May 2017
Preliminary Terms No. 1,565
Registration Statement Nos. 333-200365;
333-200365-12
Dated May 24, 2017
Filed pursuant to Rule 433
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in
International Equities
Contingent Income Auto-Callable Securities due
May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Fully and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
Contingent Income Auto-Callable Securities do not guarantee
the payment of interest or the repayment of principal. Instead, the securities offer the opportunity for investors to earn a contingent
quarterly coupon at an annual rate of 13.15%, but only with respect to each observation date on which the index closing value of
the underlying index is greater than or equal to 85% of the initial index value, which we refer to as the downside threshold level.
In addition, if the index closing value of the underlying index is greater than or equal to the initial index value on any quarterly
redemption determination date, the securities will be automatically redeemed for an amount per security equal to the stated principal
amount and the related contingent quarterly coupon. However, if the securities are not automatically redeemed prior to maturity,
the payment at maturity due on the securities will be as follows: (i) if the final index value is greater than or equal to the
downside threshold level, investors will receive the stated principal amount and the contingent quarterly coupon with respect to
the final observation date, or (ii) if the final index value is less than the downside threshold level, investors will be exposed
to the full decline in the underlying index on a 1-to-1 basis and will receive a payment at maturity that is less than 85% of the
stated principal amount of the securities and could be zero. Moreover, if on any observation date, the index closing value of the
underlying index is less than the downside threshold level, you will not receive any contingent quarterly coupon for that quarterly
period. As a result, investors must be willing to accept the risk of not receiving any contingent quarterly coupons and also the
risk of receiving a payment at maturity that is significantly less than the stated principal amount of the securities and could
be zero.
Accordingly, investors could lose their entire initial investment in the securities.
These long-dated securities
are for investors who are willing to risk their principal and seek an opportunity to earn interest at a potentially above-market
rate in exchange for the risk of receiving few or no contingent quarterly coupons over the 5-year term of the securities. Investors
will not participate in any appreciation of the underlying index. The securities are unsecured obligations of Morgan Stanley Finance
LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The securities are 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 index:
|
EURO STOXX
®
Banks Index
|
Aggregate principal amount:
|
$
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security
|
Pricing date:
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May 25, 2017
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Original issue date:
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May 31, 2017 (3 business days after the pricing date)
|
Maturity date:
|
May 31, 2022
|
Early redemption:
|
If, on any redemption determination date, beginning on August 25, 2017, the index closing value of the underlying index is
greater than or equal to
the initial index value, the securities will be automatically redeemed for an early redemption payment on the related early redemption date. No further payments will be made on the securities once they have been redeemed.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the related observation date.
|
Redemption determination dates:
|
Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject to postponement for non-trading days and certain market disruption events.
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Early redemption dates:
|
Starting on August 31, 2017 (approximately three months after the original issue date), quarterly. See “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below. If any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day.
|
Contingent quarterly coupon:
|
·
If, on any observation date, the index closing value or the final index value, as applicable, is greater than or equal to
the downside threshold level, we will pay a contingent quarterly coupon at an annual rate of 13.15% (corresponding to approximately
$32.875 per quarter per security) on the related coupon payment date.
·
If, on any observation date, the index closing value or the final index value, as applicable, is less than the downside
threshold level, no contingent quarterly coupon will be paid with respect to that observation date.
|
Downside threshold level:
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, which is equal to 85% of the initial index value
|
Payment at maturity:
|
·
If the final index value is
greater than or equal to
the downside threshold level:
|
(i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the final observation date
|
|
·
If the final index value is
less than
the downside threshold level:
|
(i) the stated principal amount
multiplied by
(ii) the index performance factor
|
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.”
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Estimated value on the pricing date:
|
Approximately $960.00 per security, or within $20.00 of that estimate. See “Investment Summary” beginning on page 2.
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Commissions and issue price:
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Price to public
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Agent’s commissions
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Proceeds to us
(2)
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Per security
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|
$1,000
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$25
(1)
|
|
|
|
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$5
(2)
|
$970
|
Total
|
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$
|
$
|
$
|
|
(1)
|
Selected dealers, including
Morgan Stanley Wealth Management (an affiliate of the agent), and their financial advisors
will collectively receive from the agent, MS & Co., a fixed sales commission of $25
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)
|
Reflects a structuring fee
payable to Morgan Stanley Wealth Management by the agent or its affiliates of $5 for
each security.
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(3)
|
See “Use of proceeds
and hedging” on page 19.
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The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 9.
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.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
Terms continued from previous page:
|
Initial index value:
|
, which is the index closing value of the underlying index on the pricing date
|
Coupon payment dates:
|
Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below. 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:
|
Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject to postponement for non-trading days and certain market disruption events. We also refer to May 25, 2022, which is the third scheduled business day preceding the scheduled maturity date, as the final observation date.
|
Final index value:
|
The index closing value of the underlying index on the final observation date
|
Index performance factor:
|
The final index value
divided by
the initial index value
|
CUSIP:
|
61768CKA4
|
ISIN:
|
US61768CKA44
|
Listing:
|
The securities
will not be listed on any securities exchange.
|
Observation Dates, Redemption Determination Dates,
Coupon Payment Dates and Early Redemption Dates
Observation Dates / Redemption Determination Dates
|
Coupon Payment Dates / Early Redemption Dates
|
8/25/2017
|
8/31/2017
|
11/27/2017
|
11/30/2017
|
2/26/2018
|
3/1/2018
|
5/25/2018
|
5/31/2018
|
8/28/2018
|
8/31/2018
|
11/26/2018
|
11/29/2018
|
2/25/2019
|
2/28/2019
|
5/28/2019
|
5/31/2019
|
8/27/2019
|
8/30/2019
|
11/25/2019
|
11/29/2019
|
2/25/2020
|
2/28/2020
|
5/26/2020
|
5/29/2020
|
8/25/2020
|
8/28/2020
|
11/25/2020
|
12/1/2020
|
2/25/2021
|
3/2/2021
|
5/25/2021
|
5/28/2021
|
8/25/2021
|
8/31/2021
|
11/25/2021
|
11/30/2021
|
2/25/2022
|
3/2/2022
|
5/25/2022 (final observation date)
|
5/31/2022 (maturity date)
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
The Contingent Income Auto-Callable
Securities due May 31, 2022 Based on the Performance of the EURO STOXX
®
Banks Index, which we refer to as the
securities, provide an opportunity for investors to earn a contingent quarterly coupon at an annual rate of 13.15% with
respect to each quarterly observation date on which the index closing value or the final index value, as applicable, is
greater than or equal to 85% of the initial index value, which we refer to as the downside threshold level. It is possible
that the index closing value of the underlying index could remain below the downside threshold level for extended periods of
time or even throughout the term of the securities so that you may receive few or no contingent quarterly coupons.
If the index closing value is greater than
or equal to the initial index value on any quarterly redemption determination date, beginning on August 25, 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. If the securities have not previously been redeemed and the final
index value is greater than or equal to the downside threshold level, the payment at maturity will be the stated principal amount
and the contingent quarterly coupon with respect to the final observation date. However, if the securities have not previously
been redeemed and the final index value is less than the downside threshold level, investors will be exposed to the decline in
the underlying index, as compared to the initial index value, on a 1-to-1 basis. In this case, the payment at maturity will be
less than 85% of the stated principal amount of the securities and could be zero. Investors in the securities must be willing to
accept the risk of losing their entire principal and also the risk of not receiving any contingent quarterly coupon. In addition,
investors will not participate in any appreciation of the underlying index.
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 $960.00, or within $20.00 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
index. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying index, instruments based on the underlying index, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the contingent quarterly coupon rate and the downside threshold level, we use an internal funding rate, which is likely
to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and
hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the securities
would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the
securities in the secondary market, absent changes in market conditions, including those related to the underlying index, may vary
from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary
market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type
and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not
fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy
or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
index, and to our secondary market credit spreads, it would do so
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
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 May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
quarterly coupon at an annual rate of 13.15% with respect to each observation date on which the index closing value or the final
index value, as applicable, is greater than or equal to 85% of the initial index value, which we refer to as the downside threshold
level. The securities may be redeemed prior to maturity for the stated principal amount per security
plus
the applicable
contingent quarterly coupon, and the payment at maturity will vary depending on the final index value, as follows:
Scenario 1
|
On any quarterly redemption determination
date, the index closing value is
greater than or equal to
the initial index value.
§
The securities will be automatically redeemed for (i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the related observation date.
§
Investors will not participate in any appreciation of the underlying index from the initial
index value.
|
Scenario 2
|
The securities are not automatically redeemed
prior to maturity, and the final index value is
greater than or equal to
the downside threshold level.
§
The payment due at maturity will be (i) the stated principal amount plus (ii) the contingent
quarterly coupon with respect to the final observation date.
§
Investors will not participate in any appreciation of the underlying index from the initial
index value.
|
Scenario 3
|
The securities are not automatically redeemed
prior to maturity, and the final index value is
less than
the downside threshold level.
§
The payment due at maturity will be equal to (i) the stated principal amount
multiplied
by
(ii) the index performance factor.
§
Investors will lose a significant portion, and may lose all, of their principal in this
scenario.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the index closing values and (2) the final index value.
Diagram #1: Contingent Quarterly Coupons
(Beginning on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Beginning
Approximately Three Months After the Original Issue Date)
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
Hypothetical Examples
The below examples are based on
the following terms:
Hypothetical
Initial Index Value:
|
130
|
Hypothetical Downside
Threshold Level:
|
110.50, which is 85% of the hypothetical
initial index value
|
Contingent Quarterly
Coupon:
|
13.15% per annum (corresponding to approximately
$32.875 per quarter per security)
1
|
Stated Principal Amount:
|
$1,000 per security
|
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 $32.875 is used in these examples for
ease of analysis.
In Example 1,
the index closing value of the underlying index is greater than or equal to the initial index value on one of the quarterly redemption
determination dates (beginning on August 25, 2017). Because the index closing value is greater than or equal to the initial index
value on such a date, the securities are automatically redeemed on the related early redemption date. In Examples 2 and 3, the
index closing value is less than the initial index value on each redemption determination date, and, consequently, the securities
are not automatically redeemed prior to, and remain outstanding until, maturity.
Example 1
—The securities
are automatically redeemed following the quarterly redemption determination date in November 2018, as the index closing value
is greater than or equal to the initial index value on such redemption determination date. The index closing value is at or above
the downside threshold level on only 1 of the 5 quarterly observation dates prior to (and excluding) the observation date immediately
preceding the early redemption. Therefore, you would receive the contingent quarterly coupon with respect to that observation
date, equal to $32.875, but not with respect to the other 4 observation dates. The underlying index, however, recovers, and the
index closing value is greater than or equal to the initial index value on the redemption determination date in November 2018.
Upon early redemption, investors receive the early redemption payment calculated as $1,000 + $32.875 = $1,032.875.
The total payment over the 18-month
term of the securities is $32.875 + $1,032.875 = $1,065.75. Investors do not participate in any appreciation of the underlying
index.
Example 2
—The
securities are not redeemed prior to maturity, as the index closing value is less than the initial index value on each quarterly
redemption determination date. The index closing value is at or above the downside threshold level on all 19 quarterly observation
dates prior to (and excluding) the final observation date, and the final index value is also at or above the downside threshold
level. Therefore, you would receive (i) the contingent quarterly coupons with respect to the 19 observation dates prior to (and
excluding) the final observation date, totaling $32.875 × 19 = $624.625, and (ii) the payment at maturity calculated as
$1,000 + $32.875 = $1,032.875.
The total payment
over the 5-year term of the securities is $624.625 + $1,032.875 = $1,657.50.
This example
illustrates the scenario where you receive a contingent quarterly coupon on every coupon payment date throughout the term of the
securities and receive your principal back at maturity, resulting in an annual interest rate of 13.15% over the 5-year term of
the securities. This example, therefore, represents the maximum amount payable over the 5-year term of the securities. To the
extent that coupons are not paid on every coupon payment date, the effective rate of interest on the securities will be less than
13.15% per annum and could be zero.
Example 3
—The securities
are not redeemed prior to maturity, as the index closing value is less than the initial index value on each quarterly redemption
determination date. The index closing value is below the downside threshold level on all of the quarterly observation dates, including
the final observation date, on which the final index value is 65. Therefore, you would receive no contingent quarterly coupons,
and the payment at maturity would be calculated as $1,000 × 65 / 130 = $500.00.
The total payment over the 5-year
term of the securities is $0 + $500.00 = $500.00.
If the securities are not automatically
redeemed prior to maturity and the final index value is less than the downside threshold level, you will lose a significant portion
or all of your investment in the securities.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk
factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled
“Risk Factors” in the accompanying product supplement and prospectus. You should also consult 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 the securities do not guarantee the payment of regular interest or the return
of any of the principal amount at maturity. Instead, if the securities have not been automatically redeemed prior to maturity and
if the final index value is less than the downside threshold level, you will be exposed to the full decline in the underlying index,
as compared to the initial index value, on a 1-to-1 basis and you will receive a payment at maturity that will be less than 85%
of the stated principal amount and could be zero. You could lose up to your entire investment in the securities.
|
|
§
|
You will not receive any contingent quarterly coupon for any quarterly period where the index
closing value is less than the downside threshold level.
A contingent quarterly coupon will be paid with respect to a quarterly
period only if the index closing value is greater than or equal to the downside threshold level. If the index closing value remains
below the downside threshold level on each observation date over the term of the securities, you will not receive any contingent
quarterly coupons.
|
|
§
|
The contingent quarterly coupon, if any, is based solely on the index closing value or the
final index value, as applicable.
Whether the contingent quarterly coupon will be paid with respect to an observation date
will be based on the index closing value or the final index value, as applicable. As a result, you will not know whether you will
receive the contingent quarterly coupon until the related observation date. Moreover, because the contingent quarterly coupon is
based solely on the index closing value on a specific observation date or the final index value, as applicable, if such index closing
value or final index value is less than the downside threshold level, you will not receive any contingent quarterly coupon with
respect to such observation date, even if the index closing value of the underlying index was higher on other days during the term
of the securities.
|
|
§
|
There are risks associated with investments in securities linked
to the value of foreign equity securities.
The securities are linked to the value of foreign equity securities. Investments
in securities linked to the value of foreign equity securities involve risks associated with the securities markets in those countries,
including risks of volatility in those markets, governmental intervention in those markets and cross-shareholdings in companies
in certain countries. Also, there is generally less publicly available information about foreign companies than about U.S. companies
that are subject to the reporting requirements of the United States Securities and Exchange Commission, and foreign companies are
subject to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting
companies. The prices of securities issued in foreign markets may be affected by political, economic, financial and social factors
in those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws.
Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries
may differ favorably or unfavorably from the economy in the United States in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resources, self-sufficiency and balance of payment positions between countries.
|
|
§
|
The stocks composing the underlying index are concentrated in the
banking sector
. Each of the stocks composing the underlying index has been issued by a company whose business is associated
with the banking sector. Because the value of the securities is determined based on the performance of the underlying index, an
investment in the securities will be concentrated in this sector. As a result, the value of the securities may be subject to greater
volatility and may be more adversely affected by a single economic, political or regulatory occurrence affecting this sector than
a different investment linked to securities of a more broadly diversified group of issuers.
|
The stocks composing
the underlying index are issued by companies whose primary lines of business are directly associated with the banking sector. The
performance of bank stocks may be affected by governmental regulation that may limit the amount and types of loans and other financial
commitments that banks can make, the interest rates and fees they can charge and the amount of capital they must maintain. Profitability
is largely dependent on the availability and cost of
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
capital funds,
and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers can
negatively impact the banking sector. Banks may also be subject to severe price competition.
For
additional information about the underlying index, see the information set forth in “Annex A—The EURO STOXX
®
Banks Index.”
|
§
|
Investors will not participate in any appreciation in the value of the underlying index.
Investors
will not participate in any appreciation in the value of the underlying index from the initial index value, and the return on the
securities will be limited to the contingent quarterly coupons, if any, that are paid with respect to each observation date on
which the index closing value or the final index value, as applicable, is greater than or equal to the downside threshold level
until the securities are redeemed or reach maturity. It is possible that the index closing value could be below the downside threshold
level on most or all of the observation dates so that you will receive few or no contingent quarterly coupons. If you do not earn
sufficient contingent quarterly coupons over the term of the securities, the overall return on the securities may be less than
the amount that would be paid on a conventional debt security of ours of comparable maturity.
|
|
§
|
The automatic early redemption feature may limit the term of your investment to as short as
approximately three months. If the securities are redeemed early, you may not be able to reinvest at comparable terms or returns.
The term of your investment in the securities may be limited to as short as approximately three
months by 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.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several
factors 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. Although we expect that generally the index closing value of the
underlying
index
on any day will affect the value of the securities more than any other single factors,
other factors that may influence the value of the securities include:
|
|
o
|
the volatility (frequency and magnitude of changes in value) of the underlying index,
|
|
o
|
whether the index closing value of the underlying index is currently or has been below the downside threshold level on any
observation date,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks
of the underlying index or securities markets generally and which may affect the value of the underlying index,
|
|
o
|
dividend rates on the securities underlying the underlying index,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the composition of the underlying index and changes in the constituent stocks of such index, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity. Generally,
the longer the time remaining to maturity, the more the market price of the securities will be affected by the other factors described
above. In particular, if the underlying index has closed near or below the downside threshold level, the market value of the securities
is expected to decrease substantially and you may have to sell your securities at a substantial discount from the stated principal
amount of $1,000 per security.
You cannot predict the future performance
of the underlying index based on its historical performance. The value of the underlying index may decrease and be below the downside
threshold level on each observation date so that you will receive no contingent quarterly coupons, and the value of the underlying
index may decrease and be below the downside threshold level on the final observation date so that you will lose a significant
portion or all of your investment. There can be no assurance that the index closing value of the underlying index will be greater
than or equal to the downside threshold level on any observation date so that you will receive any contingent quarterly coupon
during the term of the securities, or that it will be greater than or equal to the downside threshold level on the final observation
date so that you do not suffer a significant loss on your initial investment in the securities. See “EURO STOXX
®
Banks Index Overview” below.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
|
§
|
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 or at maturity, and therefore you
are subject to our credit risk. If we default on our obligations under the securities, your investment would be at risk and you
could lose some or all of your investment. As a result, the market value of the securities prior to maturity will be affected by
changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase
in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the securities.
|
|
§
|
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.
|
|
§
|
Investing in the securities is not equivalent to investing in the underlying index.
Investing
in the securities is not equivalent to investing in the underlying index or its component stocks. As an investor in the securities,
you will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the stocks
that constitute the underlying index.
|
|
§
|
Adjustments to the underlying index could adversely affect the value of the securities.
The
publisher of the underlying index may add, delete or substitute the component stocks of the underlying index or make other methodological
changes that could change the value of the underlying index. Any of these actions could adversely affect the value of the securities.
The publisher of the underlying index may also discontinue or suspend calculation or publication of the underlying index at any
time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index
that is comparable to the discontinued index. MS & Co. could have an economic interest that is different than that of investors
in the securities insofar as, for example, MS & Co. is permitted to consider indices that are calculated and published by MS
& Co. or any of its affiliates. If MS & Co. determines that there is no appropriate successor index on any observation
date, the determination of whether the contingent quarterly coupon will be payable on the securities on the applicable coupon payment
date, whether the securities will be redeemed or the payment at maturity, as applicable, will be based on whether the value of
the underlying index, based on the closing prices of the stocks constituting the underlying index at the time of such discontinuance,
without rebalancing or substitution, computed by MS & Co. as calculation agent in accordance with the formula for calculating
the underlying index last in effect prior to such discontinuance, is less than the downside threshold level or initial index value,
as applicable.
|
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be
limited.
The securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market
for the securities. MS & Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make
a market, may cease doing so at any time. When it does make a market, it will generally do so for transactions of routine secondary
market size at prices based on its estimate of the current value of the securities, taking into account its bid/offer spread, our
credit spreads, market volatility, the notional size of the proposed sale, the cost of unwinding any related hedging positions,
the time remaining to maturity and the likelihood that it will be able to resell the securities. Even if there is a secondary market,
it may not provide enough liquidity to allow you to trade or sell the securities easily. Since other broker-dealers may not participate
significantly in the secondary market for the securities, the price at which you may be able to trade your securities is likely
to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making
a market in the securities, it is likely that there would be no secondary market for the securities. Accordingly, you should be
willing to hold your securities to maturity.
|
|
§
|
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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
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 index, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation
models, which may differ from those of other dealers and is not a maximum or minimum secondary market price.
These pricing
and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about
future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities,
our models may yield a higher estimated value of the securities than those generated by others, including other dealers in the
market, if they attempted to value the securities. In addition, the estimated value on the pricing date does not represent a minimum
or maximum price at which dealers, including MS & Co., would be willing to purchase your securities in the secondary market
(if any exists) at any time. The value of your securities at any time after the date of this document will vary based on many factors
that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “The market
price will be influenced by many unpredictable factors” above.
|
|
§
|
Hedging and trading activity by our affiliates could potentially adversely affect the value
of the securities
. One or more of our affiliates and/or third-party dealers expect to carry out hedging activities related
to the securities (and to other instruments linked to the underlying index or its component stocks), including trading in the stocks
that constitute the underlying index as well as in other instruments related to the underlying index. As a result, these entities
may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and
more frequent dynamic adjustments to the hedge as the final observation date approaches. Some of our affiliates also trade the
stocks that constitute the underlying index and other financial instruments related to the underlying index on a regular basis
as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing
date could potentially increase the initial index value, and, therefore, could increase the downside threshold level, which is
the value at or above which the underlying index must close on each observation date so that you receive a contingent quarterly
coupon on the securities, and, if the securities are not called prior to maturity, the value at or above which the underlying index
must close on the final observation date so that you are not exposed to the negative performance of the underlying index at maturity.
Additionally, such hedging or trading activities during the term of the securities could potentially affect the value of the underlying
index on the redemption determination dates and observation dates, and, accordingly, whether the securities are automatically called
prior to maturity, whether we pay a contingent quarterly coupon on each coupon payment date and, if the securities are not called
prior to maturity, the payout to you at maturity, if any.
|
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will
make determinations with respect to the securities.
As calculation agent, MS & Co. will determine the initial index value,
the downside threshold level, the index closing value on each observation date, including the final index value, whether the contingent
quarterly coupon will be paid on each coupon payment date, whether the securities will be redeemed following any redemption determination
date, whether a market disruption event has occurred, and the payment that you will receive upon an automatic early redemption
or at maturity, if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require
it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption
events and the selection of a successor index or calculation of the index closing value in the event of a market disruption event
or discontinuance of the underlying index. These potentially
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
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 a Single Index” and “—Calculation
Agent and Calculations” in the accompanying product supplement. In addition, MS & Co. has determined the estimated value
of the securities on the pricing date.
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal authority as to the proper treatment of the securities for U.S. federal income tax purposes, and,
therefore, significant aspects of the tax treatment of the securities are uncertain.
|
Please read the discussion under
“Additional Provisions—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities
every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference, if any,
between the actual and the projected amount of any contingent payments on the securities) and recognize all income and gain in
respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features.
Non-U.S. Holders should note that we currently intend to withhold
on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified by an applicable income tax treaty
under an “other income” or similar provision, and will not be required to pay any additional amounts with respect to
amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance 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 May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
EURO STOXX
®
Banks Index Overview
The EURO STOXX
®
Banks Index is one of 19 EURO
STOXX
®
Supersector indices that compose the STOXX
®
Europe 600 Index and includes companies in the
banks supersector, which tracks companies engaged in a broad range of financial services, including retail banking, loans and money
transmissions. The EURO STOXX
®
Banks Index is reported by Bloomberg L.P. under the ticker symbol “SX7E.”
For additional information about the EURO STOXX
®
Banks Index, see the information set forth in “Annex A—The
EURO STOXX
®
Banks Index” below.
Information as of market close on May 23, 2017:
Bloomberg Ticker Symbol:
|
SX7E
|
Current Index Value:
|
135.16
|
52 Weeks Ago:
|
100.95
|
52 Week High (on 5/5/2017):
|
139.87
|
52 Week Low (on 7/6/2016):
|
78.37
|
The following graph sets forth the daily closing
values of the underlying index for the period from January 1, 2012 through May 23, 2017. The related table sets forth the published
high and low closing values, as well as end-of-quarter closing values, of the underlying index for each quarter in the same period.
The closing value of the underlying index on May 23, 2017 was 135.16. We obtained the information in the table and graph below
from Bloomberg Financial Markets, without independent verification. The underlying index has at times experienced periods of high
volatility, and you should not take the historical values of the underlying index as an indication of its future performance. No
assurance can be given as to the closing value of the underlying index on any observation date, including the final observation
date.
EURO STOXX
®
Banks Index Daily Closing Values
January 1, 2012
to May 23, 2017
|
|
* The red solid line indicates the hypothetical
downside threshold level, assuming the index closing value on May 23, 2017 were the initial index value.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
EURO STOXX
®
Banks Index
|
High
|
Low
|
Period End
|
2012
|
|
|
|
First Quarter
|
120.92
|
89.16
|
107.95
|
Second Quarter
|
107.80
|
77.65
|
90.00
|
Third Quarter
|
112.04
|
73.06
|
101.56
|
Fourth Quarter
|
114.56
|
101.60
|
112.36
|
2013
|
|
|
|
First Quarter
|
127.75
|
101.95
|
102.46
|
Second Quarter
|
118.77
|
100.51
|
101.39
|
Third Quarter
|
129.63
|
100.57
|
125.84
|
Fourth Quarter
|
142.30
|
129.32
|
141.43
|
2014
|
|
|
|
First Quarter
|
156.58
|
139.31
|
155.26
|
Second Quarter
|
162.81
|
145.66
|
146.52
|
Third Quarter
|
154.60
|
135.67
|
149.21
|
Fourth Quarter
|
149.39
|
129.86
|
134.51
|
2015
|
|
|
|
First Quarter
|
158.53
|
124.29
|
157.65
|
Second Quarter
|
161.70
|
148.38
|
149.91
|
Third Quarter
|
161.45
|
128.04
|
131.34
|
Fourth Quarter
|
141.12
|
123.03
|
127.87
|
2016
|
|
|
|
First Quarter
|
125.04
|
89.65
|
101.38
|
Second Quarter
|
111.28
|
79.03
|
83.25
|
Third Quarter
|
99.11
|
78.37
|
92.54
|
Fourth Quarter
|
120.34
|
91.84
|
117.67
|
2017
|
|
|
|
First Quarter
|
127.52
|
111.98
|
127.52
|
Second Quarter (through May 23, 2017)
|
139.87
|
118.94
|
135.16
|
|
|
|
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
Additional Information About the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional
Provisions:
|
|
Day
count convention:
|
30/360
|
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 contingent
quarterly coupon payable at maturity or upon 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
index publisher:
|
STOXX Limited
|
Postponement
of maturity date:
|
If the scheduled final observation date
is not an index business day or if a market disruption event occurs on that day so that the final observation date is postponed
and falls less than two business days prior to the scheduled maturity date, the maturity date of the securities will be postponed
to the second business day following that final observation date as postponed.
|
Postponement
of coupon payment dates:
|
If a coupon payment date (including the
maturity date) is postponed as a result of the postponement of the relevant observation date, no adjustment shall be made
to any contingent quarterly coupon paid on that postponed date.
|
Listing:
|
The securities will not be listed on any
securities exchange.
|
Minimum
ticketing size:
|
$1,000 / 1 security
|
Trustee
:
|
The Bank of New York Mellon
|
Calculation
agent:
|
MS & Co.
|
Tax
considerations:
|
Prospective investors
should note that the discussion under the section called “United States Federal Taxation” in the accompanying
product supplement does not apply to the securities issued under this document and is superseded by the following discussion.
The following is a general
discussion of the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and
disposition of the securities. This discussion applies only to investors in the securities who:
·
purchase the securities in the original offering; and
·
hold the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended
(the “Code”).
This
discussion does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s
particular circumstances or to holders subject to special rules, such as:
·
certain financial institutions;
·
insurance companies;
·
certain dealers and traders in securities or commodities;
·
investors holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction
or constructive sale transaction;
·
U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated investment companies;
·
real estate investment trusts; or
·
tax-exempt entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section
408 or 408A of the Code, respectively.
If an
entity that is classified as a partnership for U.S. federal income tax purposes holds the securities, the U.S. federal
income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership.
If you are a partnership holding the securities or a partner in such a partnership, you should consult your tax adviser
as to the particular U.S. federal tax consequences of holding and disposing of the securities to you.
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.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
|
This
discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary
and proposed Treasury regulations, all as of the date hereof, changes to any of which subsequent to
the date hereof may affect the tax consequences described herein. Persons considering the purchase
of the securities should consult their tax advisers with regard to the application of the U.S. federal
income tax laws to their particular situations as well as any tax consequences arising under the laws
of any state, local or non-U.S. taxing jurisdiction.
General
Due to
the absence of statutory, judicial or administrative authorities that directly address the treatment of the securities
or instruments that are similar to the securities for U.S. federal income tax purposes, no assurance can be given that
the IRS or a court will agree with the tax treatment described herein. We intend to treat a security for U.S. federal
income tax purposes as a single financial contract that provides for a coupon that will be treated as gross income to
you at the time received or accrued in accordance with your regular method of tax accounting. In the opinion of our counsel,
Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under current law; however, our counsel
has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and
that alternative treatments are possible.
You
should consult your tax adviser regarding all aspects of the U.S. federal tax consequences of an investment in the securities
(including possible alternative treatments of the securities). Unless otherwise stated, the following discussion is based
on the treatment of each security as described in the previous paragraph.
Tax
Consequences to U.S. Holders
This
section applies to you only if you are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial
owner of a security that is, for U.S. federal income tax purposes:
·
a citizen or individual resident of the United States;
·
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States,
any state thereof or the District of Columbia; or
·
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax
Treatment of the Securities
Assuming
the treatment of the securities as set forth above is respected, the following U.S. federal income tax consequences should
result.
Tax Basis
. A U.S.
Holder’s tax basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon
Payments
. Any coupon payment on the securities should be taxable as ordinary income to a U.S. Holder at the time received
or accrued, in accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale,
Exchange or Settlement of the Securities
. Upon a sale, exchange or settlement of the securities, a U.S. Holder should
recognize gain or loss equal to the difference between the amount realized on the sale, exchange or settlement and the
U.S. Holder’s tax basis in the securities sold, exchanged or settled. For this purpose, the amount realized does
not include any coupon paid at settlement and may not include sale proceeds attributable to an accrued 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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
|
U.S. Holder would be required
to accrue into income original issue discount on the securities every year at a “comparable yield” determined
at the time of their issuance, adjusted upward or downward to reflect the difference, if any, between the actual and the
projected amount of any contingent payments on the securities. Furthermore, any gain realized by a U.S. Holder at maturity
or upon a sale, exchange or other disposition of the securities would be treated as ordinary income, and any loss realized
would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue discount and
as capital loss thereafter. The risk that financial instruments providing for buffers, triggers or similar downside protection
features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features.
Other alternative federal
income tax treatments of the securities are possible, which, if applied, could significantly affect the timing and character
of the income or loss with respect to the securities. In 2007, the U.S. Treasury Department and the IRS released a notice
requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
The notice focuses on whether to require holders of “prepaid forward contracts” and similar instruments to
accrue income over the term of their investment. It also asks for comments on a number of related topics, including the
character of income or loss with respect to these instruments; whether short-term instruments should be subject to any
such accrual regime; the relevance of factors such as the exchange–traded status of the instruments and the nature
of the underlying property to which the instruments are linked; whether these instruments are or should be subject to
the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital
gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates. While it
is not clear whether instruments such as the securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially
and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. U.S. Holders
should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities,
including possible alternative treatments and the issues presented by this notice.
Backup Withholding
and Information Reporting
Backup withholding may
apply in respect of payments on the securities and the payment of proceeds from a sale, exchange or other disposition
of the securities, unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification
number and otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under
the backup withholding rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s
U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. In addition,
information returns will be filed with the IRS in connection with payments on the securities and the payment of proceeds
from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides proof of an applicable exemption
from the information reporting rules.
Tax Consequences to
Non-U.S. Holders
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
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Morgan Stanley Finance LLC
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®
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|
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. 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.
|
Use
of proceeds and hedging:
|
The proceeds from the sale of the securities
will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because,
when we enter into hedging transactions in order
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Based on the Performance of the EURO STOXX
®
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|
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 2 above comprise the agent’s commissions and the cost
of issuing, structuring and hedging the securities.
On or prior to the pricing
date, we will hedge our anticipated exposure in connection with the securities, by entering into hedging transactions with our
affiliates and/or third party dealers. We expect our hedging counterparties to take positions in the stocks constituting the underlying
index, in futures and/or options contracts on the underlying index or the component stocks of the underlying index listed on major
securities markets, or positions in any other available securities or instruments that they may wish to use in connection with
such hedging. Such purchase activity could potentially increase the initial index value, and, as a result, could increase the
downside threshold level, which is the value at or above which the underlying index must close on each observation date so that
you receive a contingent quarterly coupon on the securities, and, if the securities are not redeemed prior to maturity, the value
at or above which the underlying index must close on the final observation date in order for you to avoid being exposed to the
negative performance of the underlying index at maturity. 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 the underlying index on the observation dates, and, accordingly,
the payment to you at maturity, if any, and whether we pay a contingent quarterly coupon on the securities.
|
Benefit
plan investor considerations:
|
Each fiduciary of a pension,
profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s
particular circumstances before authorizing an investment in the securities. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would
be consistent with the documents and instruments governing the Plan.
In addition,
we and certain of our affiliates, including MS & Co., may each be considered a “party in interest” within
the meaning of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986,
as amended (the “Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh
plans (also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans
and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code would
likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the securities are acquired pursuant
to an exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction”
rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department
of Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief
for direct or indirect prohibited transactions resulting from the purchase or holding of the securities. Those class exemptions
are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions
involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment
funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain
transactions determined by independent qualified professional asset managers). In addition, ERISA Section 408(b)(17) and
Code Section 4975(d)(20) may provide an exemption for the purchase and sale of securities and the related lending transactions,
provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority
or control or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided
further that the Plan pays no more, and receives no less, than “adequate consideration” in connection with
the transaction (the so-called “service provider” exemption). There can be no assurance that any of these
class or statutory exemptions will be available with respect to transactions involving the securities.
Because we may
be considered a party in interest with respect to many Plans, the securities may not be purchased, held or disposed of
by any Plan, any entity whose underlying assets include “plan assets” by reason of any Plan’s investment
in the entity (a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless
such purchase, holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23,
95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding or disposition is otherwise not
prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or holder of the securities
will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the securities
that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf of or with “plan
assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal,
state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the Code (“Similar Law”) or (b) its purchase, holding and disposition are eligible for exemptive relief or
such purchase, holding 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
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|
the availability
of exemptive relief.
The securities
are contractual financial instruments. The financial exposure provided by the securities is not a substitute or proxy
for, and is not intended as a substitute or proxy for, individualized investment management or advice for the benefit
of any purchaser or holder of the securities. The securities have not been designed and will not be administered in a
manner intended to reflect the individualized needs and objectives of any purchaser or holder of the securities.
Each
purchaser or holder of any securities acknowledges and agrees that:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and
the purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or
adviser of the purchaser or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s
investment in the securities, or (C) the exercise of or failure to exercise any rights we have under or with respect to
the securities;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating
to the securities and (B) all hedging transactions in connection with our obligations under the securities;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those
entities and are not assets and positions held for the benefit of the purchaser or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets,
positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial
investment advice.
Each purchaser and holder
of the securities has exclusive responsibility for ensuring that its purchase, holding and disposition of the securities
do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any securities to
any Plan or plan subject to Similar Law is in no respect a representation by us or any of our affiliates or representatives
that such an investment meets all relevant legal requirements with respect to investments by plans generally or any particular
plan, or that such an investment is appropriate for plans generally or any particular plan.
However, individual retirement
accounts, individual retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct
the investment of their accounts, will not be permitted to purchase or hold the securities if the account, plan or annuity is
for the benefit of an employee of Morgan Stanley or Morgan Stanley Wealth Management or a family member and the employee receives
any compensation (such as, for example, an addition to bonus) based on the purchase of the securities by the account, plan or
annuity.
|
Additional
considerations:
|
Client accounts over which Morgan Stanley, Morgan Stanley Wealth
Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities,
either directly or indirectly.
|
Supplemental
information regarding plan of distribution; conflicts of interest:
|
The agent may
distribute the securities through Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”), as
selected dealer, or other dealers, which may include Morgan Stanley & Co. International plc (“MSIP”) and
Bank Morgan Stanley AG. Morgan Stanley Wealth Management, MSIP and Bank Morgan Stanley AG are affiliates of ours. Selected
dealers, including Morgan Stanley Wealth Management, and their financial advisors will collectively receive from the agent,
Morgan Stanley & Co. LLC, a fixed sales commission of $25 for each security they sell. In addition, Morgan Stanley
Wealth Management will receive a structuring fee of $5 for each security.
MS & Co.
is an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley, and it and other affiliates of ours expect to
make a profit by selling, structuring and, when applicable, hedging the securities. When MS & Co. prices this offering
of securities, it will determine the economic terms of the securities such that for each security the estimated value
on the pricing date will be no lower than the minimum level described in “Investment Summary” beginning on
page 2.
MS & Co. will conduct
this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which
is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related
conflicts of interest. MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account.
See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying
product supplement for auto-callable securities.
|
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:
|
Morgan Stanley and MSFL 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
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due May 31, 2022
Based on the Performance of the EURO STOXX
®
Banks Index
Principal at Risk Securities
|
statement, the product
supplement for auto-callable securities and any other documents relating to this offering that Morgan Stanley and MSFL
have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering. You may get these
documents without cost by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, Morgan Stanley, MSFL, any
underwriter or any dealer participating in the offering will arrange to send you the prospectus, the product supplement
for auto-callable securities 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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Morgan Stanley Finance LLC
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Based on the Performance of the EURO STOXX
®
Banks Index
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Annex A—The EURO STOXX
®
Banks Index
The
EURO STOXX
®
Banks Index (the “Index”) is one of 19 EURO STOXX
®
Supersector indices that compose the STOXX
®
Europe 600 Index and includes companies in the banks supersector, which tracks companies engaged in a broad range of financial
services, including retail banking, loans and money transmissions. The Index is a price return index denominated in euro, calculated,
maintained and published by STOXX Limited.
The Index was created by STOXX Limited, a joint venture between
Deutsche Börse AG and SIX Group AG. Publication of the Index began on June 15, 1998, based on an initial index value of 100
at December 31, 1991. The Index is disseminated on the STOXX Limited website, which sets forth, among other things, the country,
industrial sector and weight of each component included in the Index and updates these weightings at the end of each quarter. Information
on the STOXX Limited website is not incorporated by reference in, and should not be considered a part of, this document.
On March 1, 2010, STOXX Limited announced the removal of the
“Dow Jones” prefix from all of its indices, including the Index.
Composition of the Index
The Index is one of 19 EURO STOXX
®
Supersector
indices that compose the STOXX
®
Europe 600 Index. The STOXX
®
Europe 600 Index contains the 600 largest
European stocks by free float market capitalization. The Index contains the companies of the Eurozone subset of the STOXX
®
Europe 600 Index that fall within the banks supersector, determined by reference to the Industry Classification Benchmark (“ICB”),
an international system for categorizing companies that is maintained by FTSE International Limited.
The composition of the Index is reviewed quarterly, together
with the STOXX
®
Europe 600 Index, based on the closing stock data on the last trading day of the month following
the last quarterly index review. The component stocks are announced on the fourth Tuesday of the month immediately prior to the
review implementation month. Changes to the component stocks are implemented on the third Friday in each of March, June, September
and December and are effective the following trading day.
Corporate actions (including mergers and takeovers, spin-offs,
sector changes, delistings and bankruptcy) that affect the STOXX
®
Europe 600 Index composition are immediately reviewed.
Any changes are announced, implemented and effective in line with the type of corporate action and the magnitude of the effect.
Computation of the Index
The Index is calculated with the “Laspeyres formula,”
which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating
the index value of the Index at any time can be expressed as follows:
Index value
|
=
|
free float market capitalization
of the Index
divisor
|
The “free float market capitalization of the Index”
is equal to the sum of the products of the price, number of shares and free float factor for each component stock as of the time
the Index is being calculated. The free float factor reduces the number of shares outstanding to the actual amount available on
the market. All fractions of the total number of shares that are larger than 5% and whose holding is of a long-term nature are
excluded from the index calculation. The free float factor typically excludes cross-ownership (stock owned either by the company
itself or other companies), government ownership, private ownership, and restricted shares that cannot be traded during a certain
period or have a foreign ownership restriction. Block ownership is not applied for holdings of custodian nominees, trustee companies,
mutual funds, investment companies with short-term investment strategies, pension funds and similar entities.
The free float factors and outstanding number of shares used
to calculate the Index are reviewed, calculated and implemented on a quarterly basis and are fixed until the next quarterly review.
Extraordinary adjustments may occur from certain corporate actions, depending on the magnitude of the change.
The Index is also subject to a divisor, which is adjusted to
maintain the continuity of index values despite changes due to corporate actions. All corporate actions and dividends are implemented
at the effective date (ex-date);
i.e.
, with corporate actions where cash or other corporate assets are distributed to shareholders,
the price of the stock will drop on the ex-date. The following is a summary of the adjustments to any component stock made for
corporate actions and the effect of such adjustment on the divisor, where shareholders of the component stock will receive “B”
number of shares for every “A” share held (where applicable). If the new shares have a dividend disadvantage —
i.e.
,
the new shares have a different dividend from that paid on
Morgan Stanley Finance LLC
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®
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the old shares — the price for these new shares will be
adjusted according to the gross dividend amount. The divisor may increase, decrease or be held constant.
DIVISOR:
|
Decrease
|
A) Special Cash dividend
adjusted price = closing price − announced dividend *
(1 − withholding tax if applicable)
|
DIVISOR:
|
Constant
|
B) Split and Reverse Split
adjusted price = closing price * A / B
new number of shares = old number of shares * B / A
|
DIVISOR:
|
Increase
|
C) Rights Offering
If the subscription price is not available or equal to or greater
than the closing price on the day before the effective date, then no adjustment is made.
In case the share increase is larger or equal to 100% (B / A ≥
1) the adjustment of the shares and weightfactors are delayed until the new shares are listed.
adjusted price = (closing price * A + subscription
price * B) / (A + B)
new number of shares = old number of shares * (A + B) / A
|
DIVISOR:
|
Constant
|
D) Stock Dividend
adjusted price = closing price * A / (A + B)
new number of shares = old number of shares * (A + B) / A
|
|
Decrease
|
E) Stock Dividend (from treasury stock)
If treated as regular cash dividend, not adjusted.
If treated as extraordinary dividend:
adjusted price = closing price – closing price * B / (A + B)
|
DIVISOR:
|
Decrease
|
F) Stock Dividend of a Different Company Security
adjusted price = (closing price * A − price of the different
company security * B) / A
|
DIVISOR:
|
Decrease
|
G) Return of Capital and Share Consolidation
adjusted price = (closing price − capital return announced
by company *
(1 − withholding tax)) * A / B
new number of shares = old number of shares * B / A
|
DIVISOR:
|
Decrease
|
H) Repurchase Shares-Self-Tender
adjusted price = ((price before tender * old number of shares)
− (tender price * number of tendered shares)) / (old number of shares − number of tendered shares)
new number of shares = old number of shares − number of
tendered shares
|
DIVISOR:
|
Decrease
|
I) Spinoff
adjusted price = (closing price * A − price of spun-off
shares * B) / A
|
DIVISOR:
|
|
J) Combination Stock Distribution (Dividend or Split) and Rights
Offering
Shareholders receive B new shares from the distribution and C new
shares from the rights offering for every A shares held:
|
|
Increase
|
●
If rights are applicable after stock distribution (one
action applicable to other)
adjusted price = [closing price * A + subscription
price * C * (1 + B / A)] / [(A + B) * (1 + C / A)]
new number of shares = old number of shares * [(A + B) *
(1 + C / A)] / A
|
|
Increase
|
●
If stock distribution is applicable after rights (one
action applicable to other)
adjusted price = [closing price * A + subscription
price * C] / [(A + C) * (1 + B / A)]
new number of shares = old number of shares * [(A + C) *
(1 + B / A)]
|
DIVISOR:
|
Increase
|
●
Stock distribution and rights (neither action
is applicable to the other)
adjusted price = [closing price * A + subscription
price * C] / [A + B + C]
new number of shares = old number of shares * [A + B + C]
/ A
|
|
|
K) Addition/Deletion of a Company
No price adjustments are made. The net change in market capitalization
determines the divisor adjustment.
|
|
|
L) Free float and Share Changes
No price adjustments are made. The net change in market capitalization
determines the divisor adjustment.
|
The securities are not sponsored, endorsed, sold or promoted
by STOXX Limited. STOXX Limited makes no representation or warranty, express or implied, to the owners of the securities or any
member of the public regarding the advisability of investing in securities generally or in the securities particularly. The EURO
STOXX
®
Banks Index is determined, composed and calculated by STOXX Limited without regard to us or the securities.
STOXX Limited has no obligation to take our needs or the needs of owners of the securities into consideration in determining, composing
or calculating the the EURO STOXX
®
Banks Index. STOXX Limited is not responsible for and has not participated in
the determination of the timing of, prices at, or quantities of the
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Contingent Income Auto-Callable Securities due May 31, 2022
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®
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securities to be issued or in the determination or calculation
of the equation by which the securities are to be converted into cash. STOXX Limited has no obligation or liability in connection
with the administration, marketing or trading of the securities.
STOXX LIMITED DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE EURO STOXX
®
BANKS INDEX OR ANY DATA INCLUDED THEREIN AND STOXX LIMITED SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. STOXX LIMITED MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED
BY US, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE EURO STOXX
®
BANKS INDEX OR ANY
DATA INCLUDED THEREIN. STOXX LIMITED MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES,
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE EURO STOXX
®
BANKS INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL STOXX LIMITED HAVE ANY LIABILITY FOR
ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF.
“EURO STOXX
®
Banks Index” and “STOXX
®
”
are registered trademarks of STOXX Limited. The securities are not sponsored, endorsed, sold or promoted by STOXX Limited,
and STOXX Limited makes no representation regarding the advisability of investing in the securities.
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