Morgan Stanley Finance LLC
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June 2019
Preliminary Terms No.
2,159
Registration Statement
Nos. 333-221595; 333-221595-01
Dated June 17, 2019
Filed pursuant to Rule
433
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Structured
Investments
Opportunities
in U.S. Equities
Contingent
Income Auto-Callable Securities due December 30, 2021
Based
on the Performance of the Common Stock of Tesla, Inc.
Fully
and Unconditionally Guaranteed by Morgan Stanley
Principal
at Risk Securities
The securities offered are unsecured obligations of Morgan Stanley
Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The securities
have
the terms described in the accompanying product supplement and prospectus, as supplemented or modified by this document. The securities
do not guarantee the repayment of principal and do not provide for the regular payment of interest. Instead, the securities will
pay a contingent quarterly coupon
but only if
the determination closing price of the underlying stock is
at or above
the downside threshold level of 50% of the initial share price on the related observation date. If, however, the determination
closing price is
less than
the downside threshold level on any observation date, we will pay no interest for the related
quarterly period. In addition, the securities will be automatically redeemed if the determination closing price is
greater than
or equal to
90% of the initial share price, which we refer to as the call threshold level, on any quarterly redemption determination
date for the early redemption payment equal to the sum of the stated principal amount plus the related contingent quarterly coupon.
At maturity, i
f the securities have not previously been redeemed and the final share price is
greater than or equal to
the downside threshold level, the payment at maturity will be the stated principal amount and the related contingent quarterly
coupon. If, however, the final share price is
less than
the downside threshold level, investors will be fully exposed to
the decline in the underlying stock on a 1-to-1 basis and will receive a payment at maturity that is less than 50% of the stated
principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept
the risk of losing their entire initial investment and also the risk of not receiving any contingent quarterly coupons throughout
the 2.5-year term of the securities.
The securities are for investors who are willing to risk their principal and seek an opportunity
to earn interest at a potentially above-market rate in exchange for the risk of receiving no quarterly coupons over the entire
2.5-year term. Investors will not participate in any appreciation of the underlying stock. The securities are notes issued as part
of MSFL’s Series A Global Medium-Term Notes program.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These securities are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
SUMMARY
TERMS
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Issuer:
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Morgan Stanley Finance LLC
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Guarantor:
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Morgan Stanley
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Underlying stock:
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Tesla, Inc. common stock
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Aggregate principal amount:
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$
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Stated principal amount:
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$1,000 per security
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Issue price:
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$1,000 per security (see “Commissions and issue price” below)
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Pricing date:
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June 27, 2019
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Original issue date:
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July 2, 2019 (3 business days after the pricing date)
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Maturity date:
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December 30, 2021
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Early redemption:
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If, on any redemption determination date, beginning on September
27, 2019, the determination closing price of the underlying stock is
greater than or equal to
the call threshold level,
the securities will be automatically redeemed for an early redemption payment on the related early redemption date. No further
payments will be made on the securities once they have been redeemed.
The securities will not be redeemed early on any
early redemption date if the determination closing price is below the call threshold level on the related redemption determination
date.
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Early redemption payment:
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The early redemption payment will be an amount equal to (i) the stated principal amount for each security you hold
plus
(ii) the contingent quarterly coupon with respect to the related observation date.
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Determination closing price:
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The closing price of the underlying stock on any redemption determination date or observation date, as applicable, other than the final observation date,
times
the adjustment factor on such redemption determination date or observation date, as applicable
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Redemption determination dates:
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Quarterly, beginning on September 27, 2019, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject to postponement for non-trading days and certain market disruption events
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Early redemption dates:
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Quarterly, beginning on October 2, 2019, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below. If any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day
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Contingent quarterly coupon:
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A
contingent
quarterly coupon at an annual rate of
at
least 20.00% (corresponding to at least approximately $50.00 per security per quarter, to be determined on the pricing date)
will be paid on the securities on each coupon payment date
but only if
the determination closing price of the underlying
stock is at or above the downside threshold level on the related observation date.
If, on any observation date, the determination closing
price is less than the downside threshold level, we will pay no coupon for the applicable quarterly period. It is possible that
the underlying stock will remain below the downside threshold level for extended periods of time or even throughout the entire
2.5-year term of the securities so that you will receive few or no contingent quarterly coupons.
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Downside threshold level:
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$ , which is equal to 50% of the initial share price
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Call threshold level:
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$ , which is equal to 90% of the initial share price
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Payment at maturity:
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·
If
the final share price is
greater than or equal to
the downside threshold level: (i) the stated principal amount
plus
(ii) the contingent quarterly coupon with respect to the final observation date; or
·
If
the final share price is
less than
the downside threshold level: (i) the stated principal amount
multiplied by
(ii)
the share performance factor. Under these circumstances, the payment at maturity will be less than 50% of the stated principal
amount and could be zero.
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Terms continued on the following page
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.”
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Estimated value on the pricing date:
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Approximately $948.90 per security, or within $15.00 of that estimate. See “Investment Summary” beginning on page 3.
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Commissions and issue price:
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Price to public
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Agent’s commissions
(1)
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Proceeds to us
(2)
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Per security
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$1,000
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$
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$
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Total
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$
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$
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$
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(1)
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Selected
dealers and their financial advisors will collectively receive from the agent, Morgan
Stanley & Co. LLC, a fixed sales commission of $ for each security they sell. See
“Supplemental information regarding plan of distribution; conflicts of interest.”
For additional information, see “Plan of Distribution (Conflicts of Interest)”
in the accompanying product supplement.
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(2)
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See
“Use of proceeds and hedging” on page 23.
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The securities involve risks not associated with an investment
in ordinary debt securities. See “Risk Factors” beginning on page 10.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement
and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities are not deposits or savings accounts and are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related product
supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional Terms of the
Securities” and “Additional Information About the Securities” at the end of this document.
As used in this document, references to “we,”
“us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context
requires.
Product Supplement for Auto-Callable Securities dated November 16, 2017
Prospectus dated November 16, 2017
Morgan Stanley Finance LLC
Contingent
Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Terms continued from previous page:
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Initial share price:
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$ , which is equal to the closing price of the underlying stock on the pricing date.
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Final share price:
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The closing price of the underlying stock on the final observation date
times
the adjustment factor on such date
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Coupon payment dates:
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Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below. If any such day is not a business day, that coupon payment will be made on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day.
The contingent quarterly coupon, if any, with respect to the final observation date shall be paid on the maturity date.
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Observation dates:
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Quarterly, as set forth under “Observation Dates, Redemption Determination Dates, Coupon Payment Dates and Early Redemption Dates” below, subject to postponement for non-trading days and certain market disruption events. We also refer to December 27, 2021 as the final observation date.
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Adjustment factor:
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1.0, subject to adjustment in the event of certain corporate events affecting the underlying stock
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Share performance factor:
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Final share price
divided by
the initial share price
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CUSIP / ISIN:
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61769HHJ7 / US61769HHJ77
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Listing:
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The securities will not be listed on any securities exchange.
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Observation Dates, Redemption
Determination Dates, Coupon Payment Dates and Early Redemption Dates
Observation Dates / Redemption Determination Dates
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Coupon Payment Dates / Early Redemption Dates
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September 27, 2019
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October 2, 2019
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December 27, 2019
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January 2, 2020
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March 27, 2020
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April 1, 2020
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June 29, 2020
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July 2, 2020
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September 28, 2020
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October 1, 2020
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December 28, 2020
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December 31, 2020
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March 29, 2021
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April 1, 2021
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June 28, 2021
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July 1, 2021
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September 27, 2021
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September 30, 2021
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December 27, 2021 (final observation date)
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December 30, 2021 (maturity date)
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Investment Summary
Contingent Income Auto-Callable Securities
Contingent Income Auto-Callable Securities due December 30, 2021,
with 6-month Initial Non-Call Period Based on the Performance of the Common Stock of Tesla, Inc. (the “securities”)
do not provide for the regular payment of interest. Instead, the securities will pay a contingent quarterly coupon
but only
if
the determination closing price of the underlying stock is
at or above
50% of the initial share price, which we refer
to as the downside threshold level, on the related observation date. If the determination closing price is
less than
the
downside threshold level on any observation date, we will pay no coupon for the related quarterly period. It is possible that the
determination closing price could remain below the downside threshold level for extended periods of time or even throughout the
entire 2.5-year term of the securities so that you will receive few or no contingent quarterly coupons during the entire term of
the securities. We refer to these coupons as contingent, because there is no guarantee that you will receive a coupon payment on
any coupon payment date. Even if the underlying stock were to be at or above the downside threshold level on some quarterly observation
dates, it may fluctuate below the downside threshold level on others. In addition, if the securities have not been automatically
called prior to maturity and the final share price is
below
the downside threshold level, investors will be fully exposed
to the decline in the underlying stock on a 1-to-1 basis and will receive a payment at maturity that is less than 50% of the stated
principal amount of the securities and could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept
the risk of losing their entire initial investment and also the risk of not receiving any contingent quarterly coupons. In addition,
investors will not participate in any appreciation of the underlying stock.
Maturity:
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Approximately 2.5 years
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Payment at maturity:
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If the final share price is
greater than or equal to
the
downside threshold level, investors will receive the stated principal amount and the contingent quarterly coupon with respect to
the final observation date.
If the final share price is
less than
the downside threshold
level, investors will receive a payment at maturity that is less than 50% of the stated principal amount of the securities and
could be zero.
Accordingly,
i
nvestors in the securities must be willing to accept the risk of losing their entire initial
investment.
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Contingent quarterly coupon:
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A
contingent
coupon at an annual rate of at least 20.00%
(corresponding to at least approximately $50.00 per security per quarter, to be determined on the pricing date) will be paid on
the securities on each coupon payment date
but only if
the determination closing price of the underlying stock is at or
above the downside threshold level on the related observation date.
If, on any observation date, the determination closing price
of the underlying stock is less than the downside threshold level, we will pay no coupon for the applicable quarterly period.
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Automatic early redemption quarterly on or after September 27, 2019:
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If the determination closing price of the underlying stock is greater than or equal to the call threshold level on any quarterly redemption determination date, beginning on September 27, 2019, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent quarterly coupon with respect to the related observation date.
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The original issue price of each security is $1,000. This price
includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently,
the estimated value of the securities on the pricing date will be less than $1,000. We estimate that the value of each security
on the pricing date will be approximately $948.90 or within $15.00 of that estimate. Our estimate of the value of the securities
as determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
In valuing the securities on the pricing date, we take into account
that the securities comprise both a debt component and a performance-based component linked to the underlying stock. The estimated
value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the
underlying stock, instruments based on the underlying stock, volatility and other factors including current and expected interest
rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our
conventional fixed rate debt trades in the secondary market.
What determines the economic terms of the securities?
In determining the economic terms of the securities, including
the contingent quarterly coupon rate, the call threshold level and the downside threshold level, we use an internal funding rate,
which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling,
structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic
terms of the securities would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the securities?
The price at which MS & Co. purchases the securities in the
secondary market, absent changes in market conditions, including those related to the underlying stock, may vary from, and be lower
than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit
spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other
factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted
upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the securities
in the secondary market, absent changes in market conditions, including those related to the underlying stock, and to our secondary
market credit spreads, it would do so based on values higher than the estimated value. We expect that those higher values will
also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a market in the
securities, and, if it once chooses to make a market, may cease doing so at any time.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Key Investment Rationale
The securities do not provide for the regular payment of interest.
Instead, the securities will pay a contingent quarterly coupon
but only if
the determination closing price of the underlying
stock is
at or above
the downside threshold level on the related observation date. The securities have been designed for
investors who are willing to forgo market floating interest rates and accept the risk of receiving no coupon payments for the entire
2.5-year term of the securities in exchange for an opportunity to earn interest at a potentially above-market rate if the underlying
stock closes at or above the downside threshold level on each quarterly observation date until the securities are redeemed early
or reach maturity. The following scenarios are for illustrative purposes only to demonstrate how the coupon and the payment at
maturity (if the securities have not previously been redeemed) are calculated, and do not attempt to demonstrate every situation
that may occur. Accordingly, the securities may or may not be redeemed, the contingent coupon may be payable in none of, or some
but not all of, the quarterly periods during the 2.5-year term of the securities and the payment at maturity may be less than 50%
of the stated principal amount of the securities and may be zero.
Scenario
1: The securities are redeemed prior to maturity
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This scenario assumes that, prior to early redemption, the underlying
stock closes at or above the downside threshold level on some quarterly observation dates but below the downside threshold level
on the others. Investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing
price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for which
the determination closing price is below the downside threshold level on the related observation date.
When the underlying stock closes at or above the call
threshold level on a quarterly redemption determination date, the securities will be automatically redeemed for the stated principal
amount
plus
the contingent quarterly coupon with respect to the related observation date.
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Scenario
2: The securities are not redeemed prior to maturity, and investors receive principal back at maturity
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This scenario assumes that the underlying stock closes at or above the downside threshold level on some quarterly observation dates but below the downside threshold level on the others, and the underlying stock closes below the call threshold level on every quarterly redemption determination date. Consequently, the securities are not automatically redeemed, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price is below the downside threshold level on the related observation date. On the final observation date, the underlying stock closes at or above the downside threshold level. At maturity, investors will receive the stated principal amount and the contingent quarterly coupon with respect to the final observation date.
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Scenario
3: The securities are not redeemed prior to maturity, and investors suffer a substantial loss of principal at maturity
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This scenario assumes that the underlying stock closes at or above the downside threshold level on some quarterly observation dates and below the downside threshold level on the others, and the underlying stock closes below the call threshold level on every quarterly redemption determination date. Consequently, the securities are not automatically redeemed, and investors receive the contingent quarterly coupon for the quarterly periods for which the determination closing price is at or above the downside threshold level on the related observation date, but not for the quarterly periods for which the determination closing price is below the downside threshold level on the related observation date. On the final observation date, the underlying stock closes below the downside threshold level. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the share performance factor. Under these circumstances, the payment at maturity will be less than 50% of the stated principal amount and could be zero. No coupon will be paid at maturity in this scenario.
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
How the Securities Work
The following diagrams illustrate the potential outcomes for
the securities depending on (1) the determination closing price on each quarterly observation date, (2) the determination closing
price on each quarterly redemption determination date and (3) the final share price. Please see “Hypothetical Examples”
beginning on page 8 for an illustration of hypothetical payouts on the securities.
Diagram #1: Contingent Quarterly Coupons
(Beginning on the First Coupon Payment Date until Early Redemption or Maturity)
Diagram #2: Automatic Early Redemption
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Diagram #3: Payment at Maturity if No Automatic
Early Redemption Occurs
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Hypothetical Examples
The following hypothetical examples illustrate how to determine
whether a contingent quarterly coupon is paid with respect to an observation date and how to calculate the payment at maturity
if the securities have not been automatically redeemed early. The following examples are for illustrative purposes only. Whether
you receive a contingent quarterly coupon will be determined by reference to the determination closing price on each quarterly
observation date, whether the securities are redeemed prior to maturity will be determined by reference to the determination closing
price on each quarterly redemption determination date, and the payment at maturity will be determined by reference to the determination
closing price on the final observation date. The actual initial share price, call threshold level and downside threshold level
will be determined on the pricing date. All payments on the securities, if any, are subject to our credit risk. The numbers in
the hypothetical examples below may have been rounded for the ease of analysis. The below examples are based on the following terms:
Hypothetical Initial Share Price:
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$215.00
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Hypothetical Call Threshold Level:
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$193.50, which is 90% of the hypothetical initial share price
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Hypothetical Downside Threshold Level:
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$107.50, which is 50% of the hypothetical initial share price
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Hypothetical Contingent Quarterly Coupon:
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20.00% per annum (corresponding to approximately $50.00 per quarter
per security)*
A contingent quarterly coupon is paid on each coupon payment
date
but only if the determination closing price of the underlying stock is at or above the downside threshold level on the
related observation date.
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Automatic Early Redemption:
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If the determination closing price is greater than or equal to the call threshold level on any quarterly early redemption determination date, the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent quarterly coupon with respect to the related observation date.
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Payment at Maturity (if the securities have not been automatically redeemed early):
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If the final share price is
greater than or equal to
the
downside threshold level: the stated principal amount and the contingent quarterly coupon with respect to the final observation
date
If the final share price is
less than
the downside
threshold level: (i) the stated principal amount
multiplied by
(ii) the share performance factor
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Stated Principal Amount:
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$1,000
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* The actual contingent quarterly coupon will
be an amount determined by the calculation agent based on the actual contingent quarterly coupon rate and the number of days in
the applicable payment period, calculated on a 30/360 basis. The hypothetical contingent quarterly coupon of $50.00 is used in
these examples for each of analysis.
In
Example 1
, the determination closing
price of the underlying stock is greater than or equal to the call threshold level on one of the quarterly redemption determination
dates (beginning on September 27, 2019). Because the determination closing price is greater than or equal to the call threshold
level on such a date, the securities are automatically redeemed on the related early redemption date. In Examples 2, 3 and 4, the
determination closing price is less than the call threshold level on all of the redemption determination dates, and, consequently,
the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
Example 1
—The securities are automatically
redeemed following the quarterly redemption determination date in December 2020 as the determination closing price is greater than
or equal to the call threshold level on such redemption determination date. The underlying stock declines substantially and the
determination closing price is at or above the downside threshold level on only 3 of the 5 quarterly observation dates prior to
(and excluding) the observation date immediately preceding the early redemption. Therefore, you would receive the contingent quarterly
coupons with respect to those 3 observation dates, totaling $50.00 × 3 = $150.00, but not for the other 2 observation dates.
The underlying stock in this example, however, recovers, and the determination closing price is equal to the call threshold level
on the redemption determination date in December 2020. Upon early redemption, investors receive the early redemption payment calculated
as $1,000 + $50.00 = $1,050.00.
The total payment over the 18-month term of
the securities is $150.00 + $1,050.00 = $1,200.00.
Example 2
—The securities are not
redeemed prior to maturity, as the determination closing price is less than the call threshold level on all quarterly redemption
determination dates. The determination closing price is at or above the downside threshold level on all 9 quarterly observation
dates prior to (and excluding) the final observation date, and the final share price is also at or above the downside threshold
level. Therefore, you would receive (i) the contingent quarterly coupons
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
with respect to the 9 observation dates prior
to (and excluding) the final observation date, totaling $50.00 × 9 = $450.00, and (ii) the payment at maturity calculated
as $1,000.00 + $50.00 = $1,050.00.
The total payment over the 2.5-year term of
the securities is $450.00 + $1,050.00 = $1,500.00.
This example illustrates the scenario where
you receive a contingent quarterly coupon on every coupon payment date throughout the term of the securities and receive your principal
back at maturity, resulting in an annual interest rate of 20.00% over the 2.5-year term of the securities. This example, therefore,
represents the maximum amount payable over the 2.5-year term of the securities. To the extent that coupons are not paid on every
coupon payment date, the effective rate of interest on the securities will be less than 20.00% per annum and could be zero.
Example 3
—The securities are not
redeemed prior to maturity, as the determination closing price is less than the call threshold level on all quarterly redemption
determination dates. The determination closing price is at or above the downside threshold level on 2 out of the 9 quarterly observation
dates prior to (and excluding) the final observation date. The final share price is $150.00, which is above the downside threshold
level. In this scenario, you receive a payment at maturity equal to the stated principal amount and the contingent quarterly coupon
with respect to the final observation date. Therefore, you would receive (i) the contingent quarterly coupons with respect to those
2 observation dates prior to (and excluding) the final observation date, totaling $50.00 × 2 = $100.00, but not for the other
7 observation dates, and (ii) the payment at maturity calculated as $1,000.00 + $50.00 = $1,050.00.
The total payment over the 2.5-year term of
the securities is $100.00 + $1,050.00 = $1,150.00
Example 4
—The securities are not
redeemed prior to maturity, as the determination closing price is less than the call threshold level on all quarterly redemption
determination dates. The determination closing price is below the downside threshold level on all of the quarterly observation
dates, including the final observation date, on which the final share price is $86.00. Therefore, you would receive no contingent
quarterly coupons, and the payment at maturity would be calculated as $1,000.00 × $86.00 / $215.00 = $400.
The total payment over the 2.5-year term of
the securities is $0 + $400 = $400.
If the securities are not automatically
redeemed prior to maturity and the final share price is less than the downside threshold level, you will lose a significant portion
or all of your investment in the securities.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Risk Factors
The
following is a list of certain key risk factors for investors in the securities. For further discussion of these and other risks,
you should read the section entitled “Risk Factors” in the accompanying product supplement and prospectus. We also
urge you to consult with your investment, legal, tax, accounting and other advisers
in connection with your investment
in the securities
.
|
§
|
The securities do not guarantee the return of any principal.
The
terms of the securities differ from those of ordinary debt securities in that they do not guarantee the repayment of any principal.
If the securities have not been automatically redeemed prior to maturity and if the final share price is less than the downside
threshold level of 50% of the initial share price, you will be exposed to the decline in the closing price of the underlying stock,
as compared to the initial share price, on a 1-to-1 basis, and you will receive for each security that you hold at maturity an
amount equal to the stated principal amount
times
the share performance factor. In this case, the payment at maturity will
be less than 50% of the stated principal amount and could be zero.
|
|
§
|
The securities do not provide for the regular payment of interest.
The terms of the securities differ from those of ordinary debt securities in that they do not provide for the regular
payment of interest. Instead, the securities will pay a contingent quarterly coupon
but only if
the determination closing
price of the underlying stock is
at or above
50% of the initial share price, which we refer to as the downside threshold
level, on the related observation date. If, on the other hand, the determination closing price is lower than the downside threshold
level on the relevant observation date for any interest period, we will pay no coupon on the applicable coupon payment date. It
is possible that the determination closing price will remain below the downside threshold level for extended periods of time or
even throughout the entire 2.5-year term of the securities so that you will receive few or no contingent quarterly coupons. If
you do not earn sufficient contingent quarterly coupons over the term of the securities, the overall return on the securities may
be less than the amount that would be paid on a conventional debt security of ours of comparable maturity.
|
|
§
|
The contingent quarterly coupon, if any, is based on the determination closing price of the underlying stock on only the
related quarterly observation date at the end of the related interest period
.
Whether the contingent quarterly coupon will be paid on any coupon payment date will be determined at the end of the
relevant interest period based on the determination closing price of the underlying stock on the relevant quarterly observation
date. As a result, you will not know whether you will receive the contingent quarterly coupon on any coupon payment date until
near the end of the relevant interest period. Moreover, because the contingent quarterly coupon is based solely on the value of
the underlying stock on quarterly observation dates, if the determination closing price of the underlying stock on any observation
date is below the downside threshold level, you will receive no coupon for the related interest period, even if the level of the
underlying stock was at or above the downside threshold level on other days during that interest period.
|
|
§
|
Investors will not participate in any appreciation in the price of the underlying stock.
Investors will not participate
in any appreciation in the price of the underlying stock from the initial share price, and the return on the securities will be
limited to the contingent quarterly coupons, if any, that are paid with respect to each observation date on which the determination
closing price is greater than or equal to the downside threshold level.
|
|
§
|
The market price will be influenced by many unpredictable factors.
Several factors, many of which are beyond our control, will influence the value of the securities
in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary
market. We expect that generally the level of interest rates available in the market and the value of the
underlying
stock
on any day, including in relation to the downside
threshold level, will affect the value of the securities more than any other factors. Other factors that may influence the value
of the securities include:
|
|
o
|
the trading price and volatility (frequency and magnitude of changes in value) of the underlying stock,
|
|
o
|
whether the determination closing price of the underlying stock has been below the downside threshold level on any observation
date,
|
|
o
|
dividend rates on the underlying stock,
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
|
o
|
geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying stock
and which may affect the final share price of the underlying stock,
|
|
o
|
the time remaining until the securities mature,
|
|
o
|
interest and yield rates in the market,
|
|
o
|
the occurrence of certain events affecting the underlying stock that may or may not require an adjustment to the adjustment
factor, and
|
|
o
|
any actual or anticipated changes in our credit ratings or credit spreads.
|
Some
or all of these factors will influence the price that you will receive if you sell your securities prior to maturity. For example,
you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security if the price
of the underlying stock at the time of sale is below the downside threshold level, or if market interest rates rise.
The
price of the underlying stock may be, and has recently been, volatile, and we can give you no assurance that the volatility will
lessen.
See “Tesla, Inc. Overview” below. The price of the underlying stock may decrease and be below the downside
threshold level on each observation date so that you will receive no return on your investment. Additionally, the price of the
underlying stock may decrease and be below the downside threshold level on the final observation date so that you will lose more
than 50% or all of your initial investment in the securities. There can be no assurance that the determination closing price of
the underlying stock will be at or above the downside threshold level on any observation date so that you will receive a coupon
payment on the securities for the applicable interest period, or that it will be at or above the downside threshold level on the
final observation date so that you do not suffer a significant loss on your initial investment in the securities.
|
§
|
The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads
may adversely affect the market value of the securities.
You are dependent on our ability to pay all amounts due on the securities
at maturity or on any coupon payment date, and therefore you are subject to our credit risk. The securities are not guaranteed
by any other entity. If we default on our obligations under the securities, your investment would be at risk and you could lose
some or all of your investment. As a result, the market value of the securities prior to maturity will be affected by changes in
the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase in the credit
spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the securities.
|
|
§
|
As a finance subsidiary, MSFL has no independent operations and will have no independent assets.
As a finance subsidiary,
MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution
or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan
Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of
securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should
be treated
pari passu
with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders
of Morgan Stanley-issued securities.
|
|
§
|
Reinvestment risk.
The term
of your investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities
are redeemed prior to maturity, you will receive no more contingent quarterly coupons and may be forced to invest in a lower interest
rate environment and may not be able to reinvest at comparable terms or returns.
|
|
§
|
Investing in the securities is not equivalent to investing in the
common stock of
Tesla, Inc.
Investors
in the securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect
to the underlying stock, and investors will not participate in any appreciation of the underlying stock over the term of the securities.
As a result, any return on the securities will not reflect the return you would realize if you actually owned shares of the underlying
stock and received the dividends paid or distributions made on them.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
|
§
|
No affiliation with Tesla, Inc.
Tesla, Inc. is not an affiliate of ours, is not involved with this offering in any way,
and has no obligation to consider your interests in taking any corporate actions that might affect the value of the securities.
We have not made any due diligence inquiry with respect to Tesla, Inc. in connection with this offering.
|
|
§
|
We may engage in business with or involving Tesla, Inc. without regard to your interests.
We or our affiliates may presently
or from time to time engage in business with Tesla, Inc. without regard to your interests and thus may acquire non-public information
about Tesla, Inc. Neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, we or our
affiliates from time to time have published and in the future may publish research reports with respect to Tesla, Inc., which may
or may not recommend that investors buy or hold the underlying stock.
|
|
§
|
The antidilution adjustments the calculation agent is required to make do not cover every corporate event that could affect
the underlying stock.
MS & Co., as calculation agent, will adjust the adjustment factor for certain corporate events affecting
the underlying stock, such as stock splits, stock dividends and extraordinary dividends, and certain other corporate actions involving
the issuer of the underlying stock, such as mergers. However, the calculation agent will not make an adjustment for every corporate
event that can affect the underlying stock. For example, the calculation agent is not required to make any adjustments if the issuer
of the underlying stock or anyone else makes a partial tender or partial exchange offer for the underlying stock, nor will adjustments
be made following the final observation date. In addition, no adjustments will be made for regular cash dividends, which are expected
to reduce the price of the underlying stock by the amount of such dividends. 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. For example, if the record date for a regular cash dividend were to occur on or shortly
before an observation date, this may decrease the determination closing price to be less than the downside threshold level (resulting
in no contingent quarterly coupon being paid with respect to such date) or the final share price to be less than the downside threshold
level (resulting in a loss of a significant portion of all of your investment in the securities), materially and adversely affecting
your return.
|
|
§
|
The securities will not be listed on any securities exchange and secondary trading may be limited
.
A
ccordingly, you should be willing to hold your securities for the entire 2.5-year term of the securities.
The securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS &
Co. may, but is not obligated to, make a market in the securities, and, if it once chooses to make a market, may cease doing so
at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based
on its estimate of the current value of the securities, taking into account its bid/offer spread, our credit spreads, market volatility,
the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and
the likelihood that it will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity
to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in the secondary
market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any,
at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the securities, it
is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities
to maturity.
|
|
§
|
The rate we are willing to pay for securities of this type, maturity and issuance
size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both the lower
rate and the inclusion of costs associated with issuing, selling, structuring and hedging the securities in the original issue
price reduce the economic terms of the securities, cause the estimated value of the securities to be less than the original issue
price and will adversely affect secondary market prices.
Assuming no change in market conditions or any other relevant factors,
the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities in secondary market transactions
will likely be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling,
structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary
market prices will reflect our 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.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
The inclusion
of the costs of issuing, selling, structuring and hedging the securities in the original issue price and the lower rate we are
willing to pay as issuer make the economic terms of the securities less favorable to you than they otherwise would be.
However, because
the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a
period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary
market, absent changes in market conditions, including those related to the underlying stock, and to our secondary market credit
spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected
in your brokerage account statements.
|
§
|
The estimated value of the securities is determined by reference to our pricing and valuation models, which may differ from
those of other dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary
and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the securities than those generated by others, including other dealers in the market, if they attempted to value
the securities. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers,
including MS & Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value
of your securities at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy,
including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable
factors” above.
|
|
§
|
Hedging and trading activity by our affiliates could potentially affect the value of the securities.
One or more of
our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other instruments
linked to the underlying stock), including trading in the underlying stock. As a result, these entities may be unwinding or adjusting
hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the final observation date approaches. Some of our affiliates also trade the underlying stock and other financial
instruments related to the underlying stock on a regular basis as part of their general broker-dealer and other businesses. Any
of these hedging or trading activities on or prior to the pricing date could potentially increase the initial share price, and,
therefore, could increase (i) the price at or above which the underlying stock must close on the redemption determination dates
so that the securities are redeemed prior to maturity for the early redemption payment and (ii) the downside threshold level, which
is the price at or above which the underlying stock must close on each observation date in order for you to earn a contingent quarterly
coupon, and, if the securities are not called prior to maturity, in order for you to avoid being exposed to the negative price
performance of the underlying stock at maturity. Additionally, such hedging or trading activities during the term of the securities
could affect the price of the underlying stock on the redemption determination dates and the observation dates, and, accordingly,
whether we redeem the securities prior to maturity, whether we pay a contingent quarterly coupon on the securities and the amount
of cash you receive at maturity, if any.
|
|
§
|
The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect
to the securities.
As calculation agent, MS & Co. will determine the initial share price, the call threshold level, the
downside threshold level, the final share price, whether the contingent quarterly coupon will be paid on each coupon payment date,
whether the securities will be redeemed on any early redemption date, whether a market disruption event has occurred, whether to
make any adjustments to the adjustment factor and the payment that you will receive at maturity, if any. Moreover, certain determinations
made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments,
such as with respect to the occurrence or nonoccurrence of market disruption events and certain adjustments to the adjustment factor.
These potentially subjective determinations may affect the payout to you upon an automatic early redemption or at maturity, if
any. For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Auto-Callable
Securities Linked to Underlying Shares” and “—Calculation Agent and Calculations” and related definitions
in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing
date.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal
authority as to the proper treatment of the securities for U.S. federal income tax purposes, and, therefore, significant aspects
of the tax treatment of the securities are uncertain.
|
Please read the discussion under
“Additional Information—Tax considerations” in this document concerning the U.S. federal income tax consequences
of an investment in the securities. We intend to treat a security for U.S. federal income tax purposes as a single financial contract
that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance with your
regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction with
the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in adverse
tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations. We do not
plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the securities, the timing and character of income or loss on the securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the securities
as debt instruments. In that event, U.S. Holders (as defined below) would be required to accrue into income original issue discount
on the securities every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference,
if any, between the actual and the projected amount of any contingent payments on the securities) and recognize all income and
gain in respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar
downside protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization
for comparable financial instruments that do not have such features.
Non-U.S. Holders (as defined
below) should note that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision, and will
not be required to pay any additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the securities are the character and
timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an
investment in the securities, including possible alternative treatments, the issues presented by this notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Tesla, Inc. Overview
Tesla, Inc. designs, manufactures and sells electric vehicles
and energy storage systems, as well as installs, operates and maintains solar and energy storage products. The underlying stock
is registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Information provided to or
filed with the Securities and Exchange Commission by Tesla, Inc. pursuant to the Exchange Act can be located by reference to the
Securities and Exchange Commission file number 001-34756 through the Securities and Exchange Commission’s website at .www.sec.gov.
In addition, information regarding Tesla, Inc. may be obtained from other sources including, but not limited to, press releases,
newspaper articles and other publicly disseminated documents.
Neither the issuer nor the agent makes any representation that
such publicly available documents or any other publicly available information regarding the issuer of the underlying stock is accurate
or complete.
Information as of market close on June 13, 2019:
Bloomberg Ticker Symbol:
|
TSLA
|
Exchange:
|
Nasdaq
|
Current Stock Price:
|
$213.91
|
52 Weeks Ago:
|
$344.78
|
52 Week High (on 8/7/2018):
|
$379.57
|
52 Week Low (on 6/3/2019):
|
$178.97
|
Current Dividend Yield:
|
N/A
|
The following table sets forth the published high and low closing
prices of, as well as dividends on, the underlying stock for each quarter from January 1, 2016 through June 13, 2019. The closing
price of the underlying stock on June 13, 2019 was $213.91. The associated graph shows the closing prices of the underlying stock
for each day from January 1, 2014 through June 13, 2019. We obtained the information in the table and graph below from Bloomberg
Financial Markets, without independent verification. The historical performance of the underlying stock should not be taken as
an indication of its future performance, and no assurance can be given as to the price of the underlying stock at any time, including
on the redemption determination dates or the observation dates.
Common Stock of Tesla, Inc. (CUSIP 88160R101)
|
High ($)
|
Low ($)
|
Dividends ($)
|
2016
|
|
|
|
First Quarter
|
238.32
|
143.67
|
-
|
Second Quarter
|
265.42
|
193.15
|
-
|
Third Quarter
|
234.79
|
194.47
|
-
|
Fourth Quarter
|
219.74
|
181.45
|
-
|
2017
|
|
|
|
First Quarter
|
280.98
|
216.99
|
-
|
Second Quarter
|
383.45
|
295.00
|
-
|
Third Quarter
|
385.00
|
308.83
|
-
|
Fourth Quarter
|
359.65
|
299.26
|
-
|
2018
|
|
|
|
First Quarter
|
357.42
|
257.78
|
-
|
Second Quarter
|
370.83
|
252.48
|
-
|
Third Quarter
|
379.57
|
263.24
|
-
|
Fourth Quarter
|
376.79
|
250.56
|
-
|
2019
|
|
|
|
First Quarter
|
347.31
|
260.42
|
-
|
Second Quarter (through June 13, 2019)
|
291.81
|
178.97
|
-
|
We make no representation as to the amount of dividends, if any,
that Tesla, Inc. may pay in the future. In any event, as an investor in the Contingent Income Auto-Callable Securities, you will
not be entitled to receive dividends, if any, that may be payable on the common stock of Tesla, Inc.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Common Stock of Tesla, Inc. – Daily Closing Prices
January 1, 2014 to June 13, 2019
|
|
*
The
red solid line indicates the hypothetical downside threshold level, assuming the closing price of the underlying stock on June
13, 2019 were the initial share price.
This document relates only to the securities
offered hereby and does not relate to the underlying stock or other securities of Tesla, Inc. We have derived all disclosures contained
in this document regarding Tesla, Inc. stock from the publicly available documents described above. In connection with the offering
of the securities, neither we nor the agent has participated in the preparation of such documents or made any due diligence inquiry
with respect to Tesla, Inc. Neither we nor the agent makes any representation that such publicly available documents or any other
publicly available information regarding Tesla, Inc. is accurate or complete. Furthermore, we cannot give any assurance that all
events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available
documents described above) that would affect the trading price of the underlying stock (and therefore the price of the underlying
stock at the time we price the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure
of or failure to disclose material future events concerning Tesla, Inc. could affect the value received with respect to the securities
and therefore the value of the securities.
Neither the issuer nor any of its affiliates
makes any representation to you as to the performance of the underlying stock.
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Additional Terms of the Securities
Please read this information in conjunction with the summary
terms on the front cover of this document.
Additional Terms:
|
|
If the terms described herein are inconsistent with those described in the accompanying product supplement or prospectus, the terms described herein shall control.
|
Interest
period:
|
The quarterly period from and including the original issue date (in the case of the first interest period) or the previously scheduled contingent payment date, as applicable, to but excluding the following scheduled contingent payment date, with no adjustment for any postponement thereof
|
Record
date:
|
The record date for each coupon payment date shall be the date one business day prior to such scheduled coupon payment date;
provided
, however, that any coupon payable at maturity (or upon early redemption) shall be payable to the person to whom the payment at maturity or early redemption payment, as the case may be, shall be payable.
|
Underlying
stock:
|
The accompanying product supplement refers to the underlying stock as the “underlying shares.”
|
Underlying
stock issuer:
|
Tesla, Inc. The accompanying product supplement refers to the underlying stock issuer as the “underlying company.”
|
Downside
threshold level:
|
The accompanying product supplement refers to the downside threshold level as the “trigger level.”
|
Day
count convention:
|
Interest will be computed on the basis of a 360-day year of twelve 30-day months.
|
Postponement
of coupon payment dates (including the maturity date) and early redemption dates:
|
If any observation date or redemption determination date is postponed due to a non-trading day or certain market disruption events so that it falls less than two business days prior to the relevant scheduled coupon payment date (including the maturity date) or early redemption date, as applicable, the coupon payment date (or the maturity date) or the early redemption date will be postponed to the second business day following that observation date or redemption determination date as postponed, and no adjustment will be made to any coupon payment or early redemption payment made on that postponed date.
|
Antidilution
adjustments:
|
The following replaces in its entirety the portion of the
section entitled “Antidilution Adjustments” in the accompanying product supplement for auto-callable securities from
the start of paragraph 5 to the end of such section.
5. If (i) there occurs any reclassification or change of the
underlying stock, including, without limitation, as a result of the issuance of any tracking stock by the underlying stock issuer,
(ii) the underlying stock issuer or any surviving entity or subsequent surviving entity of the underlying stock issuer (the “successor
corporation”) has been subject to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory
exchange of securities of the underlying stock issuer or any successor corporation with another corporation occurs (other than
pursuant to clause (ii) above), (iv) the underlying stock issuer is liquidated, (v) the underlying stock issuer issues to all of
its shareholders equity securities of an issuer other than the underlying stock issuer (other than in a transaction described in
clause (ii), (iii) or (iv) above) (a “spin-off event”) or (vi) a tender or exchange offer or going-private transaction
is consummated for all the outstanding shares of the underlying stock (any such event in clauses (i) through (vi), a “reorganization
event”), the method of determining whether an early redemption has occurred and the amount payable upon an early redemption
date or at maturity for each security will be as follows:
·
Upon
any redemption determination date following the effective date of a reorganization event and prior to the final observation date:
If the exchange property value (as defined below) is greater than or equal to the call threshold level, the securities will be
automatically redeemed for an early redemption payment.
·
Upon
the final observation date, if the securities have not previously been automatically redeemed: You will receive for each security
that you hold a payment at maturity equal to:
Ø
If
the exchange property value on the final observation date is greater than or equal to the downside threshold level:
(i) the
stated principal amount plus (ii) the contingent quarterly coupon with respect to the final observation date; or
Ø
If
the exchange property value on the final observation date is less than the downside threshold level:
(i) the stated principal
amount multiplied by (ii) the share performance factor. For purposes of calculating the share performance factor, the “final
share price” will be deemed to equal the exchange property value on the final observation date.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
|
Following the effective date of a reorganization event, the contingent
quarterly coupon will be payable for each observation date on which the exchange property value is greater than or equal to the
downside threshold level.
In the event exchange property consists of securities, those
securities will, in turn, be subject to the antidilution adjustments set forth in paragraphs 1 through 5.
For purposes of determining whether or not the exchange property
value is less than the call threshold level or downside threshold level, “exchange property value” means (x) for any
cash received in any reorganization event, the value, as determined by the calculation agent, as of the date of receipt, of such
cash received for one share of the underlying stock, as adjusted by the adjustment factor at the time of such reorganization event,
(y) for any property other than cash or securities received in any such reorganization event, the market value, as determined by
the Calculation Agent in its sole discretion, as of the date of receipt, of such exchange property received for one share of the
underlying stock, as adjusted by the adjustment factor at the time of such reorganization event and (z) for any security received
in any such reorganization event, an amount equal to the determination closing price, as of the day on which the exchange property
value is determined, per share of such security multiplied by the quantity of such security received for each share of the underlying
stock, as adjusted by the adjustment factor at the time of such reorganization event.
For purposes of paragraph 5 above, in the case of a consummated
tender or exchange offer or going-private transaction involving consideration of particular types, exchange property shall be deemed
to include the amount of cash or other property delivered by the offeror in the tender or exchange offer (in an amount determined
on the basis of the rate of exchange in such tender or exchange offer or going-private transaction). In the event of a tender or
exchange offer or a going-private transaction with respect to exchange property in which an offeree may elect to receive cash or
other property, exchange property shall be deemed to include the kind and amount of cash and other property received by offerees
who elect to receive cash.
Following the occurrence of any reorganization event referred
to in paragraph 5 above, all references in this offering document and in the related product supplement with respect to the securities
to “the underlying stock” shall be deemed to refer to the exchange property and references to a “share”
or “shares” of the underlying stock shall be deemed to refer to the applicable unit or units of such exchange property,
unless the context otherwise requires.
No adjustment to the adjustment factor will be required unless
such adjustment would require a change of at least 0.1% in the adjustment factor then in effect. The adjustment factor resulting
from any of the adjustments specified above will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded
upward. Adjustments to the adjustment factor will be made up to the close of business on the final observation date.
No adjustments to the adjustment factor or method of calculating
the adjustment factor will be required other than those specified above. The adjustments specified above do not cover all events
that could affect the determination closing price or the final share price of the underlying stock, including, without limitation,
a partial tender or exchange offer for the underlying stock.
The calculation agent shall be solely responsible for the determination
and calculation of any adjustments to the adjustment factor or method of calculating the adjustment factor and of any related determinations
and calculations with respect to any distributions of stock, other securities or other property or assets (including cash) in connection
with any corporate event described in paragraphs 1 through 5 above, and its determinations and calculations with respect thereto
shall be conclusive in the absence of manifest error.
The calculation agent will provide information as to
any adjustments to the adjustment factor or to the method of calculating the amount payable at maturity of the securities made
pursuant to paragraph 5 above upon written request by any investor in the securities.
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Trustee:
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The Bank of New York Mellon
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Calculation
agent:
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MS & Co.
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Issuer notices to registered security holders, the trustee and the depositary:
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In the event that the maturity date is postponed due
to postponement of the final observation date, the issuer shall give notice of such postponement and, once it has been determined,
of the date to which the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice
of such postponement by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon
the registry books, (ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage
prepaid, at its New York office and (iii)
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
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to The Depository Trust Company (the “depositary”)
by telephone or facsimile confirmed by mailing such notice to the depositary by first class mail, postage prepaid. Any notice
that is mailed to a registered holder of the securities in the manner herein provided shall be conclusively presumed to have been
duly given to such registered holder, whether or not such registered holder receives the notice. The issuer shall give such
notice as promptly as possible, and in no case later than (i) with respect to notice of postponement of the maturity date, the
business day immediately preceding the scheduled maturity date and (ii) with respect to notice of the date to which the maturity
date has been rescheduled, the business day immediately following the final observation date as postponed.
In the event that the securities are subject to early redemption,
the issuer shall, (i) on the business day following the applicable redemption determination date, give notice of the early redemption
and the early redemption payment, including specifying the payment date of the amount due upon the early redemption, (x) to each
registered holder of the securities by mailing notice of such early redemption by first class mail, postage prepaid, to such registered
holder’s last address as it shall appear upon the registry books, (y) to the trustee by facsimile confirmed by mailing such
notice to the trustee by first class mail, postage prepaid, at its New York office and (z) to the depositary by telephone or facsimile
confirmed by mailing such notice to the depositary by first class mail, postage prepaid, and (ii) on or prior to the early redemption
date, deliver the aggregate cash amount due with respect to the securities to the trustee for delivery to the depositary, as holder
of the securities. Any notice that is mailed to a registered holder of the securities in the manner herein provided shall
be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder receives the
notice. This notice shall be given by the issuer or, at the issuer’s request, by the trustee in the name and at the expense
of the issuer, with any such request to be accompanied by a copy of the notice to be given.
The issuer shall, or shall cause the calculation agent to, (i)
provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of
cash to be delivered as contingent quarterly coupon, if any, with respect to each security on or prior to 10:30 a.m. (New York
City time) on the business day preceding each contingent payment date, and (ii) deliver the aggregate cash amount due, if any,
with respect to the contingent quarterly coupon to the trustee for delivery to the depositary, as holder of the securities, on
the applicable coupon payment date.
The issuer shall, or shall cause the calculation agent
to, (i) provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the
amount of cash, if any, to be delivered with respect to the securities, on or prior to 10:30 a.m. (New York City time) on the
business day preceding the maturity date, and (ii) deliver the aggregate cash amount due with respect to the securities, if any,
to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Additional Information About
the Securities
Additional Information:
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Listing:
|
The securities will not be listed on any securities exchange.
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Minimum
ticketing size:
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$1,000 / 1 security
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Tax
considerations:
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Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the securities
issued under this document and is superseded by the following discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of the ownership and disposition of the securities. This discussion
applies only to investors in the securities who:
·
purchase
the securities in the original offering; and
·
hold
the securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
·
certain
financial institutions;
·
insurance
companies;
·
certain
dealers and traders in securities or commodities;
·
investors
holding the securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive
sale transaction;
·
U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated
investment companies;
·
real
estate investment trusts; or
·
tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of
the Code, respectively.
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the securities is technical and complex, the discussion below necessarily represents only a general
summary. The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences
or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial
or administrative authorities that directly address the treatment of the securities or instruments that are similar to the securities
for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will agree with the tax treatment described
herein. We intend to treat a security for U.S. federal income tax purposes as a single financial contract that provides for a
coupon that will be treated as gross income to you at the time received or accrued in accordance with your regular method of tax
accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under
current law; however, our counsel has advised us that it is unable to conclude affirmatively that this
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
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treatment is more likely than not to be upheld,
and that alternative treatments are possible. Moreover, our counsel’s opinion is based on market conditions as of the date
of this preliminary pricing supplement and is subject to confirmation on the pricing date.
You should consult your tax adviser regarding
all aspects of the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments
of the securities). Unless otherwise stated, the following discussion is based on the treatment of each security as described in
the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a security that is, for U.S. federal
income tax purposes:
·
a
citizen or individual resident of the United States;
·
a
corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
·
an
estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
Tax Treatment of the Securities
Assuming the treatment of the securities as
set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis
. A U.S. Holder’s tax
basis in the securities should equal the amount paid by the U.S. Holder to acquire the securities.
Tax Treatment of Coupon Payments
.
Any coupon payment on the securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in
accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities
. Upon a sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could
result in adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of
an Investment in the Securities
Due to the absence of authorities that directly address the proper
tax treatment of the securities, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment
described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the securities
under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”). If the
IRS were successful in asserting that the Contingent Debt Regulations applied to the securities, the timing and character of income
thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original issue
discount on the securities every year at a “comparable yield” determined at the time of their issuance, adjusted upward
or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on the securities.
Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the securities would
be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S. Holder’s
prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments providing for buffers,
triggers or similar downside protection features, such as the securities, would be recharacterized as debt is greater than the
risk of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal income tax treatments of the
securities are possible, which, if applied, could
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
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significantly affect the timing and character of the income or
loss with respect to the securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on
the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on
whether to require holders of “prepaid forward contracts” and similar instruments to accrue income over the term of
their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect
to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such
as the exchange–traded status of the instruments and the nature of the underlying property to which the instruments are linked;
whether these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate
to recharacterize certain long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules
and effective dates. While it is not clear whether instruments such as the securities would be viewed as similar to the prepaid
forward contracts described in the notice, any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive
effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the
securities, including possible alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely
furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments on the securities
and the payment of proceeds from a sale, exchange or other disposition of the securities, unless the U.S. Holder provides proof
of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S. Holder.
As used herein, the term “Non-U.S. Holder” means a beneficial owner of a security that is for U.S. federal income tax
purposes:
·
an
individual who is classified as a nonresident alien;
·
a
foreign corporation; or
·
a
foreign estate or trust.
The term “Non-U.S. Holder” does
not include any of the following holders:
·
a
holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes;
·
certain
former citizens or residents of the United States; or
·
a
holder for whom income or gain in respect of the securities is effectively connected with the conduct of a trade or business in
the United States.
Such holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the securities.
Although significant aspects of the tax treatment of each security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
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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 pricing date. However, we will provide an updated determination
in the pricing supplement. Assuming that the securities do not have a delta of one with respect to any Underlying Security, our
counsel is of the opinion that the securities should not be Specified Securities and, therefore, should not be subject to Section
871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including
whether you enter into other transactions with respect to an Underlying Security. If Section 871(m) withholding is required, we
will not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser
regarding the potential application of Section 871(m) to the securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies to payments
of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain financial
instruments treated as providing for U.S.-source interest or dividends. Under recently proposed regulations (the preamble to which
specifies that taxpayers are permitted to rely on them pending finalization), no withholding will apply on payments of gross proceeds.
While the treatment of the securities is unclear, you should assume that any coupon payment with respect to the securities will
be subject to the FATCA rules. If withholding applies to the securities, we will not be required to pay any additional amounts
with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application
of FATCA to the securities.
The discussion in the preceding paragraphs, insofar
as it purports to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the
full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the securities.
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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
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
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will receive, in aggregate, $1,000 per security issued, because,
when we enter into hedging transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse
the cost of the agent’s commissions. The costs of the securities borne by you and described beginning on page 3 above comprise
the agent’s commissions and the cost of issuing, structuring and hedging the securities.
On or prior to the pricing date, we expect to 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 stock, in futures and/or options contracts
on the underlying stock, or positions in any other available securities or instruments that they may wish to use in connection
with such hedging. Such purchase activity could potentially increase the initial share price, and, therefore, could increase (i)
the price at or above which the underlying stock must close on any redemption determination date so that the securities are redeemed
prior to maturity for the early redemption payment and (ii) the downside threshold level, which is the price at or above which
the underlying stock must close on each observation date in order for you to earn a contingent quarterly coupon, and, if the securities
are not called prior to maturity, in order for you to avoid being exposed to the negative price performance of the underlying
stock at maturity. These entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging
strategy may involve greater and more frequent dynamic adjustments to the hedge as the final observation date approaches. Additionally,
our hedging activities, as well as our other trading activities, during the term of the securities could potentially affect the
value of the underlying stock on the redemption determination dates and observation dates, and, accordingly, whether we redeem
the securities prior to maturity, whether we pay a contingent quarterly coupon on the securities and the amount of cash you receive
at maturity, if any.
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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
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Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
|
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:
(i)
the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the securities;
(ii)
we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities
and (B) all hedging transactions in connection with our obligations under the securities;
(iii)
any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities
and are not assets and positions held for the benefit of the purchaser or holder;
(iv)
our
interests are adverse to the interests of the purchaser or holder; and
(v)
neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of the securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these securities should consult
and rely on their own counsel and advisers as to whether an investment in these securities is suitable.
However, individual retirement accounts, individual
retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their
accounts, will not be permitted to purchase or hold the securities if the account, plan or annuity is for the benefit of an employee
of Morgan Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as,
for example, an addition to bonus) based on the purchase of the securities by the account, plan or annuity.
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Additional
considerations:
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Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are
not
permitted to purchase the securities, either directly or indirectly.
|
Morgan Stanley Finance LLC
Contingent Income Auto-Callable Securities due December 30, 2021
Based on the Performance of the Common Stock of Tesla, Inc.
Principal at Risk Securities
Supplemental
information regarding plan of distribution; conflicts of interest:
|
Selected dealers, which may include our affiliates, and their
financial advisors will collectively receive from the agent a fixed sales commission of $ for each security they sell.
MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities, including
the contingent quarterly coupon rate, such that for each security the estimated value on the pricing date will be no lower than
the minimum level described in “Investment Summary” beginning on page 3.
MS & Co. will conduct this offering in compliance
with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as
FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.
MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account. See “Plan
of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement
for auto-callable securities.
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Contact:
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Morgan Stanley clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
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Where
you can find more information:
|
Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by the product supplement for auto-callable securities) with the Securities and Exchange Commission,
or SEC, for the offering to which this communication relates. You should read the prospectus in that registration statement, the
product supplement for auto-callable securities 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
without cost by visiting EDGAR on the SEC web site at.www.sec.gov. Alternatively, Morgan Stanley, MSFL, any underwriter or any
dealer participating in the offering will arrange to send you the product supplement for auto-callable securities and prospectus
if you so request by calling toll-free 1-(800)-584-6837.
You may access these documents on the SEC web site at.www.sec.gov
as follows:
Product Supplement for Auto-Callable Securities dated November 16, 2017
Prospectus dated November 16, 2017
Terms used but not defined in this document are defined
in the product supplement for auto-callable securities or in the prospectus.
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