Additional Information about Morgan Stanley, MSFL and the Securities
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Morgan Stanley and MSFL have filed
a registration statement (including a prospectus, as supplemented by a product supplement and an index supplement) with the SEC
for the offering to which this communication relates. In connection with your investment, you should read the prospectus in that
registration statement, the product supplement, the index supplement and any other documents relating to this offering that Morgan
Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering. You may get
these documents for free by visiting EDGAR on the SEC website at
.
www.sec.gov. Alternatively,
Morgan Stanley, MSFL, any underwriter or any dealer participating in this offering will arrange to send you the prospectus, the
product supplement and index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access the accompanying
product supplement, index supplement and prospectus on the SEC website at
.
www.sec.gov as follows:
References to “MSFL”
refer to only MSFL, references to “Morgan Stanley” refer to only Morgan Stanley and references to “we,”
“our” and “us” refer to MSFL and Morgan Stanley collectively. In this document, the “Securities”
refers to the Trigger Autocallable Contingent Yield Notes that are offered hereby. Also, references to the accompanying “prospectus”,
“product supplement” and “index supplement” mean the prospectus filed by MSFL and Morgan Stanley dated
February 16, 2016, the product supplement for auto-callable securities filed by MSFL and Morgan Stanley dated February 29, 2016
and the index supplement filed by MSFL and Morgan Stanley dated January 30, 2017, respectively.
You should rely only on the information
incorporated by reference or provided in this pricing supplement or the accompanying product supplement, index supplement and
prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these Securities
in any state where the offer is not permitted. You should not assume that the information in this pricing supplement or the accompanying
product supplement, index supplement and prospectus is accurate as of any date other than the date on the front of this document.
If the terms contained in this
pricing supplement differ from those discussed in the product supplement, index supplement or prospectus, the terms contained
in this pricing supplement will control.
The Issue Price of each Security
is $10. This price includes costs associated with issuing, selling, structuring and hedging the Securities, which are borne by
you, and, consequently, the estimated value of the Securities on the Trade Date is less than $10. We estimate that the value of
each Security on the Trade Date is $9.889.
What goes into the estimated
value on the Trade Date?
In valuing the Securities on the
Trade Date, we take into account that the Securities comprise both a debt component and a performance-based component linked to
the Underlyings. The estimated value of the Securities is determined using our own pricing and valuation models, market inputs
and assumptions relating to the Underlyings, instruments based on the Underlyings, 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 Coupon Barriers, the Downside Thresholds and the Contingent Coupon Rate, 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 Trade 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 Underlyings,
may vary from, and be lower than, the estimated value on the Trade 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 Settlement 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
Underlyings, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect
that those higher values will also be reflected in your brokerage account statements.
MS & Co. currently intends,
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.
The Securities
may be suitable for you if:
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The Securities
may not be suitable for you if:
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t
You
fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial
investment.
t
You
can tolerate a loss of all or a substantial portion of your investment and are willing to make an investment that will
have the same downside market risk, subject to the respective Downside Thresholds at maturity, as the Least Performing
Underlying.
t
You
accept that you may not receive a Contingent Coupon on some or all of the Coupon Payment Dates.
t
You
understand and accept the risks associated with the Underlyings.
t
You
believe both the SX5E Index and the RTY Index will close at or above their respective Coupon Barriers on the Observation
Dates, and above their respective Downside Thresholds on the Final Observation Date.
t
You
are willing to invest in the Securities based on the Downside Threshold and Coupon Barrier for each Underlying specified on the
cover hereof.
t
You
understand that the linkage to two Underlyings does not provide any portfolio diversification benefits and instead means
that a decline in the value beyond the relevant Coupon Barrier or Downside Threshold of either the SX5E Index or the RTY
Index will result in no Contingent Coupon payments or a significant loss on your investment, respectively, even if the
other Underlying appreciates or does not decline as much.
t
You
understand and accept that you will not participate in any appreciation in the values of the Underlyings and that your potential
return is limited to the Contingent Coupons, if any.
t
You
can tolerate fluctuations in the value of the Securities prior to maturity that may be similar to or exceed the downside
value fluctuations of the Least Performing Underlying.
t
You
do not seek guaranteed current income from this investment and are willing to forgo dividends paid on the stocks comprising
the Underlyings.
t
You
are willing to invest in Securities that may be called early or you are otherwise willing to hold the Securities to maturity,
as set forth on the cover of this pricing supplement.
t
You
accept that there may be little or no secondary market for the Securities and that any secondary market will depend in
large part on the price, if any, at which MS & Co. is willing to trade the Securities.
t
You
are willing to assume our credit risk, and understand that if we default on our obligations you may not receive any amounts
due to you and could lose your entire investment.
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|
t
You
do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire
initial investment.
t
You
cannot tolerate a loss of all or a substantial portion of your investment, or are unwilling to make an investment that
will have the same downside market risk, subject to the respective Downside Thresholds at maturity, as the Least Performing
Underlying.
t
You
require an investment designed to provide a full return of principal at maturity.
t
You
do not understand and accept the risks associated with the Underlyings.
t
You
do not accept that you may not receive a Contingent Coupon on some or all of the Coupon Payment Dates.
t
You
believe that the value of one of the SX5E Index or the RTY Index will decline during the term of the Securities and is
likely to close below its Coupon Barrier on the Observation Dates or below its Downside Threshold on the Final Observation
Date.
t
You
are unwilling to invest in the Securities based on the Downside Threshold and Coupon Barrier for each Underlying specified on
the cover hereof.
t
You
are not comfortable with an investment linked to two Underlyings such that a decline in the value beyond the relevant
Coupon Barrier or Downside Threshold of either the SX5E Index or the RTY Index will result in no Contingent Coupon payments
or a significant loss on your investment, respectively, even if the other Underlying appreciates or does not decline as
much .
t
You
seek an investment that participates in the appreciation in the values of the Underlyings or that has unlimited return potential.
t
You
cannot tolerate fluctuations in the value of the Securities prior to maturity that may be similar to or exceed the downside
value fluctuations of the Least Performing Underlying.
t
You
prefer the lower risk, and therefore accept the potentially lower returns, of fixed income investments with comparable
maturities and credit ratings.
t
You
seek guaranteed current income from this investment or prefer to receive the dividends paid on the stocks comprising the
Underlyings.
t
You
are unable or unwilling to invest in Securities that may be called early, or you are otherwise unable or unwilling to
hold the Securities to maturity, as set forth on the cover of this pricing supplement, or you seek an investment for which
there will be an active secondary market.
t
You
are not willing to assume our credit risk for all payments under the Securities, including any repayment of principal.
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The investor suitability considerations
identified above are not exhaustive. Whether or not the Securities are a suitable investment for you will depend on your individual
circumstances, and you should reach an investment decision only after you and your investment, legal, tax, accounting and other
advisors have carefully considered the suitability of an investment in the Securities in light of your particular circumstances.
You should also review carefully the sections entitled “Key Risks” beginning on page 8 of this pricing supplement and
“Risk Factors” beginning on page 5 of the accompanying prospectus and page S-36 of the accompanying product supplement
for risks related to an investment in the Securities. For additional information about the Underlyings, see the information set
forth under “The EURO STOXX 50
®
Index” on page 18 and “The
Russell 2000
®
Index” on page 20.
Issuer
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Morgan
Stanley Finance LLC
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Guarantor
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Morgan
Stanley
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Issue
Price
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$10.00
per Security. The Securities are offered at a minimum investment of 100 Securities.
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Underlyings
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The
EURO STOXX 50
®
Index (the “SX5E Index”) and the Russell 2000
®
Index (the “RTY
Index”)
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Principal
Amount
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$10.00
per Security
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Term
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Approximately
10 years, unless earlier called
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Automatic
Call Feature
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The Securities will be
called automatically if the Observation Date Closing Values of
both the SX5E Index and the RTY Index
on any Observation
Date beginning September 21, 2018 are
equal to or greater than
their respective Initial Underlying Values.
If the Securities are called,
MSFL will pay you the Principal Amount
plus
the Contingent Coupon otherwise due for that Observation Date on the
Coupon Payment Date related to such Observation Date, and no further payments will be made on the Securities.
The Securities will
not be called if the Observation Date Closing Value of
either
of the Underlyings is below its respective Initial
Underlying Value.
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Contingent
Coupon
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If the Observation Date
Closing Values of
both the SX5E Index and the RTY Index are equal to or greater than
their respective Coupon Barriers
on any Observation Date, we will pay you the Contingent Coupon for that Observation Date on the relevant Coupon Payment
Date.
If the Observation Date
Closing Value of
either the SX5E Index or the RTY Index
is
less than
its Coupon Barrier on any Observation
Date, the Contingent Coupon for that Observation Date will not accrue or be payable and that Contingent Coupon payment
will be lost.
Each Contingent Coupon
will be a fixed amount based on equal quarterly installments at the Contingent Coupon Rate, which is a per-annum rate.
The Contingent Coupon amount of $0.225 for each Security (based on the per-annum rate of 9.00%) would be applicable to
each Observation Date on which the Index Closing Values of
both the SX5E Index and the RTY Index
are greater than
or equal to their respective Coupon Barriers.
Contingent Coupon payments
on the Securities are not guaranteed. MSFL will not pay you the Contingent Coupon for any Observation Date on which the
Index Closing Value of either the SX5E Index or the RTY Index is less than its respective Coupon Barrier.
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Contingent
Coupon Rate
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The
Contingent Coupon Rate will be 9.00% per annum.
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Observation
Dates
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Quarterly,
callable beginning September 21, 2018. See “Observation Dates and Coupon Payment Dates” on page 7 for details.
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Final
Observation Date
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September
21, 2027, subject to postponement in the event of a Market Disruption Event or for non-Index Business Days.
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Coupon
Payment Dates
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With
respect to each Observation Date, as set forth under “Observation Dates and Coupon Payment Dates” on page
7.
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Payment
at Maturity (per Security)
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MSFL will pay you a cash
payment on the Maturity Date linked to the performance of the Least Performing Underlying during the term of the Securities,
as follows:
If the Securities have
not been automatically called and the Final Underlying Values of
both the SX5E Index and the RTY Index are equal to
or greater than
their respective Downside Thresholds (which are the same as their respective Coupon Barriers), MSFL
will pay you the $10 Principal Amount plus the Contingent Coupon with respect to the Final Observation Date.
If the Securities have
not been automatically called and the Final Underlying Value of
either the SX5E Index or the RTY Index
is
less
than
its respective Downside Threshold, MSFL will pay you an amount calculated as follows:
$10
× (1 + Underlying Return of the Least Performing Underlying)
In this case, you will
lose a significant portion and could lose all of the Principal Amount in an amount proportionate to the decline of the
Least Performing Underlying from the Trade Date to the Final Observation Date, even if the other Underlying appreciates
or does not decline as much.
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Observation
Date Closing Value
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With
respect to each of the Underlyings, the Index Closing Value of such Underlying on any Observation Date
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Least
Performing Underlying
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The
Underlying with the larger percentage decrease from the Initial Underlying Value to the Final Underlying Value.
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Underlying
Return
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With
respect to each Underlying,
Final
Underlying Value – Initial Underlying Value
Initial Underlying Value
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Initial
Underlying Value
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With
respect to the SX5E Index, 3,539.59
With respect to the RTY
Index, 1,444.184
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Final
Underlying Value
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With
respect to each Underlying, the Index Closing Value of such Underlying on the Final Observation Date
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Downside
Threshold
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With
respect to the SX5E Index, 2,392.76, which is approximately 67.60% of the Initial Underlying Value of such Underlying
With respect to the RTY
Index, 976.268, which is approximately 67.60% of the Initial Underlying Value of such Underlying
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Coupon
Barrier
|
With
respect to the SX5E Index, 2,392.76, which is approximately 67.60% of the Initial Underlying Value of such Underlying
With respect to the RTY
Index, 976.268, which is approximately 67.60% of the Initial Underlying Value of such Underlying
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Record
Date
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The
record date for each Contingent Coupon shall be the date one business day prior to such scheduled Coupon Payment Date;
provided
,
however, that any Contingent Coupon payable at maturity or upon an automatic call shall be payable to the person to whom the
Payment at Maturity or the payment upon an automatic call, as the case may be, shall be payable.
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Trustee
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The
Bank of New York Mellon
|
Calculation
Agent
|
MS
& Co.
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Trade
Date
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The Initial
Underlying Values, Downside Thresholds and Coupon Barriers of both the SX5E Index and the RTY Index are determined.
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Quarterly (callable after approximately 1 year)
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If the Observation Date
Closing Values of
both
the SX5E Index and the RTY Index are equal to or greater than their respective Coupon Barriers on
any Observation Date, MSFL will pay you a Contingent Coupon on the Coupon Payment Date. However, if the Observation Date Closing
Value of
either Underlying
is below its Coupon Barrier, no coupon will be payable on the related Coupon Payment Date.
If the Observation Date
Closing Values of
both
the SX5E Index and the RTY Index
are equal to or greater than their respective Initial Underlying
Values
on any Observation Date beginning on September 21, 2018, the Securities will be called and MSFL will pay you a cash
payment per Security equal to the Principal Amount
plus
the Contingent Coupon otherwise due for that Observation Date,
and no further payments will be made on the Securities.
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Maturity
Date
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The Final Underlying Values
are determined as of the Final Observation Date.
If the Securities have
not been called and the Final Underlying Values of
both the SX5E Index and the RTY Index are equal to or greater than
their
respective Downside Thresholds (which are the same as their respective Coupon Barriers), MSFL will pay you the $10 Principal Amount
plus the Contingent Coupon with respect to the Final Observation Date.
However, if the Final Underlying
Value
of either the SX5E Index or the RTY Index is less than its Downside Threshold
, MSFL will pay you an amount calculated
as follows:
$10 × (1 + Underlying
Return of the Least Performing Underlying) per Security
This amount will be
significantly less than the $10 Principal Amount by an amount proportionate to the negative Underlying Return of the Least
Performing Underlying, and you could lose your entire investment.
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Investing in the Securities
involves significant risks. You may lose YOUR ENTIRE principal amount. Any payment on the Securities is subject to OUR creditworthiness.
If we were to default on our payment obligations, you may not receive any amounts owed to you under the Securities and you could
lose your entire investment.
The Issuer will not
pay a quarterly Contingent Coupon if the Observation Date Closing Value for either of the Underlyings is below its respective Coupon
Barrier. The Issuer will not automatically call the Securities if the Observation Date Closing Value of either of the Underlyings
is below its respective Initial Underlying Value. You will lose a significant portion or all of your principal amount at maturity
if the Securities are not called and the Final Underlying Value of either of the Underlyings is below its RESPECTIVE Downside Threshold.
Observation Dates
(1)
and Coupon Payment Dates
(2)
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Observation
Dates
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Coupon Payment Dates
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Observation Dates
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Coupon Payment Dates
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12/21/2017*
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12/27/2017*
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12/21/2022
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12/23/2022
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3/21/2018*
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3/23/2018*
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3/21/2023
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3/23/2023
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6/21/2018*
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6/25/2018*
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6/21/2023
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6/23/2023
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9/21/2018
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9/25/2018
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9/21/2023
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9/25/2023
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12/21/2018
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12/27/2018
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12/21/2023
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12/27/2023
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3/21/2019
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3/25/2019
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3/21/2024
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3/25/2024
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6/21/2019
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6/25/2019
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6/21/2024
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6/25/2024
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9/23/2019
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9/25/2019
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9/23/2024
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9/25/2024
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12/23/2019
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12/27/2019
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12/23/2024
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12/27/2024
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3/23/2020
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3/25/2020
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3/21/2025
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3/25/2025
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6/22/2020
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6/24/2020
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6/23/2025
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6/25/2025
|
9/21/2020
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9/23/2020
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9/22/2025
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9/24/2025
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12/21/2020
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12/23/2020
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12/22/2025
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12/24/2025
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3/22/2021
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3/24/2021
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3/23/2026
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3/25/2026
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6/21/2021
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6/23/2021
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6/22/2026
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6/24/2026
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9/21/2021
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9/23/2021
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9/21/2026
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9/23/2026
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12/21/2021
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12/23/2021
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12/21/2026
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12/23/2026
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3/21/2022
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3/23/2022
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3/22/2027
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3/24/2027
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6/21/2022
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6/23/2022
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6/21/2027
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6/23/2027
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9/21/2022
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9/23/2022
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9/21/2027 (Final Observation Date)
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Maturity Date
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* The Securities are not callable until the fourth Observation
Date, which is September 21, 2018.
(1) Subject to postponement in the event of a Market Disruption
Event or for non-Index Business Days. See “Postponement of Determination Dates” in the accompanying product supplement.
(2) If, due to a Market Disruption Event or otherwise, any Observation
Date is postponed so that it falls less than two business days prior to the scheduled Coupon Payment Date, the Coupon Payment Date
will be postponed to the second business day following that Observation Date as postponed,
provided
that the Coupon Payment
Date with respect to the Final Observation Date will be the Maturity Date. No additional coupon will accrue on an account of any
such postponement.
An investment in the Securities
involves significant risks. Some of the risks that apply to the Securities are summarized here, but we urge you to also read the
“Risk Factors” section of the accompanying prospectus and product supplement. You should also consult your investment,
legal, tax, accounting and other advisers in connection with your investment in the Securities.
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t
|
The
Securities do not guarantee the payment of regular interest or 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 called prior to maturity and if the Final Underlying
Value of
either the SX5E Index or the RTY Index
is less than its respective Downside Threshold, you will be exposed to
the decline in the value of the Least Performing Underlying from its Initial Underlying Value to its Final Underlying Value, on
a 1-to-1 basis, resulting in a significant loss of your initial investment that is proportionate to the decline of the Least Performing
Underlying over the term of the Securities, even if the other Underlying appreciates or does not decline as much.
You could
lose your entire Principal Amount.
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|
t
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You
are exposed to the market risk of both Underlyings.
Your return on the Securities is not linked to a basket consisting of
the Underlyings. Rather, it will be contingent upon the independent performance of each of the SX5E Index and the RTY Index. Unlike
an instrument with a return linked to a basket of underlying assets, in which risk is mitigated and diversified among all of the
components of the basket, you will be exposed to the risks related to both the SX5E Index and the RTY Index. Poor performance
by either of the Underlyings over the term of the Securities may negatively affect your return and will not be offset or mitigated
by positive performance by the other Underlying. For the Securities to be automatically called or to receive any Contingent Coupon
payment or contingent repayment of principal at maturity from MSFL, both Underlyings must close at or above their respective Initial
Underlying Values, Coupon Barriers or Downside Thresholds, respectively, on the applicable Observation Date or Final Observation
Date, as applicable. In addition, if not called prior to maturity, you may incur a loss proportionate to the negative return of
the Least Performing Underlying even if the other Underlying appreciates during the term of the Securities. Accordingly, your
investment is subject to the market risk of both Underlyings. Additionally, movements in the values of the Underlyings may be
correlated or uncorrelated at different times during the term of the Securities, and such correlation (or lack thereof) could
have an adverse effect on your return on the Securities. For example, the likelihood that one of the Underlyings will close below
its Coupon Barrier on an Observation Date or below its Downside Threshold on the Final Observation Date will increase when the
movements in the values of the Underlyings are uncorrelated. This results in a greater potential for a Contingent Coupon to not
be paid during the term of the Securities and for a significant loss of principal at maturity if the Securities are not previously
called. If the performance of the Underlyings is not correlated or is negatively correlated, the risk of not receiving a Contingent
Coupon and of incurring a significant loss of principal at maturity is greater. In addition, correlation generally decreases for
each additional Underlying to which the Securities are linked, resulting in a greater potential for a significant loss of principal
at maturity.
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|
t
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Because
the Securities are linked to the performance of the least performing between the SX5E Index and the RTY Index, you are exposed
to greater risk of receiving no Contingent Coupon payments or sustaining a significant loss on your investment than if the Securities
were linked to just the SX5E Index or just the RTY Index.
The risk that you will not receive any Contingent Coupons and/or
lose a significant portion or all of your initial investment in the Securities is greater if you invest in the Securities as opposed
to substantially similar securities that are linked to the performance of just the SX5E Index or just the RTY Index. With two
Underlyings, it is more likely that either Underlying will close below its Coupon Barrier on the quarterly Observation Dates or
below its Downside Threshold on the Final Observation Date than if the Securities were linked to only one of the Underlyings,
and therefore it is more likely that you will not receive any Contingent Coupons or will receive an amount in cash significantly
less than the principal amount on the Maturity Date.
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|
t
|
The
Contingent Coupon is based solely on the Observation Date Closing Values.
Whether
the Contingent Coupon will be paid with respect to an Observation Date will be based
on the Observation Date Closing Values of both Underlyings. As a result, you will not
know whether you will receive the Contingent Coupon with respect to any Coupon Payment
Date until the related Observation Date. Moreover, because the Contingent Coupon is based
solely on the Observation Date Closing Values on a specific Observation Date, if the
Observation Date Closing Value of either the SX5E Index or the RTY Index is less than
its respective Coupon Barrier, you will not receive any Contingent Coupon with respect
to such Observation Date, even if the Index Closing Values of the Underlyings were higher
on other days during the term of the Securities.
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|
t
|
You
will not receive any Contingent Coupon for any quarterly period where the Observation
Date Closing Value of either the SX5E Index or the RTY Index is less than or equal to
its Coupon Barrier.
A Contingent Coupon will be paid with respect to a quarterly
period only if the Observation Date Closing Values of
both the SX5E Index and the
RTY Index
are greater than or equal to their respective Coupon Barriers. If the Observation
Date Closing Values of
either
of the Underlyings is below its respective Coupon
Barrier, the Issuer will not pay you a Contingent Coupon for that quarterly period. If,
on each Observation Date over the term of the Securities, either the SX5E Index or the
RTY Index closes below its respective Coupon Barrier, you will not receive any Contingent
Coupons during the 10-year term of the Securities.
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|
t
|
Investors
will not participate in any appreciation in the values of either of the Underlyings.
Investors will not participate in any
appreciation in the values of either of the Underlyings from their respective Initial Underlying Values, and the return on the
Securities will be limited to the Contingent Coupon, if any, that is paid with respect to each Observation Date on which the Observation
Date Closing Values of both the SX5E Index and the RTY Index are greater than or equal to their respective Coupon Barriers prior
to maturity or an automatic call. The return on the Securities will be limited to the Contingent Coupons, if any, regardless of
the appreciation of either of the Underlyings, which could be significant. It is possible that, on most or all of the Observation
Dates, the Index Closing Value of either Underlying could be below its respective Coupon Barrier so that you may receive few or
no Contingent Coupons. In addition, if the Securities are not called prior to maturity, you may be exposed to the full downside
market risk of the Least Performing Underlying and lose a significant portion or all of your investment despite not being able
to participate in any potential appreciation of either of the Underlyings. If you do not earn sufficient Contingent Coupons over
the term of the Securities, the overall return on the Securities may be less than the amount that would be paid on a conventional
debt security of ours of comparable maturity.
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You
may incur a loss on your investment if you are able to sell your Securities prior to maturity.
The Downside Thresholds are
considered only at maturity. If you are able to sell your Securities in the secondary market prior to maturity, you may have to
sell them at a loss relative to your initial investment even if the Index Closing Values of both Underlyings are above their respective
Downside Thresholds at that time. If you hold the Securities to maturity and the Securities have not been called, MSFL will either
repay you the full principal amount per Security (in addition to the Contingent Coupon for the Final Observation Date), if the
Final Underlying Values of both the SX5E Index and the RTY Index are equal to or greater than their respective Downside Thresholds,
or if either of the Underlyings closes below its respective Downside Threshold on the Final Observation Date, MSFL will repay
significantly less than the Principal Amount, if anything, at maturity, resulting in a loss on your Principal Amount that is proportionate
to the decline in the value of the Least Performing Underlying from the Trade Date to the Final Observation Date.
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Early
redemption risk.
The term of your investment in the Securities may be limited to
as short as one year by the automatic call feature of the Securities. If the Securities
are called prior to maturity, you will not be able to receive any further Contingent
Coupons for any future Observation Dates, and you may be forced to invest in a lower
interest rate environment and may not be able to reinvest at comparable terms or for
similar returns. However, under no circumstances will the Securities be redeemed in the
first year of the term of the Securities. Generally, the longer the Securities have been
outstanding, the less likely it is that they will be automatically called, because the
level of at least one of the Underlyings will necessarily have declined from its respective
Initial Underlying Value if the Securities were not called following an Observation Date,
and there will be less time remaining until maturity in which the level(s) of such Underlying(s)
can recover.
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A
higher Contingent Coupon Rate and/or lower Coupon Barriers and Downside Thresholds may
reflect greater expected volatility of the Underlyings, and greater expected volatility
generally indicates an increased risk of declines in the levels of the Underlyings and,
potentially, a significant loss at maturity.
The economic terms for the Securities,
including the Contingent Coupon Rate, the Coupon Barriers and the Downside Thresholds,
are based, in part, on the expected volatility of the Underlyings at the time the terms
of the Securities are set. “Volatility” refers to the frequency and magnitude
of changes in the levels of the Underlyings. Higher expected volatility with respect
to the Underlyings as of the Trade Date generally indicates a greater expectation as
of that date that the Final Underlying Levels of either Underlying could ultimately be
less than its Downside Threshold on the Final Observation Date, which would result in
a loss of a significant portion or all of the Principal Amount. At the time the terms
of the Securities are set, higher expected volatility will generally be reflected in
a higher Contingent Coupon Rate and/or lower Coupon Barriers and Downside Thresholds,
as compared to otherwise comparable securities. Therefore, a relatively higher Contingent
Coupon Rate, which would increase the upside return if the Observation Date Closing Values
are greater than or equal to the Coupon Barriers on the quarterly Observation Dates,
may indicate an increased risk that the levels of the Underlyings will decrease substantially,
which would result in few or no Contingent Coupons and a significant loss at maturity.
In addition, and as described above in "The Securities do not guarantee the payment
of regular interest or the return of any principal," in general, the higher potential
return on the Securities as compared to the return payable on our ordinary debt securities
with a comparable maturity indicates the risk that you may not receive a positive return
on the Securities and may lose a significant portion or all of your investment. Further,
relatively lower Downside Thresholds may not indicate that the Securities have a greater
likelihood of a return of principal at maturity. You should be willing to accept the
downside market risk of the Underlyings and the potential to lose a significant portion
or all of your Principal Amount at maturity.
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The
Securities are subject to our credit risk, and any actual or anticipated changes to our
credit ratings or our 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, including
Contingent Coupons, if any, and any payments upon an automatic call 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.
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As
a finance subsidiary, MSFL has no independent operations and will have no independent
assets
. As a finance subsidiary, MSFL has no independent operations beyond the issuance
and administration of its securities and will have no independent assets available for
distributions to holders of MSFL securities if they make claims in respect of such securities
in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries by such
holders will be limited to those available under the related guarantee by Morgan Stanley
and that guarantee will rank
pari passu
with all other unsecured, unsubordinated
obligations of Morgan Stanley. Holders will have recourse only to a single claim against
Morgan Stanley and its assets under the guarantee. Holders of securities issued by MSFL
should accordingly assume that in any such proceedings they would not have any priority
over and should be treated
pari passu
with the claims of other unsecured, unsubordinated
creditors of Morgan Stanley, including holders of Morgan Stanley-issued securities.
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The
market price of the Securities will be influenced by many unpredictable factors.
Several
factors, many of which are beyond our control, will influence the value of the Securities
in the secondary market and the price at which MS & Co. may be willing to purchase
or sell the Securities in the secondary market. Although we expect that generally the
Index Closing Values of the Underlyings on any day will affect the value of the Securities
more than any other single factor, other factors that may influence the value of the
Securities include:
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the value and volatility (frequency
and magnitude of changes in value) of the Underlyings,
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whether the Observation Date
Closing Value of either Underlying has been below its Coupon Barrier on any Observation
Date,
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dividend rates on the stocks
comprising the Underlyings,
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interest and yield rates in the
market,
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time remaining until the Securities
mature,
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geopolitical conditions and economic,
financial, political, regulatory or judicial events that affect the Underlyings or equities
markets generally and which may affect the Final Underlying Values,
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the occurrence of certain events
affecting either of the Underlyings that may or may not require an adjustment to its
composition, and
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any actual or anticipated changes
in our credit ratings or credit spreads.
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Some
or all of these factors will influence the terms of the Securities at the time of issuance and the price that you will receive
if you sell your Securities prior to maturity, as the Securities are comprised of both a debt component and a performance-based
component linked to the Underlyings, and these are the types of factors that also generally affect the values of debt securities
and derivatives linked to the Underlyings. 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. The value of each of the Underlyings may be, and each has
recently been, extremely volatile, and we can give you no assurance that the volatility will lessen. See “Historical Information”
below. You may receive less, and possibly significantly less, than the Principal Amount per Security if you try to sell your Securities
prior to maturity.
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The
Securities are linked to the EURO STOXX 50
®
Index and are subject to 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. Although the equity securities included in the EURO STOXX 50
®
Index are traded in foreign
currencies, the value of your Securities (as measured in U.S. dollars) will not be adjusted for any exchange rate fluctuations.
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.
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The
Securities are linked to the Russell 2000
®
Index and are subject to risks associated with small-capitalization
companies
. The Russell 2000
®
Index consists of stocks issued by companies with relatively small market capitalization.
These companies often have greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies
and, therefore, the Russell 2000
®
Index may be more volatile than indices that consist of stocks issued by large-capitalization
companies. Stock prices of small-capitalization companies are also more vulnerable than those of large-capitalization companies
to adverse business and economic developments, and the stocks of small-capitalization companies may be thinly traded. In addition,
small capitalization companies are typically less well-established and less stable financially than large-capitalization companies
and may depend on a small number of key personnel, making them more vulnerable to loss of personnel. Such companies tend to have
smaller revenues, less diverse product lines, smaller shares of their product or service markets, fewer financial resources and
less competitive strengths than large-capitalization companies and are more susceptible to adverse developments related to their
products.
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Investing
in the Securities is not equivalent to investing in the Underlyings.
Investing in the Securities is not equivalent to investing
in either Underlying or the component stocks of either Underlying. Investors in the Securities will not have voting rights or
rights to receive dividends or other distributions or any other rights with respect to stocks that constitute the Underlyings.
Further, you will not participate in any potential appreciation of either Underlying even though you may be exposed to its full
decline at maturity. Additionally, the Underlyings are not “total return” indices, which, in addition to reflecting
the market prices of the stocks that constitute the Underlyings, would also reflect dividends paid on such stocks. The return
on the Securities will not reflect such a total return feature.
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Adjustments
to the EURO STOXX 50
®
Index or the Russell 2000
®
Index could adversely affect the value of the Securities.
The Underlying Publisher of each of the EURO STOXX 50
®
Index and the Russell 2000
®
Index is
responsible for calculating and maintaining such Underlying. The Underlying Publisher may add, delete or substitute the stocks
constituting either Underlying or make other methodological changes required by certain corporate events relating to the stocks
constituting either Underlying, such as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends,
that could change the value of the Underlying. The Underlying Publisher may discontinue or suspend calculation or publication
of the Underlying at any time. In these circumstances, the Calculation Agent will have the sole discretion to substitute a Successor
Underlying that is comparable to the discontinued Underlying, and is permitted to consider indices that are calculated and published
by the Calculation Agent or any of its affiliates. Any of these actions could adversely affect the value of any of the Underlyings
and, consequently, the value of the Securities.
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The
rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied
by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with
issuing, selling, structuring and hedging the Securities in the Issue Price reduce the economic terms of the Securities, cause
the estimated value of the Securities to be less than the 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 Issue
Price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included
in the Issue Price and borne by you and because the secondary market prices will reflect our secondary market credit spreads and
the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as other factors.
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The
inclusion of the costs of issuing, selling, structuring and hedging the Securities in the 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 Settlement 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 Underlyings, and to our secondary market credit spreads, it
would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected in
your brokerage account statements.
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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 Trade
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 pricing
supplement will vary based on many factors that cannot be predicted with accuracy, including
our creditworthiness and changes in market conditions. See also “The market price
of the Securities will be influenced by many unpredictable factors” above.
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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. currently
intends, but is not obligated, to make a market in 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. Because we do not expect that other broker-dealers will participate
significantly in the secondary market for the Securities, the price at which you may
be able to trade your Securities is likely to depend on the price, if any, at which MS
& Co. is willing to transact. If, at any time, MS & Co. were to cease making
a market in the Securities, it is likely that there would be no secondary market for
the Securities. Accordingly, you should be willing to hold your Securities to maturity.
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Hedging
and trading activity by our affiliates could potentially affect the value of the Securities.
One or more of our affiliates
and/or third-party dealers have carried out, and will continue to carry out, hedging activities related to the Securities (and
to other instruments linked to the Underlyings), including trading in the stocks that constitute the Underlyings as well as in
other instruments related to the Underlyings. 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 subsidiaries also trade the stocks that constitute the Underlyings and other
financial instruments related to the Underlyings 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 Trade Date could have increased the Initial Underlying Value, and,
as a result, could have increased the Coupon Barrier of either of the Underlyings, which is the level at or above which such Underlying
must close on each Observation Date in order for you to earn a Contingent Coupon, and the Downside Threshold of either of the
Underlyings, which if the Securities are not called prior to maturity, is the level at or above which such Underlying must close
on the Final Observation Date in order for you to avoid being exposed to the negative performance of the Least Performing Underlying
at maturity (in each case, depending also on the performance of the other Underlying). Additionally, such hedging or trading activities
during the term of the Securities could potentially affect the values of the Underlyings on the Observation Dates and, accordingly,
whether the Contingent Coupon is payable or whether the Securities are automatically called prior to maturity and, if the Securities
are not called prior to maturity, the payout to you at maturity, if any (in each case, depending also on the performance of the
other Underlying).
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The
Calculation Agent, which is our affiliate, will make determinations with respect to the
Securities.
As Calculation Agent, MS & Co. has determined the Initial Underlying
Values, the Coupon Barriers and the Downside Thresholds, and will determine the Observation
Date Closing Levels and the Final Underlying Value of each Underlying, whether a Contingent
Coupon is payable with respect to each Observation Date, whether a Market Disruption
Event has occurred and the payment that you will receive upon a call 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 nonoccurrence of Market Disruption Events. These potentially
subjective determinations may affect the payout to you upon a call or at maturity, if
any. For further information regarding these types of determinations, see “Description
of Auto-Callable Securities—Postponement of Determination Dates,” “—Discontinuance
of Any Underlying; Alteration of Method of Calculation” and “—Calculation
Agent and Calculations” in the accompanying product supplement. In addition, MS
& Co. has determined the estimated value of the Securities on the Trade Date.
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The
U.S. federal income tax consequences of an investment in the Securities are uncertain.
There is no direct legal authority as to the proper treatment of the Securities for
U.S. federal income tax purposes, and, therefore, significant aspects of the tax treatment
of the Securities are uncertain.
|
Please
read the discussion under “What Are the Tax Consequences of the Securities” in this pricing supplement 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.
Hypothetical Payments on the Securities
at Maturity
|
The examples below illustrate the
payment upon a call or at maturity for a $10 Security on a hypothetical offering of the Securities, with the following assumptions
(the actual terms for the Securities were determined on the Trade Date and are specified on the cover hereof; amounts may have
been rounded for ease of reference):
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Term:
Approximately 10 years
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Hypothetical
Initial Underlying Value:
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Contingent
Coupon Rate: 9.00% per annum (or 2.25% per quarter)
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Contingent
Coupon: $0.225 per quarter
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Observation
Dates: Quarterly, callable after approximately 1 year
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Hypothetical
Coupon Barriers:
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SX5E Index: 2,366, which is 67.60%
of the Hypothetical Initial Underlying Value of the SX5E Index
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RTY Index: 946.40, which is 67.60%
of the Hypothetical Initial Underlying Value of the RTY Index
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Hypothetical
Downside Thresholds:
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SX5E Index: 2,366, which is 67.60%
of the Hypothetical Initial Underlying Value of the SX5E Index
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RTY Index: 946.40, which is 67.60%
of the Hypothetical Initial Underlying Value of the RTY Index
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Example 1 — Securities
are Called on the Fourth Observation Date
Date
|
Index Closing Value
|
Payment (per Security)
|
SX5E Index
|
RTY Index
|
First Observation Date
|
3,400
(at or above
Coupon Barrier)
|
1,300 (
at or above
Coupon Barrier)
|
$0.225 (Contingent Coupon — Not Callable)
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Second Observation Date
|
3,200
(at or above
Coupon Barrier)
|
1,000
(at or above
Coupon Barrier)
|
$0.225 (Contingent Coupon — Not Callable)
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Third Observation Date
|
2,750
(at or above
Coupon Barrier)
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1,500
(at or above
Coupon Barrier)
|
$0.225 (Contingent Coupon — Not Callable)
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Fourth Observation Date
|
3,800 (
at or above
Coupon Barrier and Initial Underlying Value)
|
1,600 (
at or above
Coupon Barrier and Initial Underlying Value)
|
$10.225 (Settlement Amount)
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Total Payment:
|
$10.90 (9.0% return)
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Both the SX5E Index and RTY Index
close above their respective Coupon Barriers on the first three Observation Dates and therefore a Contingent Coupon is paid on
each related Coupon Payment Date. Because both the SX5E Index and the RTY Index close above their respective Initial Underlying
Values on the fourth Observation Date (which is one year after the Trade Date and is the first Observation Date on which the Securities
are callable), the Securities are called after such Observation Date. MSFL will pay you on the call settlement date a total of
$10.225 per Security, reflecting your principal amount plus the applicable Contingent Coupon. When added to the Contingent Coupon
payments of $0.675 received in respect of the prior Observation Dates, MSFL will have paid you a total of $10.90 per Security
for a 9.0% total return on the Securities. No further amount will be owed to you under the Securities, and you do not participate
in the appreciation of the Underlyings.
Example 2 — Securities
are NOT Called and the Final Underlying Values of both the SX5E Index and the RTY Index are at or above their respective Coupon
Barriers and Downside Thresholds.
Date
|
Index Closing Value
|
Payment (per Security)
|
SX5E Index
|
RTY Index
|
First Observation Date
|
3,700
(at or above
Coupon Barrier)
|
1,000 (
at or above
Coupon Barrier)
|
$0.225 (Contingent Coupon — Not Callable)
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Second Observation Date
|
3,500 (
at or above
Coupon Barrier)
|
1,600 (
at or above
Coupon Barrier)
|
$0.225 (Contingent Coupon — Not Callable)
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Third Observation Date
|
2,600 (
at or above
Coupon Barrier)
|
450 (
below
Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Observation Date
|
2,500 (
at or above
Coupon Barrier;
below
Initial Underlying Value)
|
500 (
below
Coupon Barrier and Initial Underlying Value)
|
$0 (Not Callable)
|
Fifth to Thirty-Ninth Observation Dates
|
Various (
all at or above
Coupon Barrier;
all below
Initial Underlying Value)
|
Various (
all below
Coupon Barrier and Initial Underlying Value)
|
$0 (Not Callable)
|
Final Observation Date
|
2,550 (
at or above
Coupon Barrier and Downside Threshold)
|
2,300 (
at or above
Coupon Barrier and Downside Threshold)
|
$10.225 (Settlement Amount)
|
|
|
Total Payment:
|
$10.675 (6.75% return)
|
Both the SX5E Index and the RTY
Index close above their respective Coupon Barriers on the first two Observation Dates and therefore a Contingent Coupon is paid
on each related Coupon Payment Date. On each of the third to thirty-ninth Observation Dates, the SX5E Index closes at or above
its Coupon Barrier (but below its Initial Underlying Value, where applicable) but the RTY Index closes below its Coupon Barrier.
Therefore, no Contingent Coupon is paid on any related Coupon Payment Date. On the Final Observation Date, both the SX5E Index
and the RTY Index close above their respective Coupon Barriers and Downside Thresholds. Therefore, at maturity, MSFL will pay
you a total of $10.225 per Security, reflecting your principal amount plus the applicable Contingent Coupon. When added to the
total Contingent Coupon payments of $0.45 received in respect of the prior Observation Dates, MSFL will have paid you a total
of $10.675 per Security for a 6.75% total return on the Securities over ten years. You do not participate in any appreciation
of the Underlyings.
Example 3 — Securities
are NOT Called and the Final Underlying Value of one of the Underlyings is below its respective Downside Threshold
Date
|
Index Closing Value
|
Payment (per Security)
|
SX5E Index
|
RTY Index
|
First Observation Date
|
3,100
(at or above
Coupon Barrier)
|
1,500 (
at or above
Coupon Barrier)
|
$0.225 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
2,800 (
at or above
Coupon Barrier)
|
1,000 (
at or above
Coupon Barrier)
|
$0.225 (Contingent Coupon — Not Callable)
|
Third Observation Date
|
3,200 (
at or above
Coupon Barrier)
|
600 (
below
Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Observation Date
|
2,500 (
at or above
Coupon Barrier;
below
Initial Underlying Value)
|
500 (
below
Coupon Barrier and Initial Underlying Value)
|
$0 (Not Callable)
|
Fifth to Thirty-Ninth Observation Dates
|
Various (
all below
Coupon Barrier and Initial Underlying Value)
|
Various (
all below
Coupon Barrier and Initial Underlying Value)
|
$0 (Not Callable)
|
Final Observation Date
|
2,500 (
at or above
Coupon Barrier and Downside Threshold)
|
560 (
below
Coupon Barrier and Downside Threshold)
|
$10 + [$10 × Underlying Return
of the Least Performing Underlying] =
$10 + [$10 × -60%] =
$10 - $6 =
$4 (Payment at Maturity)
|
|
|
Total Payment:
|
$4.45 (-55.5% return)
|
Both the SX5E Index and the RTY
Index close above their respective Coupon Barriers on the first two Observation Dates, and, therefore a Contingent Coupon is paid
on each related Coupon Payment Date. On each of the third and fourth Observation Dates, the SX5E Index closes at or above its
Coupon Barrier (but below its Initial Underlying Value, where applicable), but the RTY Index closes below its Coupon Barrier.
Therefore, no Contingent Coupon is paid on either related Coupon Payment Date. On each of the fifth to the thirty-ninth Observation
Dates, both the SX5E Index and the RTY Index close below their respective Coupon Barriers and thus no Contingent Coupon is paid
on any related Coupon Payment Date. On the Final Observation Date, the SX5E Index closes above its Coupon Barrier and Downside
Threshold but the RTY Index closes below its Coupon Barrier and Downside Threshold. Therefore, at maturity, investors are exposed
to the downside performance of the Least Performing Underlying and MSFL will pay you $4 per Security, which reflects the percentage
decrease of the Least Performing Underlying from the Trade Date to the Final Observation Date. When added to the total Contingent
Coupon payments of $0.45 received in respect of the prior Observation Dates, MSFL will have paid you $4.45 per Security, for a
loss on the Securities of 55.5%.
The Securities differ from ordinary
debt securities in that, among other features, MSFL is not necessarily obligated to repay the full amount of your initial investment.
If the Securities are not called on any Observation Date, you may lose a significant portion or all of your initial investment.
Specifically, if the Securities are not called and the Final Underlying Value of either Underlying is less than its respective
Downside Threshold, you will lose 1% (or a fraction thereof) of your Principal Amount for each 1% (or a fraction thereof) that
the Underlying Return of the Least Performing Underlying is less than zero. Any payment on the Securities, including any Contingent
Coupon, payment upon an automatic call or the Payment at Maturity, is dependent on our ability to satisfy our obligations when
they come due. If we are unable to meet our obligations, you may not receive any amounts due to you under the Securities.
The Issuer will not pay a quarterly
Contingent Coupon if the Observation Date Closing Value for either of the Underlyings is below its respective Coupon Barrier.
The Issuer will not automatically call the Securities if the Observation Date Closing Value of either of the Underlyings is below
its respective Initial Underlying Value. You will lose a significant portion or all of your principal amount at maturity if the
Securities are not called and the Final Underlying Value of either of the Underlyings is below its respective Downside Threshold.
What Are the Tax Consequences of the Securities?
|
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 pricing supplement 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:
|
t
|
purchase
the Securities in the original offering; and
|
|
t
|
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:
|
t
|
certain
financial institutions;
|
|
t
|
certain
dealers and traders in securities or commodities;
|
|
t
|
investors
holding the Securities as part of a “straddle,” wash sale, conversion transaction,
integrated transaction or constructive sale transaction;
|
|
t
|
U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
|
|
t
|
partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
|
|
t
|
regulated
investment companies;
|
|
t
|
real
estate investment trusts; or
|
|
t
|
tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs”
as defined in Section 408 or 408A of the Code, respectively.
|
If an entity
that is classified as a partnership for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment
of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partnership
holding the Securities or a partner in such a partnership, you should consult your tax adviser as to the particular U.S. federal
tax consequences of holding and disposing of the Securities to you.
As the law applicable
to the U.S. federal income taxation of instruments such as the Securities is technical and complex, the discussion below necessarily
represents only a general summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed,
nor are any alternative minimum tax consequences or consequences resulting from the Medicare tax on investment income.
This discussion
is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations,
all as of the date hereof, changes to any of which subsequent to the date hereof may affect the tax consequences described herein.
Persons considering the purchase of the Securities should consult their tax advisers with regard to the application of the U.S.
federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local
or non-U.S. taxing jurisdiction.
General
Due
to the absence of statutory, judicial or administrative authorities that directly address the treatment of the Securities or instruments
that are similar to the Securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will
agree with the tax treatment described herein. We intend to treat a Security for U.S. federal income tax purposes as a single
financial contract that provides for a coupon that will be treated as gross income to you at the time received or accrued in accordance
with your regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the
Securities is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively that
this treatment is more likely than not to be upheld, and that alternative treatments are possible.
You should
consult your tax adviser regarding all aspects of the U.S. federal tax consequences of an investment in the Securities (including
possible alternative treatments of the Securities). Unless otherwise stated, the following discussion is based on the treatment
of each Security as described in the previous paragraph.
Tax Consequences
to U.S. Holders
This section
applies to you only if you are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a
Security that is, for U.S. federal income tax purposes:
|
t
|
a
citizen or individual resident of the United States;
|
|
t
|
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
|
|
t
|
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 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:
|
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|
an
individual who is classified as a nonresident alien;
|
|
t
|
a
foreign corporation; or
|
|
t
|
a
foreign estate or trust.
|
The term “Non-U.S.
Holder” does not include any of the following holders:
|
t
|
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;
|
|
t
|
certain
former citizens or residents of the United States; or
|
|
t
|
a
holder for whom income or gain in respect of the Securities is effectively connected
with the conduct of a trade or business in the United States.
|
Such
holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities.
Although
significant aspects of the tax treatment of each Security are uncertain, we intend to withhold on any coupon paid to a Non-U.S.
Holder generally at a rate of 30% or at a reduced rate specified by an applicable income tax treaty under an “other income”
or similar provision. We will not be required to pay any additional amounts with respect to amounts withheld. In order to claim
an exemption from, or a reduction in, the 30% withholding tax, a Non-U.S. Holder of the Securities must comply with certification
requirements to establish that it is not a U.S. person and is eligible for such an exemption or reduction under an applicable
tax treaty. If you are a Non-U.S. Holder, you should consult your tax adviser regarding the tax treatment of the Securities, including
the possibility of obtaining a refund of any withholding tax and the certification requirement described above.
Section
871(m) Withholding Tax on Dividend Equivalents
Section
871(m) of the Code and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a
lower applicable treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to
certain financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”).
Subject to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance
of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, the regulations exempt securities issued before January 1, 2018 that do not have a delta of one with
respect to any Underlying Security. Based on our determination that the Securities do not have a delta of one with respect to
any Underlying Security, our counsel is of the opinion that the Securities should not be Specified Securities and, therefore,
should not be subject to Section 871(m).
Our
determination is not binding on the IRS, and the IRS may disagree with this determination. 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 under “What Are the Tax Consequences of the Securities,” 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.
The
EURO STOXX 50
®
Index
|
The EURO STOXX 50
®
Index was created by STOXX Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50
®
Index began on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50
®
Index is composed of 50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes
stocks selected from the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across
all market sectors. For additional information about the EURO STOXX 50
®
Index, see the information set forth under
“EURO STOXX 50
®
Index” in the accompanying index supplement.
“EURO STOXX 50
®
”
and “STOXX
®
” are registered trademarks of STOXX Limited. For more information, see “EURO STOXX
50
®
Index” in the accompanying index supplement.
The following table sets forth
the published high and low closing values, as well as the end-of-quarter closing values, of the EURO STOXX 50
®
Index for each quarter in the period from January 1, 2012 through September 21, 2017. The closing value of the EURO STOXX 50
®
Index on September 21, 2017 was 3,539.59. We obtained the information in the table below from Bloomberg Financial Markets,
without independent verification. The historical closing values of the EURO STOXX 50
®
Index should not be taken
as an indication of future performance, and no assurance can be given as to the level of the EURO STOXX 50
®
Index
on any Observation Date, including the Final Observation Date.
Quarter
Begin
|
|
Quarter
End
|
|
Quarterly
High
|
|
Quarterly
Low
|
|
Quarterly
Close
|
1/1/2012
|
|
3/31/2012
|
|
2,608.42
|
|
2,286.45
|
|
2,477.28
|
4/1/2012
|
|
6/30/2012
|
|
2,501.18
|
|
2,068.66
|
|
2,264.72
|
7/1/2012
|
|
9/30/2012
|
|
2,594.56
|
|
2,151.54
|
|
2,454.26
|
10/1/2012
|
|
12/31/2012
|
|
2,659.95
|
|
2,427.32
|
|
2,635.93
|
1/1/2013
|
|
3/31/2013
|
|
2,749.27
|
|
2,570.52
|
|
2,624.02
|
4/1/2013
|
|
6/30/2013
|
|
2,835.87
|
|
2,511.83
|
|
2,602.59
|
7/1/2013
|
|
9/30/2013
|
|
2,936.20
|
|
2,570.76
|
|
2,893.15
|
10/1/2013
|
|
12/31/2013
|
|
3,111.37
|
|
2,902.12
|
|
3,109.00
|
1/1/2014
|
|
3/31/2014
|
|
3,172.43
|
|
2,962.49
|
|
3,161.60
|
4/1/2014
|
|
6/30/2014
|
|
3,314.80
|
|
3,091.52
|
|
3,228.24
|
7/1/2014
|
|
9/30/2014
|
|
3,289.75
|
|
3,006.83
|
|
3,225.93
|
10/1/2014
|
|
12/31/2014
|
|
3,277.38
|
|
2,874.65
|
|
3,146.43
|
1/1/2015
|
|
3/31/2015
|
|
3,731.35
|
|
3,007.91
|
|
3,697.38
|
4/1/2015
|
|
6/30/2015
|
|
3,828.78
|
|
3,424.30
|
|
3,424.30
|
7/1/2015
|
|
9/30/2015
|
|
3,686.58
|
|
3,019.34
|
|
3,100.67
|
10/1/2015
|
|
12/31/2015
|
|
3,506.45
|
|
3,069.05
|
|
3,267.52
|
1/1/2016
|
|
3/31/2016
|
|
3,178.01
|
|
2,680.35
|
|
3,004.93
|
4/1/2016
|
|
6/30/2016
|
|
3,151.69
|
|
2,697.44
|
|
2,864.74
|
7/1/2016
|
|
9/30/2016
|
|
3,091.66
|
|
2,761.37
|
|
3,002.24
|
10/1/2016
|
|
12/31/2016
|
|
3,290.52
|
|
2,954.53
|
|
3,290.52
|
1/1/2017
|
|
3/31/2017
|
|
3,500.93
|
|
3,230.68
|
|
3,500.93
|
4/1/2017
|
|
6/30/2017
|
|
3,658.79
|
|
3,409.78
|
|
3,441.88
|
7/1/2017
|
|
9/21/2017*
|
|
3,539.59
|
|
3,388.22
|
|
3,539.59
|
|
*
|
Available information for the indicated period includes
data for less than the entire calendar quarter and accordingly, the “Quarterly High,” “Quarterly Low”
and “Quarterly Close” data indicated are for this shortened period only.
|
The graph below illustrates the performance of the
EURO STOXX 50
®
Index from January 1, 2008 through September 21, 2017, based on information from Bloomberg.
* The dotted line indicates the
Coupon Barrier and Downside Threshold of 2,392.76, which is approximately 67.60% of the Initial Underlying Value.
Past performance is not indicative of future results.
The Russell 2000
®
Index is an index calculated, published and disseminated by FTSE Russell, and measures the composite price performance of stocks
of 2,000 companies incorporated in the U.S. and its territories. All 2,000 stocks are traded on a major U.S. exchange and are
the 2,000 smallest securities that form the Russell 3000
®
Index. The Russell 3000
®
Index is composed
of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of the U.S. equity
market. The Russell 2000
®
Index consists of the smallest 2,000 companies included in the Russell 3000
®
Index and represents a small portion of the total market capitalization of the Russell 3000
®
Index. The Russell
2000
®
Index is designed to track the performance of the small-capitalization segment of the U.S. equity market.
For additional information about the Russell 2000
®
Index, see the information set forth under “Russell 2000
®
Index” in the accompanying index supplement.
The “Russell 2000
®
Index” is a trademark of FTSE Russell. For more information, see “Russell 2000
®
Index”
in the accompanying index supplement.
The following table sets forth
the published high and low closing values, as well as the end-of-quarter closing values, of the Russell 2000
®
Index
for each quarter in the period from January 1, 2012 through September 21, 2017. The closing value of the Russell 2000
®
Index on September 21, 2017 was 1,444.184. We obtained the information in the table below from Bloomberg Financial Markets,
without independent verification. The historical closing values of the Russell 2000
®
Index should not be taken
as an indication of future performance, and no assurance can be given as to the level of the Russell 2000
®
Index
on any Observation Date, including the Final Observation Date.
Quarter
Begin
|
Quarter
End
|
Quarterly
High
|
Quarterly
Low
|
Quarterly
Close
|
1/1/2012
|
3/31/2012
|
846.13
|
747.28
|
830.30
|
4/1/2012
|
6/30/2012
|
840.63
|
737.24
|
798.49
|
7/1/2012
|
9/30/2012
|
864.70
|
767.75
|
837.45
|
10/1/2012
|
12/31/2012
|
852.50
|
769.48
|
849.35
|
1/1/2013
|
3/31/2013
|
953.07
|
872.61
|
951.54
|
4/1/2013
|
6/30/2013
|
999.99
|
901.51
|
977.48
|
7/1/2013
|
9/30/2013
|
1,078.409
|
989.535
|
1,073.786
|
10/1/2013
|
12/31/2013
|
1,163.637
|
1,043.459
|
1,163.637
|
1/1/2014
|
3/31/2014
|
1,208.651
|
1,093.594
|
1,173.038
|
4/1/2014
|
6/30/2014
|
1,192.964
|
1,095.986
|
1,192.964
|
7/1/2014
|
9/30/2014
|
1,208.150
|
1,101.676
|
1,101.676
|
10/1/2014
|
12/31/2014
|
1,219.109
|
1,049.303
|
1,204.696
|
1/1/2015
|
3/31/2015
|
1,266.373
|
1,154.709
|
1,252.772
|
4/1/2015
|
6/30/2015
|
1,295.799
|
1,215.417
|
1,253.947
|
7/1/2015
|
9/30/2015
|
1,273.328
|
1,083.907
|
1,100.688
|
10/1/2015
|
12/31/2015
|
1,204.159
|
1,097.552
|
1,135.889
|
1/1/2016
|
3/31/2016
|
1,114.028
|
953.715
|
1,114.028
|
4/1/2016
|
6/30/2016
|
1,188.954
|
1,089.646
|
1,151.923
|
7/1/2016
|
9/30/2016
|
1,263.438
|
1,139.453
|
1,251.646
|
10/1/2016
|
12/31/2016
|
1,388.073
|
1,156.885
|
1,357.130
|
1/1/2017
|
3/31/2017
|
1,413.635
|
1,345.598
|
1,385.920
|
4/1/2017
|
6/30/2017
|
1,425.985
|
1,345.244
|
1,415.359
|
7/1/2017
|
9/21/2017*
|
1,450.387
|
1,356.905
|
1,444.184
|
*Available information for the
indicated period includes data for less than the entire calendar quarter and accordingly, the “Quarterly High,” “Quarterly
Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the Russell 2000
®
Index from January 1, 2008 through September 21, 2017, based on information from Bloomberg.
* The dotted line indicates the
Coupon Barrier and Downside Threshold of 976.268, which is approximately 67.60% of the Initial Underlying Value.
Past performance is not indicative of future results.
Correlation
of the Underlyings
|
The graph below illustrates the
daily performance of the EURO STOXX 50
®
Index and the Russell 2000
®
Index from January 1, 2008 through
September 18, 2017. For comparison purposes, each Underlying has been “normalized” to have a closing value of 100
on January 1, 2008 by dividing the closing value of that Underlying on each Index Business Day by the closing value of that Underlying
on January 1, 2008 and multiplying by 100. We obtained the closing values used to determine the normalized closing values set
forth below from Bloomberg, without independent verification.
A closer relationship between the
daily returns of two or more underlying assets over a given period indicates that such underlying assets have been more positively
correlated. Lower (or more-negative) correlation among two or more underlying assets over a given period may indicate that it
is less likely that those underlying assets will subsequently move in the same direction. Therefore, lower correlation among
the Underlyings may indicate a greater potential for one of the Underlyings to close below its respective Coupon Barrier or Downside
Threshold on an Observation Date, including the Final Observation Date, as applicable, because there may be a greater likelihood
that at least one of the Underlyings will decrease in value significantly. However, even if the Underlyings have a higher positive
correlation, one or both of the Underlyings may close below the respective Coupon Barrier(s) or Downside Threshold(s) on an Observation
Date or the Final Observation Date, as applicable, as the Underlyings may both decrease in value. Moreover, the actual correlation
among the Underlyings may differ, perhaps significantly, from their historical correlation. A higher Contingent Coupon Rate
is generally associated with lower correlation among the Underlyings, which may indicate a greater potential for missed Contingent
Coupons and/or a significant loss on your investment at maturity. See “Key Risks — You are exposed to the market risk
of both Underlyings”, “—Because the Securities are linked to the performance of the least performing between
the SX5E Index and the RTY Index, you are exposed to greater risk of receiving no Contingent Coupon payments or sustaining a significant
loss on your investment than if the Securities were linked to just the SX5E Index or just the RTY Index” and “—A
higher Contingent Coupon Rate and/or lower Coupon Barriers and Downside Thresholds may reflect greater expected volatility of
the Underlyings, and greater expected volatility generally indicates an increased risk of declines in the levels of the Underlyings
and, potentially, a significant loss at maturity.” herein.
Past performance and correlation
of the Underlyings are not indicative of the future performance or correlation of the Underlyings.