CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities Offered
|
|
Maximum
Aggregate Offering Price
|
|
Amount
of Registration Fee
|
Contingent
Income Auto- Callable Securities due 2020
|
|
$5,569,720
|
|
$645.53
|
March
2017
Pricing
Supplement No. 1,419
Registration
Statement Nos. 333-200365; 333-200365-12
Dated
March 24, 2017
Filed
pursuant to Rule 424(b)(2)
M
organ
S
tanley
F
inance
LLC
Structured
Investments
Opportunities in U.S. Equities
Contingent Income Auto-Callable Securities due
March 27, 2020
Based on the Performance of the Common Stock
of Apple Inc., with Step-Up Redemption Threshold Price Feature
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
Contingent Income Auto-Callable Securities do not guarantee
the payment of interest or the repayment of principal. Instead, the securities offer the opportunity for investors to earn a contingent
quarterly coupon at an annual rate of 9.10%, but only with respect to each determination date on which the determination closing
price of the underlying stock is greater than or equal to 80% of the initial share price, which we refer to as the downside threshold
price. In addition, if the determination closing price of the underlying stock is greater than or equal to the then-applicable
redemption threshold price (which will be equal to a percentage of the initial share price that increases progressively over the
term of the securities, starting at 105% of the initial share price for the first four determination dates) on any determination
date, the securities will be automatically redeemed for an amount per security equal to the stated principal amount and the contingent
quarterly coupon. However, if the securities are not automatically redeemed prior to maturity, the payment at maturity due on
the securities will be as follows: (i) if the final share price is greater than or equal to the downside threshold price, the
stated principal amount and the contingent quarterly coupon with respect to the final determination date, or (ii) if the final
share price is less than the downside threshold price, investors will be exposed to the decline in the underlying stock on a 1-to-1
basis and will receive a payment at maturity that is less than 80% of the principal amount of the securities and could be zero.
Moreover, if on any determination date the determination closing price of the underlying stock is less than the downside threshold
price, you will not receive any contingent quarterly coupon for that quarterly period. As a result, investors must be willing
to accept the risk of not receiving any contingent quarterly coupons and also the risk of receiving a payment at maturity that
is significantly less than the stated principal amount of the securities and could be zero.
Accordingly, investors could lose
their entire initial investment in 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 few or no contingent
quarterly coupons over the 3-year term of the securities. Investors will not participate in any appreciation of the underlying
stock. The securities are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally
guaranteed by Morgan Stanley. The securities are 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.
FINAL Terms
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Underlying stock:
|
Apple Inc. common stock
|
Aggregate principal amount:
|
$5,569,720
|
Stated principal amount:
|
$10 per security
|
Issue price:
|
$10 per security
|
Pricing date:
|
March 24, 2017
|
Original issue date:
|
March 29, 2017 (3 business days after the pricing date)
|
Maturity date:
|
March 27, 2020
|
Early redemption:
|
If, on any of the first eleven determination dates, the determination closing price of the underlying stock is
greater than or equal to
the then-applicable redemption threshold price, the securities will be automatically redeemed for an early redemption payment on the third business day following the related determination date. No further payments will be made on the securities once they have been redeemed.
|
Redemption threshold prices:
|
Determination Dates:
|
Applicable redemption threshold price:
|
|
1, 2, 3 and 4
|
$147.672, which is equal to 105% of the initial share price
|
|
5, 6, 7 and 8
|
$154.704, which is equal to 110% of the initial share price
|
|
9, 10 and 11
|
$161.736, which is equal to 115% of the initial share price
|
Early redemption payment:
|
The early redemption payment will be an amount equal to (i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the related determination date.
|
Determination closing price:
|
The closing price of the underlying stock on any determination date other than the final determination date
times
the adjustment factor on such determination date.
|
Contingent quarterly coupon:
|
·
If, on any determination date, the determination closing price or the final share price, as applicable, is greater than
or equal to the downside threshold price, we will pay a contingent quarterly coupon at an annual rate of 9.10% (corresponding
to approximately $0.2275 per quarter per security) on the related contingent payment date.
·
If,
on any determination date, the determination closing price or the final share price, as applicable, is less than the downside
threshold price, no contingent quarterly coupon will be paid with respect to that determination date.
|
Determination dates:
|
June 26, 2017, September 25, 2017, December 26, 2017, March 26, 2018, June 25, 2018, September 24, 2018, December 24, 2018, March 25, 2019, June 24, 2019, September 24, 2019, December 24, 2019 and March 24, 2020, subject to postponement for non-trading days and certain market disruption events. We also refer to March 24, 2020 as the final determination date.
|
Contingent payment dates:
|
With respect to each determination date other than the final determination date, the third business day after the related determination date. The payment of the contingent quarterly coupon, if any, with respect to the final determination date will be made on the maturity date.
|
Payment at maturity:
|
·
If the final share price is
greater than or equal to
the downside threshold price:
·
If the final share price is
less than
the downside threshold price:
|
(i) the stated principal amount
plus
(ii) the contingent
quarterly coupon with respect to the final determination date
(i) the stated principal amount
multiplied by
(ii) the
share performance factor
|
Share performance factor:
|
Final share price
divided
by the initial share price
|
Adjustment factor:
|
1.0, subject to adjustment in the event of certain corporate events affecting the underlying stock
|
Downside threshold price:
|
$112.512, which is equal to 80% of the initial share price
|
Initial share price:
|
$140.64, which is equal to the closing price of the underlying stock on the pricing date
|
Final share price:
|
The closing price of the underlying stock on the final determination date
times
the adjustment factor on such date
|
CUSIP:
|
61766V776
|
ISIN:
|
US61766V7762
|
Listing:
|
The securities will not be listed on any securities exchange.
|
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:
|
$9.736 per security. See “Investment Summary” beginning on page 2.
|
Commissions and issue price:
|
Price to public
|
Agent’s commissions and fees
|
Proceeds to us
(3)
|
Per security
|
$10
|
$0.20
(1)
|
|
|
|
$0.05
(2)
|
$9.75
|
Total
|
$5,569,720
|
$139,243
|
$5,430,477
|
|
(1)
|
Selected dealers, including
Morgan Stanley Wealth Management (an affiliate of the agent), and their financial advisors will collectively receive from the
agent, MS & Co., a fixed sales commission of $0.20 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)
|
Reflects a structuring fee
payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.05 for each security.
|
|
(3)
|
See “Use of proceeds
and hedging” on page 19.
|
The securities involve risks not associated with an
investment in ordinary debt securities. See “Risk Factors” beginning on page 8.
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
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 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
Prospectus
dated February 16, 2016
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Principal at Risk Securities
The Contingent Income Auto-Callable Securities due March 27,
2020 Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature, which we refer
to as the securities, provide an opportunity for investors to earn a contingent quarterly coupon at an annual rate of 9.10% with
respect to each quarterly determination date on which the determination closing price or the final share price, as applicable,
is greater than or equal to 80% of the initial share price, which we refer to as the downside threshold price. It is possible that
the closing price of the underlying stock could remain below the downside threshold price for extended periods of time or even
throughout the term of the securities so that you may receive few or no contingent quarterly coupons. If the determination closing
price is greater than or equal to the then-applicable redemption threshold price on any of the first eleven determination dates,
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 determination date. If the securities have not previously been redeemed
and the final share price is greater than or equal to the downside threshold price, the payment at maturity will also be the sum
of the stated principal amount and the contingent quarterly coupon with respect to the related determination date. However, if
the securities have not previously been redeemed and the final share price is less than the downside threshold price, investors
will be exposed to the decline in the closing price of the underlying stock, as compared to the initial share price, on a 1-to-1
basis. In this case, the payment at maturity will be less than 80% of the stated principal amount of the securities and could be
zero. Investors in the securities must be willing to accept the risk of losing their entire principal and also the risk of not
receiving any contingent quarterly coupon. In addition, investors will not participate in any appreciation of the underlying stock.
The original issue price of each security is $10. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date is less than $10. We estimate that the value of each security on the
pricing date is $9.736.
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 stock. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying stock, instruments based on the underlying stock, 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, the redemption threshold prices and the downside threshold price, we use an internal funding
rate, which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling,
structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic
terms of the securities would be more favorable to you.
What is the relationship between the estimated value on the
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 stock, 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 stock, 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.
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
Key Investment Rationale
The securities offer investors an opportunity to earn a contingent
quarterly coupon at an annual rate of 9.10% with respect to each determination date on which the determination closing price or
the final share price, as applicable, is greater than or equal to 80% of the initial share price, which we refer to as the downside
threshold price. The securities may be redeemed prior to maturity for the stated principal amount per security
plus
the
applicable contingent quarterly coupon, and the payment at maturity will vary depending on the final share price, as follows:
Scenario 1
|
On any of the first eleven determination dates, the
determination closing price is
greater than or equal to
the then-applicable redemption threshold price.
§
The
securities will be automatically redeemed for (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect
to the related determination date.
§
Investors
will not participate in any appreciation of the underlying stock from the initial share price.
|
Scenario 2
|
The securities are not automatically redeemed prior
to maturity, and the final share price is
greater than or equal to
the downside threshold price.
§
The
payment due at maturity will be (i) the stated principal amount plus (ii) the contingent quarterly coupon with respect to the
final determination date.
§
Investors
will not participate in any appreciation of the underlying stock from the initial share price.
|
Scenario 3
|
The securities are not automatically redeemed prior
to maturity, and the final share price is
less than
the downside threshold price.
§
The
payment due at maturity will be equal to (i) the stated principal amount multiplied by (ii) the share performance factor.
Investors
will lose a significant portion, and may lose all, of their principal in this scenario.
|
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing price and (2) the final share price.
Diagram #1: First Eleven Determination Dates
Diagram #2: Payment at Maturity if No Automatic
Early Redemption Occurs
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
Hypothetical Examples
The below examples are based on the following terms:
Hypothetical Initial Share Price:
|
$140.00
|
Hypothetical Downside Threshold Price:
|
$112.00, which is 80% of the hypothetical initial share price
|
Hypothetical Adjustment Factor:
|
1.0
|
Contingent Quarterly Coupon:
|
9.10% per annum (corresponding to approximately $0.2275 per quarter per security)
1
|
Stated Principal Amount:
|
$10 per security
|
Hypothetical Redemption Threshold Price:
Determination Dates:
|
Applicable Redemption Threshold Price:
|
1, 2, 3 and 4
|
$147.00, which is equal to 105% of the initial share price
|
5, 6, 7 and 8
|
$154.00, which is equal to 110% of the initial share price
|
9, 10 and 11
|
$161.00, which is equal to 115% of the initial share price
|
1 The actual contingent quarterly coupon will be an amount
determined by the calculation agent based on the number of days in the applicable payment period, calculated on a 30/360 day count
basis. The hypothetical contingent quarterly coupon of $0.2275 is used in these examples for ease of analysis.
In Examples 1 and 2, the closing price of the underlying stock
fluctuates over the term of the securities and the determination closing price of the underlying stock is greater than or equal
to the then-applicable redemption threshold price on one of the first eleven determination dates. Because the determination closing
price is greater than or equal to the then-applicable redemption threshold price on one of the first eleven determination dates,
the securities are automatically redeemed following the relevant determination date. In Examples 3 and 4, the determination closing
price on the first eleven determination dates is less than the then-applicable redemption threshold price, and, consequently, the
securities are not automatically redeemed prior to, and remain outstanding until, maturity.
|
Example 1
|
Example 2
|
Determination Dates
|
Hypothetical Determination Closing Price
|
Contingent Quarterly Coupon
|
Early Redemption Amount*
|
Hypothetical Determination Closing Price
|
Contingent Quarterly Coupon
|
Early Redemption Amount
|
#1
|
$140.80
|
$0.2275
|
N/A
|
$113.90
|
$0.2275
|
N/A
|
#2
|
$141.20
|
$0.2275
|
N/A
|
$80.55
|
$0
|
N/A
|
#3
|
$141.20
|
$0.2275
|
N/A
|
$131.05
|
$0.2275
|
N/A
|
#4
|
$145.00
|
$0.2275
|
N/A
|
$80.35
|
$0
|
N/A
|
#5
|
$154.00
|
—*
|
$10.2275
|
$148.10
|
$0.2275
|
N/A
|
#6
|
N/A
|
N/A
|
N/A
|
$147.30
|
$0.2275
|
N/A
|
#7
|
N/A
|
N/A
|
N/A
|
$81.35
|
$0
|
N/A
|
#8
|
N/A
|
N/A
|
N/A
|
$153.00
|
$0.2275
|
N/A
|
#9
|
N/A
|
N/A
|
N/A
|
$130.95
|
$0.2275
|
N/A
|
#10
|
N/A
|
N/A
|
N/A
|
$168.00
|
—*
|
$10.2275
|
#11
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
Final Determination Date
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
* The Early Redemption Amount includes the unpaid contingent
quarterly coupon with respect to the determination date on which the determination closing price is greater than or equal to the
then-applicable redemption threshold price and the securities are redeemed as a result.
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
§
In
Example 1
, the securities are automatically redeemed following the fifth determination date, as the determination closing
price on the fifth determination date is equal to the then-applicable redemption threshold price. In this example, the securities
are redeemed early following the fifth determination date, as this is the first determination date on which the determination closing
price is greater than or equal to the then-applicable redemption threshold price, even though the determination closing price is
greater than the initial share price and progressively increasing on each successive previous determination date. This illustrates
the impact of the step-up redemption threshold feature, as well as the fact that each redemption threshold price is greater than
100% of the initial share price. As the determination closing prices on the first, second, third, fourth and fifth determination
dates are greater than the downside threshold price, you receive the contingent coupon of $0.2275 with respect to each such determination
date. Following the fifth determination date, you receive the early redemption payment, calculated as follows:
stated principal amount + contingent quarterly
coupon = $10.00 + $0.2275 = $10.2275
In this example, the early redemption feature limits the
term of your investment to approximately 15 months, and you may not be able to reinvest at comparable terms or returns. If the
securities are redeemed early, you will stop receiving contingent coupons.
§
In
Example 2
, the securities are automatically redeemed following the tenth determination date, as the determination closing
price on the tenth determination date is greater than the then-applicable redemption threshold price. Even though the determination
closing prices on the fifth, sixth and eighth determination dates were greater than both the initial share price and redemption
threshold price applicable to the first four determination dates, the securities were not redeemed on any of those dates, as the
determination closing price was never greater than the then-applicable redemption threshold price, which “stepped up”
from 105% of the initial share price for the first four determination dates to 110% of the initial share price on the fifth determination
date. As the determination closing prices on the first, third, fifth, sixth, eighth, ninth and tenth determination dates are greater
than or equal to the downside threshold price, you receive the contingent coupon of $0.2275 with respect to each such determination
date. Following the tenth determination date, you receive an early redemption amount of $10.2275, which includes the contingent
quarterly coupon with respect to the tenth determination date.
In this example, the early redemption feature limits the
term of your investment to approximately 30 months, and you may not be able to reinvest at comparable terms or returns. If the
securities are redeemed early, you will stop receiving contingent coupons. Further, although the underlying stock has appreciated
by 20% from its initial share price as of the tenth determination date, you receive only $10.2275 per security and do not benefit
from such appreciation.
|
Example 3
|
Example 4
|
Determination Dates
|
Hypothetical Determination Closing Price / Final Share Price
|
Contingent Quarterly Coupon
|
Early Redemption Amount*
|
Hypothetical Determination Closing Price / Final Share Price
|
Contingent Quarterly Coupon
|
Early Redemption Amount
|
#1
|
$98.80
|
$0
|
N/A
|
$85.90
|
$0
|
N/A
|
#2
|
$77.20
|
$0
|
N/A
|
$80.55
|
$0
|
N/A
|
#3
|
$111.15
|
$0
|
N/A
|
$75.05
|
$0
|
N/A
|
#4
|
$72.50
|
$0
|
N/A
|
$80.35
|
$0
|
N/A
|
#5
|
$108.65
|
$0
|
N/A
|
$94.45
|
$0
|
N/A
|
#6
|
$81.35
|
$0
|
N/A
|
$74.25
|
$0
|
N/A
|
#7
|
$102.95
|
$0
|
N/A
|
$88.75
|
$0
|
N/A
|
#8
|
$95.55
|
$0
|
N/A
|
$86.90
|
$0
|
N/A
|
#9
|
$89.00
|
$0
|
N/A
|
$85.00
|
$0
|
N/A
|
#10
|
$108.90
|
$0
|
N/A
|
$76.90
|
$0
|
N/A
|
#11
|
$80.00
|
$0
|
N/A
|
$107.05
|
$0
|
N/A
|
Final Determination Date
|
$84.00
|
$0
|
N/A
|
$126.00
|
—*
|
N/A
|
Payment at Maturity
|
$6.00
|
$10.2275
|
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
*The final contingent quarterly coupon, if any, will
be paid at maturity.
Examples 3 and 4 illustrate the payment at maturity per security
based on the final share price.
§
In
Example 3
, the closing price of the underlying stock remains below the downside threshold price on every determination date.
As a result, you do not receive any contingent coupons during the term of the securities and, at maturity, you are fully exposed
to the decline in the closing price of the underlying stock. As the final share price is less than the downside threshold price,
investors will receive a payment at maturity equal to the stated principal amount multiplied by the share performance factor, calculated
as follows:
stated principal amount x share performance
factor = $10.00 x ($84.00 / $140.00) = $6.00
In this example, the payment at maturity is significantly
less than the stated principal amount.
§
In
Example 4
, the closing price of the underlying stock decreases to a final share price of $126.00. Although the final share
price is less than the initial share price, because the final share price is still not less than the downside threshold price,
you receive the stated principal amount plus a contingent quarterly coupon with respect to the final determination date. Your payment
at maturity is calculated as follows:
$10.00 + $0.2275 = $10.2275
In this example, although the final share price represents
a 10% decline from the initial share price, you receive the stated principal amount per security plus the final contingent quarterly
coupon, equal to a total payment of $10.2275 per security at maturity, because the final share price is not less than the downside
threshold price.
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
Risk Factors
The following is a non-exhaustive 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 and prospectus. You should also consult 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 the securities do not guarantee the payment of regular interest or the return of any of the principal amount
at maturity. Instead, if the securities have not been automatically redeemed prior to maturity and if the final share price is
less than the downside threshold price, you will be exposed to the decline in the closing price of the underlying stock, as compared
to the initial share price, on a 1-to-1 basis and you will receive a payment that will be less than 80% of the stated principal
amount and could be zero.
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§
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You will not receive any contingent quarterly coupon for any quarterly period where the determination closing price is less
than the downside threshold price.
A contingent quarterly coupon will be paid with respect to a quarterly period only if the
determination closing price is greater than or equal to the downside threshold price. If the determination closing price remains
below the downside threshold price on each determination date over the term of the securities, you will not receive any contingent
quarterly coupons.
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§
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The contingent quarterly coupon, if any, is based solely on the determination closing price or the final share price, as
applicable.
Whether the contingent quarterly coupon will be paid with respect to a determination date will be based on the
determination closing price or the final share price, as applicable. As a result, you will not know whether you will receive the
contingent quarterly coupon until near the end of the relevant interest period. Moreover, because the contingent quarterly coupon
is based solely on the determination closing price on a specific determination date or the final share price, as applicable, if
such determination closing price or final share price is less than the downside threshold price, you will not receive any contingent
quarterly coupon with respect to such determination date, even if the closing price of the underlying stock was higher on other
days during the term of the securities.
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§
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Investors will not participate in any appreciation in the price of the underlying stock.
Investors will not participate
in any appreciation in the price of the underlying stock from the initial share price, and the return on the securities will be
limited to the contingent quarterly coupon, if any, that is paid with respect to each determination date on which the determination
closing price or the final share price, as applicable, is greater than or equal to the downside threshold price. It is possible
that the closing price of the underlying stock could be below the downside threshold price on most or all of the determination
dates 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.
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§
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The automatic early redemption feature may limit the term of your investment to approximately three months. If the securities
are redeemed early, you may not be able to reinvest at comparable terms or returns.
The term of your investment in the securities
may be limited to as short as approximately three months by 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.
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§
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The step-up redemption threshold price feature means that the redemption threshold price increases progressively over the
term of the securities.
Due to the step-up redemption threshold price feature, the securities will be redeemed only if the
determination closing price of the underlying stock increases from the initial share price to be greater than or equal to the then-applicable
redemption threshold price. Even if the closing price of the underlying stock appreciates over the term of the securities, it may
not appreciate sufficiently for the securities to be redeemed early (including because the redemption threshold price increases
progressively over the term of the securities).
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§
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The market price will be influenced by many unpredictable factors.
Several factors will influence the value of the securities
in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary
market. Although we expect that generally the closing price of the underlying stock on any day will affect the value of the securities
more than any other single factor, other factors that may influence the value of the securities include:
|
|
o
|
the trading price and volatility (frequency and magnitude of changes in value) of the underlying stock,
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|
o
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whether the determination closing price has been below the downside threshold price on any determination date,
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|
o
|
dividend rates on the underlying stock,
|
|
o
|
interest and yield rates in the market,
|
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
|
o
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time remaining until the securities mature,
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|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stock
and which may affect the final share price of the underlying stock,
|
|
o
|
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, and
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o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
The price of the underlying stock may be, and has
recently been, volatile, and we can give you no assurance that the volatility will lessen. See “Apple Inc. Overview”
below. You may receive less, and possibly significantly less, than the stated principal amount per security if you try to sell
your securities prior to maturity.
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§
|
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 contingent payment date, upon automatic redemption or at maturity, and therefore you are subject to our credit risk. If
we default on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment.
As a result, the market value of the securities prior to maturity will be affected by changes in the market’s view of our
creditworthiness. Any actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market
for taking our credit risk is likely to adversely affect the market value of the securities.
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§
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As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should
be treated
pari passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders
of Morgan Stanley-issued securities.
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§
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Investing in the securities is not equivalent to investing in the common stock of Apple Inc.
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
stock.
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§
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No affiliation with Apple Inc.
Apple Inc. is not an affiliate of ours, is not involved with this offering in any way,
and has no obligation to consider your interests in taking any corporate actions that might affect the value of the securities.
We have not made any due diligence inquiry with respect to Apple Inc. in connection with this offering.
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§
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We may engage in business with or involving Apple Inc. without regard to your interests.
We or our affiliates may presently
or from time to time engage in business with Apple Inc. without regard to your interests and thus may acquire non-public information
about Apple Inc. Neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, we or our
affiliates from time to time have published and in the future may publish research reports with respect to Apple Inc., which may
or may not recommend that investors buy or hold the underlying stock.
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§
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The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect
the underlying stock.
MS & Co., as calculation agent, will adjust the adjustment factor for certain corporate events affecting
the underlying stock, such as stock splits and stock dividends, and certain other corporate actions involving the issuer of the
underlying stock, such as mergers. However, the calculation agent will not make an adjustment for every corporate event that can
affect the underlying stock. For example, the calculation agent is not required to make any adjustments if the issuer of the underlying
stock or anyone else makes a partial tender or partial exchange offer for the underlying stock, nor will adjustments be made following
the final determination date. If an event occurs that does not require the calculation agent to adjust the adjustment factor, the
market price of the securities may be materially and adversely affected.
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§
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The securities will not be listed on any securities exchange and secondary trading may be limited.
The securities will
not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS & Co.
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
|
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it
is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
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§
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The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate
implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated
with issuing, selling, structuring and hedging the securities in the 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 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 stock, and to our secondary market credit spreads, it would do so based on
values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account
statements.
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§
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The estimated value of the 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.
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§
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Hedging and trading activity by our affiliates could potentially adversely affect the value of the securities.
One or
more of our affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related
to the securities (and to other instruments linked to the underlying stock), including trading in the underlying stock. 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 determination date approaches. Some of our affiliates also
trade the underlying stock and other financial instruments related to the underlying stock 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 have
increased the initial share price, and, as a result, could have increased (i) the redemption threshold prices, which are the prices
at or above which the underlying stock must close on each determination date in order for the securities to be redeemed, and (ii)
the downside threshold price, which is the price at or above which the underlying stock must close on each determination date in
order for you to earn a contingent quarterly coupon, and, if the securities are not called prior to maturity, in order for you
to avoid being exposed to the negative price performance of the underlying stock at maturity. Additionally, such hedging or trading
activities during the term of the securities could potentially affect the price of the underlying stock on the determination dates,
and, accordingly, whether the securities are automatically called prior to maturity, and, if the securities are not called prior
to maturity, the payout to you at maturity, if any.
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§
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The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. has determined the initial share price, the redemption threshold prices
and the downside threshold price, and will determine the final share price, whether the contingent quarterly coupon will be paid
on each contingent payment date, whether the securities will be redeemed following any determination date, whether a market disruption
event has occurred, whether to make any adjustments to the adjustment factor and the payment that you will receive upon an automatic
early redemption or at maturity, if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation
agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or nonoccurrence
of market disruption events and certain adjustments to the adjustment factor. 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 Auto-Callable Securities—Auto-Callable Securities Linked to
|
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
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.
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§
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The U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal
authority as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects
of the tax treatment of the securities are uncertain.
|
Please read the discussion under “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.
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
Apple Inc. Overview
Apple Inc. designs, manufactures and markets mobile communication
and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals,
networking solutions, and third-party digital content and applications. The underlying stock is registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Information provided to or filed with the Securities and Exchange
Commission by Apple Inc. pursuant to the Exchange Act can be located by reference to the Securities and Exchange Commission file
number 000-10030 through the Securities and Exchange Commission’s website at .www.sec.gov. In addition, information regarding
Apple Inc. may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly
disseminated documents.
Neither the issuer nor the agent makes any representation that such publicly available documents or
any other publicly available information regarding the issuer of the underlying stock is accurate or complete.
Information as of market close on March 24, 2017:
Bloomberg Ticker Symbol:
|
AAPL
|
Exchange:
|
NASDAQ
|
Current Stock Price:
|
$140.64
|
52 Weeks Ago:
|
$105.67
|
52 Week High (on 3/20/2017):
|
$141.46
|
52 Week Low (on 5/12/2016):
|
$90.34
|
Current Dividend Yield:
|
1.6179%
|
The following table sets forth the published high and low closing
prices of, as well as dividends on, the underlying stock for each quarter from January 1, 2014 through March 24, 2017. Apple Inc.
announced a seven-for-one stock split on April 23, 2014, and its common stock began trading on a split-adjusted basis on June 9,
2014. The closing prices of the underlying stock prior to June 9, 2014 have been adjusted to reflect the stock split. The closing
price of the underlying stock on March 24, 2017 was $140.64. The associated graph shows the closing prices of the underlying stock
for each day from January 1, 2012 through March 24, 2017. We obtained the information in the table and graph below from Bloomberg
Financial Markets, without independent verification. The historical performance of the underlying stock should not be taken as
an indication of its future performance, and no assurance can be given as to the price of the underlying stock at any time, including
on the determination dates.
Common Stock of Apple Inc. (CUSIP 037833100)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2014
|
|
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First Quarter
|
79.62
|
71.35
|
0.435714
|
Second Quarter
|
94.25
|
73.99
|
0.47
|
Third Quarter
|
103.30
|
93.08
|
0.47
|
Fourth Quarter
|
119.00
|
96.26
|
0.47
|
2015
|
|
|
|
First Quarter
|
133.00
|
105.99
|
0.47
|
Second Quarter
|
132.65
|
124.25
|
0.52
|
Third Quarter
|
132.07
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103.12
|
0.52
|
Fourth Quarter
|
122.57
|
105.26
|
0.52
|
2016
|
|
|
|
First Quarter
|
109.56
|
93.42
|
0.52
|
Second Quarter
|
112.10
|
90.34
|
0.57
|
Third Quarter
|
115.57
|
94.99
|
0.57
|
Fourth Quarter
|
118.25
|
105.71
|
0.57
|
2017
|
|
|
|
First Quarter (through March 24, 2017)
|
141.46
|
116.02
|
0.57
|
We make no representation as to the amount of dividends, if any,
that Apple Inc. may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable Securities, you will
not be entitled to receive dividends, if any, that may be payable on the common stock of Apple Inc.
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities
Common Stock
of Apple Inc. – Daily Closing Prices
January 1,
2012 to March 24, 2017
|
|
*The red solid line indicates the downside threshold price of
$112.512, which is 80% of the initial share price.
This document relates only to the securities referenced
hereby and does not relate to the underlying stock or other securities of Apple Inc. We have derived all disclosures contained
in this document regarding Apple Inc. stock 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 Apple Inc. Neither we nor the agent makes any representation that such publicly available documents or any other
publicly available information regarding Apple Inc. 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 underlying stock (and therefore the price of the underlying
stock at the time we priced the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure
of or failure to disclose material future events concerning Apple Inc. could affect the value received with respect to the securities
and therefore the value of the securities.
Neither the issuer nor any of its affiliates makes any representation
to you as to the performance of the underlying stock.
M
organ
S
tanley
F
inance
LLC
Contingent Income Auto-Callable Securities due March 27, 2020
Based on the Performance of the Common Stock of Apple Inc., with Step-Up Redemption Threshold Price Feature
Principal at Risk Securities