) to the trustee by facsimile confirmed by mailing such
notice to the trustee by first class mail, postage prepaid, at its New York office and (z) to the depositary by telephone or facsimile
confirmed by mailing such notice to the depositary by first class mail, postage prepaid, and (ii) on or prior to the early redemption
date, deliver the aggregate cash amount due with respect to the securities to the trustee for delivery to the depositary, as holder
of the securities. Any notice that is mailed to a registered holder of the securities in the manner herein provided
shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder receives
the notice. This notice shall be given by the issuer or, at the issuer’s request, by the trustee in the name and at the expense
of the issuer, with any such request to be accompanied by a copy of the notice to be given.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash to be delivered as contingent quarterly coupon, if any, with respect to each security on or prior to 10:30 a.m. (New York
City time) on the business day preceding each coupon payment date, and (ii) deliver the aggregate cash amount due, if any, with
respect to the contingent quarterly coupon to the trustee for delivery to the depositary, as holder of the securities, on the applicable
coupon payment date.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash 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
|
Contingent Income Auto-Callable Securities due July 6, 2022
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
|