These Capped Buffer GEARS (the “Securities”) are
unsecured and unsubordinated debt securities issued by Morgan Stanley Finance LLC (“MSFL”) and fully and unconditionally
guaranteed by Morgan Stanley with returns linked to the performance of the Financial Select Sector SPDR
®
Fund (the
“Underlying Shares”). If the Underlying Return is positive, MSFL will repay the Principal Amount at maturity plus
pay a return equal to the Upside Gearing of 2.0 times the Underlying Return, up to the Maximum Gain, which will be set on the
Trade Date and is expected to be between 17.30% and 19.30%. If the Underlying Return is equal to or less than zero but the Final
Price is greater than or equal to the Downside Threshold (90% of the Initial Price), MSFL will repay the full Principal Amount
at maturity. However, if the Underlying Return is less than zero and the Final Price is less than the Downside Threshold, MSFL
will pay less than the full Principal Amount at maturity, resulting in a loss of principal to investors of 1% for every 1% decline
beyond the Buffer of 10%. The Securities are designed for investors who seek an opportunity to earn an equity fund-based return
and who are willing to incur a loss on their Principal Amount and forgo current income and upside above the Maximum Gain in exchange
for the enhanced growth potential up to the Maximum Gain and the 10% Buffer features that in each case apply at maturity, as described
herein.
Investing in the Securities involves significant risks. You will not receive interest or dividend payments during the
term of the Securities. You may lose up to 90% of your Principal Amount. The Downside Threshold is observed relative to the Final
Price only on the Final Valuation Date, and the downside exposure to the Underlying Shares is buffered only if you hold the Securities
to maturity. Accordingly, you may receive significantly less than the Principal Amount if you are able to sell the Securities
prior to maturity even if the Index has not declined by more than the 10% Buffer.
We are offering Capped Buffer GEARS Linked
to the Financial Select Sector SPDR
®
Fund. The return on the Securities is limited by, and will be subject to,
the predetermined Maximum Gain. The Securities are offered at a minimum investment of 100 Securities at the Price to Public described
below. The indicative Maximum Gain range for the Securities is listed below. The actual Maximum Gain, Initial Price and Downside
Threshold for the Securities will be determined on the Trade Date.
Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by a prospectus supplement and an index supplement) with the SEC for the offering to which this communication
relates. Before you invest, you should read the prospectus in that registration statement, the prospectus supplement, the index
supplement and any other documents relating to this offering that Morgan Stanley and MSFL have filed with the SEC for more complete
information about Morgan Stanley, MSFL and this offering. You may get these documents for free by visiting EDGAR on the SEC website
at www.sec.gov. Alternatively, Morgan Stanley, MSFL, any underwriter or any dealer participating in this offering will arrange
to send you the prospectus, the prospectus supplement and the index supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access the accompanying prospectus supplement, index
supplement and prospectus on the SEC website at www.sec.gov as follows:
You should rely only on the information incorporated by reference
or provided in this free writing prospectus or the accompanying prospectus supplement, index supplement and prospectus. We have
not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this free writing prospectus or the accompanying prospectus
supplement, index supplement and prospectus is accurate as of any date other than the date on the front of this document.
The Issue Price of each Security is $10. This price includes
costs associated with issuing, selling, structuring and hedging the Securities, which are borne by you, and, consequently, the
estimated value of the Securities on the Trade Date will be less than $10. We estimate that the value of each Security on the Trade
Date will be approximately $9.645, or within $0.15 of that estimate. Our estimate of the value of the Securities as determined
on the Trade Date will be set forth in the final pricing supplement.
In valuing the Securities on the Trade Date, we take into account
that the Securities comprise both a debt component and a performance-based component linked to the Underlying Shares. The estimated
value of the Securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
Underlying Shares, instruments based on the Underlying Shares, volatility and other factors including current and expected interest
rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our
conventional fixed rate debt trades in the secondary market.
In determining the economic terms of the Securities, including
the Upside Gearing, the Downside Threshold, the Buffer and the Maximum Gain, we use an internal funding rate, which is likely to
be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging
costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the Securities
would be more favorable to you.
The price at which MS & Co. purchases the Securities in the
secondary market, absent changes in market conditions, including those related to the Underlying Shares, may vary from, and be
lower than, the estimated value on the Trade Date, because the secondary market price takes into account our secondary market credit
spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other
factors. However, because the costs associated with issuing, selling, structuring and hedging the Securities are not fully deducted
upon issuance, for a period of up to 7 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 Shares, and
to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those higher
values will also be reflected in your brokerage account statements.
MS & Co. currently intends, but is not obligated, to make
a market in the Securities, and, if it once chooses to make a market, may cease doing so at any time.
Terms
|
|
Investment
Timeline
|
Issuer
|
Morgan Stanley Finance LLC
|
Guarantor
|
Morgan Stanley
|
Issue Price (per Security)
|
$10.00 per Security
|
Principal Amount
|
$10.00 per Security
|
Term
|
2
years
|
Underlying Shares
|
Shares of the Financial Select Sector SPDR
®
Fund (the “Fund”)
|
Payment at Maturity
(per Security)
|
MSFL will pay you a cash payment at maturity
linked to the performance of the Underlying Shares during the term of the Securities.
If the Underlying Return is greater than zero,
MSFL will pay you an amount equal to the lesser of:
$10 + ($10 × Underlying Return ×
Upside Gearing);
and
$10 + ($10 × Maximum Gain).
If the Underlying Return is equal to or less than
zero but the Final Price is greater than or equal to the Downside Threshold,
MSFL will pay you the $10 Principal Amount.
If the Final Price is less than the Downside Threshold,
MSFL will pay you an amount calculated as follows:
$10 + [$10 × (Underlying Return +
Buffer)]
In this case, you could lose up to 90% of your Principal
Amount at maturity in an amount proportionate to the Underlying Shares’ decline in excess of the Buffer.
|
Upside Gearing
|
2.0
|
Maximum Gain
|
Between 17.30% and 19.30%,
which corresponds to a maximum Payment at Maturity of $11.73 to $11.93 per Security
. The actual Maximum Gain will be determined on the Trade Date.
|
Downside Threshold:
|
90% of the Initial Price
|
Buffer
|
10%
|
Underlying Return
|
Final Price – Initial Price
Initial Price
|
Initial Price
|
$ , which is the Closing Price of one Underlying Share on the Trade Date.
|
Final Price
|
The Closing Price on the Final Valuation Date
times
the Adjustment Factor on such date.
|
Trade Date
|
June 25, 2019
|
Settlement Date
|
June 28, 2019
|
Final Valuation Date
|
June 25, 2021*
|
Maturity Date
|
June 30, 2021*
|
Adjustment Factor
|
1.0, subject to adjustment in the event of certain corporate events affecting the Underlying Shares.
|
CUSIP / ISIN
|
61768Y851 / US61768Y8518
|
Calculation Agent
|
Morgan Stanley & Co. LLC (“MS & Co.”)
|
*Subject
to postponement in the event of a Market Disruption Event or for non-Trading Days. See “Postponement of Final Valuation
Date and Maturity Date” under “Additional Terms of the Securities.”
|
|
Trade Date
|
|
The Initial Price and Downside Threshold are determined.
The Maximum Gain is set.
|
|
|
|
|
|
Maturity Date
|
|
The Final Price and Underlying Return are determined
as of the Final Valuation Date.
If the Underlying Return is positive,
MSFL will
pay you a cash amount at maturity equal to the lesser of:
$10 + ($10 × Underlying Return ×
2.0);
and
$10 + ($10 × Maximum Gain)
per Security.
If the Underlying Return is between 0% and -10%,
inclusive, MSFL will pay you $10.00 cash per Security.
If the Underlying Return is less than
-10%,
MSFL will pay you a cash amount at maturity equal to:
$10 + [$10 × (Underlying Return
+ 10%)]
per Security.
You could lose up to 90% of your Principal Amount.
|
Investing in the Securities
involves significant risks. You may lose up to 90% of your 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.
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. You should also consult your investment, legal, tax, accounting and other advisers before you invest
in the Securities.
|
t
|
Your investment in the Securities may result in a loss of up to
90% of your Principal Amount.
The terms of the Securities differ from those of ordinary debt securities in that we will not
pay interest or guarantee the payment of the full Principal Amount at maturity. MSFL will repay the full $10 Principal Amount per
Security only if the Underlying Shares’ percentage decline is not more than 10%, and will make such payment only at maturity.
If the Underlying Shares’ percentage decline exceeds 10%, the payout at maturity will be an amount in cash that is less than
the $10 Principal Amount of each Security by an amount proportionate to the Underlying Shares’ percentage decline in excess
of the 10% Buffer. Accordingly, you could lose up to 90% of your Principal Amount.
|
|
t
|
You may incur a loss on your investment if you sell your Securities
prior to maturity.
The 10% Buffer applies only at maturity. You should be willing to hold your Securities to maturity. If
you are able to sell your Securities prior to maturity in the secondary market, you may have to sell them at a loss relative to
your initial investment even if the Underlying Shares have not declined by more than the Buffer.
|
|
t
|
The Upside Gearing applies only at maturity.
You should be willing
to hold your Securities to maturity. If you are able to sell your Securities prior to maturity in the secondary market, the price
you receive will likely not reflect the full economic value of the Upside Gearing or the Securities themselves, and the return
you realize may be less than 2.0 times the return of the Underlying Shares at the time of sale even if such return is positive
and does not exceed the Maximum Gain. You can receive the full benefit of the Upside Gearing and earn the potential Maximum Gain
only if you hold your Securities to maturity.
|
|
t
|
Appreciation potential is limited.
The appreciation potential
of Securities is limited by the Maximum Gain of 17.30% to 19.30% (which corresponds to a maximum Payment at Maturity of $11.73
to $11.93 per Security). The actual Maximum Gain and maximum Payment at Maturity will be determined on the Trade Date. Therefore,
although the Upside Gearing enhances positive Underlying Returns, you will not benefit from any positive Underlying Return that,
when multiplied by the Upside Gearing, exceeds the Maximum Gain. As a result, any increase in the Final Price over the Initial
Price by more than 8.65% to 9.65% (to be determined on the Trade Date) of the Initial Price will not further increase the return
on the Securities.
|
|
t
|
No interest payments.
MSFL will not make any interest payments
in respect to the Securities.
|
|
t
|
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 at maturity, if any, 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 our credit spreads charged
by the market for taking our credit risk is likely to adversely affect the market value of the Securities.
|
|
t
|
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.
|
|
t
|
The market price of the Securities may 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 (if at all),
including:
|
|
o
|
the price of the Underlying Shares at any time,
|
|
o
|
the volatility (frequency and magnitude of changes in price) of the Underlying Shares,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the Underlying Shares
or stock markets generally and which may affect the Final Price,
|
|
o
|
the time remaining until the Securities mature, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
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 Shares, and these are the types of factors that also generally affect the values of debt securities and derivatives
linked to the Underlying Shares. For example, you may have to sell your Securities at a substantial discount from the principal
amount of $10 per Security if the price of the Underlying Shares at the time of sale is at, below or moderately above its Initial
Price or if market interest rates rise. You cannot predict the future performance of the Underlying Shares based on their historical
performance. If the Underlying Return is less than -10%, you will receive at maturity an amount that is less (and that could be
significantly less) than the $10
Principal Amount of each Security
by an amount proportionate to the Underlying Shares’ decline in excess of 10%. There can be no assurance that there will
be any positive Underlying Return or that the Underlying Shares’ percentage decline will not be more than 10%. As a result,
there can be no assurance that you will receive at maturity an amount in excess of 10% of the Principal Amount of the Securities.
|
t
|
The probability that the Final Price will be less than the Downside
Threshold will depend on the volatility of the Underlying Shares.
“Volatility” refers to the frequency and magnitude
of changes in the price of the Underlying Shares. Higher expected volatility with respect to the Underlying Shares as of the Trade
Date generally indicates a greater chance as of that date that the Final Price will be less than the Downside Threshold, which
would result in a loss of some or a significant portion of your investment at maturity. However, the Underlying Shares’ volatility
can change significantly over the term of the Securities. The price of the Underlying Shares could fall sharply, resulting in a
significant loss of principal. You should be willing to accept the downside market risk of the Underlying Shares and the potential
loss of some or a significant portion of your investment at maturity.
|
|
t
|
Investing in the Securities exposes investors to risks associated
with investments in securities with a concentration in the financial services sector.
The stocks included in the Financial
Select Sector Index (the “Share Underlying Index”) and that are generally tracked by the Financial Select Sector SPDR
®
Fund are stocks of companies whose primary business is directly associated with the financial services sector, including the following
sub-sectors: diversified financial services, insurance, commercial banks, capital markets, real estate investment trusts (“REITs”),
consumer finance, thrifts & mortgage finance, and real estate management & development. Because the value of the Securities
is linked to the performance of the underlying shares, an investment in the Securities exposes investors to risks associated with
investments in securities with a concentration in the financial services sector.
|
Financial services companies are
subject to specific and substantial risks, including, without limitation, significant competition and extensive government regulation,
which may limit both the amounts and types of loans and other financial commitments they can make, the businesses they can enter
and the interest rates and fees they can charge. The ability of companies in the financial services sector to generate profits
is largely dependent on the availability and cost of capital funds, which may fluctuate significantly when interest rates or company
credit ratings change. The stock prices of financial institutions, especially those engaged in investment banking, brokerage and
banking businesses, have historically been unpredictable, with significant stock price fluctuations in response to reported trading
losses in proprietary trading businesses, actual or perceived problems related to risk management systems, the amount of total
leverage, liquidity of assets or capital resources, the strength of the mergers and acquisitions and capital markets businesses
and general economic conditions, among other factors. Insurance companies, which are the issuers of some of the equity securities
held by the Financial Select Sector SPDR
®
Fund, have been and may continue to be subject to severe price competition.
As a result, the value of the Securities may be subject to greater volatility and be more adversely affected by a single economic,
political or regulatory occurrence affecting the financial services sector or one of the sub-sectors of the financial services
sector than a different investment linked to securities of a more broadly diversified group of issuers.
|
t
|
The performance and market price of the Fund, particularly during
periods of market volatility, may not correlate with the performance of the Share Underlying Index, the performance of the component
securities of the Share Underlying Index or the net asset value per share of the Fund.
The Fund does not fully replicate
the Share Underlying Index and may hold securities that are different than those included in the Share Underlying Index.
In addition, the performance of the Fund will reflect additional transaction costs and fees that are not included in the calculation
of the Share Underlying Index. All of these factors may lead to a lack of correlation between the performance of the Fund
and the Share Underlying Index. In addition, corporate actions (such as mergers and spin-offs) with respect to the equity
securities underlying the Fund may impact the variance between the performances of the Fund and the Share Underlying Index.
Finally, because the shares of the Fund are traded on an exchange and are subject to market supply and investor demand, the
market price of one share of the Fund may differ from the net asset value per share of the Fund.
|
In particular, during periods of market volatility,
or unusual trading activity, trading in the securities underlying the Fund may be disrupted or limited, or such securities may
be unavailable in the secondary market. Under these circumstances, the liquidity of the Fund may be adversely affected, market
participants may be unable to calculate accurately the net asset value per share of the Fund, and their ability to create and redeem
shares of the Fund may be disrupted. Under these circumstances, the market price of shares of the Fund may vary substantially from
the net asset value per share of the Fund or the level of the Share Underlying Index.
For all of the foregoing reasons, the performance
of the Fund may not correlate with the performance of the Share Underlying Index, the performance of the component securities of
the Share Underlying Index or the net asset value per share of the Fund. Any of these events could materially and adversely
affect the price of the shares of the Fund and, therefore, the value of the Securities. Additionally, if market volatility
or these events were to occur on the Final Valuation Date, the Calculation Agent would maintain discretion to determine whether
such market volatility or events have caused a Market Disruption Event to occur, and such determination would affect the Payment
at Maturity of the Securities. If the Calculation Agent determines that no Market Disruption Event has taken place, the payment
at maturity would be based solely on the published closing price per share of the Fund on the Final Valuation Date, even if the
Fund’s shares are underperforming the Share Underlying Index or the component securities of the Share Underlying Index and/or
trading below the net asset value per share of the Fund.
|
t
|
No dividend payments or voting rights.
Owning the Securities
is not the same as owning the Underlying Shares or the stocks comprising the Share Underlying Index. As a holder of the Securities,
you will not have voting rights or rights to receive dividends or other distributions or other rights that holders of shares of
the Underlying Shares or stocks held by the Fund would have.
|
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t
|
The amount payable on the Securities is not linked to the price
of the Underlying Shares at any time other than the Final Valuation Date.
The Final Price will be based on the Closing Price
of the Underlying Shares on the Final Valuation Date, subject to postponement for non-Trading Days and certain Market Disruption
Events. Even if the price of the Underlying Shares appreciates prior to the Final Valuation Date but then drops by the Final Valuation
Date, the Payment at Maturity may be significantly less than it would have been had the Payment at Maturity been linked to the
price of the Underlying Shares prior to such drop. Although the actual price of the
|
Underlying Shares on the stated
Maturity Date or at other times during the term of the Securities may be higher than the Final Price, the Payment at Maturity will
be based solely on the Closing Price of the Underlying Shares on the Final Valuation Date as compared to the Initial Price.
|
t
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Investing in the Securities is not equivalent to investing in the
Underlying Shares or the stocks composing the Share Underlying Index.
Investing in the Securities is not equivalent to investing
in the Underlying Shares, the Share Underlying Index or the stocks that constitute the Share Underlying Index. Investors in the
Securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to
the Underlying Shares or the stocks that constitute the Share Underlying Index. Investors in the Securities also will not participate
in any appreciation of the Underlying Shares that, when multiplied by the Upside Gearing, exceeds the Maximum Gain, which could
be significant.
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t
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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 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 7 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 Shares, and to our secondary market credit spreads, it would do
so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage
account statements.
|
t
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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 may be influenced by many unpredictable factors”
above.
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|
t
|
Adjustments to the Underlying Shares or to the Share Underlying
Index could adversely affect the value of the Securities.
The investment adviser to the Fund, SSGA Funds Management, Inc. (the
“Investment Adviser”), seeks investment results that correspond generally to the price and yield performance, before
fees and expenses, of the Share Underlying Index. Pursuant to its investment strategy or otherwise, the Investment Advisor may
add, delete or substitute the stocks composing the Fund. Any of these actions could adversely affect the price of the Underlying
Shares and, consequently, the value of the Securities. The stocks included in the Financial Select Sector Index are selected by
Merrill Lynch, Pierce, Fenner & Smith Incorporated, which we refer to as Merrill Lynch, acting as index compilation agent in
consultation with S&P Dow Jones Indices LLC, which we refer to as S&P, from the universe of companies represented by the
S&P 500
®
Index. Merrill Lynch, in consultation with S&P, may add, delete or substitute the stocks constituting
the Share Underlying Index or make other methodological changes that could change the value of the Share Underlying Index. Merrill
Lynch, in consultation with S&P, may discontinue or suspend calculation or publication of the Share Underlying Index at any
time. If trading in the Underlying Shares is permanently discontinued and/or the Fund is liquidated or otherwise terminated, and
Merrill Lynch, in consultation with S&P, subsequently discontinues publication of the Share Underlying Index, the Calculation
Agent will have the sole discretion to substitute a Successor Index that is comparable to the discontinued Share Underlying Index,
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 price of the Underlying Shares and, consequently, the value of the Securities.
|
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t
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The adjustments to the Adjustment Factor the Calculation Agent is
required to make do not cover every corporate event that can affect the shares of the Underlying Shares.
MS & Co., as Calculation
Agent, will adjust the Adjustment Factor for certain events affecting the Underlying Shares, including stock splits and reverse
stock splits. However, the Calculation Agent will not make an adjustment for every event that can affect the Underlying Shares.
If an event occurs that does not require the Calculation Agent to adjust the Adjustment Factor, the market price of the Securities
may be materially and adversely affected. The determination by the Calculation Agent to adjust, or not to adjust, an Adjustment
Factor may materially and adversely affect the market price of the Securities.
|
|
¨
|
The
Securities will not be listed on any securities exchange and secondary trading may be limited.
The Securities will not be
listed on any securities exchange. Therefore, there may be little or no secondary market for the Securities. MS & Co. currently
intends, but is not obligated, to make a market in the Securities and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the Securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the
|
Securities. Even if there is a secondary
market, it may not provide enough liquidity to allow you to trade or sell the Securities easily. Since other broker-dealers may
not participate significantly in the secondary market for the Securities, the price at which you may be able to trade your Securities
is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease
making a market in the Securities, it is likely that there would be no secondary market for the Securities. Accordingly, you should
be willing to hold your Securities to maturity.
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t
|
Hedging and trading activity by our affiliates could potentially
adversely affect the value of the Securities.
One or more of our affiliates and/or third-party dealers expect to carry out
hedging activities related to the Securities, including trading in the Underlying Shares or the constituent stocks of the Share
Underlying Index, in futures or options contracts on the Underlying Shares, the Share Underlying Index or the constituent stocks
of the Share Underlying Index, as well as in other instruments related to the Underlying Shares or the Share Underlying Index.
As a result, these entities may be unwinding or adjusting hedge positions during the term of the Securities, and the hedging strategy
may involve greater and more frequent dynamic adjustments to the hedge as the Final Valuation Date approaches. MS & Co. and
some of our other affiliates also trade the Underlying Shares or the constituent stocks of the Share Underlying Index, in futures
or options contracts on the Underlying Shares, the Share Underlying Index or the constituent stocks of the Share Underlying Index,
as well as in other instruments related to the Underlying Shares or the Share Underlying Index, 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 Price of the Underlying Shares, and, therefore, could increase the Downside Threshold, which is the price
at or above which the Underlying Shares must close on the Final Valuation Date so that investors do not suffer a loss on their
initial investment in the Securities. Additionally, such hedging or trading activities during the term of the Securities, including
on the Final Valuation Date, could adversely affect the Closing Price of the Underlying Shares on the Final Valuation Date, and,
accordingly, the amount of cash payable at maturity.
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Potential conflict of interest.
As Calculation Agent, MS &
Co. will determine the Initial Price, the Downside Threshold, the Final Price and whether any Market Disruption Event has occurred,
and will calculate the amount payable at maturity. Moreover, certain determinations made by MS & Co., in its capacity as Calculation
Agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence
of Market Disruption Events, any adjustment to the Adjustment Factor and the selection of a Successor Index or calculation of the
Final Price in the event of a discontinuance of the Share Underlying Index or a Market Disruption Event. These potentially subjective
determinations may adversely affect the payout to you at maturity. For further information regarding these types of determinations,
see “Additional Terms of the Securities—Postponement of Final Valuation Date and Maturity Date,” “—Discontinuance
of the Underlying Shares and/or Share Underlying Index; Alteration of Method of Calculation,” “—Calculation Agent
and Calculations” and related definitions below. 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, UBS or our or their respective affiliates
. Morgan Stanley, UBS and our or their respective affiliates 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, 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 Shares to which the Securities are linked.
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Uncertain tax treatment.
Please note that the discussions in
this free writing prospectus concerning the U.S. federal income tax consequences of an investment in the Securities supersede the
discussions contained in the accompanying prospectus supplement.
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Subject to the discussion under
“What Are the Tax Consequences of the Securities” in this free writing prospectus, although there is uncertainty regarding
the U.S. federal income tax consequences of an investment in the Securities due to the lack of governing authority, in the opinion
of our counsel, Davis Polk & Wardwell LLP (“our counsel”), under current law, and based on current market conditions,
each Security 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 free writing
prospectus, it is subject to confirmation on the Trade Date.
Because the Securities are linked
to shares of an exchange-traded fund, although the matter is not clear, there is a substantial risk that an investment in the Securities
will be treated as a “constructive ownership transaction.” If this treatment applies, all or a portion of any long-term
capital gain of a U.S. Holder (as defined below) in respect of the Securities could be recharacterized as ordinary income (in which
case an interest charge would be imposed). U.S. Holders should read the section entitled “What Are the Tax Consequences of
the Securities? — Tax Consequences to U.S. Holders — Tax Treatment of the Securities — Potential Application
of the Constructive Ownership Rule” in this free writing prospectus.
If the Internal Revenue Service
(the “IRS”) were successful in asserting an alternative treatment for the Securities, the timing and character of income
on the Securities might differ significantly from the tax treatment described herein. For example, under one possible treatment,
the IRS could seek to recharacterize the Securities as debt instruments. In that event, U.S. Holders would be required to accrue
into income original issue discount on the Securities every year at a “comparable yield” determined at the time of
issuance 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. We do not plan
to request a ruling from the IRS regarding the tax treatment of the Securities, and the IRS or a court may not agree with the tax
treatment described in this free writing prospectus.
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 in particular on whether to require holders of these 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; the degree, if any, to which income (including any mandated accruals) realized by Non-U.S. Holders (as defined
below) should be subject to withholding
tax; and whether these instruments are or should be subject to the “constructive ownership” rule, as discussed above.
While the notice requests comments on appropriate transition rules and effective dates, 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.
Both U.S. and Non-U.S. Holders
should read carefully the discussion under “What Are the Tax Consequences of the Securities” in this free writing prospectus
and consult their tax advisers regarding all aspects of the U.S. federal tax consequences of an investment in the Securities as
well as 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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These examples are based on hypothetical
terms. The actual terms will be determined on the Trade Date.
The below scenario analysis and examples are provided for illustrative
purposes only and are purely hypothetical. They do not purport to be representative of every possible scenario concerning increases
or decreases in the price of the Underlying Shares relative to the Initial Price. We cannot predict the Final Price or the Closing
Price of the Underlying Shares on any other day. You should not take the scenario analysis and these examples as an indication
or assurance of the expected performance of the Underlying Shares. The numbers set forth in the examples below have been rounded
for ease of analysis. The following scenario analysis and examples illustrate the Payment at Maturity for a $10.00 Principal Amount
of Securities on a hypothetical offering of the Securities.
The following scenario analysis and examples assume a hypothetical
Initial Price of $25, a hypothetical Downside Threshold of $22.50 (90% of the hypothetical Initial Price) and a Maximum Gain of
17.30% (the actual Initial Price, Downside Threshold and Maximum Gain will be determined on the Trade Date), and reflect the Upside
Gearing of 2.0 and the 10% Buffer.
Example 1
—
The price of the
Underlying Shares increases from an Initial Price of $25.00 to a Final Price of $26.25.
The Underlying Return is calculated
as follows:
($26.25 – $25.00) /
$25.00 = 5%
Because the Underlying Return is greater than
zero, the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser of:
(A) $10.00 + ($10.00 ×
Underlying Return × Upside Gearing), and
(B) $10.00 + ($10.00 ×
Maximum Gain)
= the lesser of (A) $10.00
+ ($10.00 × 5% × 2.0) and (B) $10.00 + ($10.00 × 17.30%)
= the lesser of (A) $10.00
+ ($10.00 × 10%) and (B) $10.00 + ($10.00 × 17.30%)
= $10.00 + ($10.00 ×
10%)
= $10.00 + $1.00
= $11.00
Because the Underlying Return of 5% multiplied
by the Upside Gearing is less than the hypothetical Maximum Gain of 17.30%, for each $10.00 Principal Amount of Securities, MSFL
will pay you $11.00 at maturity.
Example 2
—
The price of the
Underlying Shares increases from an Initial Price of $25.00 to a Final Price of $50.00.
The Underlying Return is calculated
as follows:
($50.00 – $25.00) /
$25.00 = 50%
Because the Underlying Return is greater than
zero, the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser of:
(A) $10.00 + ($10.00 ×
Underlying Return × Upside Gearing), and
(B) $10.00 + ($10.00 ×
Maximum Gain)
= the lesser of (A) $10.00
+ ($10.00 × 50% × 2.0) and (B) $10.00 + ($10.00 × 17.30%)
= the lesser of (A) $10.00
+ ($10.00 × 100%) and (B) $10.00 + ($10.00 × 17.30%)
= $10.00 + ($10.00 ×
17.30%)
= $10.00 + $1.73
= $11.73
Because the Underlying Return of 50% multiplied
by the Upside Gearing is greater than the hypothetical Maximum Gain of 17.30%, for each $10.00 Principal Amount of Securities,
MSFL will pay you $11.73 at maturity, the hypothetical maximum Payment at Maturity on the Securities. This represents the hypothetical
maximum amount payable over the two-year term of the Securities.
Example 3
—
The price of the
Underlying Shares decreases from an Initial Price of $25.00 to a Final Price of $23.75.
The Underlying Return is calculated
as follows:
($23.75 – $25.00) /
$25.00 = -5%
Because the Underlying Return is negative, but
the Final Price is greater than or equal to the hypothetical Downside Threshold, at maturity, for each $10.00 Principal Amount
of Securities, MSFL will pay you the $10.00 Principal Amount (a zero percent return on the Principal Amount) at maturity.
Example 4
—
The price of the
Underlying Shares decreases from an Initial Price of $25.00 to a Final Price of $12.50.
The Underlying Return is calculated
as follows:
($12.50 – $25.00) /
$25.00 = -50%
Because the Underlying Return is negative and
the Final Price is less than the hypothetical Downside Threshold, at maturity, for each $10.00 Principal Amount of Securities,
MSFL will pay you an amount equal to the Principal Amount reduced by 1% for every 1% by which the Underlying Shares’ percentage
decline exceeds the 10% Buffer, and the Payment at Maturity is calculated as follows:
$10.00 + [$10.00 ×
(Underlying Return + Buffer)]
= $10.00 + [$10.00
× (-50% + 10%)]
= $10.00 + [$10.00
× -40%]
= $10.00 - $4.00
= $6.00
Hypothetical Final Price
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Hypothetical Underlying Return
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Upside Gearing
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Hypothetical Payment at Maturity
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Hypothetical Return on Securities
(1)
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$50.0000
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100.000%
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2.0
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$11.73
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17.30%
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$47.5000
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90.000%
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2.0
|
$11.73
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17.30%
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$45.0000
|
80.000%
|
2.0
|
$11.73
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17.30%
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$42.5000
|
70.000%
|
2.0
|
$11.73
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17.30%
|
$40.0000
|
60.000%
|
2.0
|
$11.73
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17.30%
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$37.5000
|
50.000%
|
2.0
|
$11.73
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17.30%
|
$35.0000
|
40.000%
|
2.0
|
$11.73
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17.30%
|
$32.5000
|
30.000%
|
2.0
|
$11.73
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17.30%
|
$30.0000
|
20.000%
|
2.0
|
$11.73
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17.30%
|
$27.5000
|
10.000%
|
2.0
|
$11.73
|
17.30%
|
$27.1625
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8.650%
|
2.0
|
$11.73
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17.30%
|
$26.2500
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5.000%
|
2.0
|
$11.00
|
10.00%
|
$25.6250
|
2.500%
|
2.0
|
$10.50
|
5.00%
|
$25.0000
|
0.000%
|
N/A
|
$10.00
|
0.00%
|
$24.3750
|
-2.500%
|
N/A
|
$10.00
|
0.00%
|
$23.7500
|
-5.000%
|
N/A
|
$10.00
|
0.00%
|
$22.5000
|
-10.000%
|
N/A
|
$10.00
|
0.00%
|
$20.0000
|
-20.000%
|
N/A
|
$9.00
|
-10.00%
|
$17.5000
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-30.000%
|
N/A
|
$8.00
|
-20.00%
|
$15.0000
|
-40.000%
|
N/A
|
$7.00
|
-30.00%
|
$12.5000
|
-50.000%
|
N/A
|
$6.00
|
-40.00%
|
$10.0000
|
-60.000%
|
N/A
|
$5.00
|
-50.00%
|
$7.5000
|
-70.000%
|
N/A
|
$4.00
|
-60.00%
|
$5.0000
|
-80.000%
|
N/A
|
$3.00
|
-70.00%
|
$2.5000
|
-90.000%
|
N/A
|
$2.00
|
-80.00%
|
$0.0000
|
-100.000%
|
N/A
|
$1.00
|
-90.00%
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(1) The “Return on Securities” is the
number, expressed as a percentage, that results from comparing the Payment at Maturity per $10 Principal Amount per Security to
the purchase price of $10 per Security.
W
hat Are the Tax Consequences of the Securities?
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Prospective investors
should note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus
supplement does not apply to the Securities issued under this free writing prospectus and is superseded by the following discussion.
The following summary is a general discussion
of the principal 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”).
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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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investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
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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.
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In addition, we will not attempt to ascertain
whether the Financial Select Sector SPDR Fund is treated as a “U.S. real property holding corporation” (“USRPHC”)
within the meaning of Section 897 of the Code. If the Financial Select Sector SPDR Fund were so treated, certain adverse U.S. federal
income tax consequences might apply to a Non-U.S. Holder (as defined below) upon the sale, exchange or settlement of the Securities.
You should refer to information filed with the Securities and Exchange Commission or other governmental authorities by the Financial
Select Sector SPDR Fund and consult your tax adviser regarding the possible consequences to you if the Financial Select Sector
SPDR Fund is or becomes a USRPHC.
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the Securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the Securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the Securities is technical and complex, the discussion below necessarily represents only a general
summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum
tax consequences or consequences resulting from the Medicare tax on investment income.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date of this free writing
prospectus, 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
Although there is uncertainty regarding the
U.S. federal income tax consequences of an investment in the Securities due to the lack of governing authority, in the opinion
of our counsel, under current law, and based on current market conditions, each Security 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 free writing prospectus, it is subject to confirmation on the Trade
Date.
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 Internal Revenue Service (the “IRS”) or a
court will agree with the tax treatment described herein. Accordingly, 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 the Securities 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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an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
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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 Treatment Prior to Settlement.
A U.S. Holder should not be required to recognize taxable income over the term of the Securities prior to settlement, other than
pursuant to a sale or exchange as described below.
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.
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. Subject to the discussion below concerning the potential application of the “constructive ownership” rule
under Section 1260 of the Code, any gain or loss recognized upon the sale, exchange or settlement of the Securities should be long-term
capital gain or loss if the U.S. Holder has held the Securities for more than one year at such time, and short-term capital gain
or loss otherwise.
Potential Application of the Constructive
Ownership Rule.
Because the Securities are linked to shares of an exchange-traded fund, although the matter is not clear, there
is a substantial risk that an investment in the Securities will be treated as a “constructive ownership transaction”
under Section 1260 of the Code. If this treatment applies, all or a portion of any long-term capital gain of the U.S. Holder in
respect of the Securities could be recharacterized as ordinary income (the “Recharacterized Gain”), in which case an
interest charge will be imposed. The amount of Recharacterized Gain (if any) that would be treated as ordinary income in respect
of a Security will equal the excess of (i) any long-term capital gain recognized by the U.S. Holder in respect of a Security over
(ii) the “net underlying long-term capital gain” (as defined in Section 1260 of the Code). Under Section 1260 of the
Code, the amount of net underlying long-term capital gain will be treated as zero unless otherwise “established by clear
and convincing evidence.” As a result of the terms of the Securities, such as the leveraged upside payment, it is unclear
how to calculate the amount of Recharacterized Gain if an investment in the Securities were treated as a constructive ownership
transaction. Due to the lack of governing authority, our counsel is unable to opine as to whether or how Section 1260 of the Code
applies to the Securities. U.S. Holders should consult their tax advisers regarding the potential application of the “constructive
ownership” rule.
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 the contingent payment 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 generally 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 also 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 in particular
on whether to require holders of these 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; and whether these instruments are or should be subject
to the “constructive ownership” rule, as discussed above. While the notice requests comments on appropriate transition
rules and effective dates, 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
the payment on the Securities at maturity 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 may be filed with the IRS in connection
with the payment 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.
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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.
Tax Treatment upon Sale, Exchange or
Settlement of the Securities
In
general.
Assuming the treatment of the Securities as set forth above is respected, and subject to the discussions below concerning
backup withholding and the possible application of Section 871(m) of the Code and the discussion above concerning the possible
application of Section 897 of the Code, a Non-U.S. Holder of the Securities generally will not be subject to U.S. federal income
or withholding tax in respect of amounts paid to the Non-U.S. Holder.
Subject to the discussions regarding the possible
application of Sections 871(m) and 897 of the Code and FATCA, if all or any portion of a Security were recharacterized as a debt
instrument, any payment made to a Non-U.S. Holder with respect to the Securities would not be subject to U.S. federal withholding
tax, provided that:
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the Non-U.S. Holder does not own, directly or by attribution, ten percent
or more of the total combined voting power of all classes of Morgan Stanley stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation related,
directly or indirectly, to Morgan Stanley through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest under Section
881(c)(3)(A) of the Code, and
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the certification requirement described below has been fulfilled with
respect to the beneficial owner.
|
Certification Requirement.
The certification
requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Security (or a financial institution
holding a Security on behalf of the beneficial owner) furnishes to the applicable withholding agent an IRS Form W-8BEN (or other
appropriate form) on which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
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. Among the issues addressed in the notice is the degree, if any, to which any income with respect to instruments
such as the Securities should be subject to U.S. withholding tax. It is possible that any Treasury regulations or other guidance
promulgated after consideration of this issue could materially and adversely affect the withholding tax consequences of ownership
and disposition of the Securities, possibly on a retroactive basis. Non-U.S. Holders should note that we currently do not intend
to withhold on any payment made with respect to the Securities to Non-U.S. Holders (subject to compliance by such holders with
the certification requirement described above and to the discussions regarding Sections 871(m) and 897 of the Code and FATCA).
However, in the event of a change of law or any formal or informal guidance by the IRS, the U.S. Treasury Department or Congress,
we may decide to withhold on payments made with respect to the Securities to Non-U.S. Holders, and we will not be required to pay
any additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult their tax advisers regarding
all aspects of the U.S. federal income tax consequences of an investment in the Securities, including the possible implications
of the notice referred to 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 final 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 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 may be filed with the IRS
in connection with the payment on the Securities at maturity as well as in connection with the payment of proceeds from a sale,
exchange or other disposition of the Securities. 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. Compliance with the certification procedures described
above under “―Tax Treatment upon Sale, Exchange or Settlement of the Securities – Certification Requirement”
will satisfy the certification requirements necessary to avoid backup withholding as well. 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. If the Securities were recharacterized as debt instruments, FATCA would apply
to any payment of amounts treated as interest and to payments of gross proceeds of the disposition (including upon retirement)
of the Securities. However, 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. If withholding were to apply to the
Securities, we would 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 income tax consequences of an investment in the Securities.
The Financial
Select Sector SPDR
®
Fund
|
The Financial Select Sector SPDR
®
Fund
is an exchange-traded fund managed by Select Sector SPDR Trust (the “Trust”), a registered investment company. The
Trust consists of nine separate investment portfolios, including the Financial Select Sector SPDR
®
Fund. The
Financial Select Sector SPDR
®
Fund seeks investment results that correspond generally to the price and yield
performance, before fees and expenses, of the Financial Select Sector Index. It is possible that this fund may not fully replicate
the performance of the Financial Select Sector Index due to the temporary unavailability of certain securities in the secondary
market or due to other extraordinary circumstances. Information provided to or filed with the Securities and Exchange Commission
(the “Commission”) by the Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be
located by reference to Commission file numbers 333-57791 and 811-08837, respectively, through the Commission’s website at
www.sec.gov. In addition, information may be obtained from other publicly available sources.
Neither the issuer nor
the agent makes any representation that such publicly available information regarding the Financial Select Sector SPDR
®
Fund
is accurate or complete.
The Financial Select Sector Index is calculated
and disseminated by S&P and is designed to provide an effective representation of the financial sector of the S&P 500
®
Index.
The Financial Select Sector Index includes companies in the following industries: diversified financial services, insurance, commercial
banks, capital markets, real estate investment trusts (“REITs”), thrift & mortgage finance, consumer finance and
real estate management & development. See “The Financial Select Sector Index” in the accompanying index supplement.
We and/or our affiliates may presently or
from time to time engage in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public
information with respect to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to
you. In addition, one or more of our affiliates may publish research reports with respect to the Fund. The statements in the preceding
two sentences are not intended to affect the rights of investors in the Securities under the securities laws. As a prospective
purchaser of the Securities, you should undertake an independent investigation of the Trust as in your judgment is appropriate
to make an informed decision with respect to an investment in the Securities.
“Standard & Poor’s
®
”,
“S&P
®
”, “S&P 500
®
”, “SPDR
®
”, “Select
Sector SPDR” and “Select Sector SPDRs” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”),
an affiliate of The McGraw-Hill Companies, Inc. (“MGH”). The Securities are not sponsored, endorsed, sold, or promoted
by S&P, MGH or the Trust. S&P, MGH and the Trust make no representations or warranties to the owners of the Securities
or any member of the public regarding the advisability of investing in the Securities. S&P, MGH and the Trust have no obligation
or liability in connection with the operation, marketing, trading or sale of the Securities.
The following table sets forth the published high and low Closing
Prices, as well as the end-of-quarter Closing Prices, of the Financial Select Sector SPDR
®
Fund for each quarter
in the period from January 1, 2014 through June 7, 2019. The Closing Price of the Financial Select Sector SPDR
®
Fund on June 7, 2019 was $27.12. We obtained the information in the table below from Bloomberg Financial Markets, without independent
verification. The historical Closing Prices of the Financial Select Sector SPDR
®
Fund should not be taken as an
indication of future performance, and no assurance can be given as to the Closing Price of the Financial Select Sector SPDR
®
Fund on the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High ($)
|
Quarterly Low ($)
|
Quarterly Close ($)
|
1/1/2014
|
3/31/2014
|
18.25
|
16.67
|
18.14
|
4/1/2014
|
6/30/2014
|
18.60
|
17.28
|
18.47
|
7/1/2014
|
9/30/2014
|
19.33
|
17.99
|
18.81
|
10/1/2014
|
12/31/2014
|
20.33
|
17.90
|
20.08
|
1/1/2015
|
3/31/2015
|
20.08
|
18.68
|
19.58
|
4/1/2015
|
6/30/2015
|
20.52
|
19.56
|
19.80
|
7/1/2015
|
9/30/2015
|
20.77
|
18.09
|
18.40
|
10/1/2015
|
12/31/2015
|
20.16
|
18.41
|
19.31
|
1/1/2016
|
3/31/2016
|
19.05
|
15.99
|
18.28
|
4/1/2016
|
6/30/2016
|
19.36
|
17.42
|
18.54
|
7/1/2016
|
9/30/2016
|
19.95
|
18.17
|
19.30
|
10/1/2016
|
12/31/2016
|
23.75
|
19.21
|
23.25
|
1/1/2017
|
3/31/2017
|
25.24
|
22.95
|
23.73
|
4/1/2017
|
6/30/2017
|
24.69
|
22.90
|
24.67
|
7/1/2017
|
9/30/2017
|
25.86
|
23.88
|
25.86
|
10/1/2017
|
12/31/2017
|
28.22
|
26.05
|
27.91
|
1/1/2018
|
3/31/2018
|
30.17
|
26.82
|
27.57
|
4/1/2018
|
6/30/2018
|
28.34
|
26.36
|
26.59
|
7/1/2018
|
9/30/2018
|
28.98
|
26.48
|
27.58
|
10/1/2019
|
12/31/2018
|
28.19
|
22.31
|
23.82
|
1/1/2019
|
3/31/2019
|
26.90
|
23.48
|
25.71
|
4/1/2019
|
6/7/2019*
|
28.07
|
26.01
|
27.12
|
*Available information for the indicated period includes data
for less than the entire calendar quarter and accordingly, the “Quarterly High,” “Quarterly Low” and “Quarterly
Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the Financial
Select Sector SPDR
®
Fund from January 1, 2008 through June 7, 2019, based on information from Bloomberg.
Past
performance of the Financial Select Sector SPDR
®
Fund is not indicative of the future performance of the Financial
Select Sector SPDR
®
Fund.
Additional Terms of the Securities
|
If the terms discussed in this free writing prospectus differ
from those discussed in the prospectus supplement, index supplement or prospectus, the terms contained in this free writing prospectus
will control.
Some Definitions
We have defined some of the terms that we use frequently in this
free writing prospectus below:
|
t
|
“Share Underlying Index” means the Financial Select Sector
Index, which is the index that the Underlying Shares generally seek to track.
|
|
t
|
“Share Underlying Index Publisher” means S&P Dow Jones
Indices LLC or any successor thereto.
|
|
t
|
“Closing Price,” subject to the provisions set out under
“—Discontinuance of the Underlying Shares and/or Share Underlying Index; Alteration of Method of Calculation”
below, for one Underlying Share (or one unit of any other security for which a Closing Price must be determined) on any Trading
Day means:
|
|
o
|
if the Underlying Shares (or any such other security) are listed on a national securities exchange (other than The Nasdaq Stock
Market LLC (“Nasdaq”)), the last reported sale price, regular way, of the principal trading session on such day on
the principal national securities exchange registered under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), on which the Underlying Shares (or any such other security) are listed,
|
|
o
|
if the Underlying Shares (or any such other security) are securities of Nasdaq, the official closing price published by Nasdaq
on such day, or
|
|
o
|
if the Underlying Shares (or any such other security) are not listed on any national securities exchange but are included in
the OTC Bulletin Board Service (the “OTC Bulletin Board”) operated by the Financial Industry Regulatory Authority,
Inc. (“FINRA”), the last reported sale price of the principal trading session on the OTC Bulletin Board on such day.
|
If the Underlying Shares (or any such other security)
are listed on any national securities exchange but the last reported sale price or the official closing price published by such
exchange, or by Nasdaq, as applicable, is not available pursuant to the preceding sentence, then the Closing Price for one Underlying
Share (or one unit of any such other security) on any Trading Day will mean the last reported sale price of the principal trading
session on the over-the-counter market as reported on Nasdaq or the OTC Bulletin Board on such day. If a Market Disruption Event
(as defined below) occurs with respect to the Underlying Shares (or any such other security) or the last reported sale price or
the official closing price published by Nasdaq, as applicable, for the Underlying Shares (or any such other security) is not available
pursuant to either of the two preceding sentences, then the Closing Price for any Trading Day will be the mean, as determined by
the Calculation Agent, of the bid prices for the Underlying Shares (or any such other security) for such Trading Day obtained from
as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the Calculation
Agent. Bids of Morgan Stanley & Co. LLC (“MS & Co.”) and its successors or any of its affiliates may be included
in the calculation of such mean, but only to the extent that any such bid is the highest of the bids obtained. If no bid prices
are provided from any third party dealers, the Closing Price will be determined by the Calculation Agent in its sole and absolute
discretion (acting in good faith) taking into account any information that it deems relevant. The term “OTC Bulletin Board
Service” will include any successor service thereto, or, if applicable, the OTC Reporting Facility operated by FINRA. This
definition of “Closing Price” is subject to the provisions under “—Discontinuance of the Underlying Shares
and/or Share Underlying Index; Alteration of Method of Calculation” below.
|
t
|
“Trading Day” means a day, as determined by the Calculation
Agent, on which trading is generally conducted on the New York Stock Exchange LLC, Nasdaq, the Chicago Mercantile Exchange and
the Chicago Board of Options Exchange and in the over-the-counter market for equity securities in the United States.
|
|
t
|
“Market Disruption Event” means:
|
|
(i)
|
the occurrence or existence of any of:
|
(a) a suspension, absence or material
limitation of trading of the Underlying Shares on the primary market for the Underlying Shares for more than two hours of trading
or during the one-half hour period preceding the close of the principal trading session in such market; or a breakdown or failure
in the price and trade reporting systems of the primary market for the Underlying Shares as a result of which the reported trading
prices for the Underlying Shares during the last one-half hour preceding the close of the principal trading session in such market
are materially inaccurate; or the suspension, absence or material limitation of trading on the primary market for trading in futures
or options contracts related to the Underlying Shares, if available, during the one-half hour period preceding the close of the
principal trading session in the applicable market, or
(b) a suspension, absence or material
limitation of trading of securities then constituting 20 percent or more of the value of the Share Underlying Index on the Relevant
Exchanges 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 Exchanges, or
(c) the suspension, material limitation
or absence of trading on any major U.S. securities market for trading in futures or options contracts related to the Share Underlying
Index or the Underlying Shares for more than two hours of trading or during the one-half hour period preceding the close of the
principal trading session on such market,
In each case, as determined by the
Calculation Agent in its sole discretion; and
(ii) a
determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with
respect to the Securities.
For the purpose of determining whether
a Market Disruption Event exists at any time, if trading in a security included in the Share Underlying Index is materially suspended
or materially limited at that time, then the relevant percentage contribution of that security to the level of the Share Underlying
Index shall be based on a comparison of (x) the portion of the level of the Share Underlying Index attributable to that security
relative to (y) the overall level of the Share Underlying 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 Underlying Shares or in the futures or options contracts related to the Share
Underlying Index or the Underlying Shares will not constitute a Market Disruption Event, (3) a suspension of trading in futures
or options contracts on the Share Underlying Index or the Underlying Shares by the primary securities market trading in such contracts
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 (c) a disparity in bid and ask quotes relating to such contracts will constitute a suspension, absence or
material limitation of trading in futures or options contracts related to the Share Underlying Index or the Underlying Shares 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 related to the Share Underlying Index or the Underlying Shares are traded will not include any
time when such securities market is itself closed for trading under ordinary circumstances.
|
t
|
“Relevant Exchange” means the primary exchange(s) or market(s)
of trading for any security (or any combination thereof) then included in the Share Underlying Index or any Successor Index.
|
Postponement of Final Valuation Date and Maturity Date
If the scheduled Final Valuation Date is not a Trading Day or
if a Market Disruption Event with respect to the Underlying Shares occurs on the scheduled Final Valuation Date, the Final Price
will be determined on the immediately succeeding Trading Day on which no Market Disruption Event shall have occurred; provided
that the Final Price will not be determined on a date later than the fifth scheduled Trading Day after the scheduled Final Valuation
Date, and if such date is not a Trading Day or if there is a Market Disruption Event on such date, the Calculation Agent will determine
the Closing Price of an Underlying Share on such date as the mean of the bid prices for one Underlying Share for such date obtained
from as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the Calculation
Agent. Bids of MS & Co. or any of its affiliates may be included in the calculation of such mean, but only to the extent that
any such bid is the highest of the bids obtained. If no bid prices are provided from any third party dealers, the Closing Price
will be determined by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account any
information that it deems relevant.
If the Final Valuation Date is postponed so that it falls less
than two business days prior to the scheduled Maturity Date, the Maturity Date will be the second business day following the Final
Valuation Date, as postponed.
Antidilution Adjustments for Securities linked to Exchange-Traded
Funds
If the Underlying Shares are subject to a stock split or reverse
stock split, then once such split has become effective, the Adjustment Factor will be adjusted to equal the product of the prior
Adjustment Factor and the number of shares issued in such stock split or reverse stock split with respect to one Underlying Share.
No such adjustment to the Adjustment Factor will be required unless such adjustment would require a change of at least 0.1% in
the amount being adjusted as then in effect. Any number so adjusted will be rounded to the nearest one hundred-thousandth with
five one-millionths being rounded upward.
Alternate Exchange Calculation in case of an Event of Default
If an event of default with respect to the Securities shall have
occurred and be continuing, the amount declared due and payable upon any acceleration of the Securities (the “Acceleration
Amount”) will be an amount, determined by the Calculation Agent in its sole discretion, that is equal to the cost of having
a Qualified Financial Institution, of the kind and selected as described below, expressly assume all our payment and other obligations
with respect to the Securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations
providing substantially equivalent economic value to you with respect to the Securities. That cost will equal:
|
o
|
the lowest amount that a Qualified Financial Institution would charge to effect this assumption or undertaking, plus
|
|
o
|
the reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the Securities in preparing
any documentation necessary for this assumption or undertaking.
|
During the Default Quotation Period for the Securities, which
we describe below, the holders of the Securities and/or we may request a Qualified Financial Institution to provide a quotation
of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the
other party in writing of the quotation. The amount referred to in the first bullet point above will equal the lowest—or,
if there is only one, the only—quotation obtained, and as to which notice is so given, during the Default Quotation Period.
With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds,
to the assumption or undertaking by the Qualified Financial Institution providing the quotation and notify the other party in writing
of those grounds within two business days after the last day of the Default Quotation Period, in which case that quotation will
be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to MSFL or Morgan Stanley, then depending
on applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount.
If the maturity of the Securities is accelerated because of an
event of default as described above, we shall, or shall cause the Calculation Agent to, provide written notice to the Trustee at
its New York office, on which notice the Trustee may conclusively rely, and to the Depositary of the Acceleration Amount and the
aggregate cash amount due, if any, with respect to the Securities as promptly as possible and in no event later than two business
days after the date of such acceleration.
Default Quotation Period
The Default Quotation Period is the period beginning on the day
the Acceleration Amount first becomes due and ending on the third business day after that day, unless:
|
o
|
no quotation of the kind referred to above is obtained, or
|
|
o
|
every quotation of that kind obtained is objected to within five business days after the due date as described above.
|
If either of these two events occurs, the Default Quotation Period
will continue until the third business day after the first business day on which prompt notice of a quotation is given as described
above. If that quotation is objected to as described above within five business days after that first business day, however, the
Default Quotation Period will continue as described in the prior sentence and this sentence.
In any event, if the Default Quotation Period and the subsequent
two business day objection period have not ended before the Final Valuation Date, then the Acceleration Amount will equal the principal
amount of the Securities.
Qualified Financial Institutions
For the purpose of determining the Acceleration Amount at any
time, a Qualified Financial Institution must be a financial institution organized under the laws of any jurisdiction in the United
States or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date
of issue and rated either:
|
o
|
A-2 or higher by Standard & Poor’s Ratings Services or any successor, or any other comparable rating then used by
that rating agency, or
|
|
o
|
P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating
agency.
|
Discontinuance of the Underlying Shares and/or Share Underlying
Index; Alteration of Method of Calculation
If trading in the Underlying Shares on every applicable national
securities exchange, on the OTC Bulletin Board and in the over-the-counter market is permanently discontinued or the Fund is liquidated
or otherwise terminated (a “Discontinuance or Liquidation Event”), the Closing Price of the Underlying Shares on the
Final Valuation Date or the date of acceleration following the Discontinuance or Liquidation Event will be determined by the Calculation
Agent and will be deemed to equal the product of (i) the closing value of the Share Underlying Index (or any Successor Index, as
described below) on such date (taking into account any material changes in the method of calculating the Share Underlying Index
following such Discontinuance or Liquidation Event) and (ii) a fraction, the numerator of which is the Closing Price of the Underlying
Shares and the denominator of which is the closing value of the Share Underlying Index (or any Successor Index, as described below),
each determined as of the last day prior to the occurrence of the Discontinuance or Liquidation Event on which a Closing Price
of the Underlying Shares was available.
If, subsequent to a Discontinuance or Liquidation Event, the
Share Underlying Index Publisher discontinues publication of the Share Underlying Index and the Share Underlying 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 Share Underlying Index (such index being referred to herein
as a “Successor Index”), then any subsequent Closing Price of the Underlying Shares on any Trading Day following a
Discontinuance or Liquidation Event will be determined by reference to the published value of such Successor Index at the regular
weekday close of trading on such Trading Day, and, to the extent the value of the Successor Index differs from the value of the
Share Underlying Index at the time of such substitution, proportionate adjustments will be made by the Calculation Agent for purposes
of calculating payments on the Securities.
Upon any selection by the Calculation Agent of a Successor Index,
the Calculation Agent will cause written notice thereof to be furnished to the Trustee, to us and to the Depositary, as holder
of the Securities, within three business days of such selection. We expect that such notice will be made available to you, as a
beneficial owner of such Securities, in accordance with the standard rules and procedures of the Depositary and its direct and
indirect participants.
If, subsequent to a Discontinuance or Liquidation Event, the
Share Underlying Index Publisher discontinues publication of the Share Underlying Index prior to, and such discontinuance is continuing
on the Final Valuation Date and MS & Co., as the Calculation Agent, determines, in its sole discretion, that no Successor Index
is available at such time, then the Calculation Agent will determine the Closing Price of the Underlying Shares for such date.
The Closing Price of the Underlying Shares will be computed by the Calculation Agent in accordance with the formula for calculating
the Share Underlying 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 composing the Share Underlying Index without any rebalancing or substitution of such securities following
such discontinuance. Notwithstanding these alternative arrangements, discontinuance of the publication of the Share Underlying
Index may adversely affect the value of the Securities.
Trustee
The “Trustee” for each offering of notes issued under
our Senior Debt Indenture, including the Securities, will be The Bank of New York Mellon, a New York banking corporation.
Agent
The “agent” is MS & Co.
Calculation Agent and Calculations
The “Calculation Agent” for the Securities will be
MS & Co. As Calculation Agent, MS & Co. will determine, among other things, the Initial Price, the Downside Threshold,
the Final Price, the Underlying Return and the Payment at Maturity.
All determinations made by the Calculation Agent will be at the
sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and binding
on you, the Trustee and us.
All calculations with respect to the Payment at Maturity, if
any, will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., .876545 would be rounded
to .87655); all dollar amounts related to determination of the amount of cash payable per Security will be rounded to the nearest
ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to .7655); and all dollar amounts
paid on the aggregate number of Securities will be rounded to the nearest cent, with one-half cent rounded upward.
Because the Calculation Agent is our affiliate, the economic
interests of the Calculation Agent and its affiliates may be adverse to your interests, as an owner of the Securities, including
with respect to certain determinations and judgments that the Calculation Agent must make in determining the Final Price or whether
a Market Disruption Event has occurred. See “—Discontinuance of the Underlying Shares and/or Share Underlying Index;
Alteration of Method of Calculation,” and the definition of Market Disruption Event. MS & Co. is obligated to carry out
its duties and functions as Calculation Agent in good faith and using its reasonable judgment.
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 Valuation 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 Valuation Date as postponed.
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 each
stated principal amount of 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 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 Underlying Shares or the constituent stocks of the Share Underlying
Index, in futures or options contracts on the Underlying Shares, the Share Underlying Index or the constituent stocks of the Share
Underlying Index, as well as in other instruments related to the Underlying Shares or the Share Underlying Index that they may
wish to use in connection with such hedging. Such purchase activity could increase the Initial Price of the Underlying Shares,
and, therefore, could increase the Downside Threshold, which is the price at or above which the Underlying Shares must close on
the Final Valuation Date so that you do not suffer a 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 Valuation
Date, by purchasing and selling the Underlying Shares or the constituent stocks of the Share Underlying Index, futures or options
contracts on the Underlying Shares, the Share Underlying Index or the constituent stocks of the Share Underlying Index, as well
as other instruments related to the Underlying Shares or the Share Underlying Index that we may wish to use in connection with
such hedging activities, including by purchasing or selling any such securities or instruments on the Final Valuation Date. As
a result, these entities may be unwinding or adjusting hedge positions during the term of the Securities, and the hedging strategy
may involve greater and more frequent dynamic adjustments to the hedge as the Final Valuation Date approaches. We cannot give any
assurance that our hedging activities will not affect the price of the Underlying Shares, and, therefore, adversely affect the
value of the Securities or the amount payable at maturity.
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 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 $0.20 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 level of the Maximum Gain, 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, the Underlying Shares or the constituent stocks
of the Share Underlying Index 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.
Form of Securities
The Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, the Depositary and will be registered in the name of
a nominee of the Depositary. The Depositary’s nominee will be the only registered holder of the Securities. Your beneficial
interest in the Securities will be evidenced solely by entries on the books of the securities intermediary acting on your behalf
as a direct or indirect participant in the Depositary. In this free writing prospectus, all references to payments or notices to
you will mean payments or notices to the Depositary, as the registered holder of the Securities, for distribution to participants
in accordance with the Depositary’s procedures. For more information regarding the Depositary and book entry notes, please
read “The Depositary” in the
accompanying prospectus supplement and “Forms
of Securities—Global Securities—Registered Global Securities” in the accompanying prospectus.
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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