October
2020
Preliminary
Terms No. 5,126
Registration
Statement Nos. 333-221595; 333-221595-01
Dated
October 22, 2020
Filed
pursuant to Rule 433
Morgan
Stanley Finance LLC
Structured Investments
Opportunities in U.S. Equities
Trigger Participation Securities Based
on the Performance of the S&P 500® Index due November 1, 2022
Fully and Unconditionally Guaranteed
by Morgan Stanley
Principal at Risk Securities
The Trigger Participation Securities (the “securities”)
are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan
Stanley. The securities will pay no interest, do not guarantee any return of principal at maturity and have the terms described
in the accompanying product supplement for Participation Securities, index supplement and prospectus, as supplemented or modified
by this document. At maturity, if the S&P 500® Index, which we refer to as the underlying index, has appreciated
in value, investors will receive the stated principal amount of their investment plus unleveraged upside performance of the
underlying index. If the underlying index has depreciated in value but by no more than 15.25%, investors will receive the
stated principal amount of their investment. However, if the underlying index has depreciated in value by more than 15.25%,
investors will be negatively exposed to the full amount of the percentage decline in the underlying index and will lose 1% of
the stated principal amount for every 1% of decline, without any buffer. The securities are for investors who seek an equity index-based
return and who are willing to risk their principal and forgo current income in exchange for the limited protection against loss
that applies only if the final index value is greater than or equal to the trigger level. Investors may lose their entire initial
investment in the securities. 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.
SUMMARY 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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Maturity date:
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November 1, 2022
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Valuation date:
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October 27, 2022, subject to postponement for non-index business days and certain market disruption events
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Underlying index:
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S&P 500® Index
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Aggregate principal amount:
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$
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Payment at maturity:
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If the final index value is greater than the
initial index value:
$10 + ($10 × index percent
change)
If the final index value is less than or equal to
the initial index value but is greater than or equal to the trigger level:
$10
If the final index value is less than the trigger
level:
$10 × index performance
factor
Under these circumstances, the payment
at maturity will be less than the stated principal amount of $10, and will represent a loss of more than 15.25%, and possibly
all, of your investment.
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Index percent change:
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(final index value – initial index value) / initial index value
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Index performance factor:
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final index value / initial index value
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Initial index value:
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, which is the index closing value on the pricing date
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Final index value:
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The index closing value on the valuation date
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Trigger level:
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, which is 84.75% of the initial index value
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Stated principal amount / Issue price:
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$10 per security (see “Commissions and issue price” below)
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Pricing date:
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October 27, 2020
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Original issue date:
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October 30, 2020 (3 business days after the pricing date)
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CUSIP / ISIN:
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61771G178 / US61771G1783
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Listing:
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The securities will not be listed on any securities exchange.
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), a wholly owned subsidiary of Morgan Stanley and an affiliate of MSFL. See “Supplemental information regarding plan of distribution; conflicts of interest.”
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Estimated value on the pricing date:
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Approximately $9.809 per security, or within $0.25 of that estimate. See “Investment Summary” on page 2.
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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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$10
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$0.10(1)
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$0.025(2)
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$9.875
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Total
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$
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$
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$
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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 $0.10 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
for Participation Securities.
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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 $0.025 for each security.
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(3)
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See “Use
of proceeds and hedging” on page 14.
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The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 6.
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.
References to “we,” “us” and “our”
refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product
Supplement for Participation Securities dated November 16, 2017 Index
Supplement dated November 16, 2017
Prospectus
dated November 16, 2017
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
Investment Summary
Trigger Participation Securities
Principal at Risk Securities
The Trigger Participation Securities Based on the Performance
of the S&P 500® Index due November 1, 2022 (the “securities”) can be used:
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§
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To achieve similar levels of upside exposure to the
underlying index as a direct investment
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§
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To provide limited protection against a loss of principal
in the event of a decline of the underlying index as of the valuation date but only if the final index value is greater than
or equal to the trigger level
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Maturity:
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Approximately 2 years
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Minimum payment at maturity:
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None. Investors may lose their entire initial investment in the securities.
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Trigger level:
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84.75% of the initial index value
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Coupon:
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None
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Listing:
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The securities will not be listed on any securities exchange
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The original issue price of each security is $10. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date will be less than $10. We estimate that the value of each security on
the pricing date will be approximately $9.809, or within $0.25 of that estimate. Our estimate of the value of the securities as
determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date, we take into account
that the securities comprise both a debt component and a performance-based component linked to the underlying index. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying index, instruments based on the underlying index, 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 trigger level, we use an internal funding rate, which is likely to be lower than our secondary market credit spreads and therefore
advantageous to us. If the issuing, selling, structuring and hedging costs borne by you were lower or if the internal funding rate
were higher, one or more of the economic terms of the securities would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying index, 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 index, 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
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
Key Investment Rationale
The securities offer a return at maturity based on the performance
of the underlying index. At maturity, if the underlying index has appreciated in value, investors will receive the stated
principal amount of their investment plus unleveraged upside performance of the underlying index. If the underlying index has depreciated
in value but by no more than 15.25%, investors will receive the stated principal amount of their investment. However, if the underlying
index has depreciated in value by more than 15.25%, investors will be negatively exposed to the full amount of the percentage
decline in the underlying index and will lose 1% of the stated principal amount for every 1% of decline, without any buffer. Investors
may lose their entire initial investment in the securities. All payments on the securities are subject to our credit risk.
Upside Scenario if the Underlying Index Appreciates
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The final index value is greater than the initial index value, and, at maturity, you receive a full return of principal as well as 100% of the increase in the value of the underlying index. For example, if the final index value is 5% greater than the initial index value, the securities will provide a total return of 5% at maturity.
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Par Scenario
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The final index value is less than or equal to the initial index value but is greater than or equal to the trigger level, which is 84.75% of the initial index value. In this case, the securities will redeem for the stated principal amount of $10 at maturity, even though the underlying index has depreciated.
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Downside Scenario
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The final index value is less than the trigger level. In this case, the securities redeem for at least 15.25% less than the stated principal amount, and this decrease will be by an amount proportionate to the full decline in the value of the underlying index over the term of the securities. Under these circumstances, the payment at maturity will be less than 84.75% of the stated principal amount per security. For example, if the final index value is 70% less than the initial index value, the securities will be redeemed at maturity for a loss of 70% of principal at $3.00, or 30% of the stated principal amount. There is no minimum payment at maturity on the securities, and you could lose your entire investment.
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Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
How the Securities Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the securities based on the following terms:
Stated principal amount:
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$10 per security
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Trigger level:
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84.75% of the initial index value
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Minimum payment at maturity:
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None
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Trigger Participation Securities Payoff Diagram
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See the next page for a description of how the securities work.
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
How it works
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§
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Upside Scenario if the Underlying
Index Appreciates. If the final index value
is greater than the initial index value, the investor would receive the $10 stated principal amount plus 100% of the appreciation
of the underlying index over the term of the securities.
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§
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If the underlying index appreciates 5%, investors
will receive a 5% return, or $10.50 per security.
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§
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Par Scenario. If
the final index value is less than or equal to the initial index value and is greater than or equal to the trigger level of 84.75%
of the initial index value, the investor would receive the stated principal amount of $10.
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§
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If the underlying index depreciates 10%, investors
will receive the stated principal amount of $10.
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§
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Downside Scenario. If
the final index value is less than the trigger level of 84.75% of the initial index value, the investor would receive an amount
less than the $10 stated principal amount, based on a 1% loss of principal for each 1% decline in the underlying index. Under these
circumstances, the payment at maturity will be less than 84.75% of the stated principal amount per security. There is no minimum
payment at maturity on the securities.
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§
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If the underlying index depreciates 70%, the investor
would lose 70% of the investor’s principal and receive only $3.00 per security at maturity, or 30% of the stated principal
amount.
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Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement for Participation Securities, index supplement and prospectus.
We also urge you to consult your investment, legal, tax, accounting and other advisers in connection with your investment in the
securities.
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§
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The securities do not pay interest or guarantee
return of any principal. The terms of the securities differ from those of ordinary debt securities in that the securities do
not pay interest or guarantee the payment of any principal amount at maturity. If the final index value is less than the trigger
level (which is 84.75% of the initial index value), the payout at maturity will be an amount in cash that is at least 15.25% less
than the $10 stated principal amount of each security, and this decrease will be by an amount proportionate to the full amount
of the decline in the value of the underlying index over the term of the securities, without any buffer. There is no minimum payment
at maturity on the securities, and, accordingly, you could lose your entire initial investment in the securities.
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§
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The market price of the securities 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, including the value (including whether the value is below the trigger level), volatility (frequency and magnitude of changes
in value) and dividend yield of the underlying index, interest and yield rates in the market, time remaining until the securities
mature, geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying index
or equities markets generally and which may affect the final index value of the underlying index, and any actual or anticipated
changes in our credit ratings or credit spreads. The level of the underlying index may be, and has recently been, volatile, and
we can give you no assurance that the volatility will lessen. See “S&P 500® Index Overview” below.
You may receive less, and possibly significantly less, than the stated principal amount per security if you try to sell your securities
prior to maturity.
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§
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The securities are subject to our credit risk,
and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the securities.
You are dependent on our ability to pay all amounts due on the securities at maturity and therefore you are subject to our credit
risk. If we default on our obligations under the securities, your investment would be at risk and you could lose some or all of
your investment. As a result, the market value of the securities prior to maturity will be affected by changes in the market’s
view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase in the credit spreads charged
by the market for taking our credit risk is likely to adversely affect the market value of the securities.
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§
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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 amount payable on the securities is not linked
to the value of the underlying index at any time other than the valuation date. The final index value will be based on the
index closing value on the valuation date, subject to postponement for non-index business days and certain market disruption events.
Even if the value of the underlying index appreciates prior to the valuation date but then drops by the valuation date, the payment
at maturity will be less, and may be significantly less, than it would have been had the payment at maturity been linked to the
value of the underlying index prior to such drop. Although the actual value of the underlying index on the stated maturity date
or at other times during the term of the securities may be higher than the final index value, the payment at maturity will be based
solely on the index closing value on the valuation date.
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§
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Investing in the securities is not equivalent to
investing in the underlying index. Investing in the securities is not equivalent to investing in the underlying index or its
component stocks. Investors in the securities will not have
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Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
voting rights or rights to receive dividends or other
distributions or any other rights with respect to the stocks that constitute the underlying index.
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§
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Adjustments to the underlying index could adversely
affect the value of the securities. The underlying index publisher may add, delete or substitute the stocks constituting the
underlying index or make other methodological changes that could change the value of the underlying index. The underlying index
publisher may discontinue or suspend calculation or publication of the underlying index at any time. In these circumstances, the
calculation agent will have the sole discretion to substitute a successor index that is comparable to the discontinued underlying
index and will be permitted to consider indices that are calculated and published by the calculation agent or any of its affiliates.
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§
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The rate we are willing to pay for securities of
this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous
to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the securities
in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities to be less
than the original issue price and will adversely affect secondary market prices. Assuming no change in market conditions or
any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities
in secondary market transactions will likely be significantly lower than the original issue price, because secondary market prices
will exclude the issuing, selling, structuring and hedging-related costs that are included in the original issue price and borne
by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any
dealer would charge in a secondary market transaction of this type as well as other factors.
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The inclusion of the costs of issuing, selling, structuring
and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer make the economic terms
of the securities less favorable to you than they otherwise would be.
However, because the costs associated with issuing,
selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 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 index, and to our secondary market credit spreads, it would do so based on
values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account
statements.
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§
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The estimated value of the securities is determined
by reference to our pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum
secondary market price. These pricing and valuation models are proprietary and rely in part on subjective views of certain
market inputs and certain assumptions about future events, which may prove to be incorrect. As a result, because there is no market-standard
way to value these types of securities, our models may yield a higher estimated value of the securities than those generated by
others, including other dealers in the market, if they attempted to value the securities. In addition, the estimated value on the
pricing date does not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase
your securities in the secondary market (if any exists) at any time. The value of your securities at any time after the date of
this document will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes
in market conditions. See also “The market price of the securities will be influenced by many unpredictable factors”
above.
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§
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The securities will not be listed on any securities
exchange and secondary trading may be limited. The securities will not be listed on any securities exchange. Therefore, there
may be little or no secondary market for the securities. MS & Co. may, but is not obligated to, make a market in the securities
and, if it once chooses to make a market, may cease doing so at any time. When it does make a market, it will generally do so for
transactions of routine secondary market size at prices based on its estimate of the current value of the securities, taking into
account its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed sale, the cost of unwinding
any related hedging positions, the time remaining to maturity and the likelihood that it will be able to resell the securities.
Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Since
other broker-dealers may not participate significantly in the secondary market for the securities, the price at which you may be
able to trade your securities is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any
time, MS & Co. were to cease making a market in the securities, it is likely that there would be no secondary market for the
securities. Accordingly, you should be willing to hold your securities to maturity.
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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
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Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
value, the trigger level and the final index value,
including whether the value of the underlying index has decreased to below the trigger level, and will calculate the amount of
cash you receive 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 final index value in the event of a market
disruption event or discontinuance of the 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 Securities—Postponement
of Valuation Date(s),” “—Alternate Exchange Calculation in case of an Event of Default” and “—Calculation
Agent and Calculations” in the accompanying product supplement. In addition, MS & Co. has determined the estimated value
of the securities on the pricing date.
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§
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Hedging and trading activity by our affiliates
could potentially adversely affect the value of the securities. One or more of our affiliates and/or third-party dealers expect
to carry out hedging activities related to the securities (and to other instruments linked to the underlying index or its component
stocks), including trading in the stocks that constitute the underlying index as well as in other instruments related to the underlying
index. As a result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging
strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation date approaches. Some of our affiliates
also trade the stocks that constitute the underlying index and other financial instruments related to the underlying index 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, and, therefore, could increase the trigger level, which
is the value at or above which the underlying index must close on the valuation date so that investors do not suffer a significant
loss on their initial investment in the securities. Additionally, such hedging or trading activities during the term of the securities,
including on the valuation date, could adversely affect the value of the underlying index on the valuation date, and, accordingly,
the amount of cash an investor will receive at maturity, if any.
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The U.S. federal income tax consequences of an
investment in the securities are uncertain. Please read the discussion under “Additional Information—Tax considerations”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for
Participation Securities (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences
of an investment in the securities. If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative
treatment, the timing and character of income on the securities might differ significantly from the tax treatment described in
the Tax Disclosure Sections. For example, under one possible treatment, the IRS could seek to recharacterize the securities as
debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities
every year at a “comparable yield” determined at the time of issuance and recognize all income and gain in respect
of the securities as ordinary income. Additionally, as discussed under “United States Federal Taxation—FATCA”
in the accompanying product supplement for Participation Securities, the withholding rules commonly referred to as “FATCA”
would apply to the securities if they were recharacterized as debt instruments. However, recently proposed regulations (the preamble
to which specifies that taxpayers are permitted to rely on them pending finalization) eliminate the withholding requirement on
payments of gross proceeds of a taxable disposition (other than amounts treated as “FDAP income,” as defined in the
accompanying product supplement for Participation Securities). The risk that financial instruments providing for buffers, triggers
or similar downside protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization
for comparable financial instruments that do not have such features. We do not plan to request a ruling from the IRS regarding
the tax treatment of the securities, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure
Sections.
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In 2007, the U.S. Treasury Department and the IRS
released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar
instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term
of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect
to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such
as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked;
the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding
tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which very generally
can operate to recharacterize certain long-term capital gain as
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
ordinary income and impose an interest charge. While
the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated
after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities,
possibly with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income
tax consequences of an investment in the securities, including possible alternative treatments, the issues presented by this notice
and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
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 October 19, 2020:
Bloomberg Ticker Symbol:
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SPX
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Current Index Value:
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3,426.92
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52 Weeks Ago:
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3,006.72
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52 Week High (on 9/2/2020):
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3,580.84
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52 Week Low (on 3/23/2020):
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2,237.40
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The following graph sets forth the daily index closing values
of the underlying index for each quarter in the period from January 1, 2015 through October 19, 2020. The related table sets forth
the published high and low closing values, as well as end-of-quarter closing values, of the underlying index for each quarter in
the same period. The index closing value of the underlying index on October 19, 2020 was 3,426.92. We obtained the information
in the table and graph below from Bloomberg Financial Markets, without independent verification. The underlying index has at times
experienced periods of high volatility. You should not take the historical values of the underlying index as an indication of its
future performance, and no assurance can be given as to the index closing value of the underlying index on the valuation date.
S&P 500®
Index
Daily Index Closing
Values
January 1, 2015
to October 19, 2020
|
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
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
|
Third Quarter
|
3,580.84
|
3,115.86
|
3,363.00
|
Fourth Quarter (through October 19, 2020)
|
3,534.22
|
3,348.44
|
3,426.92
|
“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
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Terms:
|
|
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:
|
S&P Dow Jones Indices LLC or any successor thereof
|
Postponement of maturity date:
|
If, due to a market disruption event or otherwise, the valuation date is postponed so that it falls less than two business days prior to the scheduled maturity date, the maturity date will be postponed to the second business day following the valuation date as postponed.
|
Denominations:
|
$10 per security and integral multiples thereof
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
Issuer notice to registered security holders, the trustee and the depositary:
|
In the event that the maturity date is postponed due to postponement
of the valuation date, the issuer shall give notice of such postponement and, once it has been determined, of the date to which
the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice of such postponement by
first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books, (ii)
to the trustee by facsimile confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its New York
office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile, confirmed by mailing
such notice to the depositary by first class mail, postage prepaid. Any notice that is mailed to a registered holder of the securities
in the manner herein provided shall be conclusively presumed to have been duly given to such registered holder, whether or not
such registered holder receives the notice. The issuer shall give such notice as promptly as possible, and in no case later than
(i) with respect to notice of postponement of the maturity date, the business day immediately preceding the scheduled maturity
date, and (ii) with respect to notice of the date to which the maturity date has been rescheduled, the business day immediately
following the actual valuation date.
The issuer shall, or shall cause the calculation agent
to, (i) provide written notice to the trustee and to the depositary of the amount of cash, if any, to be delivered with respect
to the securities, on or prior to 10:30 a.m. (New York City time) on the business day preceding the maturity date, and (ii) deliver
the aggregate cash amount, if any, 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
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
Additional Information About the Securities
Additional Information:
|
|
Minimum ticketing size:
|
$1,000 / 100 securities
|
Tax considerations:
|
Although there is uncertainty
regarding the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in
the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a security
should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
However, because our counsel’s opinion is based in part on market conditions as of the date of this document, it is subject
to confirmation on the pricing date.
Assuming this treatment
of the securities is respected and subject to the discussion in “United States Federal Taxation” in the accompanying
product supplement for Participation Securities, the following U.S. federal income tax consequences should result based on current
law:
§ A
U.S. Holder should not be required to recognize taxable income over the term of the securities prior to settlement, other than
pursuant to a sale or exchange.
§ Upon
sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the
amount realized and the U.S. Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain or
loss if the investor has held the securities for more than one year, and short-term capital gain or loss otherwise.
In 2007,
the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on
the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in
particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks
for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status
of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which
income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these
instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize
certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate
transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues
could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect.
As discussed
in the accompanying product supplement for Participation Securities, Section 871(m) of the Internal Revenue Code of 1986, as amended,
and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty
rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments
linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain
exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of one or more
Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”).
However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2023 that do not have
a delta of one with respect to any Underlying Security. Based on the terms of the securities and current market conditions, we
expect that the securities will not have a delta of one with respect to any Underlying Security on the pricing date. However, we
will provide an updated determination in the final pricing supplement. Assuming that the securities do not have a delta of one
with respect to any Underlying Security, our counsel is of the opinion that the securities should not be Specified Securities and,
therefore, should not be subject to Section 871(m).
Our determination
is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may
depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying Security.
If withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld. You
should consult your tax adviser regarding the potential application of Section 871(m) to the securities.
Both U.S.
and non-U.S. investors considering an investment in the securities should read the discussion under “Risk Factors”
in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for
Participation Securities and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an
investment in the securities, including possible alternative treatments, the issues presented by the aforementioned notice and
any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
The
discussion in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled
“United States Federal Taxation” in the accompanying product supplement for Participation Securities, insofar as they
purport to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full
opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
Use of proceeds and hedging:
|
The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $10 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described on page 2 above comprise the agent’s commissions and
the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we will hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third-party dealers.
We expect our hedging counterparties to take positions in stocks of the underlying index, in futures and/or options contracts
on the underlying index or any component stocks of the underlying index listed on major securities markets, or in any other securities
or instruments that they may wish to use in connection with such hedging. Such purchase activity could potentially increase the
value of the underlying index on the pricing date, and, therefore, could increase the trigger level, which is the value at or
above which the underlying index must close on the valuation date so that investors do not suffer a significant loss on their
initial investment in the securities. In addition, through our affiliates, we are likely to modify our hedge position throughout
the term of the securities, including on the valuation date, by purchasing and selling the stocks constituting the underlying
index, futures or options contracts on the underlying index or its component stocks listed on major securities markets or positions
in any other available securities or instruments that we may wish to use in connection with such hedging activities. As a result,
these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the valuation date approaches. We cannot give any assurance that
our hedging activities will not affect the value of the underlying index, and, therefore, adversely affect the value of the securities
or the payment you will receive at maturity, if any. For further information on our use of proceeds and hedging, see “Use
of Proceeds and Hedging” in the accompanying product supplement for Participation Securities.
|
Benefit plan investor considerations:
|
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Section 4975 of the Code generally prohibit
transactions between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA
or the Code would likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect to which
MS & Co. or any of its affiliates is a service provider or other party in interest, unless the securities are acquired pursuant
to an exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction”
rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless
exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Section 4975(d)(20) of the Code provide an exemption for the purchase and sale of securities and the related lending
transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority
or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further
that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction
(the so-called “service provider” exemption). There can be no assurance that any of these class or statutory exemptions
will be available with respect to transactions involving the securities.
Because we may be considered a party in interest with
respect to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets
include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or
any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive
relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase,
holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee
or holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and
holding of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf
of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject
to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section
4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition of these securities
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
|
will not constitute or result in a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The securities are contractual financial instruments. The financial
exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the securities. The securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the securities.
Each purchaser or holder of any securities acknowledges and agrees
that:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these securities should consult
and rely on their own counsel and advisers as to whether an investment in these securities is appropriate.
However, individual retirement accounts, individual
retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their
accounts, will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee
of Morgan Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as,
for example, an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
|
Additional considerations:
|
Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities, either directly or indirectly.
|
Supplemental information regarding plan of distribution; conflicts of interest:
|
The agent may distribute the securities through Morgan Stanley
Smith Barney LLC (“Morgan Stanley Wealth Management”), as selected dealer, or other dealers, which may include Morgan
Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley AG. Morgan Stanley Wealth Management, MSIP and
Bank Morgan Stanley AG are affiliates of ours. Selected dealers, including Morgan Stanley Wealth Management, and their financial
advisors will collectively receive from the agent, Morgan Stanley & Co. LLC, a fixed sales commission of $0.10 for each security
they sell. In addition, Morgan Stanley Wealth Management will receive a structuring fee of $0.025 for each security.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities such
that for each security the estimated value on the pricing date will be no lower than the minimum level described in “Investment
Summary” on page 2.
MS & Co. will conduct this offering in compliance
with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as
FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.
MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan
of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement
for Participation Securities.
|
Morgan Stanley Finance LLC
Trigger Participation Securities Based on the Performance of the S&P 500® Index due November 1, 2022
Principal at Risk Securities
Where you can find more information:
|
Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for Participation Securities and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration
statement, the product supplement for Participation Securities, the index supplement and any other documents relating to this offering
that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering.
You may get these documents without cost by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, Morgan Stanley or
MSFL will arrange to send you the product supplement for Participation Securities, index supplement and prospectus if you so request
by calling toll-free 800-584-6837.
You may access these documents on the SEC web site at
www.sec.gov.as follows:
Product Supplement for Participation Securities dated November 16, 2017
Index
Supplement dated November 16, 2017
Prospectus
dated November 16, 2017
Terms used but not defined in this document are defined
in the product supplement for Participation Securities, in the index supplement or in the prospectus.
|
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