Free Writing
Prospectus No. 1,654
Registration Statement Nos. 333-200365; 333-200365-12
Dated June 26, 2017
Filed Pursuant to Rule 433
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Morgan Stanley Finance LLC
Capped Buffered GEARS
Linked to the EURO STOXX 50
®
Index due June 28, 2019
Fully and Unconditionally Guaranteed by
Morgan Stanley
Principal at Risk Securities
These Capped Buffered GEARS (the
“Securities”) are unsecured and unsubordinated debt securities issued by Morgan Stanley Finance LLC (“MSFL”)
and fully and unconditionally guaranteed by Morgan Stanley with returns linked to the performance of the EURO STOXX 50
®
Index (the “Underlying”). If the Underlying Return is positive, MSFL will repay the Principal Amount at maturity
plus pay a return equal to the Upside Gearing of 2.0 times the Underlying Return, up to the Maximum Gain, which will be set on
the Trade Date and is expected to be between 34.30% and 35.30%. If the Underlying Return is equal to or less than zero but the
Final Underlying Level is greater than or equal to the Downside Threshold (90% of the Initial Underlying Level), MSFL will repay
the full Principal Amount at maturity. However, if the Underlying Return is less than zero and the Final Underlying Level is less
than the Downside Threshold, MSFL will pay less than the full Principal Amount at maturity, resulting in a loss of principal to
investors of 1% for every 1% decline beyond the Buffer of 10%. The Securities are designed for investors who seek an opportunity
to earn an equity index-based return and who are willing to incur a loss on their Principal Amount and forgo current income and
upside above the Maximum Gain in exchange for the enhanced growth potential up to the Maximum Gain and the 10% Buffer features
that in each case apply at maturity, as described herein.
Investing in the Securities involves significant risks. You will
not receive interest or dividend payments during the term of the Securities. You may lose up to 90% of your Principal Amount.
The Downside Threshold is observed relative to the Final Underlying Level only on the Final Valuation Date, and the downside exposure
to the Underlying is buffered only if you hold the Securities to maturity. Accordingly, you may receive significantly less than
the Principal Amount if you are able to sell the Securities prior to maturity even if the Index has not declined by more than
the 10% Buffer.
All payments are subject to
our credit risk. If we default on our obligations, you could lose some or all of your investment. These Securities are not secured
obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or
assets.
q
Enhanced
Growth Potential Up to a Cap:
At maturity, the Upside Gearing will provide leveraged exposure to any positive performance
of the Underlying, up to the Maximum Gain. If the Underlying Return is negative, investors may be exposed to the negative Underlying
Return at maturity.
q
Buffered
Downside Market Exposure:
If the Underlying Return is equal to or less than zero but the Final Underlying Level is greater
than or equal to the Downside Threshold, MSFL will repay the Principal Amount at maturity. However, if the Final Underlying Level
is less than the Downside Threshold, MSFL will pay less than the full Principal Amount at maturity, resulting in a loss of principal
to investors that is equal to the Underlying's decline in excess of the Buffer of 10%. Accordingly, you could lose up to 90% of
your Principal Amount. The Downside Threshold is observed relative to the Final Underlying Level only on the Final Valuation Date,
and the downside exposure is buffered only if you hold the Securities to maturity. Accordingly, you may receive significantly
less than the Principal Amount if you sell the Securities prior to maturity even if the Underlying has not declined by more than
the 10% Buffer. Any payment on the Securities, including any repayment of principal, is subject to our creditworthiness.
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Trade
Date
Settlement Date
Final Valuation Date**
Maturity Date**
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June 26, 2017
June 29, 2017
June
25, 2019
June
28, 2019
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*
Expected
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** Subject to postponement in the event of a Market Disruption Event or for non-Index Business Days. See “Postponement of Final Valuation Date and Maturity Date” under “Additional Terms of the Securities.”
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NOTICE
TO INVESTORS: THE SECURITIES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL DEBT INSTRUMENTS. THE SECURITIES DO NOT GUARANTEE THE
REPAYMENT OF THE FULL PRINCIPAL AMOUNT AT MATURITY, AND THE SECURITIES HAVE DOWNSIDE MARKET RISK SIMILAR TO THE UNDERLYING, SUBJECT
TO THE BUFFER AT MATURITY. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK INHERENT IN PURCHASING OUR DEBT OBLIGATIONS. YOU
SHOULD NOT PURCHASE THE SECURITIES IF YOU DO NOT UNDERSTAND OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS INVOLVED IN INVESTING
IN THE SECURITIES. THE SECURITIES WILL NOT BE LISTED ON ANY SECURITIES EXCHANGE.
YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER “KEY RISKS” BEGINNING ON PAGE 5 BEFORE PURCHASING ANY SECURITIES. EVENTS
RELATING TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY AFFECT THE MARKET VALUE OF, AND THE RETURN ON,
YOUR SECURITIES. YOU COULD LOSE UP TO 90% OF YOUR INITIAL INVESTMENT.
We are offering Capped Buffered
GEARS Linked to the EURO STOXX 50
®
Index. The return on the Securities is limited by, and will be subject to, the
predetermined Maximum Gain. The Securities are offered at a minimum investment of 100 Securities at the Price to Public described
below. The indicative Maximum Gain range for the Securities is listed below. The actual Maximum Gain, Initial Underlying Level
and Downside Threshold for the Securities will be determined on the Trade Date.
Underlying
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Upside
Gearing
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Maximum
Gain
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Downside
Threshold
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Buffer
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Initial
Underlying
Level
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CUSIP
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ISIN
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EURO
STOXX 50
®
Index
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2.0
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34.30%
to 35.30%
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90%
of the Initial Underlying Level
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10%
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61766X210
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US61766X2100
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See “Additional
Information about Morgan Stanley, MSFL and the Securities” on page 2. The Securities will have the terms set forth in the
accompanying prospectus, prospectus supplement and index supplement and this free writing prospectus.
Neither
the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these Securities or passed
upon the adequacy or accuracy of this free writing prospectus or the accompanying prospectus supplement, index supplement or prospectus.
Any representation to the contrary is a criminal offense. The Securities are not deposits or savings accounts and are not insured
by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations of,
or guaranteed by, a bank.
Estimated value on the Trade Date
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Approximately $9.784 per Security, or within $0.10 of that estimate. See “Additional Information about Morgan Stanley, MSFL and the Securities” on page 2.
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Price to Public
(1)
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Underwriting Discount
(2)
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Proceeds to Us
(3)
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Per Security
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$10.00
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$0.125
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$9.875
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Total
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$
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$
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$
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(1)
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UBS Financial Services Inc.,
acting as dealer, will receive from Morgan Stanley & Co. LLC, the agent, a fixed sales commission of $0.125 for each Security
it sells. For more information, please see “Supplemental Plan of Distribution; Conflicts of Interest” on page 21 of
this free writing prospectus.
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(2)
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See “Use of Proceeds
and Hedging” on page 19.
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The agent for this offering, Morgan Stanley & Co.
LLC, is our affiliate and a wholly owned subsidiary of Morgan Stanley. See “Supplemental Plan of Distribution; Conflicts
of Interest” beginning on page 21 of this free writing prospectus.
Morgan Stanley
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UBS Financial Services Inc.
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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 prospectus supplement and an index supplement) with the
SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration
statement, the prospectus 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 prospectus
supplement and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access the accompanying
prospectus supplement, index supplement and prospectus on the SEC website at
.
www.sec.gov as
follows:
References to “MSFL”
refer only to MSFL, references to “Morgan Stanley” refer only to Morgan Stanley and references to “we,”
“our” and “us” refer to MSFL and Morgan Stanley collectively. In this document, the “Securities”
refers to the Capped Buffered GEARS that are offered hereby. Also, references to the accompanying “prospectus”, “prospectus
supplement” and “index supplement” mean the prospectus filed by MSFL and Morgan Stanley dated February 16, 2016,
the prospectus supplement filed by MSFL and Morgan Stanley dated February 16, 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 free writing prospectus or the accompanying prospectus 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 free writing prospectus or the
accompanying prospectus supplement, index supplement and prospectus is accurate as of any date other than the date on the front
of this document.
If the terms discussed in this
free writing prospectus differ from those discussed in the prospectus supplement, index supplement or prospectus, the terms contained
in this free writing prospectus 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 will be less than $10. We estimate that the value
of each Security on the Trade Date will be approximately $9.784, or within $0.10 of that estimate. Our estimate of the value of
the Securities as determined on the Trade Date will be set forth in the final pricing supplement.
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 Underlying. The estimated value of the Securities is determined using our own pricing and valuation models, market inputs
and assumptions relating to the Underlying, instruments based on the Underlying, 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 Upside Gearing, the Downside Threshold, the Buffer and the Maximum Gain, 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 Underlying,
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 5 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
Underlying, 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 up to 90% of your Principal
Amount.
t
You
can tolerate the loss of up to 90% of your Principal Amount and you are willing to make an investment that has similar downside
market risk as the Underlying, subject to the Buffer at maturity.
t
You
believe the Underlying will appreciate over the term of the Securities and that the appreciation is unlikely to exceed the Maximum
Gain of between 34.30% and 35.30% (the actual Maximum Gain will be determined on the Trade Date and will not be less than 34.30%).
t
You
understand and accept that your potential return is limited by the Maximum Gain and you would be willing to invest in the Securities
if the Maximum Gain were set to the bottom of the range indicated on the cover.
t
You
can tolerate fluctuations in the value of the Securities prior to maturity that may be similar to or exceed the downside fluctuations
in the level of the Underlying.
t
You
are willing to hold the Securities to maturity, as set forth on the cover of this free writing prospectus, and accept that there
may be little or no secondary market for the Securities.
t
You
understand and are willing to accept the risks associated with the Underlying.
t
You
do not seek current income from your investment and are willing to forego dividends paid on the constituent stocks of the Underlying.
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 including any repayment of principal.
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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 up to 90% of your
Principal Amount.
t
You
cannot tolerate the loss of up to 90% of your Principal Amount and you are not willing to make an investment that has similar
downside market risk as the Underlying, subject to the Buffer at maturity.
t
You
seek an investment that guarantees a full return of principal at maturity.
t
You
believe that the level of the Underlying will decline during the term of the Securities and the Final Underlying Level is likely
to be less than the Downside Threshold, or you believe the Underlying will appreciate over the term of the Securities by a percentage
that exceeds the Maximum Gain.
t
You
seek an investment that has unlimited return potential without a cap on appreciation.
t
You
would be unwilling to invest in the Securities if the Maximum Gain were set equal to the bottom of the range indicated on the
cover (the actual Maximum Gain will be determined on the Trade Date).
t
You
prefer the lower risk, and therefore accept the potentially lower returns, of conventional debt securities with comparable maturities
issued by Morgan Stanley or another issuer with a similar credit rating.
t
You
cannot tolerate fluctuations in the value of the Securities prior to maturity that may be similar to or exceed the downside fluctuations
in the level of the Underlying.
t
You
seek current income from this investment or prefer to receive the dividends paid on the constituent stocks of the Underlying.
t
You
are unable or unwilling to hold the Securities to maturity, as set forth on the cover of this free writing prospectus, or you
seek an investment for which there will be an active secondary market.
t
You
do not understand or are not willing to accept the risks associated with the Underlying.
t
You
are not willing or are unable to assume the credit risk associated with us for any payment on 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 5 of this free writing prospectus
and “Risk Factors” beginning on page 7 of the accompanying prospectus for risks related to an investment in the Securities.
For more information about the Underlying, see the information set forth under “EURO STOXX 50
®
Index”
on page 15.
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 (per Security)
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$10.00
per Security
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Principal
Amount
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$10.00
per Security
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Term
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Approximately
2 years
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Underlying
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EURO
STOXX 50
®
Index
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Payment
at Maturity
(per Security)
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MSFL
will pay you a cash payment at maturity linked to the performance of the Underlying during the term of the Securities.
If the Underlying Return
is greater than zero,
MSFL will pay you an amount equal to the lesser of:
$10 + ($10
× Underlying Return × Upside Gearing);
and
$10
+ ($10 × Maximum Gain).
If the Underlying Return
is equal to or less than zero but the Final Underlying Level is greater than or equal to the Downside Threshold,
MSFL will
pay you the $10 Principal Amount.
If the Final Underlying
Level is less than the Downside Threshold,
MSFL will pay you an amount calculated as follows:
$10 + [$10
× (Underlying Return + Buffer)]
In this case, you could
lose up to 90% of your Principal Amount at maturity in an amount proportionate to the Underlying’s decline in excess of
the Buffer.
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Upside
Gearing
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2.0
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Maximum
Gain
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Between
34.30% and 35.30%. The actual Maximum Gain will be determined on the Trade Date.
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Downside
Threshold:
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90%
of the Initial Underlying Level
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Buffer
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10%
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Underlying
Return
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Final
Underlying Level – Initial Underlying Level
Initial Underlying Level
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Initial
Underlying Level
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The
Closing Level on the Trade Date.
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Final
Underlying Level
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The
Closing Level on the Final Valuation Date
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Final
Valuation Date
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June
25, 2019, subject to postponement in the event of a Market Disruption Event or for non-Index Business Days.
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CUSIP
/ ISIN
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61766X210
/ US61766X2100
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Calculation
Agent
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Morgan
Stanley & Co. LLC (“MS & Co.”)
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Trade Date
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The
Initial Underlying Level and Downside Threshold are determined.
The Maximum Gain is set.
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Maturity
Date
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The Final Underlying Level
and Underlying Return are determined as of the Final Valuation Date.
If the Underlying Return
is positive,
MSFL will pay you a cash amount at maturity equal to the lesser of:
$10 + ($10
× Underlying Return × 2.0)
and
$10 + ($10
× Maximum Gain)
per Security.
If the Underlying Return
is between 0% and -10%,
inclusive, MSFL will pay you $10.00 cash per Security.
If the Underlying Return
is less than
-10%,
MSFL will pay you a cash amount at maturity equal to:
$10
+ [$10 × (Underlying Return + 10%)]
per Security.
You could
lose up to 90% of your Principal Amount.
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Investing
in the Securities involves significant risks. You may lose up to 90% of your 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.
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. You should also consult your investment, legal, tax, accounting
and other advisers before you invest in the Securities.
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t
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Your
investment in the Securities may result in a loss of up to 90% of your Principal Amount.
The terms of the Securities differ from those of ordinary debt securities in that
we will not pay interest or guarantee the payment of the full Principal Amount at maturity.
MSFL will repay the full $10 Principal Amount per Security only if the Underlying's percentage
decline is not more than 10%, and will make such payment only at maturity. If the Underlying's
percentage decline exceeds 10%, the payout at maturity will be an amount in cash that
is less than the $10 Principal Amount of each Security by an amount proportionate to
the Underlying’s percentage decline in excess of the 10% Buffer. Accordingly, you
could lose up to 90% of your Principal Amount.
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t
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You
may incur a loss on your investment if you sell your Securities prior to maturity.
The 10% Buffer applies only at maturity. You should be willing to hold your Securities
to maturity. If you are able to sell your Securities prior to maturity in the secondary
market, you may have to sell them at a loss relative to your initial investment even
if the Underlying has not declined by more than the Buffer.
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t
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The
Upside Gearing applies only at maturity.
You should be willing to hold your Securities
to maturity. If you are able to sell your Securities prior to maturity in the secondary
market, the price you receive will likely not reflect the full economic value of the
Upside Gearing or the Securities themselves, and the return you realize may be less than
2.0 times the return of the Underlying at the time of sale even if such return is positive
and does not exceed the Maximum Gain. You can receive the full benefit of the Upside
Gearing and earn the potential Maximum Gain only if you hold your Securities to maturity.
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t
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Appreciation
potential is limited.
The appreciation potential of Securities is limited by the
Maximum Gain of 34.30% to 35.30% (which corresponds to a maximum Payment at Maturity
of $13.43 to $13.53 per Security). The actual Maximum Gain and maximum Payment at Maturity
will be determined on the Trade Date. Therefore, although the Upside Gearing enhances
positive Underlying Returns, you will not benefit from any positive Underlying Return
that, when multiplied by the Upside Gearing, exceeds the Maximum Gain. As a result, any
increase in the Final Underlying Level over the Initial Underlying Level by more than
17.15% to 17.65% (to be determined on the Trade Date) of the Initial Underlying Level
will not further increase the return on the Securities.
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t
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No
interest payments.
MSFL will not make any interest payments in respect to the Securities.
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t
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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 at maturity,
if any, 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 our 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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t
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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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t
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The
market price of the Securities may 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 (if at all), including:
|
|
o
|
the value of the Underlying at
any time,
|
|
o
|
the volatility (frequency and
magnitude of changes in value) of the Underlying,
|
|
o
|
dividend rates on the securities
included in the Underlying,
|
|
o
|
interest and yield rates in the
market,
|
|
o
|
geopolitical conditions and economic,
financial, political, regulatory or judicial events that affect the Underlying or stock
markets generally and which may affect the Final Underlying Level,
|
|
o
|
the time remaining until the
Securities mature, and
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|
o
|
any actual or anticipated changes
in our credit ratings or credit spreads.
|
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 are able to sell your Securities prior to maturity, as the Securities are comprised of both a debt component and a performance-based
component linked to the Underlying, and these are the types of factors that also generally affect the values of debt securities
and derivatives linked to the Underlying. For example, you may have to sell your Securities at a substantial discount from the
principal amount of $10 per Security if the value of the Underlying at the time of sale is at, below or moderately above its Initial
Underlying Level or if market interest rates rise. You cannot predict the future performance of the Underlying based on its historical
performance. If the Underlying Return is less
than -10%, you will receive at maturity an amount that is less (and that could be
significantly less) than the $10 Principal Amount of each Security by an amount proportionate to the Underlying's decline in excess
of 10%. There can be no assurance that there will be any positive Underlying Return or that the Underlying’s percentage
decline will not be more than 10%. As a result, there can be no assurance that you will receive at maturity an amount in excess
of 10% of the Principal Amount of the Securities.
|
t
|
The
probability that the Final Underlying Level will be less than the Downside Threshold
will depend on the volatility of the Underlying.
“Volatility” refers
to the frequency and magnitude of changes in the level of the Underlying. Higher expected
volatility with respect to the Underlying as of the Trade Date generally indicates a
greater chance as of that date that the Final Underlying Level will be less than the
Downside Threshold, which would result in a loss of some or a significant portion of
your investment at maturity. However, the Underlying’s volatility can change significantly
over the term of the Securities. The level of the Underlying could fall sharply, resulting
in a significant loss of principal. You should be willing to accept the downside market
risk of the Underlying and the potential loss of some or a significant portion of your
investment at maturity.
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t
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The
amount payable on the Securities is not linked to the level of the Underlying at any
time other than the Final Valuation Date.
The Final Underlying Level will be based
on the Closing Level of the Underlying on the Final Valuation Date, subject to postponement
for non-Index Business Days and certain Market Disruption Events. Even if the level of
the Underlying appreciates prior to the Final Valuation Date but then drops by the Final
Valuation Date, the Payment at Maturity may be significantly less than it would have
been had the Payment at Maturity been linked to the level of the Underlying prior to
such drop. Although the actual level of the Underlying on the stated Maturity Date or
at other times during the term of the Securities may be higher than the Final Underlying
Level, the Payment at Maturity will be based solely on the Closing Level of the Underlying
on the Final Valuation Date as compared to the Initial Underlying Level.
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t
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Investing
in the Securities is not equivalent to investing in the Underlying or the stocks composing
the Underlying.
Investing in the Securities is not equivalent to investing in the
Underlying or the stocks that constitute the 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 the stocks that constitute the Underlying. Investors
in the Securities also will not participate in any appreciation of the Underlying that,
when multiplied by the Upside Gearing, exceeds the Maximum Gain, which could be significant.
Additionally, the Underlying is not a “total return” index, which, in addition
to reflecting the market prices of the stocks that constitute the Underlying, would also
reflect dividends paid on such stocks. The return on the Securities will not include
such a total return feature.
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|
t
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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
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 5 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 Underlying, 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
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any time after the date of this free writing
prospectus 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 may be influenced by many unpredictable factors” above.
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Adjustments
to the Underlying could adversely affect the value of the Securities.
The Underlying
publisher of the Underlying is responsible for calculating and maintaining the Underlying.
The Underlying publisher may add, delete or substitute the stocks constituting the Underlying
or make other methodological changes required by certain corporate events relating to
the stocks constituting the 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 the Underlying and, consequently, the value of the Securities.
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¨
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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 and, if it once chooses
to make a market, may cease doing so at any time. When it does make a market, it will
generally do so for transactions of routine secondary market size at prices based on
its estimate of the current value of the Securities, taking into account its bid/offer
spread, our credit spreads, market volatility, the notional size of the proposed sale,
the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the Securities. Even if there is a secondary
market, it may not provide enough liquidity to allow you to trade or sell the Securities
easily. Since other broker-dealers may not participate significantly in the secondary
market for the Securities, the price at which you may be able to trade your Securities
is likely to depend on the price, if any, at which MS & Co. is willing to transact.
If, at any time, MS & Co. were to cease making a market in the Securities, it is
likely that there would be no secondary market for the Securities. Accordingly, you should
be willing to hold your Securities to maturity.
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Hedging
and trading activity by our affiliates could potentially adversely affect the value of
the Securities.
One or more of our affiliates and/or third-party dealers expect to
carry out hedging activities related to the Securities, including trading in the constituent
stocks of the Underlying, futures or options contracts on the Underlying or the constituent
stocks of the Underlying, as well as other instruments related to the Underlying. 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 Valuation Date approaches. MS & Co. and some
of our other affiliates also trade the constituent stocks of the Underlying, in futures
or options contracts on the constituent stocks of the Underlying, as well as in other
instruments related to the Underlying, 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 potentially increase the Initial Underlying Level of the Underlying, and therefore,
could increase the level at or above which the Underlying must close on the Final Valuation
Date so that investors do not suffer a loss on their initial investment in the Securities.
Additionally, such hedging or trading activities during the term of the Securities, including
on the Final Valuation Date, could adversely affect the Closing Value of the Underlying
on the Final Valuation Date and, accordingly, the amount of cash payable to an investor
at maturity.
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Potential
conflict of interest.
As Calculation Agent, MS & Co. will determine the Initial
Underlying Level, the Downside Threshold, the Final Underlying Level and whether any
Market Disruption Event has occurred, and will calculate the amount payable 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 Underlying or calculation of the Final Underlying Level in the event of
a discontinuance of the Underlying or a Market Disruption Event. These potentially subjective
determinations may adversely affect the payout to you at maturity. For further information
regarding these types of determinations, see “Additional Terms of the Securities—Postponement
of Final Valuation Date and Maturity Date,” “—Discontinuance of the
Underlying; Alteration of Method of Calculation” and “—Calculation
Agent and Calculations” below. In addition, MS & Co. has determined the estimated
value of the Securities on the Trade Date.
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Potentially
inconsistent research, opinions or recommendations by Morgan Stanley, UBS or our or their
respective affiliates
. Morgan Stanley, UBS and our or their respective affiliates
publish research from time to time on financial markets and other matters that may influence
the value of the Securities, or express opinions or provide recommendations that are
inconsistent with purchasing or holding the Securities. Any research, opinions or recommendations
expressed by Morgan Stanley, UBS or our or their respective affiliates may not be consistent
with each other and may be modified from time to time without notice. Investors should
make their own independent investigation of the merits of investing in the Securities
and the Underlying to which the Securities are linked.
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Uncertain
tax treatment.
Please note that the discussions in this free writing prospectus concerning
the U.S. federal income tax consequences of an investment in the Securities supersede
the discussions contained in the accompanying prospectus supplement.
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Subject
to the discussion under “What Are the Tax Consequences of the Securities” in this free writing prospectus, although
there is uncertainty regarding the U.S. federal income tax consequences of an investment in the Securities due to the lack of
governing authority, in the opinion of our counsel, Davis Polk & Wardwell LLP (“our counsel”), under current law,
and based on current market conditions, each Security should be treated as a single financial contract that is an “open
transaction” for U.S. federal income tax purposes.
If
the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment for the Securities,
the timing and character of income 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 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. We do not plan to request a ruling from the IRS regarding the tax treatment of the Securities, and the IRS or a
court may not agree with the tax treatment described in this free writing prospectus.
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 Securities, possibly with retroactive effect.
Both
U.S. and Non-U.S. Holders should read carefully the discussion under “What Are the Tax Consequences of the Securities”
in this free writing prospectus and consult their tax advisers regarding all aspects of the U.S. federal tax consequences of an
investment in the Securities as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Hypothetical Payments on the Securities
at Maturity
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These examples
are based on hypothetical terms. The actual terms will be determined on the Trade Date.
The below scenario analysis and
examples are provided for illustrative purposes only and are purely hypothetical. They do not purport to be representative of
every possible scenario concerning increases or decreases in the value of the Underlying relative to the Initial Underlying Level.
We cannot predict the Final Underlying Level or the Closing Level of the Underlying on any other day. You should not take the
scenario analysis and these examples as an indication or assurance of the expected performance of the Underlying. The numbers
set forth in the examples below have been rounded for ease of analysis. The following scenario analysis and examples illustrate
the Payment at Maturity for a $10.00 Principal Amount of Securities on a hypothetical offering of the Securities.
The following scenario analysis
and examples assume a hypothetical Initial Underlying Level of 3,500, a hypothetical Downside Threshold of 3,150 (90% of the hypothetical
Initial Underlying Level) and a Maximum Gain of 34.30%, the actual Initial Underlying Level, Downside Threshold and Maximum Gain
will be determined on the Trade Date, and reflect the Upside Gearing of 2.0 and the 10% Buffer.
Example 1
—
The level of the Underlying increases from an Initial Underlying Level of 3,500 to a Final Underlying Level of 3,850.
The
Underlying Return is calculated as follows:
(3,850
– 3,500) / 3,500 = 10%
Because the Underlying
Return is greater than zero, the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser
of:
(A)
$10.00 + ($10.00 × Underlying Return × Upside Gearing), and
(B)
$10.00 + ($10.00 × Maximum Gain)
=
the lesser of (A) $10.00 + ($10.00 × 10% × 2.0) and (B) $10.00 + ($10.00 × 34.30%)
=
the lesser of (A) $10.00 + ($10.00 × 20%) and (B) $10.00 + ($10.00 × 34.30%)
=
$10.00 + ($10.00 × 20%)
=
$10.00 + $2.00
=
$12.00
Because the Underlying
Return of 10% multiplied by the Upside Gearing is less than the hypothetical Maximum Gain of 34.30%, for each $10.00 Principal
Amount of Securities, MSFL will pay you $12.00 at maturity.
Example 2
—
The level of the Underlying increases from an Initial Underlying Level of 3,500 to a Final Underlying Level of 5,250.
The
Underlying Return is calculated as follows:
(5,250
– 3,500) / 3,500 = 50%
Because the Underlying
Return is greater than zero, the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser
of:
(A)
$10.00 + ($10.00 × Underlying Return × Upside Gearing), and
(B)
$10.00 + ($10.00 × Maximum Gain)
=
the lesser of (A) $10.00 + ($10.00 × 50% × 2.0) and (B) $10.00 + ($10.00 × 34.30%)
=
the lesser of (A) $10.00 + ($10.00 × 100%) and (B) $10.00 + ($10.00 × 34.30%)
=
$10.00 + ($10.00 × 34.30%)
=
$10.00 + $3.43
=
$13.43
Because the Underlying
Return of 50% multiplied by the Upside Gearing is greater than the hypothetical Maximum Gain of 34.30%, for each $10.00 Principal
Amount of Securities, MSFL will pay you $13.43 at maturity, the hypothetical maximum Payment at Maturity on the Securities. This
represents the hypothetical maximum amount payable over the two-year term of the Securities.
Example 3
—
The level of the Underlying decreases from an Initial Underlying Level of 3,500 to a Final Underlying Level of 3,325.
The
Underlying Return is calculated as follows:
(3,325
– 3,500) / 3,500 = -5%
Because the Underlying
Return is negative, but the Final Underlying Level is greater than or equal to the hypothetical Downside Threshold, at maturity,
for each $10.00 Principal Amount of Securities, MSFL will pay you the $10.00 Principal Amount (a zero percent return on the Principal
Amount) at maturity.
Example 4
—
The level of the Underlying decreases from an Initial Underlying Level of 3,500 to a Final Underlying Level of 2,800.
The
Underlying Return is calculated as follows:
(2,800
– 3,500) / 3,500 = -20%
Because the Underlying
Return is negative and the Final Underlying Level is less than the hypothetical Downside Threshold, at maturity, for each $10.00
Principal Amount of Securities, MSFL will pay you an amount equal to the Principal Amount reduced by 1% for every 1% by which
the Underlying's percentage decline exceeds the 10% Buffer, and the Payment at Maturity is calculated as follows:
$10.00 + [$10.00 × (Underlying Return + Buffer)]
=
$10.00 + [$10.00 × (-20% + 10%)]
=
$10.00 + [$10.00 × -10%]
=
$10.00 - $1.00
=
$9.00
Hypothetical
Final Underlying Level
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Hypothetical
Underlying Return
|
Upside
Gearing
|
Hypothetical
Payment at Maturity
|
Hypothetical
Return on Securities
(1)
|
7,000.00
|
100.00%
|
2.0
|
$13.43
|
34.30%
|
6,650.00
|
90.00%
|
2.0
|
$13.43
|
34.30%
|
6,300.00
|
80.00%
|
2.0
|
$13.43
|
34.30%
|
5,950.00
|
70.00%
|
2.0
|
$13.43
|
34.30%
|
5,600.00
|
60.00%
|
2.0
|
$13.43
|
34.30%
|
5,250.00
|
50.00%
|
2.0
|
$13.43
|
34.30%
|
4,900.00
|
40.00%
|
2.0
|
$13.43
|
34.30%
|
4,550.00
|
30.00%
|
2.0
|
$13.43
|
34.30%
|
4,200.00
|
20.00%
|
2.0
|
$13.43
|
34.30%
|
4,100.25
|
17.15%
|
2.0
|
$13.43
|
34.30%
|
3,850.00
|
10.00%
|
2.0
|
$12.00
|
20.00%
|
3,675.00
|
5.00%
|
2.0
|
$11.00
|
10.00%
|
3587.50
|
2.50%
|
2.0
|
$10.50
|
5.00%
|
3,500.00
|
0.00%
|
N/A
|
$10.00
|
0.00%
|
3,412.50
|
-2.50%
|
N/A
|
$10.00
|
0.00%
|
3,325.00
|
-5.00%
|
N/A
|
$10.00
|
0.00%
|
3,150.00
|
-10.00%
|
N/A
|
$10.00
|
0.00%
|
2,800.00
|
-20.00%
|
N/A
|
$9.00
|
-10.00%
|
2,450.00
|
-30.00%
|
N/A
|
$8.00
|
-20.00%
|
2,100.00
|
-40.00%
|
N/A
|
$7.00
|
-30.00%
|
1,750.00
|
-50.00%
|
N/A
|
$6.00
|
-40.00%
|
1,400.00
|
-60.00%
|
N/A
|
$5.00
|
-50.00%
|
1,050.00
|
-70.00%
|
N/A
|
$4.00
|
-60.00%
|
700.00
|
-80.00%
|
N/A
|
$3.00
|
-70.00%
|
350.00
|
-90.00%
|
N/A
|
$2.00
|
-80.00%
|
0.00
|
-100.00%
|
N/A
|
$1.00
|
-90.00%
|
(1) The “Return
on Securities” is the number, expressed as a percentage, that results from comparing the Payment at Maturity per $10 Principal
Amount per Security to the purchase price of $10 per Security.
W
hat
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
prospectus supplement does not apply to the Securities issued under this free writing prospectus and is superseded by the following
discussion.
The
following summary is a general discussion of the principal 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:
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purchase
the Securities in the original offering; and
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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:
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certain
financial institutions;
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certain
dealers and traders in securities or commodities;
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investors
holding the Securities as part of a “straddle,” wash sale, conversion transaction,
integrated transaction or constructive sale transaction;
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U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
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partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
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regulated
investment companies;
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real
estate investment trusts; or
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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.
In addition,
we will not attempt to ascertain whether any issuer of any shares to which a Security relates (such shares hereafter referred
to as “Underlying Shares”) is treated as a “passive foreign investment company” (“PFIC”) within
the meaning of Section 1297 of the Code. If any issuer of Underlying Shares were so treated, certain adverse U.S. federal income
tax consequences might apply to a U.S. Holder upon the sale, exchange or settlement of the Securities. You should refer to information
filed with the Securities and Exchange Commission or other governmental authorities by the issuers of the Underlying Shares and
consult your tax adviser regarding the possible consequences to you if any issuer is or becomes a PFIC.
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 of this free writing prospectus, 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
Although there
is uncertainty regarding the U.S. federal income tax consequences of an investment in the Securities due to the lack of governing
authority, in the opinion of our counsel, under current law, and based on current market conditions, each Security should be treated
as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
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 Internal Revenue Service
(the “IRS”) or a court will agree with the tax treatment described herein. Accordingly, 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 the Securities 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:
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a
citizen or individual resident of the United States;
|
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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
|
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an
estate or trust the income of which is subject to U.S. federal income taxation regardless
of its source.
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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 Treatment
Prior to Settlement.
A U.S. Holder should not be required to recognize taxable income over the term of the Securities prior
to settlement, other than pursuant to a sale or exchange as described below.
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.
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. Any gain or loss recognized upon the sale, exchange or settlement of the Securities
should be long-term capital gain or loss if the U.S. Holder has held the Securities for more than one year at such time, and short-term
capital gain or loss otherwise.
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 the contingent payment 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 generally 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 also 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 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; 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 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 the payment on the Securities at maturity 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 may be filed with the
IRS in connection with the payment 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;
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a
foreign corporation; or
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a
foreign estate or trust.
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The term “Non-U.S.
Holder” does not include any of the following holders:
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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;
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certain
former citizens or residents of the United States; or
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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.
Tax Treatment
upon Sale, Exchange or Settlement of the Securities
In
general.
Assuming the treatment of the Securities as set forth above is respected, and subject to the discussions below concerning
backup withholding
and the possible application of Section 871(m) of the Code
,
a Non-U.S. Holder of the Securities generally will not be subject to U.S. federal income or withholding tax in respect of amounts
paid to the Non-U.S. Holder.
Subject to the
discussions regarding the possible application of Section 871(m) and FATCA, if all or any portion of a Security were recharacterized
as a debt instrument, any payment made to a Non-U.S. Holder with respect to the Securities would not be subject to U.S. federal
withholding tax, provided that:
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the
Non-U.S. Holder does not own, directly or by attribution, ten percent or more of the
total combined voting power of all classes of Morgan Stanley stock entitled to vote;
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the
Non-U.S. Holder is not a controlled foreign corporation related, directly or indirectly,
to Morgan Stanley through stock ownership;
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the
Non-U.S. Holder is not a bank receiving interest under Section 881(c)(3)(A) of the Code,
and
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the
certification requirement described below has been fulfilled with respect to the beneficial
owner.
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Certification
Requirement.
The certification requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner
of a Security (or a financial institution holding a Security on behalf of the beneficial owner) furnishes to the applicable withholding
agent an IRS Form W-8BEN (or other appropriate form) on which the beneficial owner certifies under penalties of perjury that it
is not a U.S. person.
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. Among the issues addressed in the notice is the degree, if any, to which any
income with respect to instruments such as the Securities should be subject to U.S. withholding tax. It is possible that any Treasury
regulations or other guidance promulgated after consideration of this issue could materially and adversely affect the withholding
tax consequences of ownership and disposition of the Securities, possibly on a retroactive basis. Non-U.S. Holders should note
that we currently do not intend to withhold on any payment made with respect to the Securities to Non-U.S. Holders (subject to
compliance by such holders with the certification requirement described above and to the discussions below regarding Section 871(m)
and FATCA). However, in the event of a change of law or any formal or informal guidance by the IRS, the U.S. Treasury Department
or Congress, we may decide to withhold on payments made with respect to the Securities to Non-U.S. Holders, and we will not be
required to pay any additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult their tax
advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the Securities, including the possible
implications of the notice referred to 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
may be filed with the IRS in connection with the payment on the Securities at maturity as well as in connection with the payment
of proceeds from a sale, exchange or other disposition of the Securities. 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. Compliance with the certification
procedures described above under “―Tax Treatment upon Sale, Exchange or Settlement of the Securities – Certification
Requirement” will satisfy the certification requirements necessary to avoid backup withholding as well. 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. If the Securities were
recharacterized as debt instruments, this legislation would apply to any payment of amounts treated as interest and, for dispositions
after December 31, 2018, to payments of gross proceeds of the disposition (including upon retirement) of the Securities. 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 income 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 Levels, as well as the end-of-quarter Closing Levels, of the EURO STOXX 50
®
Index for each quarter in the period from January 1, 2012 through June 23, 2017. The Closing Level of the EURO STOXX 50
®
Index on June 23, 2017 was 3,543.68. We obtained the information in the table below from Bloomberg Financial Markets, without
independent verification. The historical Closing Levels 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 Closing Level of the EURO STOXX 50
®
Index on the
Final Valuation 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
|
6/23/2017*
|
3,658.79
|
3,409.78
|
3,543.68
|
* 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 June 23, 2017, based on information from Bloomberg.
Past performance
of the EURO STOXX 50
®
Index is not indicative of the future performance of the EURO STOXX 50
®
Index.
Additional Terms of the Securities
|
Some Definitions
We have defined some of the terms
that we use frequently in this free writing prospectus below:
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“Closing
Level” means, on any Index Business Day for the Underlying, the closing value of
the Underlying, or any Successor Underlying (as defined under “—Discontinuance
of the Underlying; Alteration of Method of Calculation” below) published at the
regular weekday close of trading on that Index Business Day by the Underlying publisher.
In certain circumstances, the Closing Level will be based on the alternate calculation
of the Underlying as described under “—Discontinuance of the Underlying;
Alteration of Method of Calculation.”
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“Index
Business Day” means a day, for the Underlying, as determined by the Calculation
Agent, on which trading is generally conducted on each of the Relevant Exchange(s) for
the Underlying, other than a day on which trading on such exchange(s) is scheduled to
close prior to the time of the posting of its regular final weekday closing price.
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“Market
Disruption Event” means:
|
(i) the
occurrence or existence of any of:
(a)
a suspension, absence or material limitation of trading of stocks then constituting 20 percent or more of the value of the Underlying
(or the Successor Underlying (as defined below under “—Discontinuance of the Underlying; Alteration of Method of Calculation”))
on the Relevant Exchange for such securities for more than two hours of trading or during the one-half hour period preceding the
close of the principal trading session on such Relevant Exchange, or
(b)
a breakdown or failure in the price and trade reporting systems of any Relevant Exchange as a result of which the reported trading
prices for stocks then constituting 20 percent or more of the value of the Underlying (or the Successor Underlying) during the
last one-half hour preceding the close of the principal trading session on such Relevant Exchange are materially inaccurate, or
(c)
the suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options
contracts or exchange-traded funds related to the Underlying (or the Successor Underlying) for more than two hours of trading
or during the one-half hour period preceding the close of the principal trading session on such market,
in
each case as determined by the Calculation Agent in its sole discretion; and
(ii) a
determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with
respect to the Securities.
For the purpose of determining
whether a Market Disruption Event exists at any time, if trading in a security included in the Underlying is materially suspended
or materially limited at that time, then the relevant percentage contribution of that security to the value of the Underlying
shall be based on a comparison of (x) the portion of the value of the Underlying attributable to that security relative to (y)
the overall value of the Underlying, in each case immediately before that suspension or limitation.
For
the purpose of determining whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of
trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of
the Relevant Exchange or market, (2) a decision to permanently discontinue trading in the relevant futures or options contract
or exchange-traded fund will not constitute a Market Disruption Event, (3) a suspension of trading in futures or options contracts
or exchange-traded funds on the Underlying by the primary securities market trading in such contracts or funds by reason of (a)
a price change exceeding limits set by such securities exchange or market, (b) an imbalance of orders relating to such contracts
or funds, or (c) a disparity in bid and ask quotes relating to such contracts or funds will constitute a suspension, absence or
material limitation of trading in futures or options contracts or exchange-traded funds related to the Underlying and (4) a “suspension,
absence or material limitation of trading” on any Relevant Exchange or on the primary market on which futures or options
contracts or exchange-traded funds related to the Underlying are traded will not include any time when such securities market
is itself closed for trading under ordinary circumstances.
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“Relevant
Exchange” means, with respect to the Underlying, the primary exchange(s) or market(s)
of trading for (i) any security then included in the Underlying, or any Successor Underlying,
and (ii) any futures or options contracts related to the Underlying or to any security
then included in the Underlying.
|
Postponement of Final Valuation
Date and Maturity Date
If the scheduled Final Valuation
Date is not an Index Business Day or if a Market Disruption Event with respect to the Underlying occurs on such date, the Closing
Level for such date will be determined on the immediately succeeding Index Business Day on which no Market Disruption Event shall
have occurred; provided that the Closing Level with respect to the Final Valuation Date will not be determined on a date later
than the fifth scheduled Index Business Day after the scheduled Final Valuation Date, and if such date is not an Index Business
Day or if there is a Market Disruption Event on such date, the Calculation Agent will determine the Closing Level of the Underlying
on such date in accordance with the formula for calculating such Underlying last in effect prior to the commencement of the Market
Disruption Event (or prior to the non-Index Business Day), without rebalancing or substitution, using the closing price (or, if
trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the closing
price that would have prevailed but for such suspension, limitation or non-Index Business Day) on such date of each security most
recently constituting the Underlying.
If the Final Valuation Date is
postponed so that it falls less than two business days prior to the scheduled Maturity Date, the Maturity Date will be the second
business day following the Final Valuation Date, as postponed.
Alternate Exchange Calculation
in case of an Event of Default
If an event of default with respect
to the Securities shall have occurred and be continuing, the amount declared due and payable upon any acceleration of the Securities
(the “Acceleration Amount”) will be an amount, determined by the Calculation Agent in its sole discretion, that is
equal to the cost of having a Qualified Financial Institution, of the kind and selected as described below, expressly assume all
our payment and other obligations with respect to the Securities as of that day and as if no default or acceleration had occurred,
or to undertake other obligations providing substantially equivalent economic value to you with respect to the Securities. That
cost will equal:
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the lowest amount that a Qualified
Financial Institution would charge to effect this assumption or undertaking, plus
|
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|
the reasonable expenses, including
reasonable attorneys’ fees, incurred by the holders of the Securities in preparing
any documentation necessary for this assumption or undertaking.
|
During the Default Quotation Period
for the Securities, which we describe below, the holders of the Securities and/or we may request a Qualified Financial Institution
to provide a quotation of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation,
it must notify the other party in writing of the quotation. The amount referred to in the first bullet point above will equal
the lowest—or, if there is only one, the only—quotation obtained, and as to which notice is so given, during the Default
Quotation Period. With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and
significant grounds, to the assumption or undertaking by the Qualified Financial Institution providing the quotation and notify
the other party in writing of those grounds within two business days after the last day of the Default Quotation Period, in which
case that quotation will be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing,
if a voluntary or involuntary liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to MSFL
or Morgan Stanley, then depending on applicable bankruptcy law, your claim may be limited to an amount that could be less than
the Acceleration Amount.
If the maturity of the Securities
is accelerated because of an event of default as described above, we shall, or shall cause the Calculation Agent to, provide written
notice to the Trustee at its New York office, on which notice the Trustee may conclusively rely, and to the Depositary of the
Acceleration Amount and the aggregate cash amount due, if any, with respect to the Securities as promptly as possible and in no
event later than two business days after the date of such acceleration.
Default Quotation Period
The Default Quotation Period is
the period beginning on the day the Acceleration Amount first becomes due and ending on the third business day after that day,
unless:
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no quotation of the kind referred
to above is obtained, or
|
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|
every quotation of that kind obtained
is objected to within five business days after the due date as described above.
|
If either of these two events occurs,
the Default Quotation Period will continue until the third business day after the first business day on which prompt notice of
a quotation is given as described above. If that quotation is objected to as described above within five business days after that
first business day, however, the Default Quotation Period will continue as described in the prior sentence and this sentence.
In any event, if the Default Quotation
Period and the subsequent two business day objection period have not ended before the Final Valuation Date, then the Acceleration
Amount will equal the principal amount of the Securities.
Qualified Financial Institutions
For the purpose of determining
the Acceleration Amount at any time, a Qualified Financial Institution must be a financial institution organized under the laws
of any jurisdiction in the United States or Europe, which at that time has outstanding debt obligations with a stated maturity
of one year or less from the date of issue and rated either:
|
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A-2 or higher by Standard & Poor’s
Ratings Services or any successor, or any other comparable rating then used by that rating
agency, or
|
|
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|
P-2 or higher by Moody’s Investors
Service or any successor, or any other comparable rating then used by that rating agency.
|
Discontinuance of the Underlying;
Alteration of Method of Calculation
If the Underlying publisher of
the Underlying discontinues publication of the Underlying and the Underlying publisher or another entity (including MS & Co.)
publishes a successor or substitute index that the Calculation Agent determines, in its sole discretion, to be comparable to the
discontinued Underlying (such index being referred to herein as a “Successor Underlying”), then any subsequent Closing
Level of the Underlying will be determined by reference to the published value of such Successor Underlying at the regular weekday
close of trading on any Index Business Day that the Closing Level is to be determined, and, to the extent the Closing Level of
the Successor Underlying differs from the Closing Level of the Underlying at the time of such substitution, proportionate adjustments
will be made by the Calculation Agent to the Initial Underlying Level and Downside Threshold.
Upon any selection by the Calculation
Agent of a Successor Underlying, the Calculation Agent will cause written notice thereof to be furnished to the Trustee, to us
and to the Depositary, as holder of the Securities, within three business days of such selection. We expect that such notice will
be made available to you, as a beneficial owner of such Securities, in accordance with the standard rules and procedures of the
Depositary and its direct and indirect participants.
If the Underlying publisher discontinues
publication of the Underlying prior to, and such discontinuance is continuing on, the Final Valuation Date and the Calculation
Agent determines, in its sole discretion, that no Successor Underlying is available at such time, then the Calculation Agent
will
determine the Closing Level of the Underlying for such date. The Closing Level of the Underlying will be computed by the Calculation
Agent in accordance with the formula for and method of calculating the Underlying last in effect prior to such discontinuance,
using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, its good
faith estimate of the closing price that would have prevailed but for such suspension or limitation) at the close of the principal
trading session of the Relevant Exchange on such Final Valuation Date of each security most recently constituting the Underlying
without any rebalancing or substitution of such securities following such discontinuance. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Underlying may adversely affect the value of the Securities.
If at any time the method of calculating
the Underlying or Successor Underlying, or the value thereof, is changed in a material respect, or if the Underlying or Successor
Underlying is in any other way modified so that such index does not, in the opinion of the Calculation Agent, fairly represent
the value of such index had such changes or modifications not been made, then, from and after such time, the Calculation Agent
will, at the close of business in New York City on each date on which the Closing Level is to be determined, make such calculations
and adjustments as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock
index comparable to the Underlying or Successor Underlying, as the case may be, as if such changes or modifications had not been
made, and the Calculation Agent will calculate the Closing Level with reference to the Underlying or Successor Underlying, as
adjusted. Accordingly, if the method of calculating the Underlying or Successor Underlying is modified so that the value of such
index is a fraction of what it would have been if it had not been modified (e.g., due to a split in the index), then the Calculation
Agent will adjust such index in order to arrive at a value of the Underlying or Successor Underlying as if it had not been modified
(e.g., as if such split had not occurred).
Trustee
The “Trustee” for each
offering of notes issued under our Senior Debt Indenture, including the Securities, will be The Bank of New York Mellon, a New
York banking corporation.
Agent
The “agent” is MS &
Co.
Calculation Agent and Calculations
The “Calculation Agent”
for the Securities will be MS & Co. As Calculation Agent, MS & Co. will determine, among other things, the Initial Underlying
Level, the Downside Threshold, the Final Underlying Level, the Underlying Return and the Payment at Maturity.
All determinations made by the
Calculation Agent will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive
for all purposes and binding on you, the Trustee and us.
All calculations with respect to
the Payment at Maturity, if any, will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward
(e.g., .876545 would be rounded to .87655); all dollar amounts related to determination of the amount of cash payable per Security
will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded
up to .7655); and all dollar amounts paid on the aggregate number of Securities will be rounded to the nearest cent, with one-half
cent rounded upward.
Because the Calculation Agent is
our affiliate, the economic interests of the Calculation Agent and its affiliates may be adverse to your interests, as an owner
of the Securities, including with respect to certain determinations and judgments that the Calculation Agent must make in determining
the Final Underlying Level or whether a Market Disruption Event has occurred. See “—Discontinuance of the Underlying;
Alteration of Method of Calculation,” and the definition of Market Disruption Event. MS & Co. is obligated to carry
out its duties and functions as Calculation Agent in good faith and using its reasonable judgment.
Form of Securities
The Securities will be issued in
the form of one or more fully registered global securities which will be deposited with, or on behalf of, the Depositary and will
be registered in the name of a nominee of the Depositary. The Depositary’s nominee will be the only registered holder of
the Securities. Your beneficial interest in the Securities will be evidenced solely by entries on the books of the securities
intermediary acting on your behalf as a direct or indirect participant in the Depositary. In this free writing prospectus, all
references to payments or notices to you will mean payments or notices to the Depositary, as the registered holder of the Securities,
for distribution to participants in accordance with the Depositary’s procedures. For more information regarding the Depositary
and book entry notes, please read “The Depositary” in the accompanying prospectus supplement and “Forms of Securities—Global
Securities—Registered Global Securities” in the accompanying prospectus.
Use
of Proceeds and Hedging
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The proceeds from the sale of the
Securities will be used by us for general corporate purposes. We will receive, in aggregate, $10 per Security issued, because,
when we enter into hedging transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse
the cost of the agent’s commissions. The costs of the Securities borne by you and described on page 2 above comprise the
agent’s commissions and the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds”
in the accompanying prospectus.
On or prior to the Trade Date,
we will hedge our anticipated exposure in connection with the Securities, by entering into hedging transactions with our affiliates
and/or third party dealers. We expect our hedging counterparties to take positions in the constituent stocks of the Underlying,
in futures or options contracts on the Underlying or the constituent stocks of the Underlying, as well as in other instruments
related to the Underlying that they may wish to use in connection with such hedging. Such purchase activity could potentially
increase the Initial Underlying Level, and therefore increase the level at or above which the Underlying must close on the Final
Valuation Date so that you do not suffer a loss on your initial investment in the Securities. In addition, through our affiliates,
we are likely to modify our hedge position throughout the term of the Securities, including on the Final Valuation Date, by purchasing
and selling the constituent stocks of the Underlying, futures or options contracts on the Underlying or the constituent stocks
of the Underlying, as well as other instruments related to the Underlying that we may wish to use in connection with such hedging
activities, including by purchasing or selling any such securities or instruments on the Final Valuation Date. 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 Valuation Date approaches. We cannot give any assurance
that our hedging activities will not affect the level of the Underlying and, therefore, adversely affect the value of the Securities
or the amount payable at maturity.
Benefit Plan Investor Considerations
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Each fiduciary of a pension, profit-sharing
or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)
(a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances
before authorizing an investment in the Securities. Accordingly, among other factors, the fiduciary should consider whether the
investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and
instruments governing the Plan.
In addition, we and certain of
our affiliates, including MS & Co., may each be considered a “party in interest” within the meaning of ERISA,
or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”),
with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”). ERISA Section
406 and Code Section 4975 generally prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited
transactions within the meaning of ERISA or the Code would likely arise, for example, if the Securities are acquired by or with
the assets of a Plan with respect to which MS & Co. or any of its affiliates is a service provider or other party in interest,
unless the Securities are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of
these “prohibited transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section
4975 of the Code for such persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has
issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect
prohibited transactions resulting from the purchase or holding of the Securities. Those class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general
accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions
involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional
asset managers). In addition, ERISA Section 408(b)(17) and 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 Securities.
Because we may be considered a
party in interest with respect to many Plans, the Securities may not be purchased, held or disposed of by any Plan, any entity
whose underlying assets include “plan assets” by reason of any Plan’s investment in the entity (a “Plan
Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase, holding or disposition
is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider
exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing
on behalf of a Plan, transferee or holder of the Securities will be deemed to have represented, in its corporate and its fiduciary
capacity, by its purchase and holding of the Securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing
such Securities on behalf of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church
plan that is subject to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406
of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition are eligible for
exemptive relief or such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar
Law.
Due to the complexity of these
rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important
that fiduciaries or other persons considering purchasing the Securities on behalf of or with “plan assets” of any
Plan consult with their counsel regarding the availability of exemptive relief.
The Securities are contractual
financial instruments. The financial exposure provided by the Securities is not a substitute or proxy for, and is not intended
as a substitute or proxy for, individualized investment management or advice for the benefit of any purchaser or holder of the
Securities. The Securities have not been designed and will not be administered in a manner intended to reflect the individualized
needs and objectives of any purchaser or holder of the Securities.
Each purchaser or holder of any
Securities acknowledges and agrees that:
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(i)
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the purchaser or holder or
its fiduciary has made and shall make all investment decisions for the purchaser or holder
and the purchaser or holder has not relied and shall not rely in any way upon us or our
affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to
(A) the design and terms of the Securities, (B) the purchaser or holder’s investment
in the Securities, or (C) the exercise of or failure to exercise any rights we have under
or with respect to the Securities;
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(ii)
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we and our affiliates have
acted and will act solely for our own account in connection with (A) all transactions
relating to the Securities and (B) all hedging transactions in connection with our obligations
under the Securities;
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(iii)
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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;
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(iv)
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our interests are adverse
to the interests of the purchaser or holder; and
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(v)
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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.
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Each purchaser and holder of the
Securities has exclusive responsibility for ensuring that its purchase, holding and disposition of the Securities do not violate
the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any Securities to any Plan or plan subject
to Similar Law is in no respect a representation by us or any of our affiliates or representatives that such an investment meets
all relevant legal requirements with respect to investments by plans generally or any particular plan, or that such an investment
is appropriate for plans generally or any particular plan.
However, individual retirement
accounts, individual retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct
the investment of their accounts, will not be permitted to purchase or hold the Securities if the account, plan or annuity is
for the benefit of an employee of Morgan Stanley or Morgan Stanley Wealth Management or a family member and the employee receives
any compensation (such as, for example, an addition to bonus) based on the purchase of Securities by the account, plan or annuity.
Supplemental Plan of Distribution; Conflicts of Interest
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MS & Co. will act as the agent
for this offering. We will agree to sell to MS & Co., and MS & Co. will agree to purchase, all of the Securities at the
issue price less the underwriting discount indicated on the cover of this document. UBS Financial Services Inc., acting as dealer,
will receive from MS & Co. a fixed sales commission of $0.125 for each Security it sells.
MS & Co. is our affiliate and
a wholly owned subsidiary of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring
and, when applicable, hedging the Securities. When MS & Co. prices this offering of Securities, it will determine the economic
terms of the Securities, including the level of the Maximum Gain, such that for each Security the estimated value on the Trade
Date will be no lower than the minimum level described in “Additional Information about Morgan Stanley, MSFL and the Securities”
on page 2.
MS & Co. will conduct this
offering in compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“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.
In order to facilitate the offering
of the Securities, the agent may engage in transactions that stabilize, maintain or otherwise affect the price of the Securities.
Specifically, the agent may sell more Securities than it is obligated to purchase in connection with the offering, creating a
naked short position in the Securities, for its own account. The agent must close out any naked short position by purchasing the
Securities in the open market. A naked short position is more likely to be created if the agent is concerned that there may be
downward pressure on the price of the Securities in the open market after pricing that could adversely affect investors who purchase
in the offering. As an additional means of facilitating the offering, the agent may bid for, and purchase, the Securities or the
constituent stocks of the Underlying in the open market to stabilize the price of the Securities. Any of these activities may
raise or maintain the market price of the Securities above independent market levels or prevent or retard a decline in the market
price of the Securities. The agent is not required to engage in these activities, and may end any of these activities at any time.
An affiliate of the agent has entered into a hedging transaction with us in connection with this offering of Securities. See “—Use
of Proceeds and Hedging” above.
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