Opportunities in U.S. Equities
Buffered PLUS Based on a Basket Consisting of
Three Indices due June 28, 2019
SUMMARY TERMS
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Issuer:
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Morgan Stanley Finance LLC
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Guarantor:
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Morgan Stanley
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Maturity date:
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June 28, 2019
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Original issue price:
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$1,000 per Buffered PLUS
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Stated principal amount:
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$1,000 per Buffered PLUS
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Pricing date:
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June 28, 2017
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Original issue date:
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July 3, 2017 (3 business days after the pricing
date)
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Aggregate principal amount:
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$
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Interest:
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None
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Basket:
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Basket component
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Bloomberg
ticker symbol
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Basket component weighting
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Initial basket component value
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Multiplier
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S&P 500
®
Index (the “SPX Index”)
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SPX
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70%
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S&P MidCap 400
®
Index (the “MID Index”)
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MID
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15%
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Russell 2000
®
Index (the “RTY Index”)
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RTY
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15%
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We refer to each of the SPX Index, the MID Index and the RTY Index as an underlying index and, together, as the basket components.
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Payment at maturity
(per Buffered PLUS):
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§
If the final basket value is
greater than
the initial basket value: $1,000 + the leveraged upside payment
In no event will the
payment at maturity exceed the maximum payment at maturity.
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§
If the final basket value is
less than or equal to
the initial basket
value but has decreased from the initial basket value by an amount
less than or equal to
the buffer amount of 10%: $1,000
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§
If the final basket value is
less than
the initial basket value and has decreased from the initial basket value
by an amount
greater than
the buffer amount of 10%:
($1,000
x basket performance factor) + $100
Under these circumstances,
the payment at maturity will be less than the stated principal amount of $1,000. However, under no circumstances will the Buffered
PLUS pay less than $100 per Buffered PLUS at maturity.
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Leveraged upside payment:
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$1,000 × leverage factor × basket percent change
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Leverage factor:
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200%
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Basket percent change:
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(final basket value – initial basket value) / initial basket value
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Buffer amount:
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10%
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Minimum payment at maturity:
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$100 per Buffered PLUS (10% of the stated principal amount)
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Basket performance factor:
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Final basket value / initial basket value
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Maximum payment at maturity:
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At least $1,179.60 per Buffered PLUS (117.96% of the stated principal amount). The actual maximum payment at maturity will be determined on the pricing date.
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Initial basket value:
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100, which will be equal to the sum of the products of the initial basket component values of each of the basket components, as set forth under “Basket—Initial basket component value” above, and the applicable multiplier for each of the basket components, each of which will be determined on the pricing date.
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Final basket value:
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The basket closing value on the valuation date.
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Valuation date:
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June 25, 2019, subject to postponement for non-index business days and certain market disruption events.
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Basket closing value:
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The basket closing value on any day is the sum of the products of (i) the basket component closing value of each of the basket components and (ii) the applicable multiplier for such basket component on such date.
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Basket component closing value:
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In the case of each underlying index, the index closing value of such underlying index.
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Multiplier:
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The multiplier will be set on the pricing date based on each basket component’s respective initial basket component value so that each basket component will represent its applicable basket component weighting in the predetermined initial basket value. Each multiplier will remain constant for the term of the Buffered PLUS. See “Basket—Multiplier” above.
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Listing:
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The Buffered PLUS will not be listed on any securities exchange.
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CUSIP / ISIN:
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61768CLV7 / US61768CLV71
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
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Estimated value on the pricing date:
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Approximately $985.60 per Buffered PLUS, or within $10.00 of that estimate. See “Investment Overview” on page 2.
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Commissions and issue price:
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Price to public
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Agent’s commissions
(1)
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Proceeds to us
(2)
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Per Buffered PLUS
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$1,000
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$
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$
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Total
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$
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$
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$
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(1)
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Selected dealers
and their financial advisors will collectively receive from the agent, Morgan Stanley
& Co. LLC, a fixed sales commission of $ for each Buffered PLUS they sell. See “Supplemental
information regarding plan of distribution; conflicts of interest.” For additional
information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying
product supplement for PLUS.
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(2)
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See
“Use of proceeds and hedging” on page 16.
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The Buffered PLUS involve risks not associated
with an investment in ordinary debt securities. See “Risk Factors” beginning on page 6.
The Securities and Exchange Commission
and state securities regulators have not approved or disapproved these securities, or determined if this document or the accompanying
product supplement, index supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal
offense.
The Buffered PLUS are not deposits or savings
accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality,
nor are they obligations of, or guaranteed by, a bank.
You should read this document together
with the related product supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below.
Please also see “Additional Information About the Buffered PLUS” at the end of this document.
References to “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product
Supplement for PLUS dated February 29, 2016
Index
Supplement dated January 30, 2017
Prospectus
dated February 16, 2016
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Investment Summary
Buffered Performance Leveraged Upside Securities
The Buffered PLUS Based on a Basket Consisting of Three Indices
due June 28, 2019 (the “Buffered PLUS”) can be used:
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As an alternative to direct exposure to the basket that enhances returns for a certain range
of potential positive performance of the basket, subject to the maximum payment at maturity
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To enhance returns and potentially outperform the basket in a moderately bullish scenario
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To achieve similar levels of upside exposure to the basket as a direct investment, subject to
the maximum payment at maturity, while using fewer dollars by taking advantage of the leverage factor
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§
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To obtain a buffer against a specified level of negative performance in the basket
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Maturity:
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Approximately 2 years
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Leverage factor:
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200%
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Buffer amount:
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10%
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Minimum payment at maturity:
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$100 per Buffered PLUS (10% of the stated principal amount). Investors may lose up to 90% of the stated principal amount of the Buffered PLUS.
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Maximum payment at maturity:
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At least $1,179.60 per Buffered PLUS (117.96% of the stated principal amount). The actual maximum payment at maturity will be determined on the pricing date.
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Basket weightings:
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70% for the SPX Index, 15% for the MID Index and 15% for the RTY Index
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Interest:
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None
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The original issue price
of each Buffered PLUS is $1,000. This price includes costs associated with issuing, selling, structuring and hedging the Buffered
PLUS, which are borne by you, and, consequently, the estimated value of the Buffered PLUS on the pricing date will be less than
$1,000. We estimate that the value of each Buffered PLUS on the pricing date will be approximately $985.60, or within $10.00 of
that estimate. Our estimate of the value of the Buffered PLUS as determined on the pricing date will be set forth in the final
pricing supplement.
What goes into the estimated
value on the pricing date?
In valuing the Buffered
PLUS on the pricing date, we take into account that the Buffered PLUS comprise both a debt component and a performance-based component
linked to the basket components. The estimated value of the Buffered PLUS is determined using our own pricing and valuation models,
market inputs and assumptions relating to the basket components, instruments based on the basket components, 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 Buffered PLUS?
In determining the economic
terms of the Buffered PLUS, including the leverage factor, the buffer amount, the minimum payment at maturity and the maximum payment
at maturity, 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 Buffered PLUS would be more favorable to you.
What is the relationship
between the estimated value on the pricing date and the secondary market price of the Buffered PLUS?
The price at which MS &
Co. purchases the Buffered PLUS in the secondary market, absent changes in market conditions, including those related to the basket
components, may vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes
into account our secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market
transaction of this type and other factors. However, because the costs associated with issuing, selling, structuring and hedging
the Buffered PLUS are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent
that MS & Co. may buy or sell the Buffered PLUS in the secondary market, absent changes in market conditions, including those
related to the basket components, and to our secondary market credit spreads, it would do so based on values higher than the estimated
value. We expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is
not obligated to, make a market in the Buffered PLUS and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Key Investment Rationale
The Buffered PLUS offer leveraged upside exposure to the positive
performance of the basket, subject to the maximum payment at maturity, while providing limited protection against negative performance
of the basket. Once the basket has decreased in value by more than the specified buffer amount, investors are exposed to the negative
performance of the basket, subject to the minimum payment at maturity. At maturity, if the basket has appreciated, investors will
receive the stated principal amount of their investment plus leveraged upside performance of the underlying basket, subject to
the maximum payment at maturity. At maturity, if the basket has depreciated and (i) if the closing value of the basket has not
declined by more than the specified buffer amount, the Buffered PLUS will redeem for par, or (ii) if the closing value of the basket
has declined by more than the buffer amount, the investor will lose 1% for every 1% decline beyond the specified buffer amount.
Investors may lose up to 90% of the stated principal amount of the Buffered PLUS.
Leveraged Performance
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The Buffered PLUS offer investors an opportunity to capture enhanced returns for a certain range of positive performance relative to a direct investment in the basket.
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Upside Scenario
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The basket increases in value, and, at maturity, the Buffered PLUS redeem for the stated principal amount of $1,000 plus 200% of the basket percent change, subject to the maximum payment at maturity of at least $1,179.60 per Buffered PLUS (117.96% of the stated principal amount). The actual maximum payment at maturity will be determined on the pricing date.
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Par Scenario
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The basket declines in value by no more than 10%, and, at maturity, the Buffered PLUS redeem for the stated principal amount of $1,000.
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Downside Scenario
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The basket declines in value by more than 10%, and, at maturity, the Buffered PLUS redeem for less than the stated principal amount by an amount that is proportionate to the percentage decrease of the basket in excess of the buffer amount of 10%. (Example: if the basket decreases in value by 35%, the Buffered PLUS will redeem for $750 or 75% of the stated principal amount.) The minimum payment at maturity is $100 per Buffered PLUS.
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Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
How the Buffered PLUS Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the Buffered PLUS based on the following terms:
Stated principal amount:
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$1,000 per Buffered PLUS
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Leverage factor:
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200%
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Buffer amount:
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10%
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Hypothetical maximum payment at maturity:
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$1,179.60 per Buffered PLUS (117.96% of the stated principal amount)
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Minimum payment at maturity:
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$100 per Buffered PLUS
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Buffered PLUS Payoff Diagram
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How it works
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Upside Scenario.
If the final basket
value is greater than the initial basket value, investors will receive the $1,000 stated principal amount plus 200% of the appreciation
of the basket over the term of the Buffered PLUS, subject to the maximum payment at maturity. An investor will realize the hypothetical
maximum payment at maturity of $1,179.60 per Buffered PLUS (117.96% of the stated principal amount) at a final basket value of
108.98% of the initial basket value.
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§
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If the basket appreciates 2%, the investor would receive a 4% return, or $1,040.00 per Buffered
PLUS.
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If the basket appreciates 40%, the investor would receive only the hypothetical maximum payment
at maturity of $1,179.60 per Buffered PLUS, or 117.96% of the stated principal amount.
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§
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Par Scenario.
If the final basket
value is less than or equal to the initial basket value but has decreased from the initial basket value by an amount less than
or equal to the buffer amount of 10%, investors will receive the stated principal amount of $1,000 per Buffered PLUS.
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If the basket depreciates 5%, investors would receive the $1,000 stated principal amount.
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Downside
Scenario.
If the final basket value is less than the initial basket value and has decreased
from the initial basket value by an amount greater than the buffer amount of 10%, investors will receive an amount that is less
than the
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Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
stated principal amount by an amount
that is proportionate to the percentage decrease of the basket in excess of the buffer amount of 10%. The minimum payment at maturity
is $100 per Buffered PLUS.
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§
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For example, if the basket depreciates 60%, investors will lose 50% of their principal and receive
only $500 per Buffered PLUS at maturity, or 50% of the stated principal amount.
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Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive list of certain key risk factors
for investors in the Buffered PLUS. For further discussion of these and other risks, you should read the section entitled “Risk
Factors” in the accompanying product supplement for PLUS, index supplement and prospectus. You should also consult with your
investment, legal, tax, accounting and other advisers in connection with your investment in the Buffered PLUS.
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§
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The Buffered PLUS do not pay interest and provide a minimum payment at maturity of only 10%
of your principal.
The terms of the Buffered PLUS differ from those of ordinary debt securities in that the Buffered PLUS do
not pay interest and provide a minimum payment at maturity of only 10% of the stated principal amount of the Buffered PLUS. If
the final basket value is less than 90% of the initial basket value, you will receive for each Buffered PLUS that you hold a payment
at maturity that is less than the stated principal amount of each Buffered PLUS by an amount proportionate to the decline in the
value of the basket from the initial ba
sket value, plus $100 per Buffered PLUS
.
Accordingly, investors may lose up to
90% of the stated principal amount of the Buffered PLUS.
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§
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The appreciation potential of the Buffered PLUS is limited by the maximum payment at maturity.
The appreciation potential of the Buffered PLUS is limited by the maximum payment at maturity of at least $1,179.60 per Buffered
PLUS, or 117.96% of the stated principal amount. The actual maximum payment at maturity will be determined on the pricing date.
Although the leverage factor provides 200% exposure to any increase in the final basket value over the initial basket value, because
the payment at maturity will be limited to 117.96% of the stated principal amount for the Buffered PLUS (assuming a maximum payment
at maturity of $1,179.60 per Buffered PLUS), any increase in the final basket value over the initial basket value by more than
8.98% of the initial basket value will not further increase the return on the Buffered PLUS.
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§
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The market price will be influenced by many unpredictable factors.
Several factors, many
of which are beyond our control, will influence the value of the Buffered PLUS in the secondary market and the price at which MS
& Co. may be willing to purchase or sell the Buffered PLUS in the secondary market, including: the value, volatility and dividend
yield of the basket components, interest and yield rates in the market, time remaining to maturity, geopolitical conditions and
economic, financial, political and regulatory or judicial events and any actual or anticipated changes in our credit ratings or
credit spreads. You may receive less, and possibly significantly less, than the stated principal amount per Buffered PLUS if you
try to sell your Buffered PLUS prior to maturity.
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§
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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, one of the underlying indices, 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 underlying 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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The Buffered PLUS are subject to our credit risk, and any actual or anticipated changes to
our credit ratings or credit spreads may adversely affect the market value of the Buffered PLUS.
You are dependent on our ability
to pay all amounts due on the Buffered PLUS at maturity and therefore you are subject to our credit risk. The Buffered PLUS are
not guaranteed by any other entity. If we default on our obligations under the Buffered PLUS, your investment would be at risk
and you could lose some or all of your investment. As a result, the market value of the Buffered PLUS 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 Buffered PLUS.
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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
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Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
that in any such proceedings they
would not have any priority over and should be treated
pari passu
with the claims of other unsecured, unsubordinated creditors
of Morgan Stanley, including holders of Morgan Stanley-issued securities.
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§
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Changes in the values of the basket components may offset each other.
Value movements
in the basket components may not correlate with each other. At a time when the values of one or more basket components increase,
the values of the other basket components may not increase as much, or may even decline. Therefore, in calculating the basket components’
performance on the valuation date, increases in the values of one or more basket components may be moderated, or wholly offset,
by lesser increases or declines in the values of other basket components.
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The basket components are not equally weighted.
The Buffered PLUS are linked to a basket
of three basket components, and the basket components have significantly different weights in determining the value of the basket.
The same percentage change in each of the basket components would therefore have different effects on the basket closing value
because of the unequal weighting. For example, a 5% decrease in the value of a basket component with a greater weighting will have
a greater impact on the basket closing value than a 5% increase in the value of a basket component with a lesser weighting.
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Adjustments to the basket components could adversely affect the value of the Buffered PLUS.
The publisher of each underlying index can add, delete or substitute the stocks underlying such index, and can make other methodological
changes that could change the value of such underlying index. Any of these actions could adversely affect the value of the Buffered
PLUS. In addition, an index publisher may discontinue or suspend calculation or publication of the relevant underlying index at
any time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor
index for such index that is comparable to the discontinued index and is permitted to consider indices that are calculated and
published by MS & Co. or any of its affiliates. If MS & Co. determines that there is no appropriate successor index for
such index, the payment at maturity on the Buffered PLUS will be an amount based on the closing prices on the valuation date of
the securities constituting such underlying index at the time of such discontinuance, without rebalancing or substitution, computed
by the calculation agent in accordance with the formula for calculating such underlying index last in effect prior to discontinuance
of such index.
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§
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Investing in the Buffered PLUS is not equivalent to investing in the basket components.
Investing in the Buffered PLUS is not equivalent to investing directly in the basket components
or any of the component stocks of the S&P 500
®
Index, the
S&P MidCap 400
®
Index
or
the
Russell 2000
®
Index
. Investors in the Buffered PLUS will not have voting
rights or rights to receive dividends or other distributions or any other rights with respect to any of the component stocks of
the S&P 500
®
Index, the
S&P MidCap 400
®
Index
or
the
Russell 2000
®
Index
.
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§
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The rate we are willing to pay for securities of this type, maturity
and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both
the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the Buffered PLUS in the original
issue price reduce the economic terms of the Buffered PLUS, cause the estimated value of the Buffered PLUS to be less than the
original issue price and will adversely affect secondary market prices.
Assuming no change in market conditions or any other
relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the Buffered PLUS in
secondary market transactions will likely be significantly lower than the original issue price, because secondary market prices
will exclude the issuing, selling, structuring and hedging-related costs that are included in the original issue price and borne
by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any
dealer would charge in a secondary market transaction of this type as well as other factors.
|
The
inclusion of the costs of issuing, selling, structuring and hedging the Buffered PLUS in the original issue price and the lower
rate we are willing to pay as issuer make the economic terms of the Buffered PLUS less favorable to you than they otherwise would
be.
However,
because the costs associated with issuing, selling, structuring and hedging the Buffered PLUS are not fully deducted upon issuance,
for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the Buffered PLUS in the
secondary market, absent changes in market conditions, including those related to the basket components, and to our secondary market
credit spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also
be reflected in your brokerage account statements.
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§
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The estimated value of the Buffered PLUS 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 Buffered PLUS than those generated by others, including other dealers in the
market, if they attempted to value the Buffered PLUS. In addition, the estimated
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Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
value on the pricing date does not
represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your Buffered PLUS
in the secondary market (if any exists) at any time. The value of your Buffered PLUS at any time after the date of this document
will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions.
See also “The market price will be influenced by many unpredictable factors” above.
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§
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The Buffered PLUS will not be listed on any securities exchange and secondary trading may
be limited.
The Buffered PLUS will not be listed on any securities exchange. Therefore, there may be little or no secondary
market for the Buffered PLUS. MS & Co. may, but is not obligated to, make a market in the Buffered PLUS. Even if there is a
secondary market, it may not provide enough liquidity to allow you to trade or sell the Buffered PLUS easily.
Because
we do not expect that other broker dealers will participate significantly in the secondary market for the Buffered PLUS, the price
at which you may be able to trade your Buffered PLUS is likely to depend on the price, if any, at which MS & Co. is willing
to transact. If, at any time, MS & Co. were not to make a market in the Buffered PLUS, it is likely that there would be no
secondary market for the Buffered PLUS.
Accordingly, you should be willing to hold your Buffered PLUS to maturity.
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The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will
make determinations with respect to the Buffered PLUS.
As calculation agent, MS & Co. will determine the initial basket
component values, the multipliers and the final basket value, and will calculate the basket percent change or basket performance
factor, as applicable, and the amount of cash you will receive at maturity. Moreover, certain determinations made by MS & Co.,
in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect
to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of the basket
component closing value in the event of a market disruption event or discontinuance of an underlying index. These potentially subjective
determinations may adversely affect the payout to you at maturity. For further information regarding these types of determinations,
see “Description of PLUS—Postponement of Valuation Date(s)” and “—Calculation Agent and Calculations”
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the Buffered PLUS on the
pricing date.
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§
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Hedging and trading
activity by our affiliates could potentially adversely affect the value of the Buffered PLUS.
One or more of our affiliates
and/or third-party dealers expect to carry out hedging activities related to the Buffered PLUS (and possibly to other instruments
linked to the basket components or component stocks of the S&P 500
®
Index, the S&P MidCap 400
®
Index or the Russell 2000
®
Index), including trading in the stocks that constitute
the
S&P 500
®
Index, the
S&P MidCap 400
®
Index
or the
Russell 2000
®
Index as well as in other instruments related to the basket components. As a result, these
entities may be unwinding or adjusting hedge positions during the term of the Buffered PLUS, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the valuation date approaches. Some of our affiliates also trade
the stocks that constitute
the S&P 500
®
Index, the
S&P MidCap
400
®
Index
or the
Russell 2000
®
Index and other financial
instruments related to the basket components on a regular basis as part of their general broker-dealer and other businesses. Any
of these hedging or trading activities on or prior to the pricing date could potentially increase the initial basket component
values of the basket components, and, therefore, could increase the values at or above which the basket components must close
on the valuation date so that investors do not suffer a loss on their initial investment in the Buffered PLUS. Additionally, such
hedging or trading activities during the term of the Buffered PLUS, including on the valuation date, could adversely affect the
closing values of the basket components on the valuation date, and, accordingly, the amount of cash an investor will receive at
maturity.
|
|
§
|
The U.S. federal income
tax consequences of an investment in the Buffered PLUS are uncertain.
Please read the discussion under “Additional provisions—Tax
considerations” in this document and the discussion under “United States Federal Taxation” in the accompanying
product supplement for PLUS (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences
of an investment in the Buffered PLUS. If the Internal Revenue Service (the “IRS”) were successful in asserting an
alternative treatment, the timing and character of income on the Buffered PLUS might differ significantly from the tax treatment
described in the Tax Disclosure Sections. For example, under one possible treatment, the IRS could seek to recharacterize the
Buffered PLUS as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount
on the Buffered PLUS every year at a “comparable yield” determined at the time of issuance and recognize all income
and gain in respect of the Buffered PLUS as ordinary income. Additionally, as discussed under “United States Federal Taxation—FATCA
Legislation” in the accompanying product supplement for PLUS, the withholding rules commonly referred to as “FATCA”
would apply to the Buffered PLUS if they were recharacterized as debt instruments. The risk that financial instruments providing
for buffers, triggers or similar downside protection features, such as the Buffered PLUS, would be recharacterized as debt is
greater than the risk of recharacterization for comparable financial instruments that do not have such features. We do not plan
to request a ruling from the IRS regarding the tax treatment of the Buffered PLUS, and the IRS or a court may not agree with the
tax treatment described in the Tax Disclosure Sections.
|
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk 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 in particular on whether to require holders of these instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of
factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments
are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject
to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which
very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While
the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated
after consideration of these issues could materially and adversely affect the tax consequences of an investment in the Buffered
PLUS, possibly with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal
income tax consequences of an investment in the Buffered PLUS, including possible alternative treatments, the issues presented
by this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Basket Overview
The basket consists of the S&P 500
®
Index
(the “SPX Index”), the S&P MidCap 400
®
Index (the “MID Index”) and the Russell 2000
®
Index (the “RTY Index”) and offers exposure to price movements in U.S. equity markets.
S&P 500
®
Index.
The S&P 500
®
Index, which is calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks
of 500 component companies selected to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P
500
®
Index is based on the relative value of the float adjusted aggregate market capitalization of the 500 component
companies as of a particular time as compared to the aggregate average market capitalization of 500 similar companies during the
base period of the years 1941 through 1943. For additional information about the S&P 500
®
Index, see the information
set forth under “S&P 500
®
Index” in the accompanying index supplement.
S&P MidCap 400
®
Index.
The S&P
MidCap 400
®
Index is published by S&P and is intended to provide a benchmark for performance measurement of
the medium-capitalization segment of the U.S. equity markets. It tracks the stock price movement of 400 companies with mid-sized
market capitalizations, primarily ranging from $1.6 billion to $6.8 billion. S&P chooses companies for inclusion in the S&P
MidCap 400
®
Index with an aim of achieving a distribution by broad industry groupings that approximates the distribution
of these groupings in the common stock population of the medium capitalization segment of the U.S. equity market. For additional
information about the S&P MidCap 400
®
Index, see the information set forth under “S&P MidCap 400
®
Index” in the accompanying index supplement.
Russell 2000
®
Index.
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.
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Information as of market close on June 20, 2017:
Basket Component Information as of June 20, 2017
|
|
Bloomberg Ticker Symbol
|
Current Basket Component Level
|
52 Weeks Ago
|
52-Week High
|
52-Week Low
|
SPX Index
|
SPX
|
2,437.03
|
2,083.25
|
(on 6/19/2017): 2,453.46
|
(on 6/27/2016): 2,000.54
|
MID Index
|
MID
|
1,745.41
|
1,494.98
|
(on 6/13/2017): 1,769.34
|
(on 6/27/2016): 1,416.66
|
RTY Index
|
RTY
|
1,402.968
|
1,157.701
|
(on 6/13/2017): 1,425.985
|
(on 6/27/2016): 1,089.646
|
The following graph is calculated based on an initial basket
value of 100 on January 1, 2012 (assuming that each basket component is weighted as described in “Basket” on the cover
page) and illustrates the effect of the offset and/or correlation among the basket components during the indicated period. The
graph does not take into account the terms of the Buffered PLUS, nor does it attempt to show your expected return on an investment
in the Buffered PLUS. The historical performance of the basket should not be taken as an indication of its future performance.
Basket Historical
Performance
January 1,
2012 to June 20, 2017
|
|
The following graphs set forth the daily closing values of each
of the basket components for the period from January 1, 2012 through June 20, 2017. The related tables set forth the published
high and low closing values, as well as end-of-quarter closing values, for each of the basket components for each quarter in the
same period. The closing values for each of the basket components on June 20, 2017 were: (i) in the case of the SPX Index, 2,437.03,
(ii) in the case of the MID Index, 1,745.41, and (iii) in the case of the RTY Index, 1,402.968. We obtained the information in
the tables and graphs below from Bloomberg Financial Markets, without independent verification. The historical values of the basket
components should not be taken as an indication of their future performance, and no assurance can be given as to the basket closing
value on the valuation date.
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
S&P 500
®
Index
Daily Index Closing Values
January 1, 2012 to June 20, 2017
|
|
S&P
500
®
Index
|
High
|
Low
|
Period
End
|
2012
|
|
|
|
First Quarter
|
1,416.51
|
1,277.06
|
1,408.47
|
Second Quarter
|
1,419.04
|
1,278.04
|
1,362.16
|
Third Quarter
|
1,465.77
|
1,334.76
|
1,440.67
|
Fourth Quarter
|
1,461.40
|
1,353.33
|
1,426.19
|
2013
|
|
|
|
First Quarter
|
1,569.19
|
1,457.15
|
1,569.19
|
Second Quarter
|
1,669.16
|
1,541.61
|
1,606.28
|
Third Quarter
|
1,725.52
|
1,614.08
|
1,681.55
|
Fourth Quarter
|
1,848.36
|
1,655.45
|
1,848.36
|
2014
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
2015
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,098.86
|
Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
|
Fourth Quarter
|
2,271.72
|
2,085.18
|
2,238.83
|
2017
|
|
|
|
First Quarter
|
2,395.96
|
2,238.83
|
2,362.72
|
Second Quarter (through June 20, 2017)
|
2,453.46
|
2,328.95
|
2,437.03
|
“S&P
®
,” “S&P 500
®
,”
“Standard & Poor’s 500” and “500” are trademarks of Standard and Poor’s Financial Services
LLC. See “S&P 500
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
S&P MidCap 400
®
Index
Daily Index Closing Values
January 1, 2012 to June 20, 2017
|
|
S&P
MidCap 400
®
Index
|
High
|
Low
|
Period
End
|
2012
|
|
|
|
First Quarter
|
1,005.22
|
885.52
|
994.30
|
Second Quarter
|
1,001.65
|
891.32
|
941.64
|
Third Quarter
|
1,026.85
|
914.97
|
989.02
|
Fourth Quarter
|
1,030.15
|
945.96
|
1,020.43
|
2013
|
|
|
|
First Quarter
|
1,153.68
|
1,046.32
|
1,153.68
|
Second Quarter
|
1,214.89
|
1,104.79
|
1,160.82
|
Third Quarter
|
1,257.72
|
1,170.68
|
1,243.85
|
Fourth Quarter
|
1,342.53
|
1,222.86
|
1,342.53
|
2014
|
|
|
|
First Quarter
|
1,389.21
|
1,265.61
|
1,378.50
|
Second Quarter
|
1,432.94
|
1,318.50
|
1,432.94
|
Third Quarter
|
1,445.16
|
1,365.31
|
1,370.97
|
Fourth Quarter
|
1,474.40
|
1,288.10
|
1,452.44
|
2015
|
|
|
|
First Quarter
|
1,539.61
|
1,410.91
|
1,524.03
|
Second Quarter
|
1,549.44
|
1,499.68
|
1,502.17
|
Third Quarter
|
1,522.99
|
1,351.29
|
1,368.91
|
Fourth Quarter
|
1,473.14
|
1,366.44
|
1,398.58
|
2016
|
|
|
|
First Quarter
|
1,445.19
|
1,238.82
|
1,445.19
|
Second Quarter
|
1,525.14
|
1,416.66
|
1,496.50
|
Third Quarter
|
1,581.51
|
1,482.30
|
1,552.26
|
Fourth Quarter
|
1,696.12
|
1,476.68
|
1,660.58
|
2017
|
|
|
|
First Quarter
|
1,758.27
|
1,660.58
|
1,719.65
|
Second Quarter (through June 20, 2017)
|
1,769.34
|
1,681.04
|
1,745.41
|
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 400
®
,” “Standard & Poor’s MidCap 400
®
Index” and “S&P
MidCap Index” are trademarks of Standard and Poor’s Financial Services LLC. See “S&P MidCap 400
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Russell 2000
®
Index
Daily Index Closing Values
January 1, 2012 to June 20, 2017
|
|
Russell
2000
®
Index
|
High
|
Low
|
Period
End
|
2012
|
|
|
|
First Quarter
|
846.129
|
740.916
|
830.301
|
Second Quarter
|
840.626
|
737.241
|
798.487
|
Third Quarter
|
864.697
|
767.751
|
837.450
|
Fourth Quarter
|
852.495
|
769.483
|
849.350
|
2013
|
|
|
|
First Quarter
|
953.068
|
849.350
|
951.542
|
Second Quarter
|
999.985
|
901.513
|
977.475
|
Third Quarter
|
1,078.409
|
989.535
|
1,073.786
|
Fourth Quarter
|
1,163.637
|
1,043.459
|
1,163.637
|
2014
|
|
|
|
First Quarter
|
1,208.651
|
1,093.594
|
1,173.038
|
Second Quarter
|
1,192.964
|
1,095.986
|
1,192.964
|
Third Quarter
|
1,208.150
|
1,101.676
|
1,101.676
|
Fourth Quarter
|
1,219.109
|
1,049.303
|
1,204.696
|
2015
|
|
|
|
First Quarter
|
1,266.373
|
1,154.709
|
1,252.772
|
Second Quarter
|
1,295.799
|
1,215.417
|
1,253.947
|
Third Quarter
|
1,273.328
|
1,083.907
|
1,100.688
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
1,135.889
|
2016
|
|
|
|
First Quarter
|
1,135.889
|
953.715
|
1,114.028
|
Second Quarter
|
1,188.954
|
1,089.646
|
1,151.923
|
Third Quarter
|
1,263.438
|
1,139.453
|
1,251.646
|
Fourth Quarter
|
1,388.073
|
1,156.885
|
1,357.130
|
2017
|
|
|
|
First Quarter
|
1,413.635
|
1,345.598
|
1,385.920
|
Second Quarter (through June 20, 2017)
|
1,425.985
|
1,345.244
|
1,402.968
|
The “Russell 2000
®
Index” is a trademark
of FTSE Russell. See “Russell 2000
®
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
Additional Information About the Buffered PLUS
Please read this information
in conjunction with the summary terms on the front cover of this document.
Additional
provisions:
|
|
Postponement
of maturity date:
|
If the valuation date for any basket component
is postponed so that it falls less than two business days prior to the scheduled maturity date, the maturity date will be
postponed to the second business day following such valuation date as postponed.
|
Minimum
ticketing size:
|
$1,000 / 1 Buffered PLUS
|
Bull
market or bear market Buffered PLUS:
|
Bull Market Buffered PLUS
|
Tax
considerations:
|
Although there is uncertainty regarding the U.S. federal income tax consequences of an investment in the Buffered PLUS due to the lack of governing authority, in the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a Buffered PLUS should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
|
|
Assuming this treatment of the Buffered PLUS is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement for PLUS, the following U.S. federal income tax consequences should result based on current law:
|
|
§
A U.S. Holder should not be required to recognize taxable income over the term of the Buffered PLUS prior to settlement, other than pursuant to a sale or exchange.
|
|
§
Upon sale, exchange or settlement of the Buffered PLUS, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the Buffered PLUS. Such gain or loss should be long-term capital gain or loss if the investor has held the Buffered PLUS for more than one year, and short-term capital gain or loss otherwise.
|
|
In
2007, the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting
comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of
their investment. It also asks for comments on a number of related topics, including the character of income or loss with
respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance
of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the
instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors
should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive
ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income
and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates,
any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the Buffered PLUS, possibly with retroactive effect.
As
discussed in the accompanying product supplement for PLUS, Section 871(m) of the Internal Revenue Code of 1986, as amended,
and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable
treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial
instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”).
Subject to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic
performance of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations
(a “Specified Security”). However, 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 Buffered PLUS do
not have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the Buffered PLUS
should not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our
determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and
its application may depend on your particular circumstances, including whether you enter into other transactions with
respect to an Underlying Security. If withholding is required, we will not be required to pay any additional amounts with
respect to the amounts so withheld. You should consult your tax adviser regarding the potential application of Section
871(m) to the Buffered PLUS.
Both
U.S. and non-U.S. investors considering an investment in the Buffered PLUS should read
|
Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
the
discussion under “Risk Factors” in this document and the discussion under “United States Federal Taxation”
in the accompanying product supplement for PLUS and consult their tax advisers regarding all aspects of the U.S. federal
income tax consequences of an investment in the Buffered PLUS, including possible alternative treatments, the issues presented
by the aforementioned notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
The
discussion in the preceding paragraphs under “Tax considerations” and the discussion contained in the section
entitled “United States Federal Taxation” in the accompanying product supplement for PLUS, insofar as they
purport to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the
full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in
the Buffered PLUS.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation
agent:
|
Morgan Stanley & Co. LLC (“MS
& Co.”)
|
Use
of proceeds and hedging:
|
The proceeds from the sale
of the Buffered PLUS will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per Buffered
PLUS issued, because, when we enter into hedging transactions in order to meet our obligations under the Buffered PLUS,
our hedging counterparty will reimburse the cost of the agent’s commissions. The costs of the Buffered PLUS borne
by you and described on page 2 above comprise the agent’s commissions and the cost of issuing, structuring and hedging
the Buffered PLUS.
On or prior to the pricing
date, we expect to hedge our anticipated exposure in connection with the Buffered PLUS by entering into hedging transactions
with our affiliates and/or third party dealers. We expect our hedging counterparties to take positions in the basket components,
in futures and/or options contracts on the basket components or component stocks of the S&P 500
®
Index,
the S&P MidCap 400
®
Index and the Russell 2000
®
Index listed on major securities markets
or positions in any other available securities or instruments that they may wish to use in connection with such hedging.
Such purchase activity could potentially increase the initial basket component values of the basket components, and, therefore,
could increase the values at or above which the basket components must close on the valuation date so that investors do
not suffer a loss on their initial investment in the Buffered PLUS. In addition, through our affiliates, we are likely
to modify our hedge position throughout the term of the Buffered PLUS, including on the valuation date, by purchasing
and selling the stocks constituting the S&P 500
®
Index, the S&P MidCap 400
®
Index
and the Russell 2000
®
Index, futures and/or options contracts on the basket components or component stocks
of the S&P 500
®
Index, the S&P MidCap 400
®
Index and the Russell 2000
®
Index or positions in any other available securities or instruments that we may wish to use in connection with such
hedging activities. As a result, these entities may be unwinding or adjusting hedge positions during the term of the Buffered
PLUS, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation
date approaches. We cannot give any assurance that our hedging activities will not affect the values of the basket components,
and, therefore, adversely affect the value of the Buffered PLUS or the payment you will receive at maturity. For further
information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product
supplement for PLUS.
|
Benefit
plan investor considerations:
|
Each fiduciary of a pension,
profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s
particular circumstances before authorizing an investment in the Buffered PLUS. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA
and would be consistent with the documents and instruments governing the Plan.
In addition, we and certain
of our affiliates, including MS & Co., may each be considered a “party in interest” within the meaning
of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the
“Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also
“Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans and parties
in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code would likely arise,
for example, if the Buffered PLUS are acquired by or with the assets of a Plan with respect to which MS & Co. or any
of its affiliates is a service provider or other party in interest, unless the Buffered PLUS are acquired pursuant to
an exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction”
rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of
Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief
for direct or indirect prohibited transactions resulting from the purchase or holding of the Buffered PLUS. Those class
exemptions are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions
involving insurance
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Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
company general accounts),
PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions
involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified
professional asset managers). In addition, ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code may provide an
exemption for the purchase and sale of securities and the related lending transactions, provided that neither the issuer
of the securities nor any of its affiliates has or exercises any discretionary authority or control or renders any investment
advice with respect to the assets of the Plan involved in the transaction and provided further that the Plan pays no more,
and receives no less, than “adequate consideration” in connection with the transaction (the so-called “service
provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available
with respect to transactions involving the Buffered PLUS.
Because we may be considered
a party in interest with respect to many Plans, the Buffered PLUS may not be purchased, held or disposed of by any Plan,
any entity whose underlying assets include “plan assets” by reason of any Plan’s investment in the entity
(a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase,
holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1,
84-14 or the service provider exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser,
including any fiduciary purchasing on behalf of a Plan, transferee or holder of the Buffered PLUS will be deemed to have
represented, in its corporate and its fiduciary capacity, by its purchase and holding of the Buffered PLUS that either
(a) it is not a Plan or a Plan Asset Entity and is not purchasing such Buffered PLUS on behalf of or with “plan
assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any federal,
state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the Code (“Similar Law”) or (b) its purchase, holding and disposition are eligible for exemptive relief or
such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of
these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the Buffered PLUS on behalf of or with “plan
assets” of any Plan consult with their counsel regarding the availability of exemptive relief.
The Buffered
PLUS are contractual financial instruments. The financial exposure provided by the Buffered PLUS is not a substitute or
proxy for, and is not intended as a substitute or proxy for, individualized investment management or advice for the benefit
of any purchaser or holder of the Buffered PLUS. The Buffered PLUS have not been designed and will not be administered
in a manner intended to reflect the individualized needs and objectives of any purchaser or holder of the Buffered PLUS.
Each
purchaser or holder of any Buffered PLUS acknowledges and agrees that:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and
the purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or
adviser of the purchaser or holder with respect to (A) the design and terms of the Buffered PLUS, (B) the purchaser or
holder’s investment in the Buffered PLUS, or (C) the exercise of or failure to exercise any rights we have under
or with respect to the Buffered PLUS;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating
to the Buffered PLUS and (B) all hedging transactions in connection with our obligations under the Buffered PLUS;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those
entities and are not assets and positions held for the benefit of the purchaser or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets,
positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial
investment advice.
Each purchaser and holder
of the Buffered PLUS has exclusive responsibility for ensuring that its purchase, holding and disposition of the Buffered
PLUS do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any Buffered
PLUS to any Plan or plan subject to Similar Law is in no respect a representation by us or any of our affiliates or representatives
that such an investment meets all relevant legal requirements with respect to investments by plans generally or any particular
plan, or that such an investment is appropriate for plans generally or any particular plan.
However, individual retirement
accounts, individual retirement annuities and Keogh plans, as well as employee benefit plans that permit participants
to direct the investment of their accounts, will not be permitted to purchase or hold the Buffered PLUS if the account,
plan or annuity is for the benefit of an employee of Morgan Stanley, Morgan Stanley Wealth Management or a family member
and the
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Morgan Stanley Finance LLC
Buffered PLUS Based on a Basket Consisting of Three Indices due June 28, 2019
Buffered Performance Leveraged Upside Securities
SM
Principal at Risk Securities
|
employee receives any compensation
(such as, for example, an addition to bonus) based on the purchase of the Buffered PLUS by the account, plan or annuity.
|
Additional considerations:
|
Client accounts over which Morgan Stanley, Morgan Stanley Wealth
Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the Buffered
PLUS, either directly or indirectly.
|
Supplemental
information regarding plan of distribution; conflicts of interest:
|
Selected dealers, which
may include our affiliates, and their financial advisors will collectively receive from the agent a fixed sales commission
of $ for each Buffered PLUS they sell.
MS & Co. is an affiliate
of MSFL and a wholly owned subsidiary of Morgan Stanley, and it and other affiliates of ours expect to make a profit by
selling, structuring and, when applicable, hedging the Buffered PLUS. When MS & Co. prices this offering of Buffered
PLUS, it will determine the economic terms of the Buffered PLUS, including the maximum payment at maturity, such that
for each Buffered PLUS the estimated value on the pricing date will be no lower than the minimum level described in “Investment
Summary” on page 2.
MS & Co. will conduct
this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc.,
which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate
and related conflicts of interest. MS & Co. or any of our other affiliates may not make sales in this offering to
any discretionary account. See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and
Hedging” in the accompanying product supplement for PLUS.
|
Contact:
|
Morgan Stanley Wealth Management clients
may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York
10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party
distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
|
Where
you can find more information:
|
MSFL and Morgan Stanley
have filed a registration statement (including a prospectus, as supplemented by the product supplement for PLUS and the
index supplement) with the Securities and Exchange Commission, or SEC, for the offering to which this communication relates.
You should read the prospectus in that registration statement, the product supplement for PLUS, the index supplement and
any other documents relating to this offering that MSFL and Morgan Stanley have filed with the SEC for more complete information
about MSFL, Morgan Stanley and this offering. You may get these documents without cost by visiting EDGAR on the SEC web
site at
.
www.sec.gov. Alternatively, MSFL and/or Morgan Stanley will arrange to send
you the product supplement for PLUS, index supplement and prospectus if you so request by calling toll-free 800-584-6837.
You may access these
documents on the SEC web site at
.
www.sec.gov
.
as follows:
Product
Supplement for PLUS dated February 29, 2016
Index
Supplement dated January 30, 2017
Prospectus
dated February 16, 2016
Terms used but not defined
in this document are defined in the product supplement for PLUS, in the index supplement or in the prospectus.
“Performance Leveraged
Upside Securities
SM
” and “PLUS
SM
” are our service marks.
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