If a Market
Disruption Event occurs on any scheduled Averaging Date or any scheduled Averaging Date is not an Index Business Day, such scheduled
Averaging Date shall be subject to postponement as described below.
If a Market
Disruption Event occurs on any scheduled Averaging Date or if any scheduled Averaging Date is not an Index Business Day with respect
to the Index, the Index Closing Value for such date shall be determined on the immediately succeeding Index Business Day on which
no Market Disruption Event shall have occurred. Each succeeding Averaging Date shall then be the next Index Business Day following
the preceding Averaging Date as postponed. The Final Index Level shall be determined on the date on which the Index Closing Values
for all scheduled Averaging Dates have been determined;
provided
that (i) the Index Closing Value for any Averaging Date
shall not be determined on a date later than the fifth Business Day after the scheduled Expiration Date, (ii) the Index Closing
Value for any remaining Averaging Dates that would otherwise fall after such fifth Business Day shall be the Index Closing Value
on such fifth Business Day and (iii) if such fifth Business Day is not an Index Business Day or if there is a Market Disruption
Event on such date, the Calculation Agent shall determine the Index Closing Value of the Index on such date in accordance with
the formula for and method of calculating the Index last in effect prior to the commencement of the Market Disruption Event (or
prior to the non-Index Business Day), without rebalancing or substitution, using the closing price (or, if trading in the relevant
securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed
but for such suspension, limitation or non-Index Business Day) on such date of each security most recently constituting the Index.
Relevant Exchange
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The primary exchange(s) or market(s) of trading for (i) any security then included in the Index, or any Successor Index, and (ii) any futures or options contracts related to the Index or to any security then included in the Index.
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Book Entry Security or
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Certificated Security
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Book Entry. The Warrants will be issued in the form of one or more fully registered global warrants, which will be deposited with, or on behalf of, DTC and will be registered in the name of a nominee of DTC. DTC’s nominee will be the only registered holder of the Warrants. Your beneficial interest in the Warrants will be evidenced solely by entries on the books of the Warrants intermediary acting on your behalf as a direct or indirect participant in DTC. In this pricing supplement, all references to actions taken by “you” or to be taken by “you” refer to actions taken or to be taken by DTC and its participants acting on your behalf, and all references to payments or notices to you will mean payments or notices to DTC, as the registered holder of the Warrants, for distribution to participants in accordance with DTC’s procedures. For more information regarding DTC and book-entry warrants, please read “Forms of Securities—The Depositary,” “Securities Offered on a Global Basis Through the Depositary—Book-Entry, Delivery and Form” and “Securities Offered on a Global Basis Through the Depositary—Global Clearance and Settlement Procedures” in the accompanying prospectus.
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Warrant Agent
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The Bank of New York Mellon, a New York banking corporation
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Agents
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J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A.
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Calculation Agent
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MS & Co. and its successors
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All determinations made by the
Calculation Agent will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive
for all purposes and binding on you, the Warrant Agent and us.
All calculations with respect
to the Cash Settlement Amount, if any, will be made by the Calculation Agent and will be rounded to the nearest one hundred-thousandth,
with five one-millionths rounded upward (e.g., .876545 would be rounded to .87655); all dollar amounts related to determination
of the amount of cash payable per Warrant, if any, will be rounded to the nearest ten-thousandth, with five one hundred-thousandths
rounded upward (e.g., .76545 would be rounded up to .7655); and all dollar amounts paid, if any, on the aggregate number of Warrants
will be rounded to the nearest cent, with one-half cent rounded upward.
Because the Calculation Agent
is our affiliate, the economic interests of the Calculation Agent and its affiliates may be adverse to your interests as an investor
in the Warrants, including with respect to certain determinations and judgments that the Calculation Agent must make in determining
the Initial Index Level or the Final Index Level. See “—Discontinuance of the Index; Alteration of Method of Calculation”
below. MS & Co. is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable
judgment.
Market Disruption Event
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Market Disruption Event means, with respect to the Index:
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(i) the
occurrence or existence of any of:
(a) a
suspension, absence or material limitation of trading of securities then constituting 20 percent or more of the level of the Index
(or the Successor Index (as defined below under “—Discontinuance of the Index; Alteration of Method of Calculation”))
on the Relevant Exchange for such securities for more than two hours of trading or during the one-half hour period preceding the
close of the principal trading session on such Relevant Exchange, or
(b) a
breakdown or failure in the price and trade reporting systems of any Relevant Exchange as a result of which the reported trading
prices for securities then constituting 20 percent or more of the level of the Index (or the Successor Index) during the last one-half
hour preceding the close of the principal trading session on such Relevant Exchange are materially inaccurate, or
(c) the
suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options contracts
or exchange-traded funds related to the Index (or the Successor Index) for more than two hours of trading or during the one-half
hour period preceding the close of the principal trading session on such market,
in each case, as determined by
the Calculation Agent in its sole discretion; and
(ii) a
determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with
respect to the Warrants.
For the purpose of determining
whether a Market Disruption Event exists at any time, if trading in a security included in the Index is materially suspended or
materially limited at that time, then the relevant percentage contribution of that security to the level of the Index shall be
based on a comparison of (x) the portion of the value of the Index attributable to that security relative to (y) the overall value
of the Index, in each case immediately before that suspension or limitation.
For the purpose of determining
whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute
a Market Disruption Event if it results from an announced change in the regular business hours of the Relevant Exchange or market,
(2) a decision to permanently discontinue trading in the relevant futures or options contract or exchange-traded fund will not
constitute a Market Disruption Event, (3) a suspension of trading in futures or options contracts or exchange-traded funds on the
Index by the primary securities market trading in such contracts or funds by reason of (a) a price change exceeding limits set
by such securities exchange or market, (b) an imbalance of orders relating to such contracts or funds, or (c) a disparity in bid
and ask quotes relating to such contracts or funds will constitute a suspension, absence or
material limitation of trading
in futures or options contracts or exchange-traded funds related to the Index and (4) a “suspension, absence or material
limitation of trading” on any Relevant Exchange or on the primary market on which futures or options contracts or exchange-traded
funds related to the Index are traded will not include any time when such securities market is itself closed for trading under
ordinary circumstances.
Discontinuance of the Index;
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Alteration of Method of Calculation
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If the Index Publisher discontinues publication of the Index and the Index Publisher or another entity (including MS & Co.) publishes a successor or substitute index that MS & Co., as the Calculation Agent, determines, in its sole discretion, to be comparable to the discontinued Index (such index being referred to herein as a “Successor Index”), then any subsequent Index Closing Value will be determined by reference to the published value of such Successor Index at the regular weekday close of trading on any Index Business Day that the Index Closing Value is to be determined, and, to the extent the Index Closing Value of the Successor Index differs from the Index Closing Value of the Index at the time of such substitution, proportionate adjustments will be made by the Calculation Agent to the Initial Index Level, Strike Level and Barrier Level.
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Upon any selection by the Calculation
Agent of a Successor Index, the Calculation Agent will cause written notice thereof to be furnished to the Warrant Agent, to us
and to DTC, as holder of the Warrants, within three Business Days of such selection. We expect that such notice will be made available
to you, as a beneficial owner of the Warrants, in accordance with the standard rules and procedures of DTC and its direct and indirect
participants.
If the Index Publisher discontinues
the publication of the Index prior to, and such discontinuance is continuing on, any Averaging Date and the Calculation Agent determines,
in its sole discretion, that no Successor Index is available at such time, then the Calculation Agent will determine the Index
Closing Value for such date. The Index Closing Value will be computed by the Calculation Agent in accordance with the formula for
calculating the Index last in effect prior to such discontinuance, using the closing price (or, if trading in the relevant securities
has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but
for such suspension or limitation) at the close of the principal trading session of the Relevant Exchange on such date of each
security most recently constituting the Index without any rebalancing or substitution of such securities following such discontinuance.
Notwithstanding these alternative arrangements, discontinuance of the publication of the Index may adversely affect the value of
the Warrants.
If at any time the method of
calculating the Index or a Successor Index, or the value thereof, is changed in a material respect, or if the Index or a Successor
Index is in any other way modified so that such index does not, in the sole opinion of MS & Co., as the Calculation Agent,
fairly represent the value of the Index or such Successor Index had such changes or modifications not been
made, then, from and after such
time, the Calculation Agent will, at the close of business in New York City on each date on which the Index Closing Value is to
be determined, make such calculations and adjustments as, in the good faith judgment of the Calculation Agent, may be necessary
in order to arrive at a value of a stock index comparable to the Index or such Successor Index, as the case may be, as if such
changes or modifications had not been made, and the Calculation Agent will calculate the Index Closing Value with reference to
the Index or such Successor Index, as adjusted. Accordingly, if the method of calculating the Index or such Successor Index is
modified so that the value of such index is a fraction of what it would have been if it had not been modified (
e.g.
, due
to a split in the index), then the Calculation Agent will adjust such index in order to arrive at a value of the Index or such
Successor Index as if it had not been modified (
e.g.
, as if such split had not occurred).
The Index
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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.
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Historical Information
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The following table sets forth the published high and low Index Closing Values, as well as end-of-quarter Index Closing Values, of the Index for each quarter in the period from January 1, 2014 through June 7, 2019. The Index Closing Value on June 7, 2019 was 2,873.34. The graph following the table sets forth the historical performance of the Index for each day during the same period. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
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The historical values of the Index should not be
taken as an indication of future performance, and no assurance can be given as to the Index Closing Value on any Averaging Date.
The Final Index Level may be at or above the Strike Level so that the Warrants expire worthless on the Expiration Date.
We cannot give you any assurance that the Bearish
Index Return will be greater than the Warrant Premium Percentage so that you will not lose money on your investment, or that it
will be positive so that you will not lose your entire investment in the Warrants.
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S&P 500
®
Index
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High
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Low
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Period
End
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2014
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First Quarter
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1,878.04
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1,741.89
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1,872.34
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Second Quarter
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1,962.87
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1,815.69
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1,960.23
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Third Quarter
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2,011.36
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1,909.57
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1,972.29
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Fourth Quarter
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2,090.57
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1,862.49
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2,058.90
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2015
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First Quarter
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2,117.39
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1,992.67
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2,067.89
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Second Quarter
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2,130.82
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2,057.64
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2,063.11
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S&P 500
®
Index
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High
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Low
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Period
End
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Third Quarter
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2,128.28
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1,867.61
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1,920.03
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Fourth Quarter
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2,109.79
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1,923.82
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2,043.94
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2016
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First Quarter
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2,063.95
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1,829.08
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2,059.74
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Second Quarter
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2,119.12
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2,000.54
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2,098.86
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Third Quarter
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2,190.15
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2,088.55
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2,168.27
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Fourth Quarter
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2,271.72
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2,085.18
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2,238.83
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2017
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First Quarter
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2,395.96
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2,238.83
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2,362.72
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Second Quarter
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2,453.46
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2,328.95
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2,423.41
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Third Quarter
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2,519.36
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2,409.75
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2,519.36
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Fourth Quarter
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2,690.16
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2,519.36
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2,673.61
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2018
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First Quarter
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2,872.87
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2,581.00
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2,640.87
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Second Quarter
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2,786.85
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2,581.88
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2,718.37
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Third Quarter
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2,930.75
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2,713.22
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2,913.98
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Fourth Quarter
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2,925.51
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2,351.10
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2,506.85
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2019
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First Quarter
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2,854.88
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2,447.89
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2,834.40
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Second Quarter (through June 7, 2019)
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2,945.83
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2,744.45
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2,873.34
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Historical Daily Index Closing
Values of the S&P 500
®
Index
January 1, 2014 through June
7, 2019
Use of Proceeds and Hedging
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The proceeds from the sale of the Warrants will be used by us for general corporate purposes. We will receive, in aggregate, $23.00 per Warrant issued, because, when we enter into hedging transactions in order to meet our obligations under the Warrants, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Warrants borne by you and described beginning on PS-3 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Warrants. See also “Use of Proceeds” in the accompanying prospectus.
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On or prior to June 7, 2019,
we hedged our anticipated exposure in connection with the Warrants by entering into hedging transactions with our affiliates and/or
third-party dealers. We expect our hedging counterparties to have taken positions in the securities constituting the Index and
in futures and/or options contracts on the Index or its component securities listed on major securities markets. Such purchase
activity could have affected the Initial Index Level, and therefore could have affected the value
below which the Index must close
on the Averaging Dates so that you do not lose your entire initial investment in the Warrants. In addition, through our affiliates,
we are likely to modify our hedge position throughout the term of the Warrants, including on the Averaging Dates, by purchasing
and selling the securities underlying the Index, futures and/or options contracts on the Index or its component securities listed
on major securities markets or positions in any other available warrants or instruments that we may wish to use in connection with
such hedging activities. As a result, these entities may be unwinding or adjusting hedge positions during the term of the Warrants,
and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the Averaging Dates approach.
We cannot give any assurance that our hedging activities will not affect the value of the Index, and, therefore, adversely affect
the value of the Warrants or the payment you will receive on the Cash Settlement Date, if any.
Governing Law
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The Warrants are governed by, and construed in accordance with, the laws of the State of New York.
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In the event MSFL or Morgan Stanley becomes subject
to a proceeding under the Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (together, the “
U.S. Special Resolution Regimes
”), the transfer of the Warrants, the Warrant Agreement and
the related Morgan Stanley guarantee (together, the “
Relevant Agreements
”), and any interest and obligation
in or under the Relevant Agreements, from MSFL or Morgan Stanley, respectively, will be effective to the same extent as the transfer
would be effective under such U.S. Special Resolution Regime if the Relevant Agreements, and any interest and obligation in or
under the Relevant Agreements, were governed by the laws of the United States or a state of the United States. In the event MSFL
or Morgan Stanley, or any of their affiliates, becomes subject to a U.S. Special Resolution Regime, default rights against MSFL
or Morgan Stanley with respect to the Relevant Agreements are permitted to be exercised to no greater extent than such default
rights could be exercised under such U.S. Special Resolution Regime if the Relevant Agreements were governed by the laws of the
United States or a state of the United States.
Supplemental Information Concerning
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Plan of Distribution
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Under the terms and subject to the conditions contained in the U.S. distribution agreement referred to in the prospectus supplement under “Plan of Distribution (Conflicts of Interest),” the Agent, acting as principal for its own account, has agreed to purchase, and we have agreed to sell, the aggregate premium amount of Warrants set forth on the cover of this pricing supplement. J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. will act as placement agents for the Warrants and will receive a fee from us that will not exceed $1.20 per $23.00 Premium Amount of each Warrant, but will forgo any fees for sales to certain fiduciary accounts.
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When we price this offering of
Warrants, we will determine the economic terms of the Warrants such that for each Warrant the estimated value on the Pricing Date
will be no lower than the
level described in “Summary
of Pricing Supplement” beginning on PS-3.
General
No action has been or will be
taken by us, the Agent or any dealer that would permit a public offering of the Warrants or possession or distribution of this
pricing supplement or the accompanying index supplement, prospectus supplement or prospectus in any jurisdiction, other than the
United States, where action for that purpose is required. No offers, sales or deliveries of the Warrants, or distribution of this
pricing supplement or the accompanying index supplement, prospectus supplement or prospectus or any other offering material relating
to the Warrants, may be made in or from any jurisdiction except in circumstances which will result in compliance with any applicable
laws and regulations and will not impose any obligations on us, the Agent or any dealer.
The Agent has represented and
agreed, and each dealer through which we may offer the Warrants has represented and agreed, that it (i) will comply with all applicable
laws and regulations in force in each non-U.S. jurisdiction in which it purchases, offers, sells or delivers the Warrants or possesses
or distributes this pricing supplement and the accompanying index supplement, prospectus supplement and prospectus and (ii) will
obtain any consent, approval or permission required by it for the purchase, offer or sale by it of the Warrants under the laws
and regulations in force in each non-U.S. jurisdiction to which it is subject or in which it makes purchases, offers or sales of
the Warrants. We shall not have responsibility for the Agent’s or any dealer’s compliance with the applicable laws
and regulations or obtaining any required consent, approval or permission.
In addition to the selling restrictions
set forth in “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus supplement, the following
selling restrictions also apply to the Warrants:
Brazil
The Warrants have not been and
will not be registered with the Comissão de Valores Mobiliários (The Brazilian Securities Commission). The Warrants
may not be offered or sold in the Federative Republic of Brazil except in circumstances which do not constitute a public offering
or distribution under Brazilian laws and regulations.
Chile
The Warrants have not been registered
with the Superintendencia de Valores y Seguros in Chile and may not be offered or sold publicly in Chile. No offer, sales or deliveries
of the Warrants or distribution of this pricing supplement or the accompanying prospectus supplement, index supplement or prospectus,
may be made in or from Chile except in circumstances which will result in compliance with any applicable Chilean laws and regulations.
Mexico
The Warrants have not been registered
with the National Registry of Securities maintained by the Mexican National Banking and Securities Commission and may not be offered
or sold publicly in Mexico. This pricing supplement, the accompanying prospectus supplement, the accompanying index supplement
and the accompanying prospectus may not be publicly distributed in Mexico.
Benefit Plan Investor Considerations
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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”), which we refer to as a “plan,” should consider the fiduciary standards of ERISA in the context of the plan’s particular circumstances before authorizing an investment in these Warrants. 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.
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In addition, we and certain of
our affiliates, including MS & Co., may each be considered “parties in interest” within the meaning of ERISA or
“disqualified persons” within the meaning of 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 these Warrants 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 Warrants 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 these Warrants. 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 asset managers).
In addition, ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code provide an exemption for the purchase and sale of Warrants
and the related lending transactions, provided that neither the issuer of the Warrants nor any of its affiliates has or exercises
any discretionary authority or control or renders any investment advice with respect to the assets of any
plan involved in the transaction
and provided further that the plan pays no more 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 these Warrants.
Because we may be considered
a party in interest with respect to many plans, unless otherwise specified in the applicable prospectus supplement, these Warrants
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.
Unless otherwise specified in the applicable prospectus supplement, any purchaser, including any fiduciary purchasing on behalf
of a plan, transferee or holder of these Warrants will be deemed to have represented, in its corporate and its fiduciary capacity,
by its purchase and holding thereof that either (a) it is not a plan or a plan asset entity, is not purchasing such Warrants on
behalf of or with “plan assets” of any plan, or with any assets of a governmental 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 Warrants 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 nonexempt prohibited transactions, it is particularly important
that fiduciaries or other persons considering purchasing these Warrants on behalf of or with “plan assets” of any plan
consult with their counsel regarding the availability of exemptive relief.
The Warrants are contractual
financial instruments. The financial exposure provided by the Warrants 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 Warrants.
The Warrants 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 Warrants.
Each purchaser or holder of any
Warrants acknowledges and agrees that:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the Warrants, (B) the purchaser or holder’s investment in the
Warrants, or (C) the exercise
of or failure to exercise any rights we have under or with respect to the Warrants;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the Warrants
and (B) all hedging transactions in connection with our obligations under the Warrants;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of
these Warrants has exclusive responsibility for ensuring that its purchase, holding and disposition of the Warrants do not violate
the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any of these Warrants 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 Warrants should consult and rely on their own counsel and advisers as to whether an investment in these
Warrants 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 Warrants if the account, plan or annuity is for
the benefit of an employee of Morgan Stanley or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the Warrants by the account, plan or annuity.
Client accounts over which Morgan
Stanley or any of its subsidiaries have investment discretion are not permitted to purchase the Warrants, either directly or indirectly.
United States Federal Taxation
|
In the opinion of Davis Polk & Wardwell LLP, under current law, each Warrant should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. However, because our counsel’s opinion is based in part on market conditions as of the date of this document, it is subject to confirmation on the pricing date.
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Assuming this treatment of
the Warrants is respected, a U.S. Holder should not be required to recognize taxable income over the term of the Warrants prior
to settlement, other than pursuant to a sale or exchange. Any gain or loss recognized upon sale, exchange, lapse or settlement
of the Warrants should generally be short-term capital gain or loss. For a detailed discussion of the U.S. federal income tax consequences
to U.S. Holders of the ownership and disposition of the Warrants, U.S. Holders should read the sections of the accompanying prospectus
supplement entitled “United States Federal Taxation—Tax Consequences to U.S. Holders—Warrants” and “United
States Federal Taxation—Tax Consequences to U.S. Holders—Backup Withholding and Information Reporting.”
Section 871(m) Withholding
Tax on Dividend Equivalents
Section 871(m) of the Internal
Revenue Code of 1986, as amended, 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.
In light of the economic terms
of the Warrants, payment on the Warrants to Non-U.S. Holders should not be subject to Section 871(m).
Both U.S. and non-U.S. investors
considering an investment in the Warrants should read the section of the accompanying prospectus supplement entitled “United
States Federal Taxation” and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences
of an investment in the Warrants, and any tax consequences arising under the laws of any state, local, or non-U.S. taxing jurisdiction.
A holder who has made a separate investment the return of which is based on or linked to the performance of the underlying (including
any component thereof) should discuss with its tax adviser the U.S. federal income tax consequences of an investment in the Warrants
(including the potential application of the “straddle” rules).
The discussion in the preceding
paragraphs under “United States Federal Taxation” and the discussion contained in the section entitled “United
States Federal Taxation” in the accompanying prospectus supplement, insofar as they purport to describe provisions of U.S.
federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP
regarding the material U.S. federal income tax consequences of an investment in the Warrants.