September
2017
Preliminary Terms No. 1,861
Registration Statement Nos. 333-200365;
333-200365-12
Dated September 19, 2017
Filed pursuant to Rule 433
Morgan Stanley Finance LLC
Structured
Investments
Opportunities in U.S. Equities
Contingent Income Auto-Callable Securities due September
30, 2019
All Payments on the
Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select
Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Fully
and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
The
securities offered are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally
guaranteed by Morgan Stanley. The securities have the terms described in the accompanying product supplement, index supplement
and prospectus, as supplemented or modified by this document. The securities do not guarantee the repayment of principal and do
not provide for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon
but only if
the determination closing
price of
each of the SPDR
®
S&P
®
Biotech ETF, the Financial
Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
, which we refer to as the
underlying shares,
is
at or above
75% of its respective initial
share price, which we refer to as the downside threshold level,
on the
related observation date. If, however, the determination closing price of
any of the underlying shares
is less than its
respective downside threshold level on any observation date, we will pay no interest for the related quarterly period. In addition,
the securities will be automatically redeemed if the determination closing
price of each of the underlying shares is
greater
than or equal to
its respective initial share price
on any quarterly
redemption determination date for the early redemption payment equal to the sum of the stated principal amount plus the related
contingent quarterly coupon.
No further payments will be made on the securities once they have been redeemed.
At
maturity, if
the securities have not previously been redeemed and the final share price of each of the underlying shares
is
greater than or equal to
its respective downside threshold level, the payment at maturity will be the sum of the stated
principal amount and the related contingent quarterly coupon. However, if the final share price of
any of the underlying shares
is less than its respective downside threshold level, investors will be exposed to the decline in the worst performing underlying
shares on a 1-to-1 basis, and will receive a payment at maturity that is less than 75% of the stated principal amount of the securities
and could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept the risk of losing their entire
initial investment and also the risk of not receiving any contingent quarterly coupons throughout the 2-year term of the securities.
The securities are for investors who are willing to risk their principal and seek an opportunity to earn interest at a potentially
above-market rate in exchange for the risk of receiving no quarterly interest over the entire 2-year term and in exchange for the
possibility of an automatic early redemption prior to maturity. Because the payment of contingent quarterly coupons is based on
the worst performing of the underlying shares, the fact that the securities are linked to three underlying shares does not provide
any asset diversification benefits and instead means that a decline in the price of any of the underlying shares below the relevant
downside threshold level will result in no contingent quarterly coupons, even if the other underlying shares close at or above
their respective downside threshold levels. Because all payments on the securities are based on the worst performing of the underlying
shares, a decline beyond the respective downside threshold level of any of the underlying shares will result in no contingent quarterly
coupon payments and a significant loss of your investment, even if the other underlying shares have appreciated or have not declined
as much. Investors will not participate in any appreciation of any of the underlying shares. The securities are notes issued as
part of MSFL’s Series A Global Medium-Term Notes program.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These securities are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
SUMMARY TERMS
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying shares:
|
SPDR
®
S&P
®
Biotech ETF (the “XBI Shares”), Financial Select Sector SPDR
®
Fund (the “XLF Shares”) and Technology Select Sector SPDR
®
Fund (the “XLK Shares”)
|
Aggregate principal amount:
|
$
|
Stated principal amount:
|
$1,000 per security
|
Issue price:
|
$1,000 per security
|
Pricing date:
|
September 21, 2017
|
Original issue date:
|
September 26, 2017 (3 business days after the pricing date)
|
Maturity date:
|
September 30, 2019
|
Early redemption:
|
If, on any redemption determination date, beginning on December 21,
2017, the determination closing price of
each of the underlying shares
is greater than or equal to its respective initial
share price, the securities will be automatically redeemed for an early redemption payment on the related early redemption date.
No further payments will be made on the securities once they have been redeemed.
The securities will not be redeemed early on any early redemption
date if the determination closing price of any of the underlying shares is below its respective initial share price on the related
redemption determination date.
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold
plus
(ii) the contingent quarterly coupon with respect to the related observation date.
|
Determination closing price:
|
With respect to each of the underlying shares, the closing price of such underlying shares on any redemption determination date or observation date (other than the final observation date),
times
the adjustment factor on such redemption determination date or observation date, as applicable
|
Redemption determination dates:
|
Quarterly, on December 21, 2017, March 21, 2018, June 21, 2018, September 21, 2018, December 21, 2018, March 21, 2019 and June 21, 2019, subject to postponement for non-trading days and certain market disruption events.
|
Early redemption dates:
|
Quarterly, on December 27, 2017, March 26, 2018, June 26, 2018, September 26, 2018, December 27, 2018, March 26, 2019 and June 26, 2019; provided that if any such day is not a business day, that early redemption payment, if payable, will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day.
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate of at least
13.45% (corresponding to approximately $33.625 per quarter per security) will be paid on the securities on each coupon payment
date
but only if
the determination closing price of
each of the underlying shares
is at or above its respective
downside threshold level on the related observation date. The actual contingent quarterly coupon rate will be determined on the
pricing date.
If, on any observation date, the determination closing price of
any of the underlying shares is less than its respective downside threshold level, no contingent quarterly coupon will be paid
with respect to that observation date. It is possible that one or more of the underlying shares will remain below their respective
downside threshold levels for extended periods of time or even throughout the entire 2-year term of the securities so that you
will receive few or no contingent quarterly coupons.
|
Downside threshold level:
|
With respect to the XBI Shares, $ , which is equal to 75% of its
initial share price
With respect to the XLF Shares, $ , which is equal to 75% of its
initial share price
With respect to the XLK Shares, $ , which is equal to 75% of its
initial share price
|
Payment at maturity:
|
If the securities are not redeemed
prior to maturity, investors will receive a payment at maturity determined as follows:
·
If the final share price of
each of the underlying shares
is
greater than or equal to
its respective downside threshold
level: (i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the final observation date
·
If the final share price of
any of the underlying shares is less than
its respective downside threshold level: (i) the stated
principal amount
multiplied by
(ii) the share performance factor of the worst performing underlying shares
Under these circumstances, the payment at maturity will be significantly
less than the stated principal amount of $1,000, and will represent a loss of more than 25%, and possibly all, of your investment.
|
|
Terms continued on the following page
|
Agent:
|
Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
Approximately $967.80 per security, or within $10.00 of that estimate. See “Investment Summary” beginning on page 3.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions
(1)
|
Proceeds to us
(2)
|
Per security
|
$1,000
|
$17.50
|
$982.50
|
Total
|
$
|
$
|
$
|
|
(1)
|
Selected dealers and their financial
advisors will collectively receive from the agent, MS & Co., a fixed sales commission
of $17.50 for each security they sell. See “Supplemental information regarding plan
of distribution; conflicts of interest.” For additional information, see “Plan
of Distribution (Conflicts of Interest)” in the accompanying product supplement.
|
|
(2)
|
See “Use of proceeds and hedging”
on page 31.
|
The securities involve risks not associated
with an investment in ordinary debt securities. See “Risk Factors” beginning on page 12.
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved these securities, or determined if this document or the accompanying product supplement, index
supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and are not
insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related product
supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional
Information About the Securities” at the end of this document.
As used in this document, “we,” “us” and
“our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product Supplement for Auto-Callable Securities dated February 29, 2016
Index Supplement dated January 30, 2017
Prospectus dated February 16, 2016
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Terms continued from previous page:
|
Initial share price:
|
With respect to the XBI Shares, $ , which is its closing price on
the pricing date
With respect to the XLF Shares, $ , which is its closing price on
the pricing date
With respect to the XLK Shares, $ , which is its closing price on
the pricing date
|
Coupon payment dates:
|
Quarterly, on December 27, 2017, March 26, 2018, June 26, 2018, September 26, 2018, December 27, 2018, March 26, 2019, June 26, 2019 and the maturity date;
provided
that if any such day is not a business day, that coupon payment will be made on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day.
|
Observation dates:
|
Quarterly, on December 21, 2017, March 21, 2018, June 21, 2018, September 21, 2018, December 21, 2018, March 21, 2019, June 21, 2019 and September 23, 2019, subject, independently in the case of each of the underlying shares, to postponement for non-trading days and certain market disruption events. We also refer to September 23, 2019 as the final observation date.
|
Final share price:
|
With respect to each of the underlying shares, the closing price of such underlying shares on the final observation date
times
the adjustment factor on such date
|
Adjustment factor:
|
With respect to each of the underlying shares, 1.0, subject to adjustment in the event of certain events affecting such underlying shares
|
Worst performing underlying shares:
|
The underlying shares with the largest percentage decrease from the respective initial share price to the respective final share price
|
Share performance factor:
|
Final share price
divided by
the initial share price
|
CUSIP / ISIN:
|
61768CQZ3 / US61768CQZ31
|
Listing:
|
The securities will not be listed on any securities exchange.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
Contingent Income Auto-Callable Securities due September 30,
2019 All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF,
the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund (the “securities”)
do not provide for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon
but only
if
the determination closing price of
each of the SPDR
®
S&P
®
Biotech ETF, the Financial
Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
, which we refer to as the
underlying shares, is
at or above
75% of its respective initial share price, which we refer to as the downside threshold
level, on the related observation date. If, however, the determination closing price of
any of the underlying shares
is
less than its respective downside threshold level on any observation date, we will pay no interest for the related quarterly period.
In addition, the securities will be automatically redeemed if the determination closing price of each of the underlying shares
is
greater than or equal to
its respective initial share price on any quarterly redemption determination date for the early
redemption payment equal to the sum of the stated principal amount plus the related contingent quarterly coupon. No further payments
will be made on the securities once they have been redeemed. At maturity, if the securities have not previously been redeemed and
the final share price of each of the underlying shares is
greater than or equal to
its respective downside threshold level,
the payment at maturity will be the sum of the stated principal amount and the related contingent quarterly coupon. However, if
the final share price of
any of the underlying shares
is less than its respective downside threshold level, investors will
be exposed to the decline in the worst performing underlying shares on a 1-to-1 basis, and will receive a payment at maturity that
is less than 75% of the stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities
must be willing to accept the risk of losing their entire initial investment and also the risk of not receiving any contingent
quarterly coupons throughout the 2-year term of the securities.
Investors will not participate in any appreciation in the price
of any of the underlying shares.
Maturity:
|
Approximately 2 years
|
Contingent quarterly coupon:
|
A
contingent
quarterly coupon at an annual rate of at
least 13.45% (corresponding to approximately $33.625 per quarter per security) will be paid on the securities on each coupon payment
date
but only if
the determination closing price of
each of the underlying shares
is at or above its respective downside
threshold level on the related observation date. The actual contingent quarterly coupon rate will be determined on the pricing
date.
If on any observation date, the determination closing
price of any of the underlying shares is less than its respective downside threshold level, we will pay no coupon for the applicable
quarterly period.
|
Automatic early redemption quarterly starting after three months:
|
If the determination closing price of
each of the underlying shares
is greater than or equal to its respective initial share price on any quarterly redemption determination date, beginning on December 21, 2017, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount
plus
the contingent quarterly coupon with respect to the related observation date. No further payments will be made on the securities once they have been redeemed.
|
Payment at maturity:
|
If the securities have not previously been redeemed and the final
share price of
each of the underlying shares
is
greater than or equal to its respective downside threshold level
,
the payment at maturity will be the sum of the stated principal amount and the related contingent quarterly coupon.
If the final share price of
any of the underlying
shares is
less than its respective downside threshold level, investors will receive a payment at maturity based on the decline
in the worst performing underlying shares over the term of the securities. Under these circumstances, the payment at maturity
will be less than 75% of the stated principal amount of the securities and could be zero.
Accordingly,
i
nvestors in
the securities must be willing to accept the risk of losing their entire initial investment.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
The original issue price of each security is
$1,000. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by
you, and, consequently, the estimated value of the securities on the pricing date will be less than $1,000. We estimate that the
value of each security on the pricing date will be approximately $967.80, or within $10.00 of that estimate. Our estimate of the
value of the securities as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date,
we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying
shares. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions
relating to the underlying shares, instruments based on the underlying shares, volatility and other factors including current and
expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities,
including the contingent quarterly coupon rate and the downside threshold levels, 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 terms of the securities would be
more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the
securities in the secondary market, absent changes in market conditions, including those related to the underlying shares, may
vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our
secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction
of this type and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities
are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co.
may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying
shares, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that
those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a market in the
securities and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities will pay a contingent quarterly coupon
but only if
the determination closing price of
each of
the underlying shares
is
at or above its respective downside threshold level
on the related observation date. The securities
have been designed for investors who are willing to forgo market floating interest rates and risk the loss of principal and accept
the risk of receiving few or no coupon payments for the entire 2-year term of the securities in exchange for an opportunity to
earn interest at a potentially above-market rate if all of the underlying shares close at or above their respective downside threshold
levels on each quarterly observation date, unless the securities are redeemed early. The following scenarios are for illustration
purposes only to demonstrate how the coupon and the payment at maturity (if the securities have not previously been redeemed) are
calculated, and do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or may not be redeemed,
the contingent quarterly coupon may be payable in none of, or some but not all of, the quarterly periods during the 2-year term
of the securities, and the payment at maturity may be less than 75% of the stated principal amount of the securities and may be
zero.
Scenario 1: The securities are redeemed prior to maturity
|
This scenario assumes that, prior to early redemption, each of
the underlying shares closes at or above its respective downside threshold level on some quarterly observation dates, but one or
more of the underlying shares close below the respective downside threshold level(s) on the others. Investors receive the contingent
quarterly coupon for the quarterly periods for which the determination closing price of each of the underlying shares is at or
above its respective downside threshold level on the related observation date, but not for the quarterly periods for which the
determination closing price of any of the underlying shares is below the respective downside threshold level(s) on the related
observation date.
When each of the underlying shares closes at or above
its respective initial share price on a quarterly redemption determination date, the securities will be automatically redeemed
for the stated principal amount
plus
the contingent quarterly coupon with respect to the related observation date.
|
Scenario 2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
|
This scenario assumes that each of the underlying shares closes at or above its respective downside threshold level on some quarterly observation dates, but one or more of the underlying shares close below the respective downside threshold level(s) on the others, and at least one of the underlying shares closes below its initial share price on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price of each of the underlying shares is at or above its respective downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price of one or more of the underlying shares is below the respective downside threshold level(s) on the related observation date. On the final observation date, each of the underlying shares closes at or above its respective downside threshold level. At maturity, in addition to the contingent quarterly coupon with respect to the final observation date, investors will receive the stated principal amount.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Scenario 3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
|
This scenario assumes that each of the underlying shares closes at or above its respective downside threshold level on some quarterly observation dates, but one or more of the underlying shares close below the respective downside threshold level(s) on the others, and at least one of the underlying shares closes below its initial share price on every quarterly redemption determination date. Consequently, the securities are not redeemed early, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price of each of the underlying shares is greater than or equal to its respective downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price of one or more of the underlying shares are below the respective downside threshold level(s) on the related observation date. On the final observation date, one or more of the underlying shares close below the respective downside threshold level(s). At maturity, investors will receive an amount equal to the stated principal amount multiplied by the share performance factor of the worst performing underlying shares. Under these circumstances, the payment at maturity will be less than 75% of the stated principal amount and could be zero. No coupon will be paid at maturity in this scenario.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing prices on each quarterly observation date, (2) the determination closing
prices on each quarterly redemption determination date and (3) the final share prices. Please see “Hypothetical Examples”
below for an illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Quarterly Coupons
(Beginning on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption (Starting
After Three Months)
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
For more information about the payout upon
an early redemption or at maturity in different hypothetical scenarios, see “Hypothetical Examples” below.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity,
if any, assuming the securities are not redeemed prior to maturity. The following examples are for illustrative purposes only.
Whether you receive a contingent quarterly coupon will be determined by reference to the determination closing price of each of
the underlying shares on each quarterly redemption determination date, and the amount you will receive at maturity, if any, will
be determined by reference to the final share price of each of the underlying shares on the final observation date. The actual
contingent quarterly coupon rate, and the actual initial share price and downside threshold level for each of the underlying shares
will be determined on the pricing date. All payments on the securities, if any, are subject to our credit risk. The below examples
are based on the following terms:
Hypothetical Contingent Quarterly Coupon:
|
13.45% per annum (corresponding to approximately $33.625 per
quarter per security)
1
With respect to each coupon payment date, a contingent
quarterly coupon is paid but only if the determination closing price of each of the underlying shares is at or above its respective
downside threshold level on the related observation date.
|
Payment at Maturity (if the securities are not redeemed prior to maturity):
|
If the final share price of
each of the underlying shares
is
greater than or equal to its respective downside threshold level
: the stated principal amount and the contingent quarterly
coupon with respect to the final observation date
If the final share price of
any of the underlying
shares is less than
its respective downside threshold level: (i) the stated principal amount
multiplied by
(ii) the
share performance factor of the worst performing underlying shares
|
Stated Principal Amount:
|
$1,000
|
Hypothetical Initial Share Price:
|
With respect to the XBI Shares: $65.00
With respect to the XLF Shares: $25.00
With respect to the XLK Shares: $50.00
|
Hypothetical Downside Threshold Level:
|
With respect to the XBI Shares: $48.75, which is 75% of its hypothetical
initial share price
With respect to the XLF Shares: $18.75, which is 75% of its hypothetical
initial share price
With respect to the XLK Shares: $37.50, which is 75% of its hypothetical
initial share price
|
1
The actual contingent quarterly
coupon will be an amount determined by the calculation agent based on the actual contingent quarterly coupon rate and the number
of days in the applicable payment period, calculated on a 30/360 day count basis. The hypothetical contingent quarterly coupon
of $33.625 is used in these examples for ease of analysis.
How to determine whether a contingent quarterly
coupon is payable with respect to an observation date:
|
Determination Closing Price
|
Hypothetical Contingent Quarterly Coupon
|
|
XBI Shares
|
XLF Shares
|
XLK Shares
|
|
Hypothetical Observation Date 1
|
$80.00 (
at or above
its downside threshold level)
|
$24.00 (
at or above
its downside threshold level)
|
$40.00 (
at or above
its downside threshold level)
|
$33.625
|
Hypothetical Observation Date 2
|
$42.00 (
below
its downside threshold level)
|
$24.00 (
at or above
its downside threshold level)
|
$40.00 (
at or above
its downside threshold level)
|
$0
|
Hypothetical Observation Date 3
|
$80.00 (
at or above
its downside threshold level)
|
$22.00 (
at or above
its downside threshold level)
|
$25.00 (
below
its downside threshold level)
|
$0
|
Hypothetical Observation Date 4
|
$45.00 (
below
its downside threshold level)
|
$15.00 (
below
its downside threshold level)
|
$25.00 (
below
its downside threshold level)
|
$0
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
On hypothetical observation date 1, each of the underlying shares
closes at or above its respective downside threshold level. Therefore, a hypothetical contingent quarterly coupon of $33.625 is
paid on the relevant coupon payment date.
On each of hypothetical observation dates 2 and 3, two of the
underlying shares close at or above their respective downside threshold levels but the other underlying shares closes below its
respective downside threshold level. Therefore, no contingent quarterly coupon is paid on the relevant coupon payment date.
On hypothetical observation date 4, each of the underlying shares
closes below its respective downside threshold level and accordingly no contingent quarterly coupon is paid on the relevant coupon
payment date.
You will not receive a contingent quarterly coupon on any
coupon payment date if the determination closing price of any of the underlying shares is below its respective downside threshold
level on the related observation date.
How to calculate the payment at maturity:
In the following examples, one or more of the underlying shares
close below the respective initial share price(s) on each redemption determination date, and, consequently, the securities are
not automatically redeemed prior to, and remain outstanding until, maturity.
|
Final Share Price
|
Payment at Maturity
|
|
XBI Shares
|
XLF Shares
|
XLK Shares
|
|
Example 1:
|
$100.00 (
at or above
its downside threshold level)
|
$24.00 (
at or above
its downside threshold level)
|
$100.00 (
at or above
its downside threshold level)
|
$1,033.625 (the stated principal amount
plus
the contingent quarterly coupon with respect to the final observation date)
|
Example 2:
|
$75.00 (
at or above
its downside threshold level)
|
$12.50 (
below
its downside threshold level)
|
$50.00 (
at or above
its initial share price)
|
$1,000 x share performance factor of the worst performing underlying shares = $1,000 x ($12.50 / $25.00) = $500.00
|
Example 3:
|
$75.00 (
at or above
its downside threshold level)
|
$12.50 (
below
its downside threshold level)
|
$27.50 (
below
its downside threshold level)
|
$1,000 x ($12.50 / $25.00) = $500.00
|
Example 4:
|
$32.50 (
below
its downside threshold level)
|
$12.50 (
below
its downside threshold level)
|
$20.00 (
below
its downside threshold level)
|
$1,000 x ($20.00 / $50.00) = $400.00
|
Example 5:
|
$19.50 (
below
its downside threshold level)
|
$10.00 (
below
its downside threshold level)
|
$25.00 (
below
its downside threshold level)
|
$1,000 x ($19.50 / $65.00) = $300.00
|
In example 1, the final share price of each of the underlying
shares is at or above its respective downside threshold level. Therefore, investors receive at maturity the stated principal amount
of the securities and the hypothetical contingent quarterly coupon with respect to the final observation date. However, investors
do not participate in the appreciation of any of the underlying shares.
In example 2, the final share prices of two of the underlying
shares are above their respective initial share prices, but the final share price of the other underlying shares is below its downside
threshold level. Therefore, investors are exposed to the downside performance of the worst performing underlying shares at maturity
and receive an amount equal to the stated principal amount
times
the share performance factor of the worst performing underlying
shares.
In example 3, the final share price of one of the underlying
shares is at or above its downside threshold level, but the final share price of each of the other underlying shares is below its
respective downside threshold level. Therefore, investors are exposed to the downside performance of the worst performing underlying
shares at maturity. The XLF Shares have declined 50% from their initial share price to their final share price, while the XLK Shares
have declined 45% from their initial share price to their final share price. Therefore, investors receive at maturity an amount
equal to the stated principal amount times the share performance factor of the XLF Shares, which are the worst performing underlying
shares in this example.
In examples 4 and 5, the final share price of each of the underlying
shares is below its respective downside threshold level, and investors receive at maturity an amount equal to the stated principal
amount
times
the share performance factor of the worst
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
performing underlying shares. In example 4, the XBI Shares have
declined 50% from their initial share price to their final share price, the XLF Shares have declined 50% from their initial share
price to their final share price, and the XLK Shares have declined 60% from their initial share price to their final share price.
Therefore, the payment at maturity equals the stated principal amount
times
the share performance factor of the XLK Shares,
which are the worst performing underlying shares in this example.
In example 5, the XBI Shares have declined 70% from their initial
share price to their final share price, the XLF Shares have declined 60% from their initial share price to their final share price
and the XLK Shares have declined 50% from their initial share price to their final share price. Therefore the payment at maturity
equals the stated principal amount
times
the share performance factor of the XBI Shares, which are the worst performing
underlying shares in this example.
If the final share price of ANY of the underlying shares is
below its respective downside threshold level, you will be exposed to the downside performance of the worst performing underlying
shares at maturity, and your payment at maturity will be less than 75% of the stated principal amount per security and could be
zero.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Risk Factors
The
following is a list of certain key risk factors for investors in the securities. For further discussion of these and other risks,
you should read the section entitled “Risk Factors” in the accompanying product supplement, index supplement and prospectus.
We also urge you to consult with your investment, legal, tax, accounting and other advisers
in connection with your
investment in the securities
.
|
§
|
The securities do not guarantee the return of any principal.
The
terms of the securities differ from those of ordinary debt securities in that they do not guarantee the return of any of the principal
amount at maturity. If the securities have not been automatically redeemed prior to maturity and if the final share price of
any
of the underlying shares
is less than its downside threshold level of 75% of its initial share price, you will be exposed to
the decline in the closing price of the worst performing underlying shares, as compared to the initial share price, on a 1-to-1
basis, and you will receive for each security that you hold at maturity an amount equal to the stated principal amount
times
the share performance factor of the worst performing underlying shares. In this case, the payment at maturity will be less
than 75% of the stated principal amount and could be zero.
You could lose up to your entire investment in the securities.
|
|
§
|
The securities do not provide for the regular payment of interest
and may pay no interest over the entire term of the securities.
The terms of the securities differ from those of ordinary
debt securities in that they do not provide for the regular payment of interest. Instead, the securities will pay a contingent
quarterly coupon
but only if
the determination closing price of
each of the underlying shares
is
at or above
75% of its respective initial share price, which we refer to as the downside threshold level, on the related observation date.
If, on the other hand, the determination closing price of
any of the underlying shares
is lower than its respective downside
threshold level on the relevant observation date for any interest period, we will pay no coupon on the applicable coupon payment
date. It is possible that the determination closing price of one or more of the underlying shares could remain below the respective
downside threshold level(s) for extended periods of time or even throughout the entire 2-year term of the securities so that you
will receive few or no contingent quarterly coupons. If you do not earn sufficient contingent quarterly coupons over the term of
the securities, the overall return on the securities may be less than the amount that would be paid on a conventional debt security
of ours of comparable maturity.
|
|
§
|
You are exposed to the price risk of each of the underlying shares,
with respect to both the contingent quarterly coupons, if any, and the payment at maturity, if any.
Your
return on the securities is not linked to a basket consisting of each of the underlying shares. Rather, it will be contingent upon
the independent performance of each of the underlying shares. Unlike an instrument with a return linked to a basket of underlying
assets, in which risk is mitigated and diversified among all the components of the basket, you will be exposed to the risks related
to each of the underlying shares. Poor performance by
any
of the underlying shares
over the term of the securities may negatively affect your return and will not be offset or mitigated by any positive performance
by the other underlying shares. To receive
any
contingent quarterly coupons,
each
of the underlying shares
must close at or above its respective downside threshold level on
the applicable observation date. In addition, if
any
of the underlying shares has
declined to below its respective downside threshold level as of the final observation date, you will be
fully exposed
to the decline in the worst performing underlying shares over the term of the securities on a
1-to-1 basis, even if the other underlying shares have appreciated or have not declined as much. Under this scenario, the value
of any such payment will be less than 75% of the stated principal amount and could be zero. Accordingly, your investment is subject
to the price risk of each of the underlying shares.
|
|
§
|
Each of the underlying shares is subject to risks associated with investments concentrated in a particular sector.
All or substantially all of the equity securities held by the XBI Shares, XLF Shares and XLK Shares are issued by companies whose
primary business is directly associated with the biotechnology sector, the financial sector and the technology sector, respectively.
Each of the underlying shares may therefore be subject to increased price volatility, as each is concentrated in a single specific
industry and market sector, and each of the underlying shares may be more susceptible to adverse economic, market, political or
regulatory events affecting that particular industry or market sector. Therefore, the securities are exposed to concentration risks
relating to the industry and market sector reflected in each of the underlying shares.
|
|
§
|
The contingent quarterly coupon, if any, is based only on the determination closing prices of the underlying shares on the
related quarterly observation date at the end of the related interest period
.
Whether the contingent
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
quarterly coupon will be paid on
any coupon payment date will be determined at the end of the relevant interest period based on the determination closing price
of each of the underlying shares on the relevant quarterly observation date. As a result, you will not know whether you will receive
the contingent quarterly coupon on any coupon payment date until near the end of the relevant interest period. Moreover, because
the contingent quarterly coupon is based solely on the price of each of the underlying shares on quarterly observation dates, if
the determination closing price of any of the underlying shares on any observation date is below its respective downside threshold
level, you will receive no coupon for the related interest period even if the price(s) of one or more of the other underlying shares
were higher on other days during that interest period.
|
§
|
Investors will not participate in any appreciation in the price of any of the underlying shares.
Investors will not
participate in any appreciation in the price of the underlying shares from their initial share prices, and the return on the securities
will be limited to the contingent quarterly coupon that is paid with respect to each observation date on which each determination
closing price is greater than or equal to its respective downside threshold level, if any.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control, will influence the value of the 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. We expect that generally the level of interest rates available in the market and the prices of the
underlying
shares
on any day, including in relation to the respective
downside threshold levels, will affect the value of the securities more than any other factors. Other factors that may influence
the value of the securities include:
|
|
o
|
the trading price and volatility (frequency and magnitude of changes in value) of the underlying shares and the stocks constituting
their respective share underlying indices,
|
|
o
|
whether the determination closing price of any of the underlying shares has been below its respective downside threshold level
on any observation date,
|
|
o
|
dividend rates on the stocks constituting the share underlying indices,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying shares
or equity markets generally and which may affect the prices of the underlying shares,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the availability of comparable instruments,
|
|
o
|
the occurrence of certain events affecting the underlying shares that may or may not require an adjustment to the adjustment
factor,
|
|
o
|
the composition of the underlyings and changes in the constituents of the underlying shares, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity. For example,
you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security if the price
of any of the underlying shares at the time of sale is near or below its downside threshold level or if market interest rates rise.
The
price of any or all of the underlying shares may be, and have recently been, volatile, and we can give you no assurance that the
volatility will lessen.
The prices of one or more of the underlying shares may decrease and be below the respective downside
threshold level(s) on each observation date so that you will receive no return on your investment or receive a payment at maturity
that is less than 75% of the stated principal amount. There can be no assurance that the determination closing prices of all of
the underlying shares will be at or above their respective downside threshold levels on any observation date so that you will receive
a coupon payment on the securities for the applicable interest period or, with respect to the final observation date, so that you
do no suffer a significant loss on your initial investment in the securities.
See
“
SPDR
®
S&P
®
Biotech ETF
Overview,
” “
Financial
Select Sector SPDR
®
Fund Overview”
and
“
Technology Select Sector
SPDR
®
Fund
Overview
”
below
.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
|
§
|
The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads
may adversely affect the market value of the securities.
You are dependent on our ability to pay all amounts due on the securities
on each coupon payment date, upon automatic redemption and at maturity and therefore you are subject to our credit risk. The securities
are not guaranteed by any other entity. If we default on our obligations under the securities, your investment would be at risk
and you could lose some or all of your investment. As a result, the market value of the securities prior to maturity will be affected
by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase
in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the securities.
|
|
§
|
As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should
be treated
pari passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders
of Morgan Stanley-issued securities.
|
|
§
|
Reinvestment risk.
The term
of your investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities
are redeemed prior to maturity, you will receive no more contingent quarterly coupons and may be forced to invest in a lower interest
rate environment and may not be able to reinvest at comparable terms or returns.
|
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the underlying
shares.
MS & Co., as calculation agent, will adjust the adjustment factors for certain events affecting the underlying
shares. However, the calculation agent will not make an adjustment for every event that can affect the underlying shares. If an
event occurs that does not require the calculation agent to adjust an adjustment factor, the market price of the
securities
may be materially and adversely affected.
|
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be limited
,
and
accordingly, you should be willing to hold your securities for the entire 2-year term of the securities.
The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary
market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any,
at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it
is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
|
|
§
|
The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities,
cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market
prices.
Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including
MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than
the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs
that are included in the original issue price and borne by you and because the secondary market prices will reflect our
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
secondary market credit spreads
and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as other factors.
The inclusion of the costs of issuing,
selling, structuring and hedging the securities in the original issue price and the lower rate we are willing to pay as issuer
make the economic terms of the securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months
following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes
in market conditions, including those related to the underlying shares, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers, and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your securities in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
Adjustments to the underlying shares or the indices tracked by the underlying shares could adversely affect the value of
the securities.
The investment advisor to each of the underlying shares (SSgA Funds Management, Inc.) seeks investment results
that correspond generally to the price and yield performance, before fees and expenses, of the relevant share underlying indices.
Pursuant to its investment strategy or otherwise, the investment advisor may add, delete or substitute the stocks composing the
respective underlying shares. Any of these actions could adversely affect the price of the respective underlying shares and, consequently,
the value of the securities. The publisher of the share underlying indices is responsible for calculating and maintaining the share
underlying indices. The publisher may add, delete or substitute the securities constituting the share underlying indices or make
other methodological changes that could change the value of the share underlying indices, and, consequently, the price of the underlying
shares and the value of the securities. The publisher of the share underlying indices may discontinue or suspend calculation or
publication of a share underlying index at any time. In these circumstances, the calculation agent will have the sole discretion
to substitute a successor index that is comparable to the discontinued share underlying index and will be permitted to consider
indices that are calculated and published by the calculation agent or any of its affiliates.
|
|
§
|
The performance and market price of any of the underlying
shares, particularly during periods of market volatility, may not correlate with the performance of its respective share underlying
index, the performance of the component securities of such share underlying index or the net asset value per share of such
underlying shares.
The underlying shares do not fully replicate their respective share underlying indices, and each may hold
securities that are different than those included in its respective share underlying index. In addition, the performance
of each of the underlying shares will reflect additional transaction costs and fees that are not included in the calculation of
the share underlying indices. All of these factors may lead to a lack of correlation between the performance of each of
the underlying shares and its respective share underlying index. In addition, corporate actions (such as mergers and spin-offs)
with respect to the equity securities underlying each of the underlying shares may impact the variance between the performance
of each of the underlying shares and its respective share underlying index. Finally, because the shares of each of the underlying
shares are traded on an exchange and are subject to market supply and investor demand, the market price of one share of
each of the underlying shares may differ from the net asset value per share of such underlying shares.
|
In particular, during periods of
market volatility, or unusual trading activity, trading in the securities underlying each of the underlying shares may be disrupted
or limited, or such securities may be unavailable in the secondary
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
market. Under these circumstances,
the liquidity of each underlying shares may be adversely affected, market participants may be unable to calculate accurately the
net asset value per share of each of the underlying shares, and their ability to create and redeem shares of each of the underlying
shares may be disrupted. Under these circumstances, the market price of shares of each of the underlying shares may vary substantially
from the net asset value per share of each underlying share or the level of its respective share underlying index.
For all of the foregoing reasons,
the performance of each of the underlying shares may not correlate with the performance of its respective share underlying index,
the performance of the component securities of such share underlying index or the net asset value per share of such underlying
shares. Any of these events could materially and adversely affect the prices of each of the underlying shares and, therefore,
the value of the securities. Additionally, if market volatility or these events were to occur on the final observation date, the
calculation agent would maintain discretion to determine whether such market volatility or events have caused a market disruption
event to occur, and such determination would affect the payment at maturity of the securities. If the calculation agent determines
that no market disruption event has taken place, the payment at maturity would be based solely on the published closing price per
share of each of the underlying shares on the final observation date, even if any of the underlying shares is underperforming its
respective share underlying index or the component securities of such share underlying index and/or trading below the net asset
value per share of such underlying shares.
|
§
|
Not equivalent to investing in the underlying shares or the stocks
composing the share underlying indices.
Investing in the securities is not equivalent to
investing in the underlying shares, the share underlying indices or the stocks that constitute the share underlying indices. 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 underlying shares or the stocks that constitute the share underlying indices.
|
|
§
|
Hedging and trading activity by our affiliates could potentially affect the value of the securities.
One or more of
our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other instruments
linked to the underlying shares and the share underlying indices), including trading in the underlying shares. As a result, these
entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the final observation date approaches. Some of our affiliates also
trade the underlying shares and other financial instruments related to the underlying shares and the share underlying indices on
a regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior
to the pricing date could potentially increase the initial share price of any of the underlying shares and, therefore, could increase
(i) the value at or above which such underlying shares must close on the redemption determination dates so that the securities
are redeemed prior to maturity for the early redemption payment (depending also on the performance of the other underlying shares)
and (ii) the downside threshold level for such underlying shares, which is the value at or above which the underlying shares must
close on the observation dates so that you receive a contingent quarterly coupon on the securities (depending also on the performance
of the other underlying shares), and, with respect to the final observation date, so that you are not exposed to the negative performance
of the worst performing underlying shares at maturity (depending also on the performance of the other underlying shares). Additionally,
such hedging or trading activities during the term of the securities could potentially affect the value of any of the underlying
shares on the redemption determination dates and the observation dates and, accordingly, whether we redeem the securities prior
to maturity, whether we pay a contingent quarterly coupon on the securities and the amount of cash you will receive at maturity,
if any.
|
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. will determine the initial share prices, the downside threshold levels,
the final share prices, the payment at maturity, if any, whether you receive a contingent quarterly coupon on each coupon payment
date and/or at maturity, whether the securities will be redeemed on any early redemption date, whether a market disruption event
has occurred and whether to make any adjustments to the adjustment factors. 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 or calculation of the determination closing price in the event
of a market disruption event. These potentially subjective determinations may affect the payout to you upon an automatic early
redemption or at maturity, if any. For further information regarding these types of determinations, see “Description of
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Auto-Callable Securities—Auto-Callable
Securities Linked to Underlying Shares” and “—Calculation Agent and Calculations” in the accompanying product
supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal
authority as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects
of the tax treatment of the securities are uncertain.
|
Please read the discussion under
“Additional Provisions—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities
every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference, if any,
between the actual and the projected amount of any contingent payments on the securities) and recognize all income and gain in
respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features.
Non-U.S. Holders should note
that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision, and will not be required to pay any
additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and
timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders (as defined below) should consult their tax advisers regarding the U.S. federal income tax
consequences of an investment in the securities, including possible alternative treatments, the issues presented by this notice
and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
SPDR
®
S&P
®
Biotech ETF Overview
The SPDR
®
S&P
®
Biotech ETF
is an exchange-traded fund managed by SSgA Funds Management, Inc., which seeks to provide investment results that correspond generally
to the price and yield performance, before fees and expenses, of the S&P Biotechnology Select Industry
TM
Index.
SPDR
®
Series Trust (the “Trust”) is a registered investment company that consists of numerous separate
investment portfolios, including the SPDR
®
S&P
®
Biotech ETF. Information provided to or filed
with the Securities and Exchange Commission (“the Commission”) by the Trust pursuant to the Securities Act of 1933
and the Investment Company Act of 1940 can be located by reference to Commission file numbers 333-57793 and 811-08839, respectively,
through the Commission’s website at www.sec.gov. In addition, information may be obtained from other publicly available
sources.
Neither the issuer nor the agent makes any representation that any such publicly available information regarding the
SPDR
®
S&P
®
Biotech ETF is accurate or complete.
Information as of market close on September 18, 2017:
Ticker Symbol:
|
XBI UP
|
Current Stock Price:
|
$84.03
|
52 Weeks Ago:
|
$65.89
|
52 Week High (on 9/1/2017):
|
$84.62
|
52 Week Low (on 11/3/2016):
|
$53.31
|
The following table sets forth the published
high and low closing prices, as well as the end-of-quarter closing prices, of the XBI Shares for each quarter from January 1, 2012
through September 18, 2017. The closing price of the XBI Shares on September 18, 2017 was $84.03. The associated graph shows the
closing prices of the XBI Shares for each day from January 1, 2012 through September 18, 2017. We obtained the information in the
table and graph below from Bloomberg Financial Markets, without independent verification. The historical performance of the XBI
Shares should not be taken as an indication of its future performance, and no assurance can be given as to the price of the XBI
Shares at any time, including on the redemption determination dates or the observation dates.
SPDR
®
S&P
®
Biotech ETF (CUSIP 78464A870)
|
High ($)
|
Low ($)
|
Period End ($)
|
2012
|
|
|
|
First Quarter
|
27.44
|
22.01
|
26.79
|
Second Quarter
|
29.55
|
24.63
|
29.49
|
Third Quarter
|
32.08
|
28.43
|
31.14
|
Fourth Quarter
|
31.85
|
27.24
|
29.30
|
2013
|
|
|
|
First Quarter
|
33.55
|
30.41
|
33.29
|
Second Quarter
|
37.66
|
32.39
|
34.75
|
Third Quarter
|
43.74
|
36.24
|
43.05
|
Fourth Quarter
|
43.95
|
38.08
|
43.40
|
2014
|
|
|
|
First Quarter
|
56.90
|
42.97
|
47.49
|
Second Quarter
|
51.35
|
40.27
|
51.35
|
Third Quarter
|
54.30
|
44.87
|
51.99
|
Fourth Quarter
|
63.45
|
48.48
|
62.21
|
2015
|
|
|
|
First Quarter
|
79.33
|
61.43
|
75.17
|
Second Quarter
|
86.57
|
68.78
|
84.08
|
Third Quarter
|
90.36
|
60.02
|
62.25
|
Fourth Quarter
|
72.62
|
61.16
|
70.08
|
2016
|
|
|
|
First Quarter
|
67.83
|
45.73
|
51.66
|
Second Quarter
|
59.87
|
49.55
|
54.09
|
Third Quarter
|
68.83
|
55.11
|
66.29
|
Fourth Quarter
|
68.13
|
53.31
|
59.19
|
2017
|
|
|
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
SPDR
®
S&P
®
Biotech ETF (CUSIP 78464A870)
|
High ($)
|
Low ($)
|
Period End ($)
|
First Quarter
|
72.32
|
59.59
|
69.34
|
Second Quarter
|
80.31
|
66.84
|
77.18
|
Third Quarter (through September 18, 2017)
|
84.62
|
74.47
|
84.03
|
Shares of the
SPDR
®
S&P
®
Biotech ETF
– Daily Closing Prices
January 1, 2012 to September 18, 2017
|
|
* The red solid line indicates the hypothetical downside threshold
level, assuming the closing price of the XBI Shares on September 18, 2017 were the initial share price.
This document relates only to the securities offered hereby
and does not relate to the XBI Shares. We have derived all disclosures contained in this document regarding the Trust
from the publicly available documents described above. In connection with the offering of the securities, neither we
nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the Trust. Neither
we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding
the Trust is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the
date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above)
that would affect the trading price of the XBI Shares (and therefore the price of the XBI Shares at the time we price the securities)
have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material
future events concerning the Trust could affect the value received with respect to the securities and therefore the value of the
securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the XBI Shares.
We and/or our affiliates may presently or from time to time engage
in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information
with respect to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In
addition, one or more of our affiliates may publish research reports with respect to the XBI Shares. The statements
in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws. As
a prospective purchaser of the securities, you should undertake an independent investigation of the Trust as in your judgment is
appropriate to make an informed decision with respect to an investment linked to the XBI Shares.
“Standard & Poor’s
®
”,
“S&P
®
”, “S&P 500
®
”, “SPDR
®
” and “SPDR
®
Series Trust” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”), an affiliate
of The McGraw-Hill Companies, Inc. (“MGH”). The securities are not sponsored, endorsed, sold, or promoted by S&P,
MGH or the Trust. S&P, MGH and the Trust make no
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
representations or warranties to the owners of the securities
or any member of the public regarding the advisability of investing in the securities. S&P, MGH and the Trust have no obligation
or liability in connection with the operation, marketing, trading or sale of the securities.
The S&P Biotechnology Select Industry
TM
Index.
The S&P Biotechnology Select Industry
TM
Index (Bloomberg ticker SPSIBI)
is managed by S&P Dow Jones Indices LLC and is a modified equally weighted index that is designed to measure the performance
of stocks in the S&P Total Market Index that are classified under the Global Industry Classification Standard (“GICS
®
”)
biotechnology sub-industry.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Financial Select Sector SPDR
®
Fund Overview
The Financial Select Sector SPDR
®
Fund is an exchange-traded
fund managed by Select Sector SPDR Trust (the “Trust”), a registered investment company. The Trust consists of numerous
separate investment portfolios, including the Financial Select Sector SPDR
®
Fund. The Financial Select Sector SPDR
®
Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Financial
Select Sector Index. It is possible that this fund may not fully replicate the performance of the Financial Select Sector Index
due to the temporary unavailability of certain securities in the secondary market or due to other extraordinary circumstances.
Information provided to or filed with the Commission by the Trust pursuant to the Securities Act of 1933 and the Investment Company
Act of 1940 can be located by reference to Commission file numbers 333-57791 and 811-08837, respectively, through the Commission’s
website at.www.sec.gov. In addition, information may be obtained from other publicly available sources.
Neither the issuer nor
the agent makes any representation that any such publicly available information regarding the Financial Select Sector SPDR
®
Fund is accurate or complete.
Information as of market close on September 18, 2017:
Ticker Symbol:
|
XLF UP
|
Current Stock Price:
|
$25.06
|
52 Weeks Ago:
|
$19.31
|
52 Week High (on 8/4/2017):
|
$25.39
|
52 Week Low (on 9/29/2016):
|
$19.04
|
The following table sets forth the published
high and low closing prices, as well as the end-of-quarter closing prices, of the XLF Shares for each quarter from January 1, 2012
through September 18, 2017. The closing price of the XLF Shares on September 18, 2017 was $25.06. The associated graph shows the
closing prices of the XLF Shares for each day from January 1, 2012 through September 18, 2017. We obtained the information in the
table and graph below from Bloomberg Financial Markets, without independent verification. The historical performance of the XLF
Shares should not be taken as an indication of its future performance, and no assurance can be given as to the price of the XLF
Shares at any time, including on the redemption determination dates or the observation dates.
Financial Select Sector SPDR
®
Fund (CUSIP: 81369Y605)
|
High ($)
|
Low ($)
|
Period End ($)
|
2012
|
|
|
|
First Quarter
|
12.97
|
10.80
|
12.81
|
Second Quarter
|
12.92
|
10.86
|
11.87
|
Third Quarter
|
13.22
|
11.55
|
12.67
|
Fourth Quarter
|
13.55
|
12.31
|
13.32
|
2013
|
|
|
|
First Quarter
|
15.00
|
13.68
|
14.77
|
Second Quarter
|
16.38
|
14.48
|
15.83
|
Third Quarter
|
16.95
|
15.76
|
16.18
|
Fourth Quarter
|
17.75
|
15.89
|
17.75
|
2014
|
|
|
|
First Quarter
|
18.25
|
16.67
|
18.14
|
Second Quarter
|
18.60
|
17.28
|
18.47
|
Third Quarter
|
19.33
|
17.99
|
18.81
|
Fourth Quarter
|
20.33
|
17.90
|
20.08
|
2015
|
|
|
|
First Quarter
|
20.08
|
18.68
|
19.58
|
Second Quarter
|
20.52
|
19.56
|
19.80
|
Third Quarter
|
20.77
|
18.09
|
18.40
|
Fourth Quarter
|
20.16
|
18.41
|
19.31
|
2016
|
|
|
|
First Quarter
|
19.05
|
15.99
|
18.28
|
Second Quarter
|
19.36
|
17.42
|
18.54
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Financial Select Sector SPDR
®
Fund (CUSIP: 81369Y605)
|
High ($)
|
Low ($)
|
Period End ($)
|
Third Quarter
|
19.95
|
18.17
|
19.30
|
Fourth Quarter
|
23.75
|
19.21
|
23.25
|
2017
|
|
|
|
First Quarter
|
25.24
|
22.95
|
23.73
|
Second Quarter
|
24.69
|
22.90
|
24.67
|
Third Quarter (through September 18, 2017)
|
25.39
|
23.88
|
25.06
|
|
|
|
|
Shares of the Financial Select Sector SPDR
®
Fund – Daily Closing Prices
January 1, 2012 to September 18, 2017
|
|
* The red solid line indicates the hypothetical downside threshold
level, assuming the closing price of the XLF Shares on September 18, 2017 were the initial share price.
This document relates only to the securities offered hereby
and does not relate to the XLF Shares. We have derived all disclosures contained in this document regarding the Trust from the
publicly available documents described above. In connection with the offering of the securities, neither we nor the agent has participated
in the preparation of such documents or made any due diligence inquiry with respect to the Trust. Neither we nor the agent makes
any representation that such publicly available documents or any other publicly available information regarding the Trust is accurate
or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that
would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price
of the XLF Shares (and therefore the price of the XLF Shares at the time we price the securities) have been publicly disclosed.
Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the Trust
could affect the value received with respect to the securities and therefore the value of the securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the XLF Shares.
We and/or our affiliates may presently or from time to time engage
in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information with respect
to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or
more of our affiliates may publish research reports with respect to the XLF Shares. The statements in the preceding two sentences
are not intended to affect the rights of investors in the securities under the securities laws. As a prospective purchaser of the
securities, you should undertake an independent investigation of the Trust as in your judgment is appropriate to make an informed
decision with respect to an investment linked to the XLF Shares.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
The securities are not sponsored, endorsed, sold, or promoted
by the Trust. The Trust makes no representations or warranties to the owners of the securities or any member of the public regarding
the advisability of investing in the securities. The Trust has no obligation or liability in connection with the operation, marketing,
trading or sale of the securities.
“Standard & Poor’s
®
”,
“S&P
®
”, “S&P 500
®
”, “SPDR
®
”, “Select
Sector SPDR” and “Select Sector SPDRs” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”),
an affiliate of The McGraw-Hill Companies, Inc. (“MGH”). The securities are not sponsored, endorsed, sold, or promoted
by S&P, MGH or the Trust. S&P, MGH and the Trust make no representations or warranties to the owners of the securities
or any member of the public regarding the advisability of investing in the securities. S&P, MGH and the Trust have no obligation
or liability in connection with the operation, marketing, trading or sale of the securities.
The Financial Select Sector Index.
The Financial Select Sector Index is calculated and disseminated by S&P and is designed to provide an effective representation
of the financial sector of the S&P 500
®
Index. The Financial Select Sector Index includes companies in the following
industries: diversified financial services, insurance, commercial banks, capital markets, real estate investment trusts (“REITs”),
thrift & mortgage finance, consumer finance and real estate management & development. See “The Financial Select Sector
Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Technology Select Sector SPDR
®
Fund Overview
The Technology Select Sector SPDR
®
Fund is an
exchange-traded fund managed by the Select Sector SPDR
®
Trust (the “Trust”), a registered investment
company. The Trust consists of numerous separate investment portfolios, including the Technology Select Sector SPDR
®
Fund. The Technology Select Sector SPDR
®
Fund seeks investment results that correspond generally to the price and
yield performance, before fees and expenses, of the Technology Select Sector Index. It is possible that this fund may not fully
replicate the performance of the Technology Select Sector Index due to the temporary unavailability of certain securities in the
secondary market or due to other extraordinary circumstances. Information provided to or filed with the Commission by the Trust
pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission file numbers
333-57791 and 811-08837, respectively, through the Commission’s website at.www.sec.gov. In addition, information may be obtained
from other publicly available sources.
Neither the issuer nor the agent makes any representation that any such publicly available
information regarding the Technology Select Sector SPDR
®
Fund is accurate or complete.
Information as of market close on September 18, 2017:
Ticker Symbol:
|
XLK UP
|
Current Share Price:
|
$58.79
|
52 Weeks Ago:
|
$47.12
|
52 Week High (on 9/12/2017):
|
$58.99
|
52 Week Low (on 11/14/2016):
|
$46.02
|
The following table sets forth the published high and low closing
prices, as well as the end-of-quarter closing prices, of the XLK Shares for each quarter from January 1, 2012 through September
18, 2017. The closing price of the XLK Shares on September 18, 2017 was $58.79. The associated graph shows the closing prices of
the XLK Shares for each day from January 1, 2012 through September 18, 2017. We obtained the information in the table and graph
below from Bloomberg Financial Markets, without independent verification. The historical performance of the XLK Shares should not
be taken as an indication of its future performance, and no assurance can be given as to the price of the XLK Shares at any time,
including on the redemption determination dates or the observation dates.
Technology Select Sector SPDR
®
Fund (CUSIP 81369Y803)
|
High ($)
|
Low ($)
|
Period End ($)
|
2012
|
|
|
|
First Quarter
|
30.44
|
25.81
|
30.15
|
Second Quarter
|
30.48
|
27.20
|
28.75
|
Third Quarter
|
31.66
|
27.90
|
30.83
|
Fourth Quarter
|
31.05
|
27.62
|
28.95
|
2013
|
|
|
|
First Quarter
|
30.43
|
29.21
|
30.27
|
Second Quarter
|
32.20
|
29.31
|
30.59
|
Third Quarter
|
32.80
|
30.75
|
32.03
|
Fourth Quarter
|
35.74
|
31.53
|
35.74
|
2014
|
|
|
|
First Quarter
|
36.65
|
34.09
|
36.35
|
Second Quarter
|
38.42
|
35.20
|
38.35
|
Third Quarter
|
40.60
|
38.42
|
39.91
|
Fourth Quarter
|
42.49
|
37.21
|
41.35
|
2015
|
|
|
|
First Quarter
|
43.43
|
39.90
|
41.44
|
Second Quarter
|
43.78
|
41.36
|
41.40
|
Third Quarter
|
43.67
|
37.70
|
39.50
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Technology Select Sector SPDR
®
Fund (CUSIP 81369Y803)
|
High ($)
|
Low ($)
|
Period End ($)
|
Fourth Quarter
|
44.57
|
39.52
|
42.83
|
2016
|
|
|
|
First Quarter
|
44.45
|
38.71
|
44.36
|
Second Quarter
|
44.70
|
41.42
|
43.36
|
Third Quarter
|
47.91
|
43.15
|
47.78
|
Fourth Quarter
|
49.17
|
46.02
|
48.36
|
2017
|
|
|
|
First Quarter
|
53.43
|
48.79
|
53.31
|
Second Quarter
|
57.44
|
52.37
|
54.72
|
Third Quarter (through September 18, 2017)
|
58.99
|
54.34
|
58.79
|
Shares of the
Technology Select Sector SPDR
®
Fund — Daily Closing Prices
January 1,
2012 to September 18, 2017
|
|
* The red solid line indicates the hypothetical downside
threshold level, assuming the closing price of the XLK Shares on September 18, 2017 were the initial share price.
|
This document relates only to the securities offered hereby
and does not relate to the XLK Shares. We have derived all disclosures contained in this document regarding the SPDR
®
Series Trust from the publicly available documents described above. In connection with the offering of the securities,
neither we nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to
the SPDR
®
Series Trust. Neither we nor the agent makes any representation that such publicly available
documents or any other publicly available information regarding the SPDR
®
Series Trust is accurate or complete. Furthermore,
we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy
or completeness of the publicly available documents described above) that would affect the trading price of the XLK Shares (and
therefore the price of the XLK Shares at the time we price the securities) have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of or failure to disclose material future events concerning the SPDR
®
Series Trust could affect the value received with respect to the securities and therefore the value of the securities.
Neither we nor any of our affiliates makes any representation
to you as to the performance of the XLK Shares.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
We and/or our affiliates may presently or from time to time engage
in business with the SPDR
®
Series Trust. In the course of such business, we and/or our affiliates may
acquire non-public information with respect to the SPDR
®
Series Trust, and neither we nor any of our affiliates
undertakes to disclose any such information to you. In addition, one or more of our affiliates may publish research
reports with respect to the XLK Shares. The statements in the preceding two sentences are not intended to affect the
rights of investors in the securities under the securities laws. As a prospective purchaser of the securities, you should
undertake an independent investigation of the SPDR
®
Series Trust as in your judgment is appropriate to make an informed
decision with respect to an investment in the XLK Shares.
“Standard & Poor’s
®
”,
“S&P
®
”, “S&P 500
®
”, “SPDR
®
” and “SPDR
®
Series Trust” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”), an affiliate
of The McGraw-Hill Companies, Inc. (“MGH”). The securities are not sponsored, endorsed, sold, or promoted by S&P,
MGH or the SPDR
®
Series Trust. S&P, MGH and the SPDR
®
Series Trust make no representations or
warranties to the owners of the securities or any member of the public regarding the advisability of investing in the securities.
S&P, MGH and the SPDR
®
Series Trust have no obligation or liability in connection with the operation, marketing,
trading or sale of the securities.
Technology Select Sector Index.
The
Technology Select Sector Index, which is one of the Select Sector sub-indices of the S&P 500
®
Index, is a modified
market capitalization-based way to track the movements of certain public companies that are components of the S&P 500
®
Index. The Technology Select Sector Index includes component stocks in the following industries: computers and peripherals; software;
diversified telecommunication services; communications equipment; semiconductor and semiconductor equipment; internet software
and services; IT services; wireless telecommunication services; electronic equipment and instruments; and office electronics. See
“The Technology Select Sector Index” in the accompanying index supplement.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
Additional Information
About the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Provisions:
|
Interest period:
|
Quarterly
|
Record date:
|
The record date for each coupon payment date shall be the date one business day prior to such scheduled coupon payment date;
provided
, however, that any coupon payable at maturity (or upon early redemption) shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
|
Share underlying indices:
|
With respect to the XBI Shares, the S&P Biotech Select Industry
Index
With respect to the XLF Shares, the S&P Financial Select
Sector Index
With respect to the XLK Shares, the S&P Technology
Select Sector Index
|
Downside threshold level:
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
Day count convention:
|
30/360
|
Postponement of coupon payment dates (including the maturity date) and early redemption dates:
|
If any observation date or redemption determination date is postponed due to a non-trading day or certain market disruption events with respect to any of the underlying shares so that it falls less than two business days prior to the relevant scheduled coupon payment date (including the maturity date) or early redemption date, as applicable, the coupon payment date (or the maturity date) or the early redemption date will be postponed to the second business day following that observation date or redemption determination date as postponed, and no adjustment will be made to any coupon payment or early redemption payment or payment at maturity made on that postponed date.
|
Minimum ticketing size:
|
$1,000 / 1 security
|
Tax considerations:
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the securities
issued under this document and is superseded by the following discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of the ownership and disposition of the securities. This discussion
applies only to investors in the securities who:
·
purchase the securities in the original offering; and
·
hold the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
“Code”).
This discussion does not describe all of the tax consequences
that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject to special rules,
such as:
·
certain financial institutions;
·
insurance companies;
·
certain dealers and traders in securities or commodities;
·
investors holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction
or constructive sale transaction;
·
U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated investment companies;
·
real estate investment trusts; or
·
tax-exempt entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408
or 408A of the Code, respectively.
If an entity that is classified as a partnership for U.S. federal
income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend on the status
of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner in such a partnership,
you should consult your tax adviser as to the
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
|
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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
|
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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
|
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
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
|
regarding the U.S. federal estate tax consequences of an investment
in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA Legislation
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
This legislation generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source
“fixed or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies
to payments of U.S.-source FDAP income and, for dispositions after December 31, 2018, to payments of gross proceeds of the disposition
(including upon retirement) of certain financial instruments treated as providing for U.S.-source interest or dividends. While
the treatment of the securities is unclear, you should assume that any coupon payment with respect to the securities will be subject
to the FATCA rules. It is also possible in light of this uncertainty that an applicable withholding agent will treat gross proceeds
of a disposition (including upon retirement) of the securities after 2018 as being subject to the FATCA rules. If withholding applies
to the securities, we will not be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S.
Holders should consult their tax advisers regarding the potential application of FATCA to the securities.
The discussion in the preceding paragraphs, insofar as it
purports to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full
opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
|
Trustee:
|
The Bank of New York Mellon
|
Calculation agent:
|
MS & Co.
|
Use of proceeds and hedging:
|
The proceeds from the sale of the securities will be used by
us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging
transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s
commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions
and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we will hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers.
We expect our hedging counterparties to take positions in the underlying shares, in futures and/or options contracts on the underlying
shares or any component stocks of the share underlying indices, or positions in any other available securities or instruments
that they may wish to use in connection with such hedging. Such purchase activity could potentially increase the initial share
price of one or more of the underlying shares and, therefore, could increase (i) the value at or above which such underlying shares
must close on the redemption determination dates so that the securities are redeemed prior to maturity for the early redemption
payment (depending also on the performance of the other underlying shares) and (ii) the downside threshold level for such underlying
shares, which is the value at or above which the underlying shares must close on the observation dates so that you receive a contingent
quarterly coupon on the securities (depending also on the performance of the other underlying shares), and, with respect to the
final observation date, so that you are not exposed to the negative performance of the worst performing underlying shares at maturity
(depending also on the performance of the other underlying shares). These entities may be unwinding or
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
|
adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the final observation date approaches. Additionally, our hedging activities, as well as our other trading activities, during the term of the securities could potentially affect the value of any of the underlying shares on the redemption determination dates and other observation dates and, accordingly, whether we redeem the securities prior to maturity, whether we pay a contingent quarterly coupon on the securities and the amount of cash you will receive at maturity, if any. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product supplement.
|
Benefit plan investor considerations:
|
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including
MS & Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (also “Plans”). ERISA Section 406 and Code Section 4975 generally
prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning
of ERISA or the Code would likely arise, for example, if the securities are acquired by or with the assets of a Plan with respect
to which MS & Co. or any of its affiliates is a service provider or other party in interest, unless the securities are acquired
pursuant to an exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction”
rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited
transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the securities. Those class exemptions are PTCE 96-23 (for certain transactions determined
by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company
separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In
addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) may provide an exemption for the purchase and sale of securities
and the related lending transactions,
provided
that neither the issuer of the securities nor any of its affiliates has or
exercises any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved
in the transaction and
provided further
that the Plan pays no more, and receives no less, than “adequate consideration”
in connection with the transaction (the so-called “service provider” exemption). There can be no assurance that any
of these class or statutory exemptions will be available with respect to transactions involving the securities.
Because we may be considered a party in interest
with respect to many Plans, the securities may not be purchased, held or disposed of by any Plan, any entity whose underlying
assets include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”)
or any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive
relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase,
holding or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee
or holder of the securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and
holding of the securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such securities on behalf
of or with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject
to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section
4975 of the Code (“Similar Law”) or (b) its purchase, holding and disposition are eligible for exemptive relief or
such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar Law.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
|
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:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive
responsibility for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction
rules of ERISA or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect
a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements
with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally
or any particular plan.
However, individual retirement accounts, individual
retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their
accounts, will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee
of Morgan Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as,
for example, an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
|
Additional considerations:
|
Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the securities, either directly or indirectly.
|
Supplemental information regarding plan of distribution; conflicts of interest:
|
We expect to deliver the securities against payment therefor
in New York, New York on September 26, 2017, which will be the third scheduled business day following the date of the pricing of
the securities. Under Rule 15c6-1 of the Exchange Act, trades in the secondary market generally are required to settle in two business
days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade securities on the
date of pricing or on or prior to the second business day prior to the original issue date will be required to specify alternative
settlement arrangements to prevent a failed settlement.
Selected dealers, which may include our affiliates,
and their financial advisors will collectively receive from the agent a fixed sales commission of $17.50 for each security they sell.
MS & Co. is an affiliate of MSFL and a
wholly owned subsidiary of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring
and, when applicable,
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due September 30, 2019
All Payments on the Securities Based on the Worst Performing of the SPDR
®
S&P
®
Biotech ETF, the Financial Select Sector SPDR
®
Fund and the Technology Select Sector SPDR
®
Fund
Principal at Risk Securities
|
hedging the securities. When MS & Co. prices this
offering of securities, it will determine the economic terms of the securities, including the contingent quarterly coupon rate,
such that for each security the estimated value on the pricing date will be no lower than the minimum level described in “Investment
Summary” beginning on page 3.
MS & Co. will conduct this offering in compliance
with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as
FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.
MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan
of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement
for auto-callable securities.
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Contact:
|
Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
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Where you can find more information:
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Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities and the index supplement) with the Securities
and Exchange Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration
statement, the product supplement for auto-callable securities, the index supplement and any other documents relating to this offering
that MSFL and Morgan Stanley have filed with the SEC for more complete information about Morgan Stanley and this offering. You
may get these documents without cost by visiting EDGAR on the SEC web site at
.
www.sec.gov. Alternatively,
MSFL, Morgan Stanley, any underwriter or any dealer participating in the offering will arrange to send you the prospectus, the
index supplement and the product supplement for auto-callable securities if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at
.
www.sec.gov
as follows:
Product Supplement for Auto-Callable Securities dated February 29, 2016
Index Supplement dated January 30, 2017
Prospectus dated February 16, 2016
Terms used but not defined in this document are defined
in the product supplement for auto-callable securities or in the prospectus.
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