Observation Dates
(1)
and Coupon Payment Dates
(2)
Observation Dates
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Coupon Payment Dates
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9/03/2019*
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9/05/2019
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12/03/2019
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12/05/2019
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3/03/2020
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3/05/2020
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6/03/2020
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6/05/2020
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9/03/2020
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9/08/2020
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12/03/2020
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12/07/2020
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3/03/2021
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3/05/2021
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6/3/2021 (Final Observation Date)
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6/8/2021 (Maturity Date)
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* The Securities are not subject to an Automatic Call until
the second Observation Date, which is December 3, 2019.
(1) Subject to postponement in the event of a Market Disruption
Event or for non-Index Business Days. See “Postponement of Determination Dates” in the accompanying product supplement.
(2) If, due to a Market Disruption Event or otherwise, any Observation
Date is postponed so that it falls less than two business days prior to the scheduled Coupon Payment Date, the Coupon Payment Date
will be postponed to the second business day following that Observation Date as postponed,
provided
that the Coupon Payment
Date with respect to the Final Observation Date will be the Maturity Date. No additional coupon will accrue on an account of any
such postponement.
Investment Timeline
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Trade Date
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The Initial Level, Downside Threshold and Coupon Barrier are determined. The Contingent Coupon Rate is set.
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Quarterly (callable after
approximately 6 months)
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If the Observation Date Closing Level is equal to or greater
than the Coupon Barrier on any Observation Date, MSFL will pay you a Contingent Coupon on the Coupon Payment Date. However, if
the Observation Date Closing Level is below the Coupon Barrier, no Coupon will be payable on the related Coupon Payment Date.
If the Observation Date Closing Level
is equal to or greater
than the Initial Level
on any Observation Date beginning on December 3, 2019, the Securities will be called and MSFL will pay
you a cash payment per Security equal to the principal amount plus the Contingent Coupon otherwise due for the Observation Date,
and no further payments will be made on the Securities.
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Maturity Date
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The Final Level is determined as of the Final Observation Date.
If the Securities have not been called and the Final Level
is
equal to or greater than the Coupon Barrier and Downside Threshold
, at maturity MSFL will pay you the $10 Principal Amount
plus the Contingent Coupon otherwise due on the Maturity Date.
If the Securities have not been called and the Final Level
is
less than the Downside Threshold
, MSFL will pay you an amount calculated as follows:
$10 × (1 + Underlying Return) per Security
Under these circumstances, the Payment at Maturity will be
significantly less than the $10 Principal Amount by an amount proportionate to the negative Underlying Return, and you could lose
your entire investment.
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Investing in the Securities
involves significant risks. You may lose YOUR ENTIRE principal amount. Any payment on the Securities is subject to OUR creditworthiness.
If we were to default on our payment obligations, you may not receive any amounts owed to you under the Securities and you could
lose your entire investment.
THE SECURITIES WILL
NOT PAY A CONTINGENT COUPON IF THE OBSERVATION DATE CLOSING LEVEL OF THE UNDERLYING IS BELOW THE COUPON BARRIER ON THE APPLICABLE
OBSERVATION DATE. THE SECURITIES WILL NOT BE SUBJECT TO AN AUTOMATIC CALL ON ANY OBSERVATION DATE IF THE OBSERVATION DATE CLOSING
LEVEL OF THE UNDERLYING ON SUCH OBSERVATION DATE IS BELOW THE INITIAL LEVEL. IF THE SECURITIES ARE NOT CALLED, YOU WILL LOSE A
SIGNIFICANT PORTION OR ALL OF YOUR INVESTMENT AT MATURITY IF THE FINAL LEVEL IS LESS THAN THE DOWNSIDE THRESHOLD.
An investment in the Securities involves significant risks. Some
of the risks that apply to the Securities are summarized here, but we urge you to also read the “Risk Factors” section
of the accompanying prospectus and product supplement. You should also consult your investment, legal, tax, accounting and other
advisers before you invest in the Securities.
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The
Securities do not guarantee the payment of regular interest or 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. In addition, while the Securities will generally offer the possibility of a higher return
if the Securities are automatically called than the potential return payable on our ordinary debt securities with a similar maturity,
this higher return potential reflects the risk that you may not receive a positive return on the Securities and may lose a significant
portion or all of your investment if the Securities have not been called prior to maturity and if the Final Level is less than
the Downside Threshold. In this case, you will be exposed to the decline in the level of the Underlying, as compared to the Initial
Level, on a 1-to-1 basis, and the Payment at Maturity will result in a significant loss of your initial investment that is proportionate
to the decline of the Underlying over the term of the Securities.
You could lose your entire principal amount.
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You will not receive any Contingent Coupon for any quarterly period
where the Observation Date Closing Level is less than or equal to the Coupon Barrier.
A Contingent Coupon will be made with
respect to a quarterly period only if the Observation Date Closing Level is greater than or equal to the Coupon Barrier. If the
Observation Date Closing Level remains below the Coupon Barrier on each Observation Date over the term of the Securities, you will
not receive any Contingent Coupons.
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The Contingent Coupon is based solely on the Observation Date Closing
Level.
Whether the Contingent Coupon will be paid with respect to an Observation Date will be based on the Observation Date
Closing Level. As a result, you will not know whether you will receive the Contingent Coupon with respect to any Coupon Payment
Date until the applicable Observation Date. Moreover, because the Contingent Coupon is based solely on the Observation Date Closing
Level on a specific Observation Date, if such Observation Date Closing Level is less than the Coupon Barrier, you will not receive
any Contingent Coupon with respect to such Observation Date, even if the closing level of the Underlying was higher on other days
during the term of the Securities.
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Investors
will not participate in any appreciation in the level of the Underlying.
Investors will not participate in any appreciation
in the level of the Underlying from the Initial Level, and the return on the Securities will be limited to the Contingent Coupon,
if any, that is paid with respect to each Observation Date on which the Observation Date Closing Level is greater than or equal
to the Coupon Barrier prior to an automatic call or maturity, if any. The return on the Securities will be limited to the Contingent
Coupons, if any, regardless of the appreciation of the Underlying, which could be significant. It is possible that the closing
level of the Underlying could be below the Coupon Barrier on most or all of the Observation Dates so that you may receive few
or no Contingent Coupons. In addition, if the Securities are not called prior to maturity, you may be exposed to the full downside
market risk of the Underlying and lose a significant portion or all of your investment despite not being able to participate in
any potential appreciation of the Underlying. If you do not earn sufficient Contingent 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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You may incur a loss on your investment if you sell your Securities
prior to maturity.
The Downside Threshold is observed only on the Final Observation Date and the contingent downside market
exposure applies only at maturity. If you are able to sell your Securities in the secondary market prior to maturity, you may have
to sell them at a loss relative to your initial investment even if the Underlying Share price is above the Downside Threshold at
that time. If you hold the Securities to maturity and the Securities have not been called, MSFL will either repay you the full
principal amount per Security plus the Contingent Coupon, or if the level of the Underlying closes below the Downside Threshold
on the Final Observation Date, MSFL will repay significantly less than the principal amount, if anything, at maturity, resulting
in a loss on your principal amount that is proportionate to the decline in the level of the Underlying from the Trade Date to the
Final Observation Date.
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Early Redemption Risk.
The term of your investment in the Securities
may be limited to as short as approximately six months by the automatic call feature of the Securities. If the Securities are called
prior to maturity, you will not be able to receive any further Contingent Coupon Payments for any future Observation Dates and
you may be forced to invest in a lower interest rate environment and may not be able to reinvest at comparable terms or for similar
returns. However, under no circumstances will the Securities be redeemed in the first six months of the term of the Securities.
Generally, the longer the Securities have been outstanding, the less likely it is that they will be automatically called, because
the level of the Underlying will necessarily have declined from the Initial Level if the Securities were not called following an
Observation Date, and there will be less time remaining until maturity in which the level of the Underlying can recover.
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The Securities are subject to our credit risk, and any actual or
anticipated changes to our credit ratings or our credit spreads may adversely affect the market value of the Securities.
You
are dependent on our ability to pay all amounts due on the Securities, including Contingent Coupons, if any, and any payments upon
an automatic call 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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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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The market price of the Securities 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. Although
we expect that generally the closing level of the Underlying 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:
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the value and volatility (frequency and magnitude of
changes in value) of the Underlying,
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whether the Observation Date Closing Level has been below the Coupon Barrier on any Observation Date,
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dividend rates on the stocks comprising the Underlying,
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interest and yield rates in the market,
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time remaining until the Securities mature,
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the Underlying or equities
markets generally and which may affect the Final Level,
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the occurrence of certain events affecting the Underlying that may or may not require an adjustment to its composition, and
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any actual or anticipated changes in our credit ratings or credit spreads.
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Some or all of these factors will
influence the terms of the Securities at the time of issuance and the price that you will receive if you are able to sell your
Securities prior to maturity, as the Securities are comprised of both a debt component and a performance-based component linked
to the Underlying, and these are the types of factors that also generally affect the values of debt securities and derivatives
linked to the Underlying. The level of the Underlying may be, and has recently been, volatile, and we can give you no assurance
that the volatility will lessen. See “S&P 500
®
Index” below. You may receive less, and possibly
significantly less, than the Principal Amount per Security if you try to sell your Securities prior to maturity.
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A higher Contingent Coupon Rate and/or a lower Downside Threshold
may reflect greater expected volatility of the Underlying, and greater expected volatility generally indicates an increased risk
of declines in the level of the Underlying and, potentially, a significant loss at maturity.
The economic terms for the Securities,
including the Contingent Coupon Rate and the Downside Threshold, are based, in part, on the expected volatility of the Underlying
at the time the terms of the Securities are set. “Volatility” refers to the frequency and magnitude of changes in the
level of the Underlying. Higher expected volatility with respect to the Underlying as of the Trade Date generally indicates a greater
expectation as of that date that the Final Level of the Underlying could ultimately be less than the Downside Threshold on the
Final Observation Date, which would result in a loss of a significant portion or all of the Principal Amount. At the time the terms
of the Securities are set, higher expected volatility will generally be reflected in a higher Contingent Coupon Rate and/or a lower
Downside Threshold, as compared to otherwise comparable securities. Therefore, a relatively higher Contingent Coupon Rate, which
would increase the upside return if the Observation Date Closing Level is greater than or equal to the Coupon Barrier on the quarterly
Observation Dates, may indicate an increased risk that the level of the Underlying will decrease substantially, which would result
in a significant loss at maturity. In addition, and as described above in "The Securities do not guarantee the payment of
regular interest or the return of any principal," in general, the higher potential return on the Securities as compared to
the return payable on our ordinary debt securities with a comparable maturity indicates the risk that you may not receive a positive
return on the Securities and may lose a significant portion or all of your investment. Further, a relatively lower Downside Threshold
may not indicate that the Securities have a greater likelihood of a return of principal at maturity. You should be willing to accept
the downside market risk of the Underlying and the potential to lose a significant portion or all of your Principal Amount at maturity.
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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 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. MS & Co. currently intends, but is not obligated, to make a market in 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. Because
we do not expect that other broker-dealers will participate significantly in the secondary market for the Securities, the price
at which you may be able to trade your Securities is likely to depend on the price, if any, at which MS & Co. is willing to
transact. If, at any time, MS & Co. were to cease making a market in the Securities, it is likely that there would be no secondary
market for the Securities. Accordingly, you should be willing to hold your Securities to maturity.
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Investing in the Securities is not equivalent to investing in the
Underlying or the stocks composing the Underlying
. Investing in the Securities is not equivalent to investing in the Underlying
or the stocks that constitute the Underlying. Investors in the Securities will not have voting rights or rights to receive dividends
or other distributions or any other rights with respect to the stocks that constitute the Underlying. Further, you will not participate
in any potential appreciation of the Underlying even though you may be exposed o its full decline at maturity. Additionally, the
Underlying is not a “total return” index, which, in addition to reflecting the market prices of the stocks that constitute
the Underlying, would also reflect dividends paid on such stocks. The return on the Securities will not include such a total return
feature.
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The rate we are willing to pay for securities of this type, maturity
and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both
the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the Securities in the Issue
Price reduce the economic terms of the Securities, cause the estimated value of the Securities to be less than the Issue Price
and will adversely affect secondary market prices.
Assuming no change in market conditions or any other relevant factors, the
prices, if any, at which dealers, including MS & Co., may be
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willing
to purchase the Securities in secondary market transactions will likely be significantly lower than the Issue Price, because secondary
market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the Issue Price and
borne by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread
that any dealer would charge in a secondary market transaction of this type as well as other factors.
The inclusion of the costs of issuing,
selling, structuring and hedging the Securities in the Issue Price and the lower rate we are willing to pay as issuer make the
economic terms of the Securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the Securities are not fully deducted upon issuance, for a period of up to 5 months
following the Settlement Date, to the extent that MS & Co. may buy or sell the Securities in the secondary market, absent changes
in market conditions, including those related to the Underlying, and to our secondary market credit spreads, it would do so based
on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account
statements.
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The estimated value of the Securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the Securities than those generated by others, including other dealers in the market, if they attempted to value
the Securities. In addition, the estimated value on the Trade Date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your Securities in the secondary market (if any exists) at any time. The value
of your Securities at any time after the date of this free writing prospectus will vary based on many factors that cannot be predicted
with accuracy, including our creditworthiness and changes in market conditions. See also “The market price of the Securities
will be influenced by many unpredictable factors” above.
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Adjustments to the Underlying could adversely affect the value of the Securities
. The Underlying publisher of the Underlying
is responsible for calculating and maintaining the Underlying. The Underlying publisher may add, delete or substitute the stocks
constituting the Underlying or make other methodological changes required by certain corporate events relating to the stocks constituting
the Underlying, such as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change
the value of the Underlying. The Underlying publisher may discontinue or suspend calculation or publication of the Underlying at
any time. In these circumstances, the Calculation Agent will have the sole discretion to substitute a Successor Underlying that
is comparable to the discontinued Underlying, and is permitted to consider indices that are calculated and published by the Calculation
Agent or any of its affiliates. Any of these actions could adversely affect the value of the Underlying and, consequently, the
value of the Securities.
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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), including trading in the stocks that constitute the Underlying as well as in other instruments related to the
Underlying. As a result, these entities may be unwinding or adjusting hedge positions during the term of the Securities, and the
hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the Final Observation Date approaches.
Some of our subsidiaries also trade the stocks that constitute the Underlying and other financial instruments related to the Underlying
on a regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on
or prior to the Trade Date could potentially increase the Initial Level, and, as a result, the Coupon Barrier and Downside Threshold,
which is the level at or above which the Underlying must close on each Observation Date in order for you to earn a Contingent
Coupon, or, if the Securities are not called prior to maturity, in order for you to avoid being exposed to the negative performance
of the Underlying at maturity. Additionally, such hedging or trading activities during the term of the Securities could potentially
affect the level of the Underlying on the Observation Dates, and, accordingly, whether the Contingent Coupon is payable or 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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The Calculation Agent, which is our affiliate, will make determinations
with respect to the Securities.
As Calculation Agent, MS & Co. will determine the Initial Level, the Coupon Barrier, the
Downside Threshold, the Final Level, whether the Securities will be called following any Observation Date, whether a Contingent
Coupon is payable with respect to each Observation Date, whether a market disruption event has occurred and the payment that you
will receive upon a call, on each Coupon Payment Date, if any, and 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. These potentially subjective determinations may affect
the payout to you upon a call, on each Coupon Payment Date, if any, or at maturity, if any. For further information regarding these
types of determinations, see “Description of Auto-Callable Securities—Postponement of Determination Dates,” “—Discontinuance
of Any Underlying Index; Alteration of Method of Calculation” and “—Calculation Agent and Calculations”
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the Securities on the Trade
Date.
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Potentially inconsistent research, opinions or recommendations by
Morgan Stanley, MSFL, UBS or our or their respective affiliates
. Morgan Stanley, MSFL, UBS and our or their respective affiliates
may publish research from time to time on financial markets and other matters that may influence the value of the Securities, or
express opinions or provide recommendations that are inconsistent with purchasing or holding the Securities. Any research, opinions
or recommendations expressed by Morgan Stanley, MSFL, UBS or our or their respective affiliates may not be consistent with each
other and may be modified from time to time without notice. Investors should make their own independent investigation of the merits
of investing in the Securities and the Underlying to which the Securities are linked.
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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.
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Please read the discussion under
“What Are the Tax Consequences of the Securities” in this free writing prospectus 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 (as defined below) 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 (as defined
below) 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 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.
Hypothetical Payments on the Securities at Maturity
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The examples below illustrate the payment upon a call, on the
Coupon Payment Dates and at maturity for a $10 Security on a hypothetical offering of the Securities, with the following assumptions
(the actual terms for the Securities will be determined on the Trade Date; amounts may have been rounded for ease of reference):
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Principal Amount: $10.00
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Term: Approximately 2 years
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Hypothetical Initial Level: 2,800
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Hypothetical Contingent Coupon Rate: 7.00% per annum
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Hypothetical Contingent Coupon: $0.175 per quarter
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Observation Dates: Quarterly
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Hypothetical Coupon Barrier and Downside Threshold: 2,240, which is
80% of the hypothetical Initial Level
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Example 1 — Securities are Called on the Second Observation
Date (the first Observation Date on which MSFL can call the Securities)
Date
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Closing Level
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Payment (per Security)
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First Observation Date
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2,500 (at or above Coupon Barrier)
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$0.175 (Contingent Coupon — Not Callable)
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Second Observation Date
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3,000 (at or above Initial Level)
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$10.175 (Settlement Amount)
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Total Payment:
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$10.35 (3.5% return)
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The Underlying closes above the Coupon Barrier on the first Observation
Date, and therefore a Contingent Coupon is paid on the related Coupon Payment Date. MSFL calls the Securities on the second Observation
Date, which is the first Observation Date on which the Securities can be called. On the call settlement date, MSFL will pay you
a total of $10.175 per Security, reflecting your principal amount plus the Contingent Coupon with respect to the relevant Observation
Date. When added to the Contingent Coupon Payment of $0.175 received in respect of the prior Observation Date, MSFL will have paid
you a total of $10.35 per Security for a 3.5% total return on the Securities over a 6-month term. No further amount will be owed
to you under the Securities, and you will not participate in any appreciation of the Underlying.
Example 2 — Securities are Called on the Fourth Observation
Date
Date
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Closing Level
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Payment (per Security)
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First Observation Date
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2,600 (at or above Coupon Barrier)
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$0.175 (Contingent Coupon — Not Callable)
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Second Observation Date
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2,350 (at or above Coupon Barrier; below Initial Level)
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$0.175 (Contingent Coupon — Not Called)
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Third Observation Date
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2,460 (at or above Coupon Barrier; below Initial Level)
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$0.175 (Contingent Coupon — Not Called)
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Fourth Observation Date
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2,950 (at or above Initial Level)
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$10.175 (Settlement Amount)
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Total Payment:
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$10.70 (7% return)
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Since the Securities are called on the fourth Observation Date
(which is approximately one year after the Trade Date), MSFL will pay you on the call settlement date a total of $10.175 per Security,
reflecting your principal amount plus the Contingent Coupon. When added to the Contingent Coupon payments of $0.525 received in
respect of prior Observation Dates, MSFL will have paid you a total of $10.70 per Security for a 7% total return on the Securities
over a 1-year term. No further amount will be owed to you under the Securities, and you will not participate in any appreciation
of the Underlying.
Example 3 — Securities are NOT Called and the Final
Level of the Underlying is at or above the Downside Threshold
Date
|
Closing Level
|
Payment (per Security)
|
First Observation Date
|
2,500 (at or above Coupon Barrier)
|
$0.175 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
2,050 (below Coupon Barrier and Initial Level)
|
$0.00 (Not Called)
|
Third to Eleventh Observation Dates
|
Various (all below Coupon Barrier and Initial Level)
|
$0.00 (Not Called)
|
Final Observation Date
|
2,400 (at or above Downside Threshold and Coupon Barrier; below Initial Level)
|
$10.175 (Payment at Maturity)
|
|
Total Payment:
|
$10.35 (3.5% return)
|
Since the Securities are not called and the Final Level is greater
than or equal to the Downside Threshold, at maturity, MSFL will pay you a total of $10.175 per Security, reflecting your principal
amount plus the Contingent Coupon. When added to the Contingent Coupon payment of $0.175 received in respect of prior Observation
Dates, MSFL will have paid you a total of $10.35 per Security for a 3.5% total return on the Securities over the 2-year term. You
will not participate in any appreciation of the Underlying.
Example 4 — Securities are NOT Called and the Final
Level of the Underlying is below the Downside Threshold
Date
|
Closing Level
|
Payment (per Security)
|
First Observation Date
|
2,650 (at or above Coupon Barrier)
|
$0.175 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
2,500 (at or above Coupon Barrier; below Initial Level)
|
$0.175 (Contingent Coupon — Not Called)
|
Third to Eleventh Observation Dates
|
Various (all below Coupon Barrier; below Initial Level)
|
$0.00 (Not Called)
|
Final Observation Date
|
840 (below Downside Threshold and Coupon Barrier; below Initial Level)
|
$10 + [$10 × Underlying Return] =
$10 + [$10 × -70%] = $3 (Payment at Maturity)
|
|
Total Payment:
|
$3.35 (-66.5% return)
|
Since the Securities are not called and the
Final Level of the Underlying is below the Downside Threshold, at maturity MSFL will pay you $3.00 per Security. When added to
the Contingent Coupon payments of $0.35 received in respect of prior Observation Dates, MSFL will have paid you $3.35 per Security
over the 2-year term, for a loss on the Securities of 66.5%.
The Securities differ from ordinary debt securities in that,
among other features, MSFL is not necessarily obligated to repay the full amount of your initial investment. If the Securities
are not called on any Observation Date, you may lose a significant portion or all of your initial investment. Specifically, if
the Securities are not called and the Final Level is less than the Downside Threshold, you will lose 1% (or a fraction thereof)
of your principal amount for each 1% (or a fraction thereof) that the Underlying Return is less than zero. Any payment on the Securities,
including any payment upon an automatic call, any Contingent Coupon or the Payment at Maturity, is dependent on our ability to
satisfy our obligations when they come due. If we are unable to meet our obligations, you may not receive any amounts due to you
under the Securities.
What Are the Tax Consequences of the Securities?
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the Securities
issued under this free writing prospectus and is superseded by the following discussion.
The following is a general discussion of
the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the Securities.
This discussion applies only to investors in the Securities who:
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purchase the Securities in the original offering; and
|
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hold the Securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
This discussion does not describe all of
the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
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certain financial institutions;
|
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certain dealers and traders in securities or commodities;
|
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t
|
investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
|
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t
|
U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
|
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partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
|
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regulated investment companies;
|
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real estate investment trusts; or
|
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tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
|
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the Securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the Securities to you.
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. 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. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
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. Moreover, our counsel’s opinion is based on market conditions as
of the date of this free writing prospectus and is subject to confirmation on the Trade Date.
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:
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a citizen or individual resident of the United States;
|
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a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia; or
|
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t
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an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
Tax
Treatment of the Securities
Assuming
the treatment of the Securities as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis
. A U.S. Holder’s
tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Tax Treatment of Coupon Payments
.
Any coupon payment on the Securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in
accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities
. Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the Securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the Securities, could
result in adverse tax consequences to holders of the Securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due
to the absence of authorities that directly address the proper tax treatment of the Securities, no assurance can be given that
the IRS will accept, or that a court will uphold, the treatment described above. In particular, the IRS could seek to analyze
the U.S. federal income tax consequences of owning the Securities under Treasury regulations governing contingent payment debt
instruments (the “Contingent Debt Regulations”). If the IRS were successful in asserting that the Contingent Debt
Regulations applied to the Securities, the timing and character of income thereon would be significantly affected. Among other
things, a U.S. Holder would be required to accrue into income original issue discount on the Securities every year at a “comparable
yield” determined at the time of their issuance, adjusted upward or downward to reflect the difference, if any, between
the actual and the projected amount of any contingent payments on the Securities. Furthermore, any gain realized by a U.S. Holder
at maturity or upon a sale, exchange or other disposition of the Securities would be treated as ordinary income, and any loss
realized would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue discount
and as capital loss thereafter. The risk that financial instruments providing for buffers, triggers or similar downside protection
features, such as the Securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable
financial instruments that do not have such features.
Other alternative federal income tax treatments
of the Securities are possible, which, if applied, could significantly affect the timing and character of the income or loss with
respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S.
federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether
to require holders of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment.
It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded
status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the Securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the Securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities, including possible
alternative treatments and the issues presented by this notice.
Backup
Withholding and Information Reporting
Backup
withholding may apply in respect of payments on the Securities and the payment of proceeds from a sale, exchange or other disposition
of the Securities, unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number
and otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding
rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability,
provided that the required information is timely furnished to the IRS. In addition, information returns will be filed with
the IRS in connection with payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of
the Securities, unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax
Consequences to Non-U.S. Holders
This
section applies to you only if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial
owner of a Security that is for U.S. federal income tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
|
The
term “Non-U.S. Holder” does not include any of the following holders:
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a holder who is an individual present in the United States for 183
days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income
tax purposes;
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certain former citizens or residents of the United States; or
|
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a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
|
Such
holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities.
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, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021
that do not have a delta of one with respect to any Underlying Security. Based on the terms of the Securities and current market
conditions, we expect that the Securities will not have a delta of one with respect to any Underlying Security on the Trade Date.
However, we will provide an updated determination in the pricing supplement. Assuming that the Securities do not have a delta
of one with respect to any Underlying Security, our counsel is of the opinion that the Securities should not be Specified Securities
and, therefore, should not be subject to Section 871(m).
Our
determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application
may depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying
Security. If Section 871(m) withholding is required, we will not be required to pay any additional amounts with respect to the
amounts so withheld. You should consult your tax adviser regarding the potential application of Section 871(m) to the Securities.
U.S.
Federal Estate Tax
Individual
Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S.
federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained
certain interests or powers) should note that, absent an applicable treaty exemption, the Securities may be treated as U.S.-situs
property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type
described above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the
Securities.
Backup
Withholding and Information Reporting
Information
returns will be filed with the IRS in connection with any coupon payment and may be filed with the IRS in connection with the
payment at maturity on the Securities and the payment of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder
may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with
certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes
an exemption. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the
Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required
information is timely furnished to the IRS.
FATCA
Legislation
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. FATCA 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 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. Under recently proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending
finalization), no withholding will apply on payments of gross proceeds. 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. If withholding applies
to the Securities, we will not be
required to pay any additional amounts with respect to amounts
withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the
Securities.
The
discussion in the preceding paragraphs under “What Are the Tax Consequences of the Securities,” insofar as it purports
to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full opinion
of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the Securities.
The S&P 500
®
Index, which is calculated,
maintained and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies
selected to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500
®
Index
is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular
time as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941
through 1943. For additional information about the S&P 500
®
Index, see the information set forth under
“S&P 500
®
Index” in the accompanying index supplement.
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 500
®
,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. For more information, see “S&P 500
®
Index”
in the accompanying index supplement.
The following table sets forth the published high and low closing
levels, as well as the end-of-quarter closing levels, of the S&P 500
®
Index for each quarter in the period from
January 1, 2014 through May 29, 2019. The closing level of the S&P 500
®
Index on May 29, 2019 was 2,783.02.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical
closing levels of the S&P 500
®
Index should not be taken as an indication of future performance, and no assurance
can be given as to the closing level of the S&P 500
®
Index on any Observation Date, including the Final Observation
Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
1,878.04
|
1,741.89
|
1,872.34
|
4/1/2014
|
6/30/2014
|
1,962.87
|
1,815.69
|
1,960.23
|
7/1/2014
|
9/30/2014
|
2,011.36
|
1,909.57
|
1,972.29
|
10/1/2014
|
12/31/2014
|
2,090.57
|
1,862.49
|
2,058.90
|
1/1/2015
|
3/31/2015
|
2,117.39
|
1,992.67
|
2,067.89
|
4/1/2015
|
6/30/2015
|
2,130.82
|
2,057.64
|
2,063.11
|
7/1/2015
|
9/30/2015
|
2,128.28
|
1,867.61
|
1,920.03
|
10/1/2015
|
12/31/2015
|
2,109.79
|
1,923.82
|
2,043.94
|
1/1/2016
|
3/31/2016
|
2,063.95
|
1,829.08
|
2,059.74
|
4/1/2016
|
6/30/2016
|
2,119.12
|
2,000.54
|
2,098.86
|
7/1/2016
|
9/30/2016
|
2,190.15
|
2,088.55
|
2,168.27
|
10/1/2016
|
12/31/2016
|
2,271.72
|
2,085.18
|
2,238.83
|
1/1/2017
|
3/31/2017
|
2,395.96
|
2,257.83
|
2,362.72
|
4/1/2017
|
6/30/2017
|
2,453.46
|
2,328.95
|
2,423.41
|
7/1/2017
|
9/30/2017
|
2,519.36
|
2,409.75
|
2,519.36
|
10/1/2017
|
12/31/2017
|
2,690.16
|
2,529.12
|
2,673.61
|
1/1/2018
|
3/31/2018
|
2,872.87
|
2,581.00
|
2,640.87
|
4/1/2018
|
6/30/2018
|
2,786.85
|
2,581.88
|
2,718.37
|
7/1/2018
|
9/30/2018
|
2,930.75
|
2,713.22
|
2,913.98
|
10/1/2018
|
12/31/2018
|
2,925.51
|
2,351.10
|
2,506.85
|
1/1/2019
|
3/31/2019
|
2,854.88
|
2,447.89
|
2,834.40
|
4/1/2019
|
5/29/2019*
|
2,945.83
|
2,783.02
|
2,783.02
|
*
Available information for the indicated period includes data for less than the entire calendar quarter, and accordingly, the “Quarterly
High,” “Quarterly Low” and “Quarterly Close” data indicated are for this shortened period.
The graph below illustrates the performance of the S&P 500
®
Index from January 1, 2008 through May 29, 2019, based on information from Bloomberg.
Past performance of the S&P 500
®
Index is not indicative of the future performance of the S&P 500
®
Index.
* The dashed line indicates the hypothetical Coupon Barrier and
Downside Threshold, assuming the closing level of the S&P 500
®
Index on May 29, 2019 were the Initial Level.
Past performance is not indicative of future results.
Additional Terms of the Securities
|
If the terms described herein are inconsistent with those described
in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
The accompanying product supplement refers to the Principal
Amount as the “Stated Principal Amount,” the Initial Level as the “Initial Index Value,” the Trade Date
as the “Pricing Date,” the Observation Dates as the “Determination Dates,” the Final Observation Date as
the “Final Determination Date,” the Coupon Barrier/Downside Threshold” as the “Downside Threshold Level”
and the day on which any automatic call occurs as the “Early Redemption Date.”
Index Publisher
S&P Dow Jones Indices LLC or any successor thereto.
Day-Count Convention
Interest will be computed on the basis of a 360-day year of twelve
30-day months.
Issuer Notice to Registered Security Holders, the Trustee
and the Depositary
In the event that the Maturity Date of the Securities is postponed
due to a postponement of the Final Observation Date, the Issuer shall give notice of such postponement and, once it has been determined,
of the date to which the Maturity Date has been rescheduled (i) to each registered holder of the Securities by mailing notice of
such postponement by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon
the registry books, (ii) to the Trustee by facsimile confirmed by mailing such notice to the Trustee by first class mail, postage
prepaid, at its New York office and (iii) to The Depository Trust Company (the “Depositary”) by telephone or facsimile
confirmed by mailing such notice to the Depositary by first class mail, postage prepaid. Any notice that is mailed to a registered
holder of the Securities in the manner herein provided shall be conclusively presumed to have been duly given to such registered
holder, whether or not such registered holder receives the notice. The Issuer shall give such notice as promptly as possible, and
in no case later than (i) with respect to notice of postponement of the Maturity Date, the Business Day immediately preceding the
scheduled Maturity Date and (ii) with respect to notice of the date to which the Maturity Date has been rescheduled, the Business
Day immediately following the Final Observation Date as postponed.
In the event that the Securities are subject to Automatic Call,
the Issuer shall, (i) on the Business Day following the applicable Observation Date, give notice of the Automatic Call and the
applicable automatic call payment, including specifying the payment date of the applicable amount due upon the Automatic Call,
(x) to each registered holder of the Securities by mailing notice of such Automatic Call by first class mail, postage prepaid,
to such registered holder’s last address as it shall appear upon the registry books, (y) to the Trustee by facsimile confirmed
by mailing such notice to the Trustee by first class mail, postage prepaid, at its New York office and (z) to the Depositary by
telephone or facsimile confirmed by mailing such notice to the Depositary by first class mail, postage prepaid and (ii) on or prior
to the Automatic Call Date, deliver the aggregate cash amount due with respect to the Securities to the Trustee for delivery to
the Depositary, as holder of the securities. Any notice that is mailed to a registered holder of the Securities in the manner
herein provided shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered
holder receives the notice. This notice shall be given by the Issuer or, at the Issuer’s request, by the Trustee in the name
and at the expense of the Issuer, with any such request to be accompanied by a copy of the notice to be given.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee, on which notice the Trustee may conclusively rely, and to the Depositary of the amount of
cash to be delivered as Contingent Coupon, if any, with respect to the Securities on or prior to 10:30 a.m. (New York City time)
on the Business Day preceding each Coupon Payment Date, and (ii) deliver the aggregate cash amount due, if any, with respect to
the Contingent Coupon to the Trustee for delivery to the Depositary, as holder of the Securities, on or prior to the applicable
Coupon Payment Date.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee and to the Depositary of the amount of cash, if any, to be delivered with respect to the
Securities, on or prior to 10:30 a.m. (New York City time) on the Business Day preceding the Maturity Date, and (ii) deliver the
aggregate cash amount due with respect to the Securities, if any, to the Trustee for delivery to the Depositary, as holder of the
Securities, on or prior to the Maturity Date.
Additional Information About the Securities
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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, $10 per Security issued, because, when we enter into hedging
transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost of the Agent’s
commissions. The costs of the Securities borne by you and described on page 2 above comprise the Agent’s commissions and
the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying prospectus.
On or prior to the Trade Date, we will hedge our anticipated
exposure in connection with the Securities, by entering into hedging transactions with our affiliates and/or third-party dealers.
We expect our hedging counterparties to take positions in the constituent stocks of the Underlying, in futures or options contracts
on the Underlying or the constituent stocks of the Underlying, as well as in other instruments related to the Underlying that they
may wish to use in connection with such hedging. Any of these hedging or trading activities on or prior to the Trade Date could
potentially increase the Initial Level, and, as a result, the Coupon Barrier and Downside Threshold of the Underlying, which is
the level at or above which such Underlying must close on each Observation Date in order for you to earn a Contingent Coupon, or,
if the Securities are not called prior to maturity, is the level at or above which the Underlying must close on the Final Observation
Date so that you do not suffer a significant loss on your initial investment in the Securities. In addition, through our affiliates,
we are likely to modify our hedge position throughout the term of the Securities, including on the Final Observation Date, by purchasing
and selling the stocks constituting the Underlying, futures or options contracts on the Underlying or the component stocks listed
on major securities markets or positions in any other available securities or instruments that we may wish to use in connection
with such hedging activities, including by purchasing or selling any such securities or instruments on the Final Observation Date.
As a result, these entities may be unwinding or adjusting hedge positions during the term of the Securities, and the hedging strategy
may involve greater and more frequent dynamic adjustments to the hedge as the Final Observation Date approaches. We cannot give
any assurance that our hedging activities will not affect the value of the Underlying on the Observation Dates, and, therefore,
adversely affect the value of the Securities, whether the Contingent Coupon is payable or whether the Securities are called prior
to maturity and, if not, the payment you will receive at maturity, if any.
Benefit Plan Investor Considerations
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of 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 (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, 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 those 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) 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 of these Securities will not constitute or result
in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the Securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The Securities are contractual financial instruments. The financial
exposure provided by the Securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the Securities. The Securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the Securities.
Each purchaser or holder of any Securities acknowledges and agrees
that:
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(i)
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the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the
purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of
the purchaser or holder with respect to (A) the design and terms of the Securities, (B) the purchaser or holder’s investment
in the Securities, or (C) the exercise of or failure to exercise any rights we have under or with respect to the Securities;
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(ii)
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we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to
the Securities and (B) all hedging transactions in connection with our obligations under the Securities;
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(iii)
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any and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those
entities and are not assets and positions held for the benefit of the purchaser or holder;
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(iv)
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our interests are adverse to the interests of the purchaser or holder; and
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(v)
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neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets,
positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment
advice.
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Each purchaser and holder of the Securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the Securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any Securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these Securities should consult
and rely on their own counsel and advisers as to whether an investment in these Securities is suitable.
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.
Supplemental Plan of Distribution; Conflicts of Interest
MS & Co. will act as the agent for this offering. We will
agree to sell to MS & Co., and MS & Co. will agree to purchase, all of the Securities at the issue price less the underwriting
discount indicated on the cover of this document. UBS Financial Services Inc., acting as dealer, will receive from MS & Co.
a fixed sales commission of $0.15 for each Security it sells.
MS & Co. is our affiliate and a wholly owned subsidiary of
Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the Securities. When MS & Co. prices this offering of Securities, it will determine the economic terms of the Securities, including
the Contingent Coupon Rate, such that for each Security the estimated value on the Trade Date will be no lower than the minimum
level described in “Additional Information about Morgan Stanley, MSFL and the Securities” on page 2.
MS & Co. will conduct this offering in compliance with the
requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”), regarding a FINRA member
firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any of our other
affiliates may not make sales in this offering to any discretionary account.
In order to facilitate the offering of the Securities, the agent
may engage in transactions that stabilize, maintain or otherwise affect the price of the Securities. Specifically, the agent may
sell more Securities than it is obligated to purchase in connection with the offering, creating a naked short position in the Securities,
for its own account. The agent must close out any naked short position by purchasing the Securities in the open market. A naked
short position is more likely to be created if the agent is concerned that there may be downward pressure on the price of the Securities
in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of
facilitating the offering, the agent may bid for, and purchase, the Securities or the stocks constituting the Underlying in the
open market to stabilize the price of the Securities. Any of these activities may raise or maintain the market price of the Securities
above independent market levels or prevent or retard a decline in the market price of the Securities. The agent is not required
to engage in these activities, and may end any of these activities at any time. An affiliate of the agent has entered into a hedging
transaction with us in connection with this offering of Securities. See “—Use of Proceeds and Hedging” above.
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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