February
2017
Preliminary
Terms No. 1,357
Registration
Statement Nos. 333-200365; 333-200365-12
Dated
February 22, 2017
Filed
pursuant to Rule 433
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S. Equities
Contingent Income Auto-Callable Securities due
February 28, 2019
All Payments on
the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines, Inc. and the Common Stock of American Airlines
Group Inc.
Fully
and Unconditionally Guaranteed by Morgan Stanley
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 and prospectus, as
supplemented or modified by this document. The securities do not guarantee the repayment of principal and do not provide for the
regular payment of interest. Instead, the securities will pay a contingent quarterly coupon
but only if
the determination
closing
price of
each of the common stock of Delta Air Lines, Inc. and the common stock
of American Airlines Group Inc.
, which we refer to collectively as the underlying stocks,
is
at or above
50% of its respective initial share price, which we refer to as the respective downside threshold level,
on the related observation date. If, however, the determination closing
price of
either underlying stock
is less than its respective downside threshold level on any observation date, we will
pay no interest for the related quarterly period. In addition, the securities will be automatically redeemed if the determination
closing
price of
each underlying stock
is
greater than or equal to
its respective initial share price
on
any quarterly redemption determination date (beginning after three months) for the early redemption payment equal to the sum of
the stated principal amount plus the related contingent quarterly coupon. At maturity, if
the securities have not previously
been redeemed and the share closing price of
each underlying stock
has been
greater than or equal to
its respective
downside threshold level on
each trading day
from but excluding the pricing date to and including the final observation
date, the payment at maturity will be the sum of the stated principal amount and the related contingent quarterly coupon. However,
if the share closing price of
either underlying stock
has been
less than
its respective downside threshold level
on
any trading day
from but excluding the pricing date to and including the final observation date, investors will be exposed
to any decline in the worst performing underlying stock from its initial share price to its final share price. In this case, the
payment at maturity may be significantly less than 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 contingent quarterly coupons throughout the 2-year term of the securities.
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 interest over the entire 2-year term and in exchange for the possibility of an automatic
early redemption prior to maturity. Because all payments on the securities are based on the worst performing of the underlying
stocks, the fact that the securities are linked to two underlying stocks does not provide any asset diversification benefits,
and instead means that a decline beyond the respective downside threshold level of either underlying stock will result in no contingent
quarterly coupon payments and potentially a significant loss of your investment, even if the other underlying stock has appreciated
or has not declined as much. If the share closing price of
either
underlying stock declines to below its respective downside
threshold level on
any trading day
during the term of the securities, the payment at maturity will reflect any depreciation
in the worst performing underlying stock. Investors will not participate in any appreciation of either underlying stock. 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 stocks:
|
Delta Air Lines, Inc. common stock (the “DAL Stock”) and American
Airlines Group Inc. common stock (the “AAL Stock”)
|
Aggregate principal amount:
|
$
|
Stated
principal amount:
|
$1,000 per security
|
Issue
price:
|
$1,000 per security
|
Pricing
date:
|
February 23, 2017
|
Original
issue date:
|
February 28, 2017 (3 business days after the pricing date)
|
Maturity date:
|
February 28, 2019
|
Early
redemption:
|
If, on any redemption determination
date, beginning on the third scheduled business day preceding May 28, 2017, the determination closing price of
each
underlying stock
is greater than or equal to its respective initial share price, 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 determination closing price of either underlying stock is below
its respective initial share price 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 contingent quarterly coupon with respect to the related observation
date.
|
Determination
closing price:
|
With respect to each underlying stock, the share closing price of such underlying
stock on any redemption determination date or observation date (other than the final observation date)
|
Redemption
determination dates:
|
Quarterly, on the third scheduled business day preceding each scheduled early
redemption date, subject to postponement for non-trading days and certain market disruption events
|
Early
redemption dates:
|
Starting on May 28, 2017, quarterly, on the 28th day of each February, May, August
and November;
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
|
Contingent
quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate of 10.00% (corresponding to approximately $25.00 per quarter per security) will be paid
on the securities on each coupon payment date
but only if
the determination closing price of
each underlying
stock
is at or above its respective downside threshold level on the related observation date.
If, on any observation
date, the determination closing price of either underlying stock is less than its respective downside threshold level,
no contingent quarterly coupon will be paid with respect to that observation date. It is possible that one or both underlying
stocks will remain below their respective downside threshold level(s) for extended periods of time or even throughout
the entire 2-year term of the securities so that you will receive few or no contingent quarterly coupons.
|
Downside threshold level:
|
With respect to the DAL
Stock, $ , which is equal to 50% of its initial share price
With respect to the AAL
Stock, $ , which is equal to 50% of its initial share price
|
Payment
at maturity:
|
If the securities are not
redeemed prior to maturity, investors will receive a payment at maturity determined as follows:
·
If
the share closing price of
each underlying stock
is
greater than or equal to
its respective downside threshold
level on
each trading day
from but excluding the pricing date to and including the final observation date: (i)
the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the final observation date
·
If
the share closing price of
either underlying stock
is
less than
its respective downside threshold level
on
any trading day
from but excluding the pricing date to and including the final observation date: in addition
to the final contingent quarterly coupon, if payable, the lesser of (i) the stated principal amount
multiplied by
the share performance factor of the worst performing underlying stock, and (ii) the stated principal amount
In this
case, you will lose 1% of your investment for every 1% by which the final share price of the worst performing underlying
stock is less than its initial share price. The payment at maturity may be significantly less than 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 $965.90 per security, or within $10.00 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 11.
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 and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits
or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
You should read this document
together with the related product supplement 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
Prospectus dated February 16, 2016
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Terms continued from previous page:
|
Initial
share price:
|
With respect to the DAL
Stock, $ , which is its closing price on the pricing date
With respect to the AAL
Stock, $ , which is its closing price on the pricing date
|
Coupon payment dates:
|
Quarterly, on the 28
th
day of each February, May, August and November, beginning
May 28, 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 shall be paid on the maturity
date.
|
Observation
dates:
|
The third scheduled business day preceding each scheduled coupon payment date, beginning
with the May 28, 2017 coupon payment date, subject, independently in the case of each underlying stock, to postponement for
non-trading days and certain market disruption events. We also refer to February 25, 2019, which is the third scheduled business
day preceding the scheduled maturity date, as the final observation date.
|
Share
closing price:
|
With respect to each underlying stock, on any trading day, the closing price of such underlying
stock on such day
times
the adjustment factor on such day
|
Final
share price:
|
With respect to each underlying stock, the share closing price of such underlying stock on
the final observation date
|
Adjustment
factor:
|
With respect to each underlying
stock, 1.0, subject to adjustment in the event of certain corporate events affecting such underlying stock
|
Worst
performing underlying stock:
|
The underlying stock with
the larger percentage decrease from the respective initial share price to the respective final share price
|
Share performance factor:
|
Final share price
divided by
the initial share price
|
CUSIP / ISIN:
|
61768CFN2 / US61768CFN20
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
Contingent Income Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines, Inc. and the Common Stock
of American Airlines Group Inc. (the “securities”) do not provide for the regular payment of interest.
Instead,
the securities will pay a contingent quarterly coupon
but only if
the determination closing
price of
each of the
common stock of Delta Air Lines, Inc. and the common stock of American Airlines Group Inc.
, which we refer to collectively
as the underlying stocks,
is
at or above
50% of its respective
initial share price, which we refer to as the respective downside threshold level,
on
the related observation date. If, however, the determination closing price of
either underlying stock
is less than its respective
downside threshold level on any observation date, we will pay no interest for the related quarterly period. In addition, the securities
will be automatically redeemed if the determination closing
price of
each underlying stock
is
greater than or
equal to
its respective initial share price
on any quarterly redemption
determination date (beginning after three months) for the early redemption payment equal to the sum of the stated principal amount
plus the related contingent quarterly coupon. At maturity, if
the securities have not previously been redeemed and the share
closing price of
each underlying stock
has been
greater than or equal to
its respective downside threshold level
on
each trading day
from but excluding the pricing date to and including the final observation date, the payment at maturity
will be the sum of the stated principal amount and the related contingent quarterly coupon. However, if the share closing price
of
either underlying stock
has been
less than
its respective downside threshold level on
any trading day
from
but excluding the pricing date to and including the final observation date, investors will be exposed to any decline in the worst
performing underlying stock from its initial share price to its final share price. In this case, the payment at maturity may be
significantly less than 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
contingent quarterly coupons throughout the 2-year term of the securities.
Maturity:
|
2 years
|
|
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate of 10.00%
(corresponding to approximately $25.00 per quarter per security) will be paid on the securities on each coupon payment date
but
only if
the determination closing price of
each underlying stock
is at or above its respective downside threshold level
on the related observation date.
If on any observation date, the determination closing price
of either underlying stock is less than its respective downside threshold level, we will pay no coupon for the applicable quarterly
period.
|
Automatic early redemption quarterly on or after May 28, 2017:
|
Starting on May 28, 2017, if the determination closing price of
each underlying stock
is greater than or equal to their respective initial share price on any quarterly redemption determination date, beginning on the third scheduled business day preceding May 28, 2017, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount
plus
the contingent quarterly coupon with respect to the related observation date.
|
|
|
Payment at maturity:
|
If the securities have not previously been redeemed and the share
closing price of
each underlying stock
has been
greater than or equal to
its respective downside threshold level
on
each trading day
from but excluding the pricing date to and including the final observation date, the payment at maturity
will be the sum of the stated principal amount and the related contingent quarterly coupon.
If the share closing price of
either underlying stock
is
less than
its respective downside threshold level on
any trading day
from but excluding the pricing date to and including
the final observation date: in addition to the final contingent quarterly coupon, if payable, the lesser of (i) the stated principal
amount
multiplied by
the share
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
performance factor of the worst performing underlying stock, and (ii) the stated principal amount.
In this case, you will lose 1% of your investment for every 1% by which the final share price of the worst performing underlying stock is less than its initial share price. The payment at maturity may be significantly less than the stated principal amount of the securities and could be zero.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
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 $965.90, or within $10.00 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
stocks. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying stocks, instruments based on the underlying stocks, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the contingent quarterly coupon rate 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 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 stocks, may
vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our
secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction
of this type and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities
are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co.
may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
stocks, 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 February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities will pay a contingent quarterly coupon
but only if
the determination closing price of
each underlying
stock
is
at or above
its respective downside threshold level on the related observation date. The securities have been
designed for investors who are willing to forgo market floating interest rates and risk the loss of principal and accept the risk
of receiving few or no coupon payments for the entire 2-year term of the securities in exchange for an opportunity to earn interest
at a potentially above-market rate if both underlying stocks close at or above their respective downside threshold levels on each
quarterly observation date, unless the securities are redeemed early. If the share closing price of
either
underlying stock
declines to below its respective downside threshold level on
any trading day
during the term of the securities, the payment
at maturity will reflect any depreciation in the worst performing underlying stock.
The following scenarios are for illustration 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 during the 2-year term of the securities, and the
payment at maturity may be less than the stated principal amount of the securities and may be zero.
Scenario 1: The securities are redeemed prior to maturity
|
This scenario assumes that, prior to early redemption, both underlying
stocks close at or above their respective downside threshold levels on some quarterly observation dates, but one or both underlying
stocks close below the respective downside threshold level(s) on the others. Investors receive the contingent quarterly coupon
for the quarterly periods for which the determination closing prices of both underlying stocks are at or above their respective
downside threshold levels on the related observation date, but not for the quarterly periods for which the determination closing
price(s) of one or both underlying stocks are below the respective downside threshold level(s) on the related observation date.
When both underlying stocks close at or above their respective
initial share prices on a quarterly redemption determination date (beginning after three months), the securities will be automatically
redeemed for the stated principal amount
plus
the contingent quarterly coupon with respect to the related observation date.
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
|
This scenario assumes that both underlying stocks close at or above their respective downside threshold levels on each quarterly observation date, including the final observation date, and at least one of the underlying stocks closes below its initial share price on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for each quarterly period during the term of the securities. At maturity, in addition to the contingent quarterly coupon with respect to the final observation date, investors will receive the stated principal amount.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a loss of principal at maturity
|
This scenario assumes that both underlying stocks close at or above their respective downside threshold levels on some quarterly observation dates, but one or both underlying stocks close below the respective downside threshold level(s) on the others, and at least one of the underlying stocks closes below its initial share prices on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing prices of both underlying stocks are greater than or equal to their respective downside threshold levels on the related observation date, but not for the quarterly periods for which the determination closing price(s) of one or both underlying stocks are below the respective downside threshold level(s) on the related observation date. Because at least one underlying stock has closed below its respective downside threshold level on any trading day from but excluding the pricing date to and including the final observation date, investors will receive a payment at maturity that reflects any depreciation in the worst performing underlying stock from its initial share price to the final share price. On the final observation date, the final share price of the worst performing underlying stock is below its respective initial share price. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the share performance factor of the worst performing underlying stock. Under these circumstances, the payment at maturity will be less than the stated principal amount and could be zero.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity,
if any, assuming the securities are not redeemed prior to maturity. The following examples are for illustrative purposes only.
Whether you receive a contingent quarterly coupon will be determined by reference to the determination closing price of each underlying
stock on each quarterly observation date, and the amount you will receive at maturity, if any, will be determined based on the
share closing price of
each underlying stock
on
each trading day
from but excluding the pricing date to and including
the final observation date, and the final share price of each underlying stock. If the share closing price of
either underlying
stock
is
less than
its respective downside threshold level on
any trading day
from but excluding the pricing
date to and including the final observation date, investors will be exposed to any depreciation in the worst performing underlying
stock at maturity. The actual initial share price and downside threshold level for each underlying stock will be determined on
the pricing date. All payments on the securities, if any, are subject to our credit risk. The below examples are based on the following
terms:
Hypothetical Contingent Quarterly Coupon:
|
10.00% per annum (corresponding to approximately $25.00 per quarter
per security)
1
With respect to each coupon payment date, a contingent quarterly
coupon is paid but only if the determination closing price of each underlying stock is at or above its respective downside threshold
level on the related observation date.
|
Payment at Maturity (if the securities are not redeemed prior to maturity):
|
If the share closing price of
each underlying stock
is
greater than or equal to
its respective downside threshold level on
each trading day
from but excluding the pricing
date to and including the final observation date: (i) the stated principal amount
plus
(ii) the contingent quarterly coupon
with respect to the final observation date
If the share closing price of
either underlying stock
is
less than
its respective downside threshold level on
any trading day
from but excluding the pricing date to and including
the final observation date: in addition to the final contingent quarterly coupon, if payable, the lesser of (i) the stated principal
amount
multiplied by
the share performance factor of the worst performing underlying stock, and (ii) the stated principal
amount
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Share Price:
|
With respect to the DAL Stock: $50.00
With respect to the AAL Stock: $45.00
|
Hypothetical Downside Threshold Level:
|
With respect to the DAL Stock: $25.00, which is 50% of its hypothetical
initial share price
With respect to the AAL Stock: $22.50, which is 50%
of its hypothetical initial share price
|
1
The actual contingent quarterly coupon will be an amount determined by the calculation agent based on the number of days in the
applicable payment period, calculated on a 30/360 day count basis. The hypothetical contingent quarterly coupon of $25.00 is used
in these examples for ease of analysis.
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date:
|
Determination Closing Price
|
Hypothetical Contingent Quarterly Coupon
|
|
DAL Stock
|
AAL Stock
|
|
Hypothetical Observation Date 1
|
$30.00 (
at or above
its downside threshold level)
|
$27.00 (
at or above
its downside threshold level)
|
$25.00
|
Hypothetical Observation Date 2
|
$21.00 (
below
its downside threshold level)
|
$30.00 (
at or above
its downside threshold level)
|
$0
|
Hypothetical Observation Date 3
|
$30.00 (
at or above
its downside threshold level)
|
$15.00 (
below
its downside threshold level)
|
$0
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Hypothetical Observation Date 4
|
$21.00 (
below
its downside threshold level)
|
$15.00 (
below
its downside threshold level)
|
$0
|
On hypothetical observation date 1, both the DAL Stock and AAL
Stock close at or above their respective downside threshold levels. Therefore, a hypothetical contingent quarterly coupon of $25.00
is paid on the relevant coupon payment date.
On each of hypothetical observation dates 2 and 3, one underlying
stock closes at or above its downside threshold level but the other underlying stock closes below its downside threshold level.
Therefore, no contingent quarterly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 4, each underlying stock closes
below its respective downside threshold level and accordingly no contingent quarterly coupon is paid on the relevant coupon payment
date.
You will not receive a contingent quarterly coupon on any
coupon payment date if the determination closing price of either underlying stock is below its respective downside threshold level
on the related observation date.
How to calculate the payment at maturity:
In the following examples, one or both underlying stocks close
below the respective initial share price(s) on each redemption determination date, and, consequently, the securities are not automatically
redeemed prior to, and remain outstanding until, maturity.
|
|
|
Final Share Price
|
Payment at Maturity
|
|
DAL Stock
|
AAL Stock
|
|
DAL Stock
|
AAL Stock
|
|
Example 1:
|
The share closing price is
at or above
the downside threshold level on
each trading day
during the term of the securities
|
The share closing price is
at or above
the downside threshold level on
each trading day
during the term of the securities
|
|
$35.00
|
$27.00
|
$1,025.00 (the stated principal amount
plus
the contingent quarterly coupon with respect to the final observation date)
|
Example 2:
|
The share closing price is
below
the downside threshold level on
at least one trading day
during the term of the securities
|
The share closing price is
at or above
the downside threshold level on
each trading day
during the term of the securities
|
|
$20.00
|
$30.00
|
$1,000 x share performance factor of the worst performing underlying stock = $1,000 x ($20.00 / $50.00) = $400.00
|
Example 3:
|
The share closing price is
at or above
the downside threshold level on
at least one trading day
during the term of the securities
|
The share closing price is
below
the downside threshold level on
at least one trading day
during the term of the securities
|
|
$35.00
|
$33.75
|
$1,000 x ($35.00 / $50.00) + the contingent
quarterly coupon with respect to the final observation date = $700.00 + $25.00
= $725.00
|
Example 4:
|
The share closing price is
below
the downside threshold level
at least one trading day
during the term of the securities
|
The share closing price is
below
the downside threshold level on
at least one trading day
during the term of the securities
|
|
$55.00
|
$52.00
|
$1,025.00 (the stated principal amount
plus
the contingent quarterly coupon with respect to the final observation date)
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Example 5:
|
The share closing price is
below
the downside threshold level on
at least one trading day
during the term of the securities
|
The share closing price is
below
the downside threshold level on
at least one trading day
during the term of the securities
|
|
$15.00
|
$18.00
|
$1,000 x (15.00 / $50.00 = $300.00
|
In example 1, the share closing prices of both the DAL Stock
and AAL Stock are at or above their respective downside threshold levels on
each trading day
from but excluding the pricing
date to and including the final observation date. Therefore, investors receive at maturity the stated principal amount of the securities
and the contingent quarterly coupon with respect to the final observation date.
In example 2, the share closing price of the DAL Stock is below
its respective downside threshold level on
at least one trading day
from but excluding the pricing date to and including
the final observation date. Therefore, the payment at maturity will be equal to the stated principal amount
times
the share
performance factor of the DAL Stock, which is the worst performing underlying stock in this example.
In example 3, the share closing price of the AAL Stock is below
its respective downside threshold level on
at least one trading day
from but excluding the pricing date to and including
the final observation date. As of the final observation date, the AAL Stock has declined 25% from its initial share price to its
final share price, while the DAL Stock has declined 30% from its initial share price to its final share price. Note that the DAL
Stock is ultimately the worst performing underlying stock in this example even though it was the AAL Stock that closed below its
downside threshold level during the term of the securities. Therefore, the payment at maturity will be equal to the stated principal
amount times the share performance factor of the DAL Stock, which is the worst performing underlying stock in this example. As
the final share price of each underlying stock is greater than or equal to its respective downside threshold level, investors also
receive the final contingent quarterly coupon payment.
In example 4, the share closing prices of both the DAL Stock
and AAL Stock are below their respective downside threshold levels on
at least one trading day
from but excluding the pricing
date to and including the final observation date. However, as of the final observation date, the final share prices of both underlying
stocks have appreciated from their respective initial share prices to their final share prices. In this case, the payment at maturity
will be capped at the stated principal amount, and investors do not participate in the appreciation of the underlying stocks. As
the final share price of each underlying stock is greater than or equal to its respective downside threshold level, investors receive
the final contingent quarterly coupon payment.
In example 5, both underlying stocks close below their respective
downside threshold levels on the final observation date. The DAL Stock has declined 60% from its initial share price to its final
share price, while the AAL Stock has declined 70% from its initial share price to its final share price. Therefore, the payment
at maturity will be equal to the stated principal amount
times
the share performance factor of the AAL Stock, which is the
worst performing underlying stock in this example. In this case, the payment at maturity is significantly less than the stated
principal amount. No contingent quarterly coupon is payable at maturity in this scenario.
If the share closing price of EITHER underlying stock is below
its respective downside threshold level on any trading day from but excluding the pricing date to and including the final observation
date, you will be exposed to the downside performance of the worst performing underlying stock at maturity, and your payment at
maturity may be significantly less than the stated principal amount per security and could be zero.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
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 and prospectus. You should
also 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 return of any of the principal
amount at maturity. If the securities have not been automatically redeemed prior to maturity and if the share closing price of
either
underlying stock on
any trading day
from but excluding the pricing date to and including the final observation
date is less than its downside threshold level of 50% of its initial share price, investors will be exposed to any decline in the
worst performing underlying stock from its initial share price to its final share price. Therefore, if the share closing price
of
either
underlying stock declines to below its respective downside threshold level on
any trading day
during the
term of the securities, the payment at maturity will reflect a depreciation in the worst performing underlying stock. In this case,
the payment at maturity may be significantly less than the stated principal amount of the securities and could be zero.
You
could lose up to your entire investment in the securities.
|
|
§
|
The securities do not provide for the regular payment of interest
and may pay no interest over the entire term of the securities.
The terms of the securities differ from those of ordinary
debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent
quarterly coupon
but only if
the determination closing price of each underlying stock is
at or above
50% of its respective
initial share price, which we refer to as the respective downside threshold level, on the related observation date. If, on the
other hand, the determination closing price of
either
underlying stock is lower than its downside threshold level on the
relevant observation date for any interest period, we will pay no coupon on the applicable coupon payment date. It is possible
that the determination closing price of either underlying stock could remain below the respective downside threshold level for
extended periods of time or even throughout the entire 2-year term of the securities so that you will receive few or no contingent
quarterly coupons. If you do not earn sufficient contingent coupons over the term of the securities, the overall return on the
securities may be less than the amount that would be paid on a conventional debt security of ours of comparable maturity. Moreover,
if a contingent quarterly coupon is not payable on any coupon payment date over the term of the securities, that will necessarily
mean that investors will be exposed to any negative performance of the worst performing underlying stock at maturity.
|
|
§
|
You are exposed to the price risk of both underlying stocks, with
respect to both the contingent quarterly coupons, if any, and the payment at maturity, if any.
Your
return on the securities is not linked to a basket consisting of both underlying stocks. Rather, it will be contingent upon the
independent performance of each underlying stock. 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 stocks. Poor performance by
either
underlying stock over the term of
the securities may negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying
stock. To receive
any
contingent quarterly coupons,
both
underlying
stocks must close at or above their respective downside threshold levels on the applicable observation date. In addition, if
either
underlying stock has declined to below its respective downside threshold level on
any
trading day
from but excluding the pricing date to and including the final observation date,
you will be
fully exposed
to
any decline in the worst performing
underlying stock from its initial share price to its final share price.
Under
this scenario,
the payment at maturity may be significantly less than the stated principal amount of the securities and
could be zero.
You could lose up to your entire investment in the securities.
Accordingly,
your investment is subject to the price risk of both underlying stocks.
|
|
§
|
Because the downside threshold level for each underlying stock is observed on each
trading day from but excluding the pricing date to and including the final observation date, it is possible that an underlying
stock could decline below its downside threshold level and expose you to the negative performance of the worst performing underlying
stock at maturity, even if the underlying stock that declined below its downside threshold level subsequently appreciates.
If the share closing price of any underlying stock has declined below its
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
respective
downside threshold level on any trading day from and excluding the pricing date to and including the final observation date AND
the final share price of any underlying stock on the final observation date is less than its respective initial share price, you
will be exposed to the decline in the worst performing underlying stock on a 1-to-1 basis. It is possible that the closing price
of one underlying stock will decline below its respective downside threshold level and expose you to the negative performance of
the worst performing underlying stock, while the other underlying stock is ultimately the worst performing underlying stock to
which your investment is exposed at maturity, even if the underlying stock that initially closed below its respective downside
threshold level subsequently appreciates.
|
§
|
The contingent coupon, if any, is based only on the determination closing prices of the underlying stocks on the related
quarterly observation date at the end of the related interest period
.
Whether the contingent coupon will be paid on any coupon payment date will be determined at the end of the relevant interest period
based on the determination closing price of each underlying stock on the relevant quarterly observation date. As a result, you
will not know whether you will receive the contingent coupon on any coupon payment date until near the end of the relevant interest
period. Moreover, because the contingent coupon is based solely on the price of each underlying stock on quarterly observation
dates, if the determination closing price of either underlying stock on any observation date is below the respective downside threshold
level, you will receive no coupon for the related interest period, even if the price(s) of one or both underlying stocks were higher
on other days during that interest period.
|
|
§
|
Investors will not participate in any appreciation in the price of either underlying stock.
Investors will not participate
in any appreciation in the price of either underlying stock from its initial share price, and the return on the securities will
be limited to the contingent quarterly coupon, if any, that is paid with respect to each observation date on which both determination
closing prices are greater than or equal to their respective downside threshold levels, 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 prices of the
underlying
stocks
on any day, including in relation to the respective
downside threshold levels, 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 trading price and volatility (frequency and magnitude of changes in value) of the underlying stocks,
|
|
o
|
whether the determination closing price of either underlying stock has been below its respective downside threshold level on
any day,
|
|
o
|
dividend rates on the underlying stocks,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stocks
and which may affect the prices of the underlying stocks,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, 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. For example,
you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security if the price
of either underlying stock at the time of sale is near or below its downside threshold level or if market interest rates rise.
The
price of either or both underlying stocks may be, and have recently been, volatile, and we can give you no assurance that the volatility
will lessen.
The prices of either or both the underlying stocks may decrease and be below
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
the respective downside threshold
level(s) so that you will receive no return on your investment and/or receive a payment at maturity that is less than the stated
principal amount and that may be zero. There can be no assurance that the determination closing prices of both underlying stocks
will be at or above their respective downside threshold levels on any observation date so that you will receive a coupon payment
on the securities for the applicable interest period, or throughout the term of the securities so that you will not be exposed
to any depreciation in the worst performing underlying stock at maturity.
See
“
Delta Air Lines, Inc.
Overview”
and “American Airlines Group Inc. 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
on each coupon payment date, upon automatic redemption and at maturity 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.
|
|
§
|
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 three months of the term of the securities.
|
|
§
|
Investing in the securities is not equivalent to investing in the
common stock of Delta Air Lines, Inc. or the common stock of American Airlines Group Inc.
Investors
in the securities will not participate in any appreciation in the underlying stocks, and will not have voting rights or rights
to receive dividends or other distributions or any other rights with respect to the underlying stocks.
|
|
§
|
No affiliation with Delta Air Lines, Inc. or American Airlines Group Inc.
Delta Air Lines, Inc. and American Airlines
Group Inc. are not affiliates of ours, are not involved with this offering in any way, and have no obligation to consider your
interests in taking any corporate actions that might affect the value of the securities. We have not made any due diligence inquiry
with respect to Delta Air Lines, Inc. or American Airlines Group Inc. in connection with this offering.
|
|
§
|
We may engage in business with or involving Delta Air Lines, Inc. or American Airlines Group Inc. without regard to your
interests.
We or our affiliates may presently or from time to time engage in business with Delta Air Lines, Inc. or American
Airlines Group Inc. without regard to your interests and thus may acquire non-public information about Delta Air Lines, Inc. or
American Airlines Group Inc. Neither we nor any of our affiliates undertakes to disclose any such information to you. In addition,
we or our affiliates from time to time have published and in the future may publish research reports with respect to Delta Air
Lines, Inc. or American Airlines Group Inc., which may or may not recommend that investors buy or hold the underlying stock(s).
|
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect
the underlying stocks.
MS & Co., as calculation agent, will adjust the adjustment factors for certain corporate events
affecting the underlying stocks, such as stock splits and stock dividends, and certain other corporate
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
actions involving the issuers of
the underlying stocks, such as mergers. However, the calculation agent will not make an adjustment for every corporate event that
can affect the underlying stocks. For example, the calculation agent is not required to make any adjustments if the issuers of
the underlying stocks or anyone else makes a partial tender or partial exchange offer for the underlying stocks, nor will adjustments
be made following the final observation date. If an event occurs that does not require the calculation agent to adjust an adjustment
factor, the market price of the
securities
may be materially and adversely affected.
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be limited
,
and
accordingly, you should be willing to hold your securities for the entire 2-year term of the securities.
The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine 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 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying stocks, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
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 stocks), including trading in the underlying stocks. Some of our affiliates also trade the underlying
stocks and other financial instruments related to the underlying stocks on a regular basis as part of their general broker-dealer
and other businesses. 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.
Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial share price of
an underlying stock, and, therefore, could increase (i) the value at or above which such underlying stock 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 stock) and (ii) the downside threshold level for such underlying stock, which is the value
at or above which the underlying stock must close on the observation dates and each trading day from but excluding the pricing
date to and including the final observation date, as applicable, so that you receive a contingent quarterly coupon on the securities
(depending also on the performance of the other underlying stock), and so that you are not exposed to the negative performance
of the worst performing underlying stock at maturity (depending also on the performance of the other underlying stock). Additionally,
such hedging or trading activities during the term of the securities could potentially affect the value of either underlying stock
throughout the term of the securities, including 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 will receive at maturity, if any (depending also on the performance of the other underlying stock).
|
|
§
|
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 share prices, the downside threshold levels,
the final share prices, the payment at maturity, if any, whether you receive a contingent quarterly coupon on each coupon payment
date and/or at maturity, whether the securities will be redeemed on any early redemption date, whether a market disruption event
has occurred and whether to make any adjustments to the adjustment factors. 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 certain adjustments to the adjustment factors. These potentially
subjective determinations may affect the payout to you upon an automatic early redemption or at maturity, if any. For further information
regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable Securities Linked
to Underlying Shares” and “—Calculation Agent and Calculations” and related definitions in the accompanying
product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.
|
|
§
|
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
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
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 promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and
timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders (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 February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Delta Air Lines, Inc. Overview
Delta Air Lines, Inc. provides scheduled air
transportation for passengers and cargo throughout the United States and around the world. The DAL Stock is registered under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Information provided to or filed with the Securities
and Exchange Commission by Delta Air Lines, Inc. pursuant to the Exchange Act can be located by reference to the Securities and
Exchange Commission file number 001-05424 through the Securities and Exchange Commission’s website at
.
www.sec.gov.
In addition, information regarding Delta Air Lines, Inc. may be obtained from other sources including, but not limited to, press
releases, newspaper articles and other publicly disseminated documents.
Neither the issuer nor the agent makes any representation
that such publicly available documents or any other publicly available information regarding the issuer of the DAL Stock is accurate
or complete.
Information as of market close on February
17, 2017:
Bloomberg Ticker Symbol:
|
DAL
|
Exchange:
|
NYSE
|
Current Stock Price:
|
$51.23
|
52 Weeks Ago:
|
$46.10
|
52 Week High (on 12/9/2016):
|
$51.78
|
52 Week Low (on 6/27/2016):
|
$33.36
|
Current Dividend Yield:
|
1.58%
|
The following table sets forth the published
high and low closing prices of, as well as dividends on, the DAL Stock for each quarter from January 1, 2014 through February 17,
2017. The closing price of the DAL Stock on February 17, 2017 was $51.23. The associated graph shows the closing prices of the
DAL Stock for each day from January 1, 2012 through February 17, 2017. We obtained the information in the table and graph below
from Bloomberg Financial Markets, without independent verification. The historical performance of the DAL Stock should not be taken
as an indication of its future performance, and no assurance can be given as to the price of the DAL Stock at any time, including
the redemption determination dates or the observation dates.
Common Stock of Delta Air Lines, Inc. (CUSIP 247361702)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2014
|
|
|
|
First Quarter
|
35.37
|
27.70
|
0.06
|
Second Quarter
|
42.23
|
31.73
|
0.06
|
Third Quarter
|
40.93
|
35.61
|
0.09
|
Fourth Quarter
|
49.23
|
30.90
|
0.09
|
2015
|
|
|
|
First Quarter
|
50.70
|
43.42
|
0.09
|
Second Quarter
|
47.40
|
40.57
|
0.09
|
Third Quarter
|
47.99
|
40.00
|
0.135
|
Fourth Quarter
|
52.26
|
44.87
|
0.135
|
2016
|
|
|
|
First Quarter
|
50.12
|
40.77
|
0.135
|
Second Quarter
|
48.49
|
33.36
|
0.135
|
Third Quarter
|
40.98
|
35.58
|
0.2025
|
Fourth Quarter
|
51.78
|
38.94
|
0.2025
|
2017
|
|
|
|
First Quarter (through February 17, 2017)
|
51.44
|
47.24
|
0.2025
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
We make no representation as to the amount
of dividends, if any, that Delta Air Lines, Inc. may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable
Securities, you will not be entitled to receive dividends, if any, that may be payable on the common stock of Delta Air Lines,
Inc.
Common Stock of Delta Air Lines, Inc. – Daily Closing Prices
January 1, 2012 to February 17, 2017
|
|
* The red horizontal line indicates the hypothetical downside
threshold level, assuming the closing price of the DAL Stock on February 17, 2017 were the initial share price.
This document relates only to the securities
offered hereby and does not relate to the DAL Stock or other securities of Delta Air Lines, Inc. We have derived all disclosures
contained in this document regarding Delta Air Lines, Inc. stock from the publicly available documents described above. In connection
with the offering of the securities, neither we nor the agent has participated in the preparation of such documents or made any
due diligence inquiry with respect to Delta Air Lines, Inc. Neither we nor the agent makes any representation that such publicly
available documents or any other publicly available information regarding Delta Air Lines, Inc. is accurate or complete. Furthermore,
we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy
or completeness of the publicly available documents described above) that would affect the trading price of the DAL Stock (and
therefore the price of the DAL Stock at the time we price the securities) have been publicly disclosed. Subsequent disclosure of
any such events or the disclosure of or failure to disclose material future events concerning Delta Air Lines, Inc. could affect
the value received with respect to the securities and therefore the value of the securities.
Neither the issuer nor any of its affiliates
makes any representation to you as to the performance of the DAL Stock.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
American Airlines Group Inc. Overview
American Airlines Group Inc. is a holding company of two major
network carriers in the airline industry, American Airlines, Inc. and US Airways Group, Inc. On December 9, 2013, AMR Corporation
(“AMR”), the parent company of American Airlines, Inc., and its subsidiaries consummated their Chapter 11 reorganization
and merged with US Airways Group, Inc. Immediately following the emergence from bankruptcy and the merger, AMR changed its name
to American Airlines Group Inc. On December 9, 2013, American Airlines Group Inc.’s common stock began trading on the NASDAQ
Global Select Market under the symbol "AAL.” The AAL Stock is registered under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Information provided to or filed with the Securities and Exchange Commission by American
Airlines Group Inc. pursuant to the Exchange Act can be located by reference to the Securities and Exchange Commission file number
001-08400 through the Securities and Exchange Commission’s website at .www.sec.gov. In addition, information regarding American
Airlines Group Inc. may be obtained from other sources including, but not limited to, press releases, newspaper articles and other
publicly disseminated documents.
Neither the issuer nor the agent makes any representation that such publicly available documents
or any other publicly available information regarding the issuer of the AAL Stock is accurate or complete.
Information as of market close on February 17, 2017:
Bloomberg Ticker Symbol:
|
AAL
|
Exchange:
|
NASDAQ
|
Current Stock Price:
|
$46.91
|
52 Weeks Ago:
|
$39.34
|
52 Week High (on 12/9/2016):
|
$49.64
|
52 Week Low (on 6/27/2016):
|
$25.27
|
Current Dividend Yield:
|
0.85%
|
The following table sets forth the published
high and low closing prices of, as well as dividends on, the AAL Stock for each quarter from January 1, 2014 through February 17,
2017. The closing price of the AAL Stock on February 17, 2017 was $46.91. The associated graph shows the closing prices of the
AAL Stock for each day from January 1, 2012 through February 17, 2017. On December 9, 2013, AMR and its subsidiaries consummated
their Chapter 11 reorganization and merged with US Airways Group, Inc. Immediately following the emergence from bankruptcy and
the merger, AMR changed its name to American Airlines Group Inc. On December 9, 2013, American Airlines Group Inc.’s common
stock began trading on the NASDAQ Global Select Market under the symbol "AAL.” We obtained the information in the table
and graph below from Bloomberg Financial Markets, without independent verification. The historical performance of the AAL Stock
should not be taken as an indication of its future performance, and no assurance can be given as to the price of the AAL Stock
at any time, including the redemption determination dates or the observation dates.
Common Stock of American Airlines Group Inc. (CUSIP 02376R102)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2014
|
|
|
|
First Quarter
|
39.02
|
25.36
|
-
|
Second Quarter
|
44.55
|
33.37
|
-
|
Third Quarter
|
43.86
|
35.03
|
0.10
|
Fourth Quarter
|
53.63
|
28.58
|
0.10
|
2015
|
|
|
|
First Quarter
|
55.76
|
46.53
|
0.10
|
Second Quarter
|
52.71
|
39.48
|
0.10
|
Third Quarter
|
43.99
|
37.50
|
0.10
|
Fourth Quarter
|
46.50
|
38.13
|
0.10
|
2016
|
|
|
|
First Quarter
|
43.47
|
35.55
|
0.10
|
Second Quarter
|
41.34
|
25.27
|
0.10
|
Third Quarter
|
39.35
|
28.35
|
0.10
|
Fourth Quarter
|
49.64
|
37.38
|
0.10
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
Common Stock of American Airlines Group Inc. (CUSIP 02376R102)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2017
|
|
|
|
First Quarter (through February 17, 2017)
|
49.59
|
44.01
|
0.10
|
|
|
|
|
We make no representation as to the amount
of dividends, if any, that American Airlines Group Inc. may pay in the future. In any event, as an investor in the Contingent Income
Auto-Callable Securities, you will not be entitled to receive dividends, if any, that may be payable on the common stock of American
Airlines Group Inc.
Common Stock of American Airlines Group Inc. – Daily Closing Prices
January 1, 2012 to February 17, 2017
|
|
* The red horizontal line indicates the hypothetical downside
threshold level, assuming the closing price of the AAL Stock on February 17, 2017 were the initial share price.
This document relates only to the securities offered
hereby and does not relate to the AAL Stock or other securities of American Airlines Group Inc. We have derived all disclosures
contained in this document regarding American Airlines Group Inc. stock from the publicly available documents described above.
In connection with the offering of the securities, neither we nor the agent has participated in the preparation of such documents
or made any due diligence inquiry with respect to American Airlines Group Inc. Neither we nor the agent makes any representation
that such publicly available documents or any other publicly available information regarding American Airlines Group Inc. is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price
of the AAL Stock (and therefore the price of the AAL Stock at the time we price the securities) have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of or failure to disclose material future events concerning American Airlines Group
Inc. could affect the value received with respect to the securities and therefore the value of the securities.
Neither the issuer nor any of its affiliates
makes any representation to you as to the performance of the AAL Stock.
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
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.
|
Underlying stock:
|
The accompanying product supplement refers to the underlying stock as the “underlying shares.”
|
Underlying stock issuer:
|
With respect to the DAL Stock, Delta Air Lines, Inc.
With respect to the AAL Stock, American Airlines Group
Inc.
The accompanying product supplement refers to the underlying
stock issuer as the “underlying company.”
|
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 for any underlying stock is postponed due to a non-trading day or certain market disruption events with respect to such underlying stock 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, early redemption payment or payment at maturity made on that postponed date.
|
Antidilution adjustments:
|
The following replaces in its entirety the portion of the
section entitled “Antidilution Adjustments” in the accompanying product supplement for auto-callable securities from
the start of paragraph 5 to the end of such section.
5. If, with respect to either or both underlying stocks, (i)
there occurs any reclassification or change of such underlying stock, including, without limitation, as a result of the issuance
of any tracking stock by the underlying stock issuer for such underling stock, (ii) such underlying stock issuer or any surviving
entity or subsequent surviving entity of such underlying stock issuer (the “successor corporation”) has been subject
to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory exchange of securities of such underlying
stock issuer or any successor corporation with another corporation occurs (other than pursuant to clause (ii) above), (iv) such
underlying stock issuer is liquidated, (v) such underlying stock issuer issues to all of its shareholders equity securities of
an issuer other than such underlying stock issuer (other than in a transaction described in clause (ii), (iii) or (iv) above) (a
“spin-off event”) or (vi) a tender or exchange offer or going-private transaction is consummated for all the outstanding
shares of such underlying stock (any such event in clauses (i) through (vi), a “reorganization event”), the method
of determining whether an early redemption has occurred and the amount payable upon an early redemption date or at maturity for
each security will be as follows:
·
Upon
any redemption determination date following the effective date of a reorganization event and prior to the final observation date:
If the exchange property value (as defined below) is greater than or equal to its initial share price, and the final share price
(or exchange property value, as applicable) of the other underlying stock is also greater than or equal to its initial share price,
the securities will be automatically redeemed for an early redemption payment.
·
Upon
the final observation date, if the securities have not previously been automatically redeemed: You will receive for each security
that you hold a payment at maturity equal to:
Ø
If
the share closing price of such underlying stock was greater than or equal to its downside threshold level on each trading day
from but excluding the pricing date to but excluding the effective date of the reorganization event, the exchange property value
is
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
Ø
greater
than or equal to the respective downside threshold level on each trading day from and including the effective date of the reorganization
event to and including the final observation date, and the closing price of the other underlying stock (or exchange property value,
as applicable) is also greater than its downside threshold level on each trading day from but excluding the pricing date to and
including the final observation date:
(i) the stated principal amount plus (ii) the contingent quarterly coupon with respect
to the final observation date.
Ø
If the share closing price of
such underlying stock was less than its downside threshold level on any trading day from but excluding the pricing date to but
excluding the effective date of the reorganization event, or if the exchange property value is less than its downside threshold
level on any trading day from and including the effective date of the reorganization event to and including the final observation
date, or if the share closing price of the other underlying stock (or exchange property value, as applicable) is less than its
respective downside threshold level on any trading day from but excluding the pricing date to and including the final observation
date:
Ø
If
the worst performing underlying stock has not undergone a reorganization event as described in paragraph 5 above: the lesser of
(i) the stated principal amount multiplied by the share performance factor of the worst performing underlying stock and (ii)
the stated principal amount
.
Ø
If
the worst performing underlying stock has undergone a reorganization event as described in paragraph 5 above: the lesser of
(i)
the stated principal amount multiplied by the share performance factor of the worst performing underlying stock and (ii) the stated
principal amount. For purposes of calculating the share performance factor, the “final share price” of the worst performing
underlying stock will be deemed to equal the cash value, determined as of the final observation date, of the securities, cash or
any other assets distributed to holders of the worst performing underlying stock in or as a result of any such reorganization event,
including (A) in the case of the issuance of tracking stock, the reclassified share of such worst performing underlying stock,
(B) in the case of a spin-off event, the share of such worst performing underlying stock with respect to which the spun-off security
was issued, and (C) in the case of any other reorganization event where such worst performing underlying stock continues to be
held by the holders receiving such distribution, such worst performing underlying stock (collectively, the “exchange property”),
per share of such worst performing underlying stock times the adjustment factor for such worst performing underlying stock on the
final observation date.
Following the effective date of a reorganization event (including
at maturity), the contingent quarterly coupon will be payable for each observation date on which the exchange property value is
greater than or equal to the applicable downside threshold level and the determination closing price (or exchange property value,
as applicable) of the other underlying stock is also greater than or equal to its downside threshold level.
If exchange property includes a cash component,
investors will not receive any interest accrued on such cash component. In the event exchange property consists of securities,
those securities will, in turn, be subject to the antidilution adjustments set forth in paragraphs 1 through 5.
For purposes of determining whether or not
the exchange property value is less than the initial share price, or less than the downside threshold level, or for determining
the worst performing underlying stock, “exchange property value” means (x) for any cash received in any reorganization
event, the value, as determined by the calculation agent, as of the date of receipt, of such cash received for one share of such
underlying stock, as adjusted by the adjustment factor at the time of such reorganization event, (y) for any property other than
cash or securities received in any such reorganization event, the market value, as determined by the calculation agent in its sole
discretion, as of the date of receipt, of such exchange property received for one share of such underlying stock, as adjusted by
the adjustment factor at the time of such reorganization event and (z) for any security received in any such reorganization event,
an amount equal to the determination closing price, as of the day on which the exchange property value is determined, per share
of such security multiplied by the quantity of such security received for each share of such underlying stock, as adjusted by the
adjustment factor at the time of such reorganization event.
For purposes of paragraph 5 above, in the case
of a consummated tender or exchange offer or going-private transaction involving consideration of particular types, exchange property
shall
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
be deemed to include the amount of cash or
other property delivered by the offeror in the tender or exchange offer (in an amount determined on the basis of the rate of exchange
in such tender or exchange offer or going-private transaction). In the event of a tender or exchange offer or a going-private transaction
with respect to exchange property in which an offeree may elect to receive cash or other property, exchange property shall be deemed
to include the kind and amount of cash and other property received by offerees who elect to receive cash.
Following the occurrence of any reorganization
event referred to in paragraph 5 above, all references in this offering document and in the related product supplement with respect
to the securities to such “underlying stock” shall be deemed to refer to the exchange property and references to a
“share” or “shares” of such underlying stock shall be deemed to refer to the applicable unit or units of
such exchange property, unless the context otherwise requires.
No adjustment to the adjustment factor will
be required unless such adjustment would require a change of at least 0.1% in the adjustment factor then in effect. The adjustment
factor resulting from any of the adjustments specified above will be rounded to the nearest one hundred-thousandth, with five one-millionths
rounded upward. Adjustments to the adjustment factor will be made up to the close of business on the final observation date.
No adjustments to the adjustment factor or
method of calculating the adjustment factor will be required other than those specified above. The adjustments specified above
do not cover all events that could affect the determination closing price or the final share price of such underlying stock, including,
without limitation, a partial tender or exchange offer for such underlying stock.
The calculation agent shall be solely responsible
for the determination and calculation of any adjustments to the adjustment factor or method of calculating the adjustment factor
and of any related determinations and calculations with respect to any distributions of stock, other securities or other property
or assets (including cash) in connection with any corporate event described in paragraphs 1 through 5 above, and its determinations
and calculations with respect thereto shall be conclusive in the absence of manifest error.
The calculation agent will provide information as to any adjustments
to an adjustment factor or to the method of calculating the amount payable at maturity of the securities made pursuant to paragraph
5 above upon written request by any investor in the securities.
|
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;
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
·
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.
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.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
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 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
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
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
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
based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, the regulations
exempt securities issued before January 1, 2018 that do not have a delta of one with respect to any Underlying Security. Based
on our determination that the securities do not have a delta of one with respect to any Underlying Security, our counsel is of
the opinion that the securities should not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
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-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
|
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.
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
On or prior to the pricing date, we will hedge our anticipated exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers. We expect our hedging counterparties to take positions in the underlying stocks, in futures and/or options contracts on the underlying stocks, 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 share price of an underlying stock, and, therefore, could increase (i) the value at or above which such underlying stock 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 stock) and (ii) the downside threshold level for such underlying stock, which is the value at or above which the underlying stock must close on the observation dates and each trading day from but excluding the pricing date to and including the final observation date, as applicable, so that you receive a contingent quarterly coupon on the securities (depending also on the performance of the other underlying stock), and so that you are not exposed to the negative performance of the worst performing underlying stock at maturity (depending also on the performance of the other underlying stock). 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 either underlying stock throughout the term of the securities, including on the redemption determination dates and other 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 will receive at maturity, if any (depending on the performance of the other underlying stock). For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product supplement.
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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”
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
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 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
|
Morgan Stanley Finance LLC
Contingent Income
Auto-Callable Securities due February 28, 2019
All Payments on the Securities Based on the Worst Performing of the Common Stock of Delta Air Lines Inc. and the Common Stock of American Airlines Group Inc.
Principal at Risk Securities
|
accounts, will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee of Morgan Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example, an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
|
Additional considerations:
|
Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the securities, either directly or indirectly.
|
Supplemental information regarding plan of distribution; conflicts of interest:
|
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.
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 Wealth Management clients may contact their local Morgan Stanley branch office or our 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.
|
Where you can find more information:
|
MSFL and Morgan Stanley have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities) 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 and any other documents relating to this offering that MSFL and Morgan Stanley
have filed with the SEC for more complete information about MSFL, Morgan Stanley and this offering. You may get these documents
without cost by visiting EDGAR on the SEC web site at
.
www.sec.gov. Alternatively, MSFL, Morgan
Stanley, any underwriter or any dealer participating in the offering will arrange to send you the prospectus and the product supplement
for auto-callable securities 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
Prospectus dated February 16, 2016
Terms used but not defined in this document are defined
in the product supplement for auto-callable securities or in the prospectus.
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