January 2017
Preliminary Terms No. 1,283
Registration Statement Nos. 333-200365;
333-200365-12
Dated January 20, 2017
Filed pursuant to Rule 433
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S.
and International Equities
Contingent Income
Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
Fully and Unconditionally
Guaranteed by Morgan Stanley
All Payments on the Securities Based on the Worst
Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
The securities
offered 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 after the first two years. For the first two years, the securities will pay a fixed quarterly coupon
at the rate specified below. Thereafter, the securities will pay a contingent quarterly coupon
but only if
the index closing
value of
each
of the S&P 500
®
Index
and
the EURO STOXX 50
®
Index is
at or above
its respective
initial index value
on the related observation date. If the index closing value of
either
underlying
index is
less than
its
initial index value
on any observation date after the first two years, we will pay no interest
for the related quarterly period. However, if the index closing value of each underlying index is
greater than or equal to
its respective
initial index value
on an observation date after the first two years, investors will receive, in addition
to the contingent quarterly coupon for that quarterly period, any previously unpaid contingent quarterly coupons from prior observation
dates. In addition, starting on the second anniversary of the original issue date, 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 quarterly coupon
(including any contingent quarterly coupon(s) with respect to any prior observation date(s)
for which a contingent quarterly coupon was not paid)
. At maturity, i
f
the securities have not previously been redeemed and the final index value of
each
underlying index is
greater than or
equal to
the downside threshold level of 50% of the respective
initial index value
, the payment at maturity will be
the stated principal amount. If the final index value of
each
underlying index is also
greater than or equal to
its
respective
initial index value
, investors will also receive the related contingent quarterly coupon and any previously unpaid
contingent quarterly coupons. If, however, the final index value of
either
underlying index is
less than
its 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
50% of the stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept the risk of losing their entire initial investment
and also the risk of not receiving any quarterly coupons after the first two years.
Because all payments on the securities
are based on the worst performing of the underlying indices, a decline beyond the respective initial index value 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. Because the redemption
determination dates will also be coupon observation dates, and because the threshold for both early redemption and the payment
of coupons will be the initial index value of each underlying index, if the securities are not automatically redeemed following
any redemption determination date, no contingent quarterly coupon will be payable with respect to that quarterly period. These
long-dated securities are for investors who are willing to risk their principal and seek an opportunity to earn interest at a potentially
above-market rate in exchange for the risk of receiving no quarterly coupons after the first two years, with no possibility of
being called out of the securities until after the initial 2-year non-call period. 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.
SUMMARY TERMS
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying indices:
|
S&P 500
®
Index (the “SPX Index”) and EURO STOXX 50
®
Index (the “SX5E Index”)
|
Aggregate principal amount:
|
$
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security (see “Commissions and issue price” below)
|
Pricing date:
|
January 23, 2017
|
Original issue date:
|
January 26, 2017 (3 business days after the pricing date)
|
Maturity date:
|
January 26, 2027
|
Quarterly coupon:
|
Years 1-2: On each coupon payment date through January 2019,
a fixed coupon at an annual rate of 9.85% (corresponding to approximately $24.625 per quarter per security) is paid quarterly.
Years 3-10: Beginning with the April 2019 coupon payment
date, a
contingent
coupon plus any previously unpaid contingent quarterly coupons with respect to any prior observation
dates 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 initial index value 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 9.85%
per annum
for each interest payment
period for each applicable observation date.
If the contingent quarterly coupon is not paid on any
coupon payment date after the first two years (because the index closing value of either underlying index is less than its respective
initial index value on the related observation date), such unpaid contingent quarterly coupon will be paid on a later coupon payment
date but only if the index closing value of each underlying index on such later observation date is greater than or equal to its
respective initial index value;
provided, however,
in the case of any such payment of a previously unpaid contingent quarterly
coupon, no additional interest shall accrue or be payable in respect of such unpaid contingent quarterly coupon from and after
the end of the original interest period for such unpaid contingent quarterly coupon. You will not receive such unpaid contingent
quarterly coupons if the index closing value of either underlying index is less than its respective initial index value on each
subsequent observation date. If the index closing value of either underlying index is less than its respective initial index value
on each observation date, you will not receive any quarterly coupons after the first two years.
Because the redemption determination dates will also be
coupon observation dates, and because the threshold for both early redemption and the payment of coupons will be the initial index
value of each underlying index, if the securities are not automatically redeemed following any redemption determination date, no
contingent quarterly coupon will be payable with respect to that quarterly period.
|
Payment at maturity:
|
If the securities have not been automatically redeemed prior
to maturity, that will necessarily mean that the index closing value of at least one underlying index was below its initial index
value on every quarterly observation date during years 3 through 10 of the term of the securities, and therefore no contingent
quarterly coupon payments will have been made in years 3 through 10 of the term of the securities. In such a case, 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.
If the final index value of
each
underlying index is also
greater than or equal to
its respective
initial index
value
, investors will also receive the contingent quarterly coupon with respect to the final observation date and the previously
unpaid contingent quarterly coupons with respect to the prior observation dates.
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 50% of the stated principal amount of the securities and could be zero.
|
|
Terms continued on the following page
|
Agent:
|
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.”
|
Estimated value on the pricing date:
|
Approximately $997.10 per security, or within $30.00 of that estimate. See “Investment Summary” beginning on page 3.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions
(1)
|
Proceeds to us
(2)
|
Per security
|
$1,000
|
$
|
$
|
Total
|
$
|
$
|
$
|
|
(1)
|
Selected dealers and
their financial advisors will collectively receive from the agent, Morgan Stanley &
Co. LLC, a fixed sales commission of $ 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.
|
|
(2)
|
See “Use of proceeds
and hedging” on page 27.
|
The securities involve risks not associated
with an investment in ordinary debt securities. See “Risk Factors” beginning on page 13.
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 bank deposits and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency, 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
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.
Product Supplement for Auto-Callable Securities dated February 29, 2016
Index Supplement dated February 29, 2016
Prospectus dated February 16, 2016
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Terms continued from previous page:
|
Early redemption:
|
The securities are not subject to automatic early redemption until
the second anniversary of the original issue date.
Following the initial 2-year non-call period, if, on any redemption determination
date, beginning on the third scheduled business day preceding January 26, 2019, 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.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold
plus
(ii) the related quarterly coupon (including any contingent quarterly coupon(s) with respect to any prior observation date(s) for which a contingent quarterly coupon was not paid).
|
Redemption determination dates:
|
Quarterly, on the third scheduled business day preceding each scheduled early redemption date, beginning on the third scheduled business day preceding January 26, 2019, subject to postponement for non-index business days and certain market disruption events.
|
Early redemption dates:
|
Starting on January 26, 2019, quarterly, on the 26th day of each January, April, July and October;
provided
that 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
|
Downside threshold level:
|
With respect to the SPX Index: , which is 50% of its initial
index value
With respect to the SX5E Index: , which is 50% of its initial
index value
|
Initial index value:
|
With respect to the SPX Index: , which is its index closing value
on the pricing date
With respect to the SX5E Index: , which is its index closing
value on the pricing date
|
Final index value:
|
With respect to each index, the respective index closing value on the final observation date
|
Worst performing underlying:
|
The underlying index with the larger percentage decrease from the respective initial index value to the respective final index value
|
Index performance factor:
|
Final index value
divided by
the initial index value
|
Coupon payment dates:
|
Quarterly, on the 26th day of each January, April, July and October, beginning April 26, 2017;
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;
provided
further that the contingent quarterly coupon, if any, with respect to the final observation date will be paid on the maturity date
|
Observation dates:
|
The third scheduled business day preceding each scheduled coupon payment date, beginning with the April 26, 2019 coupon payment date, subject to postponement for non-index business days and certain market disruption events. We also refer to the third scheduled business day preceding the scheduled maturity date as the final observation date.
|
CUSIP / ISIN:
|
61768CEF0 / US61768CEF05
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
Contingent Income Auto-Callable Securities due January 26, 2027,
With 2-year Initial Non-Call Period All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index (the “securities”) do not provide for the regular payment of interest
after the first two years. For the first two years, the securities will pay a fixed quarterly coupon at the rate specified below.
Thereafter, 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
initial index value
on the related observation date.
If
the index closing value of
either
underlying index is
less than
its
initial index value
on any observation
date after the first two years, we will pay no interest for the related quarterly period. However, if the index closing value of
each underlying index is
greater than or equal to
its respective
initial index value
on an observation date, investors
will receive, in addition to the contingent quarterly coupon for that quarterly period, any previously unpaid contingent quarterly
coupons from prior observation dates
. You will not receive such unpaid contingent quarterly coupon if the index closing
value of
either
underlying index is
less than
its respective
initial index value
on each subsequent observation
date. If the index closing value of
either
underlying index is
less than
its respective
initial index value
on
each observation date, you will not receive any contingent quarterly coupon after the first two years. We refer to the quarterly
coupons after the first two years as contingent, because there is no guarantee that you will receive a coupon payment on any coupon
payment date after the first two years. Even if both underlying indices were to be at or above their respective initial index values
on some quarterly observation dates after the first two years, one or both underlying indices may fluctuate below the respective
initial index value(s) on others, and they may not both close at or above their respective initial index values on any subsequent
observation date, in which case you will not receive payment of any previously unpaid contingent quarterly coupons. 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
50% of the respective initial index value, which we refer to as the 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 50% 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 after the first two years.
Maturity:
|
10 years
|
Quarterly coupon:
|
Years 1-2: On each coupon payment date through January 2019,
a fixed coupon at an annual rate of 9.85% (corresponding to approximately $24.625 per quarter per security) is paid quarterly.
Years 3-10: Beginning with the April 2019 coupon payment date,
a
contingent
coupon plus any previously unpaid contingent quarterly coupons with respect to any prior observation dates
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 initial index value 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 9.85%
per annum
for each interest payment
period for each applicable observation date.
If the contingent quarterly coupon is not paid on
any coupon payment date after the first two years (because the index closing value of either underlying index is less than its
respective initial index value on the related observation date), such unpaid contingent quarterly coupon will be paid on a later
coupon payment date but only if the index closing value of each underlying index on such later observation date is greater than
or equal to its respective initial index value. You will not receive such unpaid contingent quarterly coupon if the index closing
value of either underlying index is less than its respective initial index value on each subsequent observation date. If the index
closing value of either underlying index is less than its respective initial index value on each observation date, you will not
receive any quarterly coupon after the first two years.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Automatic early redemption on or after January 26, 2019:
|
Starting on January 26, 2019, 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
plus
the related quarterly coupon (including any contingent quarterly coupon(s) with respect to any prior observation date(s) for which a contingent quarterly coupon was not paid). No further payments will be made on the securities once they have been redeemed.
|
Payment at maturity:
|
If the securities have not been automatically redeemed prior
to maturity, that will necessarily mean that the index closing value of at least one underlying index was below its initial index
value on every quarterly observation date during years 3 through 10 of the term of the securities, and therefore no contingent
quarterly coupon payments will have been made in years 3 through 10 of the term of the securities. In such a case, the payment
at maturity will be determined as follows:
If the final index value of
each
underlying index is
greater
than or equal to
the respective downside threshold level, investors will receive at maturity the stated principal amount. If
the final index value of
each
underlying index is also
greater than or equal to
its respective
initial index value
,
investors will also receive the contingent quarterly coupon with respect to the final observation date and the previously unpaid
contingent quarterly coupons with respect to the prior observation dates.
If the final index value of
either
underlying
index is
less than
its downside 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 50% of the stated principal amount of the securities and could be zero. No quarterly coupon will
be payable at maturity, and investors will not receive payment of the previously unpaid contingent quarterly coupons.
Accordingly,
investors in the securities must be willing to accept the risk of losing their entire initial investment.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
The original issue price of each security is $1,000. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date will be less than $1,000. We estimate that the value of each security
on the pricing date will be approximately $997.10, or within $30.00 of that estimate. Our estimate of the value of the securities
as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date, we take into account
that the securities comprise both a debt component and a performance-based component linked to the underlying indices. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying indices, instruments based on the underlying indices, volatility and other factors including current and expected interest
rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our
conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities, including
the quarterly coupon rate 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 12 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 January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Key Investment Rationale
The securities provide for fixed quarterly coupon payments at
the rate specified herein for the first two years. Thereafter, the securities do not provide for the regular payment of interest
and instead will pay a contingent quarterly coupon
but only if
the index closing value of each underlying index is
at
or above
its respective
initial index value
on the related observation date. If the index closing value of
either
underlying index is
less than
the respective
initial index value
on any observation date after the first two
years, we will pay no interest for the related quarterly period. However, if the index closing value of
each
underlying
index is
greater than or equal to
its respective
initial index value
on an observation date, investors will receive,
in addition to the contingent quarterly coupon for that quarterly period, any previously unpaid contingent quarterly coupons from
prior observation dates. The securities are for investors who are willing to risk their principal and seek an opportunity to earn
interest at a potentially above-market rate in exchange for the risk of receiving no quarterly coupons after the first two years,
with no possibility of being called out of the securities until after the initial 2-year non-call period. Because the redemption
determination dates will also be coupon observation dates, and because the threshold for both early redemption and the payment
of coupons will be the initial index value of each underlying index, if the securities are not automatically redeemed following
any redemption determination date, no contingent quarterly coupon will be payable with respect to that quarterly period.
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
coupon may be payable in none of, or some but not all of, the quarterly periods after the first two years and the payment at maturity
may be less than 50% of the stated principal amount of the securities and may be zero.
Scenario 1: The securities are redeemed prior to maturity
|
Investors receive the 9.85% per annum fixed quarterly coupon
for each interest period during the first two years of the term of the securities.
Starting on January 26, 2019, when each underlying index
closes at or above its initial index value on a quarterly redemption determination date, the securities will be automatically
redeemed for the stated principal amount
plus
the related quarterly coupon (including any contingent quarterly coupon(s)
with respect to any prior observation date(s) for which a contingent quarterly coupon was not paid).
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
|
Investors receive the 9.85% per annum fixed quarterly coupon
for each interest period during the first two years of the term of the securities. This scenario assumes that, thereafter, each
underlying index closes below the respective initial index value on every quarterly redemption determination date. Consequently,
the securities are not automatically redeemed, and investors do not receive any contingent quarterly coupons after the first two
years. Because the securities were not automatically redeemed prior to maturity, the index closing value of at least one underlying
index must have been below the respective initial index value on every quarterly observation date during years 3 through 10 of
the term of the securities. Therefore, investors do not receive any coupon payments in years 3 through 10 of the term of the securities.
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. If the final
index value of each underlying index is also greater than or equal to its respective initial index value, investors will also
receive the contingent quarterly coupon with respect to the final observation date and the previously unpaid contingent quarterly
coupons with respect to the prior observation dates. Note that in order for this to occur, the final index values of
both
underlying indices would have to be greater than or equal to their respective
initial index values
, although the index
closing value of at least one underlying index was below its initial index value on every prior quarterly observation date during
years 3 through 10 of the term of the securities.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
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
|
Investors receive the 9.85% per annum fixed quarterly coupon
for each interest period during the first two years of the term of the securities. This scenario assumes that, thereafter, each
underlying index closes below the respective initial index value on every quarterly redemption determination date. Consequently,
the securities are not automatically redeemed, and investors do not receive any contingent quarterly coupons after the first two
years. Because the securities were not automatically redeemed prior to maturity, the index closing value of at least one underlying
index must have been below the respective initial index value on every quarterly observation date during years 3 through 10 of
the term of the securities. Therefore, investors do not receive any coupon payments in years 3 through 10 of the term of the securities.
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 50% of the stated principal amount and could be zero. No coupon will be paid at maturity
in this scenario. Additionally, investors will not receive the contingent quarterly coupon with respect to the final observation
date, and will not receive payment of the previously unpaid contingent quarterly coupons from the prior observation dates.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
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 (starting in January 2019) and (3) the final index values. Please see “Hypothetical
Examples” beginning on page 10 for illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Quarterly Coupons
After the First Two Years (Beginning with the April 2019 Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Starting
in January 2019)
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
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 10.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
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 the securities have not been automatically redeemed early. The following examples are for illustrative purposes only. For the
first two years, you will receive a fixed quarterly coupon at a rate of 9.85% per annum regardless of the performance of the underlying
indices. Whether you receive a contingent quarterly coupon after the first two years 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 and downside threshold level for each underlying index will be determined on the pricing date. All payments on the
securities 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:
Quarterly Coupon:
|
Years 1-2: On each coupon payment date through January 2019,
a fixed coupon at an annual rate of 9.85% (corresponding to approximately $24.625 per quarter per security*) is paid quarterly.
Years 3-10 Beginning with the April 2019 coupon payment
date, a
contingent
coupon plus any previously unpaid contingent quarterly coupons with respect to any prior observation
dates 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 initial index value 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 9.85%
per annum
for
each interest payment period for each observation date (corresponding to approximately $24.625 per quarter per security*).
|
Automatic Early Redemption (starting in January 2019):
|
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
plus
the related quarterly coupon (including any contingent quarterly coupon(s) with respect to any prior observation date(s) for which a contingent quarterly coupon was not paid).
|
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. If the final
index value of
each
underlying index is also
greater than or equal to
its respective
initial index value
,
investors will also receive the contingent quarterly coupon with respect to the final observation date and the previously unpaid
contingent quarterly coupons with respect to the prior observation dates.
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 50% of the stated principal amount of the securities and could be zero.
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Index Value:
|
With respect to the SPX Index: 2,000
With respect to the SX5E Index: 3,000
|
Hypothetical Downside Threshold Level:
|
With respect to the SPX Index: 1,000, which is 50% of the hypothetical
initial index value for such index
With respect to the SX5E Index: 1,500, which is 50%
of the hypothetical initial index value for such index
|
* The actual 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 $24.625 is used in these examples for ease of analysis.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date during years 3-10:
|
Index Closing Value
|
Contingent Quarterly Coupon
|
|
SPX Index
|
SX5E Index
|
|
Hypothetical Observation Date 1
|
2,200 (
at or above
the initial index value)
|
3,800 (
at or above
the initial index value)
|
$24.625
|
Hypothetical Observation Date 2
|
1,200 (
below
the initial index value)
|
3,400 (
at or above
the initial index value)
|
$0
|
Hypothetical Observation Date 3
|
2,250 (
at or above
the initial index value)
|
3,300 (
at or above
the initial index value)
|
Contingent quarterly coupon with respect to hypothetical observation date 3 and the previously unpaid contingent quarterly coupon with respect to hypothetical observation date 2 = $24.625 + $24.625= $49.25
|
Hypothetical Observation Date 4
|
900 (
below
the initial index value)
|
2,800 (
below
the initial index value)
|
$0
|
On hypothetical observation date 1, both the SPX Index and the
SX5E Index close at or above their respective initial index values. Therefore a contingent quarterly coupon of $24.625 is paid
on the relevant coupon payment date.
On hypothetical observation date 2, one underlying index closes
at or above its initial index value, but the other underlying index closes below its initial index value. Therefore, no contingent
quarterly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 3, both the SPX Index and the
SX5E Index close at or above their respective initial index values. Therefore a contingent quarterly coupon of $24.625 and the
previously unpaid contingent quarterly coupon with respect to hypothetical observation date 2 are paid on the relevant coupon payment
date.
On hypothetical observation date 4, each underlying index closes
below its respective initial index value, and, accordingly, no contingent quarterly coupon is paid on the relevant coupon payment
date.
If the contingent quarterly coupon is not paid on any coupon
payment date (because the index closing value of either underlying index is less than its respective initial index value on the
related observation date), such unpaid contingent quarterly coupon will be paid on a later coupon payment date but only if the
index closing value of each underlying index on such later observation date is greater than or equal to its respective initial
index value. You will not receive such unpaid contingent quarterly coupons if the index closing value of either underlying index
is less than its respective initial index value on each subsequent observation date. If the index closing value of either underlying
index is less than its respective initial index value on each observation date, you will not receive any quarterly coupons after
the first two years.
How to calculate the payment at maturity (if
the securities have not been automatically redeemed):
Starting in January 2019, 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 (i) the stated principal amount for each
security you hold
plus
(ii) the related quarterly coupon (including any contingent quarterly coupon(s) with respect to any
prior observation date(s) for which a contingent quarterly coupon was not paid).
The examples below illustrate how to calculate the payment at
maturity if the securities have not been automatically redeemed prior to maturity. If no early redemption has taken place prior
to the maturity date, that will necessarily mean that no contingent quarterly coupon payments will have been made in years 3 through
10 of the term of the securities.
|
Final Index Value
|
Payment at Maturity
|
|
SPX Index
|
SX5E Index
|
|
Example 1:
|
1,500 (
at or above the
downside threshold level and the initial index value)
|
2,900 (
at or above the
downside threshold level but
below
the initial index value)
|
The stated principal amount
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Example 2:
|
800 (
below
downside threshold level)
|
2,500 (
at or above the
downside threshold level)
|
$1,000 x index performance factor of the worst performing underlying index =
$1,000 x (800 / 2,000) = $400
|
Example 3:
|
1,400 (
at or above the
downside threshold level)
|
1,200 (
below
the downside threshold level)
|
$1,000 x (1,200 / 3,000) = $400
|
Example 4:
|
800 (
below
the downside threshold level)
|
900 (
below
the downside threshold level)
|
$1,000 x (900 / 3,000) = $300
|
Example 5:
|
400 (
below
the downside threshold level)
|
1,200 (
below
the downside threshold level)
|
$1,000 x (400 / 2,000) = $200
|
Example 6:
|
2,200 (
at or above
the downside threshold level and the initial index value)
|
3,200 (
at or above the
downside threshold level and the initial index value)
|
The stated principal amount + the contingent quarterly coupon with respect to the final observation date + the previously unpaid contingent quarterly coupons with respect to the prior observation dates. For more information, please see above under “How to determine whether a contingent quarterly coupon is payable with respect to an observation date.”
|
In example 1, the final index value of one underlying index is
above its respective downside threshold level and initial index value, while the final index value of the other underlying index
is above its respective downside threshold level but below its respective initial index value. Therefore, investors receive at
maturity only the stated principal amount of the securities. Investors do not receive the contingent quarterly coupon for the final
quarterly period, and do not receive the previously unpaid contingent quarterly coupons with respect to the prior observation dates.
Therefore, in this example, investors do not receive contingent quarterly coupon payments for any quarterly period during years
3 through 10 of the term of the securities.
In examples 2 and 3, the final index value of one underlying
index is at or above its downside threshold level, but the final index value of the other underlying index is below its 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
times
the index performance factor of the worst performing
underlying index. Moreover, investors do not receive the contingent quarterly coupon for the final quarterly period, and do not
receive the previously unpaid contingent quarterly coupons with respect to the prior observation dates. Therefore, in this example,
investors do not receive contingent quarterly coupon payments for any quarterly period during years 3 through 10 of the term of
the securities.
Similarly, in examples 4 and 5, the final index value of each
underlying index is below its respective downside threshold level, and investors receive at maturity an amount equal to the stated
principal amount
times
the index performance factor of the worst performing underlying index. In example 4, the SPX Index
has declined 60% from its initial index value to its final index value, while the SX5E Index has declined 70% from its initial
index value to its final index value. Therefore, the payment at maturity equals the stated principal amount
times
the index
performance factor of the SX5E Index, which is the worst performing underlying index in this example. In example 5, the SPX Index
has declined 80% from its initial index value to its final index value, while the SX5E 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 SPX 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, and do not receive the previously unpaid contingent quarterly coupons with respect
to the prior observation dates. Therefore, in this example, investors do not receive contingent quarterly coupon payments for any
quarterly period during years 3 through 10 of the term of the securities.
In example 6, the final index values of both the SPX Index and
the SX5E Index are at or above their respective downside threshold levels and initial index values. Therefore, investors receive
at maturity the stated principal amount of the securities, and the contingent quarterly coupon with respect to the final observation
date and the previously unpaid contingent quarterly coupons with respect to the prior observation dates. Note that in order for
this to occur, the final index values of
both
underlying indices would have to be greater than or equal to their respective
initial index values
, although the index closing value of at least one underlying index was below its initial index value
on every prior quarterly observation date during years 3 through 10 of the term of the securities. Investors do not participate
in the 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 $500 per security and could be zero.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
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 downside threshold level of 50% 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
times
the index performance factor
of the worst performing underlying index.
In this case, the payment at maturity will be less than 50% of the stated principal
amount and could be zero.
|
|
§
|
After the first two years, 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 after the first two years. For the first two years, the securities will pay
a fixed quarterly coupon at the rate specified herein. Thereafter, 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
initial index value
on the related observation date. If the index closing value of
either
underlying index is lower than its
initial
index value
on the relevant observation date for any interest period after the first two years, we will pay no coupon on the
applicable coupon payment date. However, if the contingent quarterly coupon is not paid on any coupon payment date because the
index closing value of either underlying index is less than its respective
initial index value
on the related observation
date, such unpaid contingent quarterly coupon will be paid on a later coupon payment date
but only if
the index closing
value of each underlying index on such later observation date is greater than or equal to its respective
initial index value
.
Therefore, you will not receive such unpaid contingent quarterly coupon if the index closing value of
either
underlying
index is less than its respective
initial index value
on each subsequent observation date.
If the index closing value
of either underlying index is less than its respective initial index value on each observation date, you will not receive any quarterly
coupon during years 3 through 10 of the term of the securities.
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 the issuer of comparable maturity.
|
|
§
|
If the securities are not automatically redeemed prior to the maturity
date, you will have received no contingent quarterly coupon payments, during years 3 through 10 of the term of the securities.
Because the redemption determination dates (other than the first redemption determination
date) will also be coupon observation dates, and because the threshold for both early redemption and the payment of coupons will
be the initial index value of each underlying index, if the securities are not automatically redeemed following any redemption
determination date, no contingent quarterly coupon will be payable with respect to that quarterly period. Therefore, if the securities
are not automatically redeemed prior to, and remain outstanding until, the maturity date, that will necessarily mean that you will
have received no contingent quarterly coupon payments during years 3 through 10 of the term of the securities. Under these circumstances,
your only possibility of receiving payments in respect of the missed coupon payments during those years will be if the index values
of the underlying indices recover during the last three months of the term of the securities such that
both
final
index values are greater than or equal to their respective
initial index values
.
If this does not occur, you will have received no coupon payments for 8 of the 10 years of the term of the securities.
|
|
§
|
You are exposed to the price risk of both underlying indices, with
respect to both the contingent quarterly coupons after the first two years, if any, and the payment at maturity, if any.
Your
return on the securities is not linked to a basket consisting of both 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 both
underlying indices. Poor performance by
either
underlying index during years 3
through 10 of the term of the securities
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
will
negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying index. To
receive
any
contingent
quarterly coupons,
each
underlying index must close at or above its respective
initial index value 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 50% of the stated principal amount and could be zero. Accordingly, your investment is subject
to the price risk of both underlying indices.
|
§
|
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 initial index value on any observation date, or 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, or any previously unpaid coupons, and that you will suffer a significant loss on your investment.
In addition, because each underlying index must close at or above its initial index value on a quarterly determination date in
order for the securities to be called prior to maturity, the securities are less likely to be called on any redemption determination
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 during years 3-10 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 initial
index value for such index, you will receive no coupon for the related interest period, or any previously unpaid coupons, even
if the level of such underlying index was at or above its respective initial index value on other days during that interest period
and even if the index closing value of the other underlying index is at or above the initial index value for such index.
|
|
§
|
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 fixed quarterly coupons, and the contingent quarterly coupons, if any, that are paid with respect to each observation date
during years 3-10 on which the index closing value of each underlying index is greater than or equal to its respective initial
index value, 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
initial index value and downside threshold level, will affect the value of the securities more than any other factors. Other factors
that may influence the value of the securities include:
|
|
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 initial index value 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,
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
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
|
|
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. Generally,
the longer the time remaining to maturity, the more the market price of the securities will be affected by the other factors described
above. In particular, if either underlying index has closed below its initial index value, and especially if either underlying
has closed near or below its 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 initial index value for such index on each observation date so that you will receive no return on your investment after the
first two years, and one or both underlying indices may close below the respective downside threshold level(s) on the final observation
date so that you will lose more than 50% or all of your initial investment in the securities. There can be no assurance that the
index closing value of each underlying index will be at or above the respective initial index value 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 “S&P 500
®
Overview” and “EURO STOXX 50
®
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.
|
|
§
|
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.
|
|
§
|
There are risks associated with investments in securities linked to the value of foreign equity securities.
As the EURO
STOXX 50
®
Index is one of the underlying indices, the securities are linked to the value of foreign equity securities.
Investments in securities linked to the value of foreign equity securities involve risks associated with the securities markets
in those countries, including risks of volatility in those markets, governmental intervention in those markets and cross-shareholdings
in companies in certain countries. Also, there is generally less publicly available information about foreign companies than about
U.S. companies that are subject to the reporting requirements of the United States Securities and Exchange Commission, and foreign
companies are subject to accounting, auditing and
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
financial reporting standards and
requirements different from those applicable to U.S. reporting companies. The prices of securities issued in foreign markets may
be affected by political, economic, financial and social factors in those countries, or global regions, including changes in government,
economic and fiscal policies and currency exchange laws. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or
impossible at times. Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United
States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency
and balance of payment positions.
|
§
|
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.
|
|
§
|
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. However, under no circumstances will the securities
be redeemed in the
first two years
of
the term of the securities.
|
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be limited
.
A
ccordingly, you should be willing to hold your securities for the entire 10-year term of the securities.
The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary
market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any,
at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it
is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
|
|
§
|
The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary
market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well
as other factors.
|
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 12 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
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
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 notes in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
Hedging and trading activity by our affiliates could potentially affect the value of the securities.
One or more of
our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other instruments
linked to the underlying indices or their component stocks), including trading in the stocks that constitute the underlying indices
as well as in other instruments related to the underlying indices. As a result, these entities may be 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 afilliates also trade the stocks that constitute the underlying
indices and other financial instruments related to the underlying indices on a regular basis as part of their general broker-dealer
and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the
initial index value of an underlying index, and, therefore, could increase (i) the value at or above which such underlying index
must close on the redemption determination dates so that the securities are redeemed prior to maturity for the early redemption
payment (depending also on the performance of the other underlying index), (ii) the value at or above which such underlying index
must close on the observation dates in order for you to earn a contingent quarterly coupon (depending also on the performance of
the other underlying index) and (iii) the downside threshold level for such underlying index, which is the value 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 and the downside threshold level
for each underlying index, whether you receive a contingent quarterly coupon on each coupon payment date after the first two years
and/or at maturity, whether you receive any previously unpaid contingent quarterly coupons, 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; Alternation 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.
|
|
§
|
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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
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, and/or the amount
payable at maturity, 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 initial index value or downside threshold level, as applicable (depending also on the performance of the other underlying
index).
|
§
|
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 Provisions—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 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 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 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 issued 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 (as defined below) 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
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
S&P 500
®
Index Overview
The S&P 500
®
Index, which is calculated, maintained
and published by Standard & Poor’s Financial Services LLC (“S&P”), consists of 500 component stocks 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 January 19, 2017:
Bloomberg Ticker Symbol:
|
SPX
|
52 Week High (on 1/16/2017):
|
2,276.98
|
Current Index Value:
|
2,263.69
|
52 Week Low (on 2/11/2016):
|
1,829.08
|
52 Weeks Ago:
|
1,881.33
|
|
|
The following graph sets forth the daily index closing values
of the SPX Index for the period from January 1, 2012 through January 19, 2017. 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, 2012 through January 19, 2017. The index closing value of the SPX Index on January 19, 2017 was 2,263.69. We obtained
the information in the 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, 2012 to January
19, 2017
|
|
* The red solid line in the graph indicates the hypothetical downside threshold level, assuming the index closing value on January 19, 2017 were the initial index value.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
S&P 500
®
Index
|
High
|
Low
|
Period End
|
2012
|
|
|
|
First Quarter
|
1,416.51
|
1,277.06
|
1,408.47
|
Second Quarter
|
1,419.04
|
1,278.04
|
1,362.16
|
Third Quarter
|
1,465.77
|
1,334.76
|
1,440.67
|
Fourth Quarter
|
1,461.40
|
1,353.33
|
1,426.19
|
2013
|
|
|
|
First Quarter
|
1,569.19
|
1,457.15
|
1,569.19
|
Second Quarter
|
1,669.16
|
1,541.61
|
1,606.28
|
Third Quarter
|
1,725.52
|
1,614.08
|
1,681.55
|
Fourth Quarter
|
1,848.36
|
1,655.45
|
1,848.36
|
2014
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
2015
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
|
Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
|
Fourth Quarter
|
2,271.72
|
2,085.18
|
2,238.83
|
2017
|
|
|
|
First Quarter (through January 19, 2017)
|
2,276.98
|
2,257.83
|
2,263.69
|
License Agreement between Morgan Stanley and Standard &
Poor’s Financial Services LLC
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 500
®
,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC and have been licensed for use by S&P Dow Jones Indices LLC and Morgan Stanley.
See “S&P 500
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
EURO STOXX 50
®
Index Overview
The EURO STOXX 50
®
Index was created by STOXX
Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50
®
Index began
on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50
®
Index is
composed of 50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes stocks selected
from the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across all
market sectors. For additional information about the EURO STOXX 50
®
Index, see the information set forth under “EURO
STOXX 50
®
Index” in the accompanying index supplement.
Information as of market close on January 19, 2017:
Bloomberg Ticker Symbol:
|
SX5E
|
52 Week High (on 1/13/2017):
|
3,324.34
|
Current Index Value:
|
3,290.33
|
52 Week Low (on 2/11/2016):
|
2,680.35
|
52 Weeks Ago:
|
2,980.49
|
|
|
The following graph sets forth the daily index closing values
of the SX5E Index for the period from January 1, 2012 through January 19, 2017. The related table sets forth the published high
and low index closing values, as well as end-of-quarter index closing values, of the SX5E Index for each quarter for the period
from January 1, 2012 through January 19, 2017. The index closing value of the SX5E Index on January 19, 2017 was 3,290.33. We obtained
the information in the table and graph below from Bloomberg Financial Markets, without independent verification. The SX5E Index
has experienced periods of high volatility, and you should not take the historical values of the SX5E Index as an indication of
its future performance.
SX5E Index Daily Index Closing Values
January 1, 2012 to January 19, 2017
|
|
|
* The red solid line in the graph indicates
the hypothetical downside threshold level, assuming the index closing value on January 19, 2017 were the initial index value.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
EURO STOXX 50
®
Index
|
High
|
Low
|
Period End
|
2012
|
|
|
|
First Quarter
|
2,608.42
|
2,286.45
|
2,477.28
|
Second Quarter
|
2,501.18
|
2,068.66
|
2,264.72
|
Third Quarter
|
2,594.56
|
2,151.54
|
2,454.26
|
Fourth Quarter
|
2,659.95
|
2,427.32
|
2,635.93
|
2013
|
|
|
|
First Quarter
|
2,749.27
|
2,570.52
|
2,624.02
|
Second Quarter
|
2,835.87
|
2,511.83
|
2,602.59
|
Third Quarter
|
2,936.20
|
2,570.76
|
2,893.15
|
Fourth Quarter
|
3,111.37
|
2,902.12
|
3,109.00
|
2014
|
|
|
|
First Quarter
|
3,172.43
|
2,962.49
|
3,161.60
|
Second Quarter
|
3,314.80
|
3,091.52
|
3,228.24
|
Third Quarter
|
3,289.75
|
3,006.83
|
3,225.93
|
Fourth Quarter
|
3,277.38
|
2,874.65
|
3,146.43
|
2015
|
|
|
|
First Quarter
|
3,731.35
|
3,007.91
|
3,697.38
|
Second Quarter
|
3,828.78
|
3,424.30
|
3,424.30
|
Third Quarter
|
3,686.58
|
3,019.34
|
3,100.67
|
Fourth Quarter
|
3,506.45
|
3,069.05
|
3,267.52
|
2016
|
|
|
|
First Quarter
|
3,178.01
|
2,680.35
|
3,004.93
|
Second Quarter
|
3,151.69
|
2,697.44
|
2,864.74
|
Third Quarter
|
3,091.66
|
2,761.37
|
3,002.24
|
Fourth Quarter
|
3,290.52
|
2,954.53
|
3,290.52
|
2017
|
|
|
|
First Quarter (through January 19, 2017)
|
3,324.34
|
3,285.04
|
3,290.33
|
License Agreement between STOXX Limited and Morgan Stanley
“EURO STOXX
®
” and “STOXX
®
”
are registered trademarks of STOXX Limited and have been licensed for use for certain purposes by Morgan Stanley. For more information,
see “EURO STOXX 50
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
Additional Information About the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional
Provisions:
|
Interest period:
|
Quarterly
|
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.
|
Downside threshold level:
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
Day count convention:
|
30/360
|
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
|
Minimum ticketing size:
|
$1,000 / 1 security
|
Tax considerations:
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the securities
issued under this document and is superseded by the following discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of the ownership and disposition of the securities. This discussion
applies only to investors in the securities who:
·
purchase the securities in the original offering; and
·
hold the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
“Code”).
This discussion does not describe all of the tax consequences
that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject to special rules,
such as:
·
certain financial institutions;
·
insurance companies;
·
certain dealers and traders in securities or commodities;
·
investors holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction
or constructive sale transaction;
·
U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated investment companies;
·
real estate investment trusts; or
·
tax-exempt entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408
or 408A of the Code, respectively.
If an entity that is classified as a partnership for U.S. federal
income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend on the status
of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner in such a partnership,
you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing of the securities
to you.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
As the law applicable to the U.S. federal income taxation of
instruments such as the securities is technical and complex, the discussion below necessarily represents only a general summary.
Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax
consequences or consequences resulting from the Medicare tax on investment income.
This discussion is based on the Code, administrative pronouncements,
judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to any of which subsequent
to the date hereof may affect the tax consequences described herein. Persons considering the purchase of the securities should
consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular situations as
well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial or administrative authorities
that directly address the treatment of the securities or instruments that are similar to the securities for U.S. federal income
tax purposes, no assurance can be given that the IRS or a court will agree with the tax treatment described herein. 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. In the opinion
of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under current law; however, our counsel
has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative
treatments are possible.
You should consult your tax adviser regarding all aspects
of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments of the securities).
Unless otherwise stated, the following discussion is based on the treatment of each security as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are a U.S. Holder. As
used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal income tax purposes:
·
a citizen or individual resident of the United States;
·
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
·
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as set forth above is
respected, the following U.S. federal income tax consequences should result.
Tax Basis
. A U.S. Holder’s tax basis in the securities
should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon Payments
. Any coupon payment on
the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in accordance with the U.S.
Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the Securities
. Upon a
sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the
amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the securities sold, exchanged or
settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include sale proceeds
attributable to an accrued
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
coupon, which may be treated as a coupon payment. Any such gain
or loss recognized should be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at
the time of the sale, exchange or settlement, and should be short-term capital gain or loss otherwise. 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.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due to the absence of authorities that directly address the proper
tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment
described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the securities
under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”). If the
IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the timing and character of income
thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on
the securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
securities would be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S.
Holder’s prior accruals of original issue discount and as capital loss thereafter. 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.
Other alternative federal income tax treatments of the securities
are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the
securities. 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 on whether to require holders
of “prepaid forward contracts” and similar 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; 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; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, 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. 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 and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely
furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the
securities and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides
proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
This section applies to you only if you are a Non-U.S. Holder.
As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax
purposes:
·
an individual who is classified as a nonresident alien;
·
a foreign corporation; or
·
a foreign estate or trust.
The term “Non-U.S. Holder” does
not include any of the following holders:
·
a holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes;
·
certain former citizens or residents of the United States; or
·
a holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business
in the United States.
Such holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder 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. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code, 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
upon issuance based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, under
a recent IRS notice, Section 871(m) will not apply to securities issued before January 1, 2018 that are not “delta-one”
with respect to any Underlying Security. Based on our determination that the securities are not “delta-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 Section 871(m) 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.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property
of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example,
a trust funded by such an individual and with respect to which the individual has retained certain interests or powers) should
note that, absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal
estate tax. Prospective investors that are non-
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
U.S. individuals, or are entities of the type described above,
should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA Legislation
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied.
An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
This legislation generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source
“fixed or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable)
applies to payments of U.S.-source FDAP income and, for dispositions after December 31, 2018, to payments of gross proceeds of
the disposition (including upon retirement) of certain financial instruments treated as providing for U.S.-source interest or dividends.
While the treatment of the securities is unclear, you should assume that any coupon payment with respect to the securities will
be subject to the FATCA rules. It is also possible in light of this uncertainty that an applicable withholding agent will treat
gross proceeds of a disposition (including upon retirement) of the securities after 2018 as being subject to the FATCA rules. If
withholding applies to the securities, we will not be required to pay any additional amounts with respect to amounts withheld.
Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the securities.
The discussion in the preceding paragraphs, insofar
as it purports to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the
full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
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Trustee:
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The Bank of New York Mellon
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Calculation agent:
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MS & Co.
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Use of proceeds and hedging:
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The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we expect to hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers.
We expect our hedging counterparties to take positions in the stocks constituting the underlying indices, in futures and/or options
contracts on the underlying indices or the component stocks of the underlying indices listed on major securities markets, or positions
in any other available securities or instruments that they may wish to use in connection with such hedging. Such purchase activity
could potentially increase the initial index value of an underlying index, and, as a result, increase (i) the level at or above
which such underlying index must close on any redemption determination date so that the securities are redeemed prior to maturity
for the early redemption payment (depending 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 downside threshold level for such underlying index, which
is the level at or above which such underlying index must close
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
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). 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. Additionally, our hedging activities, as well as our other trading activities, during the term of the securities could potentially affect the value of an underlying index on the redemption determination dates and 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).
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Benefit plan investor considerations:
|
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to 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 (also “Plans”). ERISA Section 406 and Code Section 4975 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 such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited
transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined
by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company
separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In
addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) may 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 are eligible for exemptive relief or
such purchase, holding
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
and disposition are not prohibited by ERISA or Section
4975 of the Code or 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.
However, individual retirement accounts, individual
retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their
accounts, will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee
of Morgan Stanley, Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for
example, an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional considerations:
|
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:
|
Selected dealers, which may include our affiliates, and their
financial advisors will collectively receive from the agent a fixed sales commission of $ for each security they sell.
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” beginning on page 3.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due January 26, 2027, With 2-year Initial Non-Call Period
All Payments on the Securities Based on the Worst Performing of the S&P 500
®
Index and the EURO STOXX 50
®
Index
Principal at Risk Securities
|
MS & Co. will conduct this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement for auto-callable securities.
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Contact:
|
Morgan Stanley clients may contact their local Morgan Stanley branch office or Morgan Stanley’s principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
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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 auto-callable securities and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration
statement, the product supplement for auto-callable securities, the index supplement and any other documents relating to this offering
that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering.
You may get these documents without cost by visiting EDGAR on the SEC web site at
.
www.sec.gov.
Alternatively, Morgan Stanley, MSFL, any underwriter or any dealer participating in the offering will arrange to send you the prospectus,
the product supplement for auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov
as follows:
Product Supplement for Auto-Callable Securities dated February 29, 2016
Index Supplement dated February 29, 2016
Prospectus dated February 16, 2016
Terms used but not defined in this document are defined
in the product supplement for auto-callable securities, in the index supplement or in the prospectus.
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