These Trigger Callable Contingent Yield Notes (the “Securities”)
are unsecured and unsubordinated debt obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally
guaranteed by Morgan Stanley. The Securities provide a return
based on the least performing underlying
among the S&P
500
®
Index (the “SPX Index”), the Russell 2000
®
Index (the “RTY Index”) and
the EURO STOXX 50
®
Index (the “SX5E Index,” and together with the SPX Index and the RTY Index, the “Underlyings”).
If the Index Closing Value of
each of the SPX Index, the RTY Index and the SX5E Index
is equal to or greater than its respective
Coupon Barrier on
each Index Business Day
during a Quarterly Observation Period, MSFL will make a Contingent Coupon payment
with respect to that Quarterly Observation Period. However, if the Index Closing Value of
any
of the Underlyings is below
its respective Coupon Barrier on
any Index Business Day
during a Quarterly Observation Period, no coupon will accrue or
be payable with respect to Quarterly Observation Period. In addition, beginning on February 5, 2018, MSFL will have the right to
call the Securities at its discretion on any quarterly Coupon Payment Date for the principal amount plus any Contingent Coupon
otherwise due with respect to the relevant Quarterly Observation Period, and no further amounts will be owed to you. Any early
redemption of the Securities will be at MSFL’s discretion and will not automatically occur based on the performance of the
Underlyings. If the Securities are not called prior to maturity and the Final Underlying Value of
each of the SPX Index, the
RTY Index and the SX5E Index
is equal to or greater than its respective Downside Threshold (which will be the same as the respective
Coupon Barrier), MSFL will make a cash payment to you at maturity equal to the principal amount of your Securities and, if payable,
the Contingent Coupon with respect to the final Quarterly Observation Period. However, if the Final Underlying Value of
any
of the Underlyings
is less than its respective Downside Threshold, MSFL will pay you significantly less than the full principal
amount, if anything, at maturity, resulting in a loss on your principal amount that is proportionate to the decline in the value
of the
Underlying with the largest percentage decrease from its Initial Underlying Value to its Final Underlying Value (the
“Least Performing Underlying”)
, even if the other Underlyings have appreciated or have not declined as much. These
Securities may be appropriate for investors who seek an opportunity for enhanced income in exchange for the risk of losing their
principal at maturity, the risk of receiving no Contingent Coupons during the term of the Securities and the risk of an early redemption
of the Securities at MSFL’s discretion. Your return will be solely the Contingent Coupons, if any, and you will not participate
in any appreciation of any of the Underlyings. Because all payments on the Securities are based on the least performing Underlying
among the SPX Index, the RTY Index and the SX5E Index, the fact that the Securities are linked to three Underlyings does not provide
any asset diversification benefits and instead means that a decline in the value of any of the Underlyings beyond the relevant
Coupon Barrier on any Index Business Day during the relevant Quarterly Observation Period or beyond the Downside Threshold on the
Final Valuation Date will result in no Contingent Coupon payments or a significant loss on your investment, respectively, even
if the other Underlyings appreciate or do not decline as much.
Investing in the Securities involves significant risks. The Issuer
will not pay a quarterly Contingent Coupon if the Index Closing Value for any of the Underlyings is below its respective Coupon
Barrier on any Index Business Day during a Quarterly Observation Period. The Issuer will have the right to call the Securities
early at its discretion. You will lose a significant portion or all of your principal amount at maturity if the Securities are
not called and the Final Underlying Value of any Underlying is below its Downside Threshold. Generally, the higher the Contingent
Coupon Rate for the Securities, the greater risk of loss on those Securities. If you sell the Securities prior to maturity, you
may receive substantially less than the principal amount even if the values of all Underlyings are greater than their respective
Downside Thresholds at the time of sale.
This free writing prospectus relates to Securities linked to
the least performing Underlying among the S&P 500
®
Index, the RTY 2000
®
Index and the EURO STOXX
50
®
Index. The actual Contingent Coupon Rate and the Initial Underlying Values, Coupon Barriers and Downside Thresholds
for the Underlyings will be determined on the Trade Date. The Securities are offered at a minimum investment of $1,000 in denominations
of $10 and integral multiples thereof.
(1) 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
29 of this free writing prospectus.
The agent for this offering, Morgan Stanley & Co. LLC (“MS
& Co.”), is our affiliate and a wholly owned subsidiary of Morgan Stanley. See “Supplemental Plan of Distribution;
Conflicts of Interest” on page 29 of this free writing prospectus.
Example 1 — Securities
are Called on the Second Coupon Payment Date (the first Coupon Payment Date on which MSFL can call the Securities)
Date
|
Lowest
Index Closing Value during the relevant Quarterly Observation Period
|
Payment
(per Security)
|
SPX
Index
|
RTY
Index
|
SX5E
Index
|
First
Quarterly Observation Period
|
2,100
(
at or above
Coupon Barrier)
|
1,250
(
at or above
Coupon Barrier)
|
3,700
(
at or above
Coupon Barrier)
|
$0.17625
(Contingent Coupon — Not Callable)
|
Second
Quarterly Observation Period
|
2,400
(
at or above
Coupon Barrier)
|
1,300
(
at or above
Coupon Barrier)
|
3,700
(
at or above
Coupon Barrier)
|
$10.17625
(Settlement Amount)
|
|
|
|
Total
Payment:
|
$10.3525
(3.525% return)
|
Each of the SPX Index, the RTY
Index and the SX5E Index closes above its respective Coupon Barrier on
each Index Business Day
during the first Quarterly
Observation Period, and therefore a Contingent Coupon is paid on the related Coupon Payment Date. MSFL calls the Securities on
the second Coupon Payment Date, which is the first Coupon Payment Date on which MSFL can exercise its call right. On the Call
Date, MSFL will pay you a total of $10.17625 per Security, reflecting your principal amount plus the applicable Contingent Coupon
otherwise due with respect to the relevant Quarterly Observation Period. When added to the Contingent Coupon payments of $0.17625
received in respect of the prior Quarterly Observation Period, MSFL will have paid you a total of $10.3525 per Security for a
3.525% total return over the 6-month term of the Securities. No further amount will be owed to you under the Securities, and you
do not participate in the appreciation of the Underlyings.
Example 2 — Securities
are NOT Called and the Final Underlying Value of each of the SPX Index, the RTY Index and the SX5E Index is at or above its respective
Downside Threshold
Date
|
Lowest
Index Closing Value during the relevant Quarterly Observation Period
|
Payment
(per Security)
|
SPX Index
|
RTY Index
|
SX5E Index
|
First
Quarterly Observation Period
|
1,900
(at or above
Coupon Barrier)
|
1,200
(
at or above
Coupon Barrier)
|
3,200
(
at or above
Coupon Barrier)
|
$0.17625
(Contingent Coupon — Not Callable)
|
Second Quarterly Observation
Period
|
1,850 (
at or above
Coupon Barrier)
|
900 (
at or above
Coupon Barrier)
|
2,800 (
at or above
Coupon Barrier)
|
$0.17625 (Contingent
Coupon — Not Callable)
|
Third Quarterly Observation
Period
|
2,000 (
at or above
Coupon Barrier)
|
1,080 (
at or above
Coupon Barrier)
|
2,300 (
below
Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Quarterly Observation
Period
|
1,800 (
at or above
Coupon Barrier)
|
1,100 (
at or above
Coupon Barrier)
|
2,100 (
below
Coupon Barrier)
|
$0 (Not Called)
|
Fifth to Seventh Quarterly
Observation Periods
|
Various (
all at
or above
Coupon Barrier)
|
Various (
at or
above
Coupon Barrier)
|
Various (
all below
Coupon Barrier)
|
$0 (Not Called)
|
Final Quarterly Observation
Period
|
2,250 (
at or above
Coupon Barrier and Downside Threshold)
|
900 (
at or above
Coupon Barrier and Downside Threshold)
|
2,700 (
at or above
Coupon Barrier and Downside Threshold)
|
|
|
|
Final Index Value
|
|
$10.17625 (Settlement
Amount)
|
|
2,250
|
900
|
2,700
|
Total
Payment:
$10.52875
(5.2875% return)
|
In this example, MSFL does not
call the Securities prior to maturity. Each of the SPX Index, the RTY Index and the SX5E Index closes above its respective Coupon
Barrier on
each Index Business Day
during the first two Quarterly Observation Periods, and therefore a Contingent Coupon
is paid on each related Coupon Payment Date. During each of the third to seventh Quarterly Observation Periods, the SPX Index
and the RTY Index close at or above their respective Coupon Barriers on
every Index Business Day
, but the SX5E Index closes
below its Coupon Barrier on at least one Index Business Day during each such Quarterly Observation Period. Therefore, no Contingent
Coupon is paid on any related Coupon Payment Date. On the Final Valuation Date, each of the SPX Index, the RTY Index and the SX5E
Index closes above its Downside Threshold, and each of the SPX Index, the RTY Index and the SX5E Index closes above its Coupon
Barrier on
every Index Business Day
during the final Quarterly Observation Period. Therefore, at maturity, MSFL will pay
you a total of $10.17625 per Security, reflecting your principal amount plus the applicable Contingent Coupon. When added to the
Contingent Coupon payment of $0.3525 received in respect of prior Quarterly Observation Periods, MSFL will have paid you a total
of approximately $10.52875 per Security for a 5.2875% total return on the Securities over 2.5 years. You do not participate in
any appreciation of the Underlyings.
Example 3 — Securities
are NOT Called and the Final Underlying Value of at least one of the Underlyings is below the Downside Threshold
Date
|
Lowest
Index Closing Value during the relevant Quarterly Observation Period
|
|
SPX Index
|
RTY Index
|
SX5E Index
|
Payment (per Security)
|
First
Quarterly Observation Period
|
2,400
(at or above
Coupon Barrier)
|
1,100
(
at or above
Coupon Barrier)
|
3,300
(
at or above
Coupon Barrier)
|
$0.17625
(Contingent Coupon — Not Callable)
|
Second Quarterly Observation
Period
|
2,300 (
at or above
Coupon Barrier)
|
900 (
at or above
Coupon Barrier)
|
3,000 (
at or above
Coupon Barrier)
|
$0.17625 (Contingent
Coupon — Not Callable)
|
Third Quarterly Observation
Period
|
2,250 (
at or above
Coupon Barrier)
|
720 (
below
Coupon Barrier)
|
2,250 (
below
Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Quarterly Observation
Period
|
2,350 (
at or above
Coupon Barrier)
|
500 (
below
Coupon Barrier)
|
2,000 (
below
Coupon Barrier)
|
$0 (Not Called)
|
Fifth to Seventh Quarterly
Observation Period
|
Various (
all below
Coupon Barrier)
|
Various (
all below
Coupon Barrier)
|
Various (
all below
Coupon Barrier)
|
$0 (Not Called)
|
Final Quarterly Observation
Period
|
2,200
(
at or above
Coupon Barrier and Downside Threshold)
2,200
|
600
(
below
Coupon Barrier and Downside Threshold)
Final
Index Value
600
|
1,440
(
below
Coupon Barrier and Downside Threshold)
1,440
|
$10
+ [$10 × Index Return of the Least Performing Underlying] =
$10
+ [$10 × -60%] =
$10
- $6 =
$4
(Payment at Maturity)
|
|
|
|
|
Total
Payment:
$4.3525
(-56.475% return)
|
In this example, MSFL does not
call the Securities prior to maturity. Each of the SPX Index, the RTY Index and the SX5E Index closes above its respective Coupon
Barrier on
each Index Business Day
during the first two Quarterly Observation Periods, and therefore a Contingent Coupon
is paid on each related Coupon Payment Date. During each of the third and fourth Quarterly Observation Periods, the SPX Index
closes at or above its Coupon Barrier on every Index Business Day but the RTY Index and the SX5E Index close below their respective
Coupon Barriers on at least one Index Business Day during each such Quarterly Observation Period. Therefore, no Contingent Coupon
is paid on either related Coupon Payment Date. During each of the fifth to the seventh Quarterly Observation Periods, each of
the SPX Index, the RTY Index and the SX5E Index closes below its respective Coupon Barrier on at least one Index Business Day
during each such Quarterly Observation Period and thus no Contingent Coupon is paid on any related Coupon Payment Date. On the
Final Valuation Date, the SPX Index closes above its Coupon Barrier and Downside Threshold, but the RTY Index and the SX5E Index
close below their respective Coupon Barriers and Downside Thresholds. Therefore, at maturity, investors are exposed to the downside
performance of the Least Performing Underlying (which, in this example, is the SX5E Index), and MSFL will pay you $4 per Security,
which reflects the percentage decrease of the Least Performing Underlying from the Trade Date to the Final Valuation Date. When
added to the Contingent Coupon payments of $0.3525 received in respect of prior Quarterly Observation Periods, MSFL will have
paid you $4.3525 per Security for a loss on the Securities of 56.475%.
The Securities differ from ordinary
debt securities in that, among other features, MSFL is not necessarily obligated to repay the full amount of your initial investment.
If the Securities are not called on any Coupon Payment Date, you may lose a significant portion or all of your initial investment.
Specifically, if the Securities are not called and the Final Underlying Value of any Underlying is less than its Downside Threshold,
you will lose 1% (or a fraction thereof) of your principal amount for each 1% (or a fraction thereof) that the Index Return of
the Least Performing Underlying is less than zero. Any payment on the Securities, including any Contingent Coupon, payment upon
an Issuer Call or the Payment at Maturity, is dependent on our ability to satisfy its obligations when they come due. If we are
is unable to meet our obligations, you may not receive any amounts due to you under the Securities.
The Issuer will not pay a quarterly
Contingent Coupon if the Index Closing Value for any of the Underlyings is below its respective Coupon Barrier on any Index Business
Day during the relevant Quarterly Observation Period. The Issuer will have the right to call the Securities early at its discretion.
You will lose a significant portion or all of your principal amount at maturity if the Securities are not called and the Final
Underlying Value of any of the Underlyings is below its Downside Threshold.
What Are the Tax Consequences of the Securities?
|
Prospective investors should
note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus
supplement does not apply to the Securities issued under this free writing prospectus and is superseded by the following discussion.
The following is a general discussion
of the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the
Securities. This discussion applies only to investors in the Securities who:
|
t
|
purchase
the Securities in the original offering; and
|
|
t
|
hold
the Securities as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the “Code”).
|
This discussion
does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances
or to holders subject to special rules, such as:
|
t
|
certain
financial institutions;
|
|
t
|
certain
dealers and traders in securities or commodities;
|
|
t
|
investors
holding the Securities as part of a “straddle,” wash sale, conversion transaction,
integrated transaction or constructive sale transaction;
|
|
t
|
U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
|
|
t
|
partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
|
|
t
|
regulated
investment companies;
|
|
t
|
real
estate investment trusts; or
|
|
t
|
tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs”
as defined in Section 408 or 408A of the Code, respectively.
|
If an entity
that is classified as a partnership for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment
of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partnership
holding the Securities or a partner in such a partnership, you should consult your tax adviser as to the particular U.S. federal
tax consequences of holding and disposing of the Securities to you.
As the law applicable
to the U.S. federal income taxation of instruments such as the Securities is technical and complex, the discussion below necessarily
represents only a general summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed,
nor are any alternative minimum tax consequences or consequences resulting from the Medicare tax on investment income.
This discussion
is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations,
all as of the date hereof, changes to any of which subsequent to the date hereof may affect the tax consequences described herein.
Persons considering the purchase of the Securities should consult their tax advisers with regard to the application of the U.S.
federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local
or non-U.S. taxing jurisdiction.
General
Due to the absence
of statutory, judicial or administrative authorities that directly address the treatment of the Securities or instruments that
are similar to the Securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will agree
with the tax treatment described herein. We intend to treat a Security for U.S. federal income tax purposes as a single financial
contract that provides for a coupon that will be treated as gross income to you at the time received or accrued in accordance
with your regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the
Securities is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively that
this treatment is more likely than not to be upheld, and that alternative treatments are possible.
You should
consult your tax adviser regarding all aspects of the U.S. federal tax consequences of an investment in the Securities (including
possible alternative treatments of the Securities). Unless otherwise stated, the following discussion is based on the treatment
of each Security as described in the previous paragraph.
Tax Consequences
to U.S. Holders
This section
applies to you only if you are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a
Security that is, for U.S. federal income tax purposes:
|
·
|
a
citizen or individual resident of the United States;
|
|
·
|
a
corporation, or other entity taxable as a corporation, created or organized in or under
the laws of the United States, any state thereof or the District of Columbia; or
|
|
·
|
an
estate or trust the income of which is subject to U.S. federal income taxation regardless
of its source.
|
Tax Treatment
of the Securities
Assuming the
treatment of the Securities as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis
. A U.S. Holder’s
tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Tax
Treatment of Coupon Payments
. Any coupon payment on the Securities should be taxable as ordinary income to a U.S. Holder at
the time received or accrued, in accordance with the U.S. Holder’s regular method of accounting for U.S. federal income
tax purposes.
Sale, Exchange
or Settlement of the Securities
. Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain
or loss equal to the difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax
basis in the Securities sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at
settlement and may not include sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any
such gain or loss recognized should be long-term capital gain or loss if the U.S. Holder has held the Securities for more than
one year at the time of the sale, exchange or settlement, and should be short-term capital gain or loss otherwise. The ordinary
income treatment of the coupon payments, in conjunction with the capital loss treatment of any loss recognized upon the sale,
exchange or settlement of the Securities, could result in adverse tax consequences to holders of the Securities because the deductibility
of capital losses is subject to limitations.
Possible Alternative Tax
Treatments of an Investment in the Securities
Due to the absence of authorities
that directly address the proper tax treatment of the Securities, no assurance can be given that the IRS will accept, or that
a court will uphold, the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences
of owning the Securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt
Regulations”). If the IRS were successful in asserting that the Contingent Debt Regulations applied to the Securities, the
timing and character of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to
accrue into income original issue discount on the Securities every year at a “comparable yield” determined at the
time of their issuance, adjusted upward or downward to reflect the difference, if any, between the actual and the projected amount
of any contingent payments on the Securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange
or other disposition of the Securities would be treated as ordinary income, and any loss realized would be treated as ordinary
loss to the extent of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter. The risk
that financial instruments providing for buffers, triggers or similar downside protection features, such as the Securities, would
be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not have
such features.
Other
alternative federal income tax treatments of the Securities are possible, which, if applied, could significantly affect the timing
and character of the income or loss with respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released
a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
The notice focuses on whether to require holders of “prepaid forward contracts” and similar instruments to accrue
income over the term of their investment. It also asks for comments on a number of related topics, including the character of
income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime;
the relevance of factors such as the exchange–traded status of the instruments and the nature of the underlying property
to which the instruments are linked; whether these instruments are or should be subject to the “constructive ownership”
rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest
charge; and appropriate transition rules and effective dates. While it is not clear whether instruments such as the Securities
would be viewed as similar to the prepaid forward contracts described in the notice, any Treasury regulations or other guidance
promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in
the Securities, possibly with retroactive effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income
tax consequences of an investment in the Securities, including possible alternative treatments and the issues presented by this
notice.
Backup Withholding and Information
Reporting
Backup withholding may apply in
respect of payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities,
unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies
with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not
an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided
that the required information is timely furnished to the IRS. In addition, information returns will be filed with the IRS
in connection with payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities,
unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax
Consequences to Non-U.S. Holders
This section applies to you only
if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that
is for U.S. federal income tax purposes:
|
·
|
an
individual who is classified as a nonresident alien;
|
|
·
|
a
foreign corporation; or
|
|
·
|
a
foreign estate or trust.
|
The term “Non-U.S.
Holder” does not include any of the following holders:
|
·
|
a
holder who is an individual present in the United States for 183 days or more in the
taxable year of disposition and who is not otherwise a resident of the United States
for U.S. federal income tax purposes;
|
|
·
|
certain
former citizens or residents of the United States; or
|
|
·
|
a
holder for whom income or gain in respect of the Securities is effectively connected
with the conduct of a trade or business in the United States.
|
Such
holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities.
Although
significant aspects of the tax treatment of each Security are uncertain, we intend to withhold on any coupon paid to a Non-U.S.
Holder generally at a rate of 30% or at a reduced rate specified by an applicable income tax treaty under an “other income”
or similar provision. We will not be required to pay any additional amounts with respect to amounts withheld. In order to claim
an exemption from, or a reduction in, the 30% withholding tax, a Non-U.S. Holder of the Securities must comply with certification
requirements to establish that it is not a U.S. person and is eligible for such an exemption or reduction under an applicable
tax treaty. If you are a Non-U.S. Holder, you should consult your tax adviser regarding the tax treatment of the Securities, including
the possibility of obtaining a refund of any withholding tax and the certification requirement described above.
Section
871(m) Withholding Tax on Dividend Equivalents
Section
871(m) of the Code and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a
lower applicable treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to
certain financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”).
Subject to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance
of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, the regulations exempt securities issued before January 1, 2018 that do not have a delta of one with
respect to any Underlying Security. Based on our determination that the Securities do not have a delta of one with respect to
any Underlying Security, our counsel is of the opinion that the Securities should not be Specified Securities and, therefore,
should not be subject to Section 871(m).
Our
determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application
may depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying
Security. If Section 871(m) withholding is required, we will not be required to pay any additional amounts with respect to the
amounts so withheld. You should consult your tax adviser regarding the potential application of Section 871(m) to the Securities.
U.S.
Federal Estate Tax
Individual
Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S.
federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained
certain interests or powers) should note that, absent an applicable treaty exemption, the Securities may be treated as U.S.-situs
property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type
described above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the
Securities.
Backup
Withholding and Information Reporting
Information
returns will be filed with the IRS in connection with any coupon payment and may be filed with the IRS in connection with the
payment at maturity on the Securities and the payment of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder
may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with
certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes
an exemption. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the
Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required
information is timely furnished to the IRS.
FATCA
Legislation
Legislation
commonly referred to as “FATCA” generally imposes a withholding tax of 30% on payments to certain non-U.S. entities
(including financial intermediaries) with respect to certain financial instruments, unless various U.S. information reporting
and due diligence requirements have been satisfied. An intergovernmental agreement between the United States and the non-U.S.
entity’s jurisdiction may modify these requirements. This legislation generally applies to certain financial instruments
that are treated as paying U.S.-source interest or other U.S.-source “fixed or determinable annual or periodical”
income (“FDAP income”). Withholding (if applicable) applies to payments of U.S.-source FDAP income and, for dispositions
after December 31, 2018, to payments of gross proceeds of the disposition (including upon retirement) of certain financial instruments
treated as providing for U.S.-source interest or dividends. While the treatment of the Securities is unclear, you should assume
that any coupon payment with respect to the Securities will be subject to the FATCA rules. It is also possible in light of this
uncertainty that an applicable withholding agent will treat gross proceeds of a disposition (including upon retirement) of the
Securities after 2018 as being subject to the FATCA rules. If withholding applies to the Securities, we will not be required to
pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers
regarding the potential application of FATCA to the Securities.
The
discussion in the preceding paragraphs under “What Are the Tax Consequences of the Securities,” insofar as it purports
to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full opinion
of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the Securities.
The S&P 500
®
Index, which is calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks
of 500 component companies selected to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P
500
®
Index is based on the relative value of the float adjusted aggregate market capitalization of the 500 component
companies as of a particular time as compared to the aggregate average market capitalization of 500 similar companies during the
base period of the years 1941 through 1943. For additional information about the S&P 500
®
Index, see the
information set forth under “S&P 500
®
Index” in the accompanying index supplement.
“Standard & Poor’s
®
,”
“S&P
®
,” “S&P 500
®
,” “Standard & Poor’s 500”
and “500” are trademarks of Standard and Poor’s Financial Services LLC. For more information, see “S&P
500
®
Index” in the accompanying index supplement.
The following table sets forth
the published high and low closing values, as well as the end-of-quarter closing values, of the S&P 500
®
Index
for each quarter in the period from January 1, 2012 through July 27, 2017. The closing value of the S&P 500
®
Index on July 27, 2017 was 2,475.42. We obtained the information in the table below from Bloomberg Financial Markets, without
independent verification. The historical closing values of the S&P 500
®
Index should not be taken as an indication
of future performance, and no assurance can be given as to the level of the S&P 500
®
Index on any Index Business
Day during a Quarterly Observation Period, including the Final Valuation Date.
Quarter
Begin
|
Quarter
End
|
Quarterly
High
|
Quarterly
Low
|
Quarterly
Close
|
1/1/2012
|
3/31/2012
|
1,416.51
|
1,277.06
|
1,408.47
|
4/1/2012
|
6/30/2012
|
1,419.04
|
1,278.04
|
1,362.16
|
7/1/2012
|
9/30/2012
|
1,465.77
|
1,334.76
|
1,440.67
|
10/1/2012
|
12/31/2012
|
1,461.40
|
1,353.33
|
1,426.19
|
1/1/2013
|
3/31/2013
|
1,569.19
|
1,457.15
|
1,569.19
|
4/1/2013
|
6/30/2013
|
1,669.16
|
1,541.61
|
1,606.28
|
7/1/2013
|
9/30/2013
|
1,725.52
|
1,614.08
|
1,681.55
|
10/1/2013
|
12/31/2013
|
1,848.36
|
1,655.45
|
1,848.36
|
1/1/2014
|
3/31/2014
|
1,878.04
|
1,741.89
|
1,872.34
|
4/1/2014
|
6/30/2014
|
1,962.87
|
1,815.69
|
1,960.23
|
7/1/2014
|
9/30/2014
|
2,011.36
|
1,909.57
|
1,972.29
|
10/1/2014
|
12/31/2014
|
2,090.57
|
1,862.49
|
2,058.90
|
1/1/2015
|
3/31/2015
|
2,117.39
|
1,992.67
|
2,067.89
|
4/1/2015
|
6/30/2015
|
2,130.82
|
2,057.64
|
2,063.11
|
7/1/2015
|
9/30/2015
|
2,128.28
|
1,867.61
|
1,920.03
|
10/1/2015
|
12/31/2015
|
2,109.79
|
1,923.82
|
2,043.94
|
1/1/2016
|
3/31/2016
|
2,063.95
|
1,829.08
|
2,059.74
|
4/1/2016
|
6/30/2016
|
2,119.12
|
2,000.54
|
2,098.86
|
7/1/2016
|
9/30/2016
|
2,190.15
|
2,088.55
|
2,168.27
|
10/1/2016
|
12/31/2016
|
2,271.72
|
2,085.18
|
2,238.83
|
1/1/2017
|
3/31/2017
|
2,395.96
|
2,257.83
|
2,362.72
|
4/1/2017
|
6/30/2017
|
2,453.46
|
2,328.95
|
2,423.41
|
7/1/2017
|
7/27/2017*
|
2,477.83
|
2,409.75
|
2,475.42
|
* 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 S&P 500
®
Index from January 1, 2012 through July 27, 2017, based
on information from Bloomberg.
*
The dotted line indicates the hypothetical Coupon Barrier and Downside Threshold, assuming the closing value of the SPX Index
on July 27, 2017 were its Initial Underlying Value.
Past performance is not indicative
of future results.
The Russell 2000
®
Index is an index calculated, published and disseminated by FTSE Russell, and measures the composite price performance of stocks
of 2,000 companies incorporated in the U.S. and its territories. All 2,000 stocks are traded on a major U.S. exchange and are
the 2,000 smallest securities that form the Russell 3000
®
Index. The Russell 3000
®
Index is composed
of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of the U.S. equity
market. The Russell 2000
®
Index consists of the smallest 2,000 companies included in the Russell 3000
®
Index and represents a small portion of the total market capitalization of the Russell 3000
®
Index. The Russell
2000
®
Index is designed to track the performance of the small-capitalization segment of the U.S. equity market.
For additional information about the Russell 2000
®
Index, see the information set forth under “Russell 2000
®
Index” in the accompanying index supplement.
The “Russell 2000
®
Index” is a trademark of FTSE Russell. For more information, see “Russell 2000
®
Index”
in the accompanying index supplement.
The following table sets forth
the published high and low closing values, as well as the end-of-quarter closing values, of the Russell 2000
®
Index
for each quarter in the period from January 1, 2012 through July 27, 2017. The closing value of the Russell 2000
®
Index on July 27, 2017 was 1,433.624. We obtained the information in the table below from Bloomberg Financial Markets, without
independent verification. The historical closing values of the Russell 2000
®
Index should not be taken as an indication
of future performance, and no assurance can be given as to the level of the Russell 2000
®
Index on any Index Business
Day during a Quarterly Observation Period, including the Final Valuation Date.
Quarter
Begin
|
Quarter
End
|
Quarterly
High
|
Quarterly
Low
|
Quarterly
Close
|
1/1/2012
|
3/31/2012
|
846.13
|
747.28
|
830.30
|
4/1/2012
|
6/30/2012
|
840.63
|
737.24
|
798.49
|
7/1/2012
|
9/30/2012
|
864.70
|
767.75
|
837.45
|
10/1/2012
|
12/31/2012
|
852.50
|
769.48
|
849.35
|
1/1/2013
|
3/31/2013
|
953.07
|
872.61
|
951.54
|
4/1/2013
|
6/30/2013
|
999.99
|
901.51
|
977.48
|
7/1/2013
|
9/30/2013
|
1,078.409
|
989.535
|
1,073.786
|
10/1/2013
|
12/31/2013
|
1,163.637
|
1,043.459
|
1,163.637
|
1/1/2014
|
3/31/2014
|
1,208.651
|
1,093.594
|
1,173.038
|
4/1/2014
|
6/30/2014
|
1,192.964
|
1,095.986
|
1,192.964
|
7/1/2014
|
9/30/2014
|
1,208.150
|
1,101.676
|
1,101.676
|
10/1/2014
|
12/31/2014
|
1,219.109
|
1,049.303
|
1,204.696
|
1/1/2015
|
3/31/2015
|
1,266.373
|
1,154.709
|
1,252.772
|
4/1/2015
|
6/30/2015
|
1,295.799
|
1,215.417
|
1,253.947
|
7/1/2015
|
9/30/2015
|
1,273.328
|
1,083.907
|
1,100.688
|
10/1/2015
|
12/31/2015
|
1,204.159
|
1,097.552
|
1,135.889
|
1/1/2016
|
3/31/2016
|
1,114.028
|
953.715
|
1,114.028
|
4/1/2016
|
6/30/2016
|
1,188.954
|
1,089.646
|
1,151.923
|
7/1/2016
|
9/30/2016
|
1,263.438
|
1,139.453
|
1,251.646
|
10/1/2016
|
12/31/2016
|
1,388.073
|
1,156.885
|
1,357.130
|
1/1/2017
|
3/31/2017
|
1,413.635
|
1,345.598
|
1,385.920
|
4/1/2017
|
6/31/2017
|
1,425.985
|
1,345.244
|
1,415.359
|
7/1/2017
|
7/27/2017*
|
1,450.387
|
1,400.815
|
1,433.624
|
* Available information for the
indicated period includes data for less than the entire calendar quarter, and, accordingly, the “Quarterly High,”
“Quarterly Low” and “Quarterly Close” data indicated are for this shortened period only.
The
graph below illustrates the performance of the Russell 2000
®
Index from January 1, 2012 through July 27, 2017,
based on information from Bloomberg.
*
The dotted line indicates the hypothetical Coupon Barrier and Downside Threshold, assuming the closing value of the RTY Index
on July 27, 2017 were its Initial Underlying Value.
Past
performance is not indicative of future results.
The
EURO STOXX 50
®
Index
|
The EURO STOXX 50
®
Index was created by STOXX Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50
®
Index began on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50
®
Index is composed of 50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes
stocks selected from the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across
all market sectors. For additional information about the EURO STOXX 50
®
Index, see the information set forth under
“EURO STOXX 50
®
Index” in the accompanying index supplement.
“EURO STOXX 50
®
”
and “STOXX
®
” are registered trademarks of STOXX Limited. For more information, see “EURO STOXX
50
®
Index” in the accompanying index supplement.
The following table sets forth
the published high and low closing values, as well as the end-of-quarter closing values, of the EURO STOXX 50
®
Index for each quarter in the period from January 1, 2012 through July 27, 2017. The closing value of the EURO STOXX 50
®
Index on July 27, 2017 was 3,493.14. We obtained the information in the table below from Bloomberg Financial Markets, without
independent verification. The historical closing values of the EURO STOXX 50
®
Index should not be taken as an indication
of future performance, and no assurance can be given as to the level of the EURO STOXX 50
®
Index on any Index Business
Day during a Quarterly Observation Period, including 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
|
6/30/2017
|
3,658.79
|
3,409.78
|
3,441.88
|
7/1/2017
|
7/27/2017*
|
3,527.83
|
3,451.71
|
3,493.14
|
* 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, 2012 through July 27, 2017,
based on information from Bloomberg.
*
The dotted line indicates the hypothetical Coupon Barrier and Downside Threshold, assuming the closing value of the SX5E Index
on July 27, 2017 were its Initial Underlying Value.
Past
performance is not indicative of future results.
Correlation
of the Underlyings
|
The graph below illustrates the
daily performance of the Russell 2000
®
Index, the S&P 500
®
Index and the EURO STOXX 50
®
Index from January 1, 2008 through July 27, 2017. For comparison purposes, each Underlying has been “normalized”
to have a closing value of 100 on January 1, 2008 by dividing the closing value of that Underlying on each Index Business Day
by the closing value of that Underlying on January 1, 2008 and multiplying by 100. We obtained the closing values used to determine
the normalized closing values set forth below from Bloomberg, without independent verification.
A closer relationship between the
daily returns of two or more underlying assets over a given period indicates that such underlying assets have been more positively
correlated. Lower (or more-negative) correlation among two or more underlying assets over a given period may indicate that it
is less likely that those underlying assets will subsequently move in the same direction. Therefore, lower correlation among
the Underlyings may indicate a greater potential for one of the Underlyings to close below its respective Coupon Barrier on any
Index Business Day during an applicable Quarterly Observation Period because there may be a greater likelihood that at least one
of the Underlyings will decrease in value significantly. However, even if the Underlyings have a higher positive correlation,
one or more of the Underlyings may close below the respective Coupon Barrier(s) on any Index Business Day during the applicable
Quarterly Observation Period or below the Downside Threshold on the Final Valuation Date, as applicable, as the Underlyings may
all decrease in value. Moreover, the actual correlation among the Underlyings may differ, perhaps significantly, from their
historical correlation. A higher Contingent Coupon Rate is generally associated with lower correlation among the Underlyings,
which may indicate a greater potential for missed Contingent Coupons and/or a significant loss on your investment at maturity.
See “Key Risks — Because the Securities are linked to the performance of the least performing among the SPX Index,
the RTY Index and the SX5E Index, you are exposed to greater risk of receiving no Contingent Coupon payments or sustaining a significant
loss on your investment than if the Securities were linked to just one of the Underlyings” and “— A higher Contingent
Coupon Rate and/or lower Coupon Barriers and Downside Thresholds may reflect greater expected volatility of the Underlyings, and
greater expected volatility generally indicates an increased risk of declines in the levels of the Underlyings and, potentially,
a significant loss at maturity.” herein.
Past
performance and correlation of the Underlyings are not indicative of the future performance or correlation of the Underlyings.
Additional Terms of the Securities
|
Some Definitions
We have defined some of the terms that we use frequently in this
free writing prospectus below:
|
t
|
“Index Closing Value” on any Index Business
Day means (i) with respect to the SPX Index or the SX5E Index, the closing value of such Underlying, or any relevant Successor
Index (as defined under “—Discontinuance of an Underlying; Alteration of Method of Calculation” below) published
at the regular weekday close of trading on that Index Business Day by the relevant Index Publisher and (ii) with respect to the
RTY Index, the closing value of such Underlying or any Successor Index reported by Bloomberg Financial Services, or any successor
reporting service the Calculation Agent may select, on that Index Business Day. In certain circumstances, the Index Closing Value
will be based on the alternate calculation of such Underlying as described under “—Discontinuance of an Underlying;
Alteration of Method of Calculation.”
|
The closing value of the RTY Index
reported by Bloomberg Financial Services may be lower or higher than the official closing value of the Underlying published by
the Index Publisher.
|
t
|
“Index Publisher” means, with respect
to the SPX Index, S&P Dow Jones Indices LLC or any successor thereto; with respect to the RTY Index, FTSE Russell or any successor
thereto; and with respect to the SX5E Index, STOXX Limited or any successor thereto.
|
|
t
|
“Index Business Day” means a day, for
any Underlying, as determined by the Calculation Agent, on which trading is generally conducted on each of the Relevant Exchange(s)
for such 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.
|
|
t
|
“Market Disruption Event” means, with
respect to any Underlying:
|
(i) the
occurrence or existence of any of:
(a) a suspension, absence or material
limitation of trading of securities then constituting 20 percent or more of the value of such Underlying (or any relevant Successor
Index (as defined below under “—Discontinuance of an 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 securities then
constituting 20 percent or more of the value of such Underlying (or a Successor Index) 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 such Underlying (or a Successor Index) 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 such Underlying is materially suspended or materially limited at
that time, then the relevant percentage contribution of that security to the value of such Underlying shall be based on a comparison
of (x) the portion of the value of such Underlying attributable to that security relative to (y) the overall value of such 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 such 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 Index 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 such
Underlying are traded will not include
any time when such securities market is itself closed for trading under ordinary circumstances.
|
t
|
“Relevant Exchange” means, with respect
to any Underlying, the primary exchange(s) or market(s) of trading for (i) any security then included in such Underlying, or any
relevant Successor Index, and (ii) any futures or options contracts related to such Underlying or to any security then included
in such Underlying.
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Postponement of Quarterly Observation End-Dates and Coupon
Payment Dates (including the Call Dates and the Maturity Date)
If any scheduled Quarterly Observation End-Date, including the
Final Valuation Date, is not an Index Business Day with respect to any Underlying, or if there is a Market Disruption Event on
such day with respect to any Underlying, the relevant Quarterly Observation End-Date solely with respect to that affected Underlying
shall be the next succeeding Index Business Day with respect to that Underlying on which there is no Market Disruption Event with
respect to that Underlying;
provided
that if a Market Disruption Event with respect to that Underlying has occurred on each
of the five Index Business Days with respect to that Underlying immediately succeeding the relevant scheduled Quarterly Observation
End-Date, then (i) such fifth succeeding Index Business Day shall be deemed to be the relevant Quarterly Observation End-Date with
respect to that affected Underlying, notwithstanding the occurrence of a Market Disruption Event with respect to that Underlying
on such day and (ii) with respect to any such fifth Index Business Day on which a Market Disruption Event occurs with respect to
that Underlying, the Calculation Agent shall determine the Index Closing Value on such fifth Index Business Day in accordance with
the formula for and method of calculating that Underlying last in effect prior to the commencement of the Market Disruption Event,
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 Index Business Day of each security most recently constituting that affected Underlying
without any rebalancing or substitution of such securities following the commencement of the Market Disruption Event.
If any scheduled Coupon Payment Date (including a scheduled Call
Date) is not a Business Day, that Contingent Coupon, if any, (or the Settlement Amount, if applicable), shall be paid on the next
succeeding business day;
provided
that the Contingent Coupon, if any, with respect to the Final Valuation Date shall be
paid on the Maturity Date;
provided
further that if, due to a Market Disruption Event or otherwise, any Quarterly Observation
End-Date with respect to any Underlying is postponed so that it falls less than two business days prior to the scheduled Coupon
Payment Date, Call Date or Maturity Date, as applicable, the Coupon Payment Date, Call Date or Maturity Date, as applicable, shall
be postponed to the second business day following the Quarterly Observation End-Date as postponed, by which date the Index Closing
Value of each Underlying has been determined. In any of these cases, no adjustment shall be made to any Contingent Coupon payment
made on that postponed date.
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.
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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 Morgan Stanley or MSFL, 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.
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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.
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Discontinuance of an Underlying; Alteration of Method of Calculation
If the Index Publisher of an Underlying discontinues publication
of such Underlying and the Index 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 such discontinued Underlying (such index being
referred to herein as a “Successor Index”), then any subsequent Index Closing Value of such Underlying will be determined
by reference to the published value of such Successor Index at the regular weekday close of trading on any date on which the Index
Closing Value is to be determined, and, to the extent the value of the Successor Index differs from the value of the relevant Underlying
at the time of such substitution, proportionate adjustments will be made by the Calculation Agent to the relevant Initial Underlying
Value, Coupon Barrier and Downside Threshold.
Upon any selection by the Calculation Agent of a Successor Index,
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 Index Publisher discontinues publication of an Underlying
prior to, and such discontinuance is continuing on, any day on which an Index Closing Value must be determined and the Calculation
Agent determines, in its sole discretion, that no Successor Index is available at such time, then the Calculation Agent will determine
the Index Closing Value of such Underlying for each such date. The Index Closing Value of such Underlying will be computed by the
Calculation Agent in accordance with the formula for and method of calculating such 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 each such date of each security most recently constituting such Underlying without
any rebalancing or substitution of such securities following such discontinuance. Notwithstanding these alternative arrangements,
discontinuance of the publication of an Underlying may adversely affect the value of the Securities.
If at any time the method of calculating an Underlying or Successor
Index, or the value thereof, is changed in a material respect, or if such Underlying or Successor Index 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 Index Closing Value 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 such Underlying
or Successor Index, as the case may be, as if such changes or modifications had not been made, and the Calculation Agent will calculate
the Index Closing Value with reference to such Underlying or Successor Index, as adjusted. Accordingly, if the method of calculating
such Underlying or
Successor Index 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 such Underlying or Successor Index 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 (as successor
Trustee to JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase Bank)).
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 Values, the Index Closing
Values on each Index Business Day during the Quarterly Observation Periods, the Final Underlying Values, whether a Contingent Coupon
is payable with respect to any Quarterly Observation Period and the Payment at Maturity, if any.
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 Contingent Coupon, payment
upon Issuer Call, and 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, if any, 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 Level or whether
a Market Disruption Event has occurred. See “—Discontinuance of an 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 “Form of Securities—The Depositary” in the accompanying prospectus supplement and “Securities Offered
on a Global Basis Through the Depositary” 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 Underlyings, in futures or options contracts
on the Underlyings or the constituent stocks of the Underlyings, as well as in other instruments related to the Underlyings that
they may wish to use in connection with such hedging. Any of these hedging or trading activities on or prior to the Trade Date
could potentially increase the Initial Underlying Value, and, as a result, the Coupon Barrier of any of the Underlyings, which
is the level at or above which such Underlying must close on each Index Business Day during a Quarterly Observation Period in order
for you to earn a Contingent Coupon, and the Downside Threshold of any of the Underlyings, which if the Securities are not called
prior to maturity, is the level at or above which such Underlying must close on the Final Valuation Date in order for you to avoid
being exposed to the negative
performance of the Least Performing Underlying at maturity (in
each case, depending also on the performance of the other Underlyings). 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
stocks constituting the Underlyings, futures or options contracts on the Underlyings or their component stocks listed on major
securities markets or positions in any other available securities or instruments 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 values of the Underlyings and, therefore, adversely affect the value of the Securities
or the payment you will receive at maturity, if any, if not previously called.
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 affiliates, including MS &
Co., may 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”). 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, Morgan Stanley Wealth Management or their respective affiliates 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 Contingent Coupon Rate, 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 stocks constituting the Underlyings 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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