Additional Information about Morgan Stanley, MSFL and the Securities
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Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by a product supplement and an index supplement) with the SEC for the offering to which this communication
relates. In connection with your investment, you should read the prospectus in that registration statement, the product supplement,
the index supplement and any other documents relating to this offering that Morgan Stanley and MSFL have filed with the SEC for
more complete information about Morgan Stanley, MSFL and this offering. You may get these documents for free by visiting EDGAR
on the SEC website at
.
www.sec.gov. Alternatively, Morgan Stanley, MSFL, any underwriter or any
dealer participating in this offering will arrange to send you the prospectus, the product supplement and index supplement if you
so request by calling toll-free 1-(800)-584-6837.
You may access the accompanying product supplement, index supplement
and prospectus on the SEC website at
.
www.sec.gov as follows:
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t
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Product supplement for auto-callable securities dated November 16,
2017:
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https://www.sec.gov/Archives/edgar/data/895421/000095010317011247/dp82806_424b2-autocall.htm
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Index supplement dated November 16, 2017:
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https://www.sec.gov/Archives/edgar/data/895421/000095010317011283/dp82797_424b2-indexsupp.htm
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Prospectus dated November 16, 2017:
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https://www.sec.gov/Archives/edgar/data/895421/000095010317011237/dp82798_424b2-base.htm
References to “MSFL” refer to only MSFL, references
to “Morgan Stanley” refer to only Morgan Stanley and references to “we,” “our” and “us”
refer to MSFL and Morgan Stanley collectively. In this document, the “Securities” refers to the
Trigger
Autocallable Contingent Yield Notes
that are offered hereby. Also, references to the accompanying “prospectus”,
“product supplement” and “index supplement” mean the prospectus filed by MSFL and Morgan Stanley dated
November 16, 2017, the product supplement for auto-callable securities filed by MSFL and Morgan Stanley dated November 16, 2017
and the index supplement filed by MSFL and Morgan Stanley dated November 16, 2017, respectively.
You should rely only on the information incorporated by reference
or provided in this pricing supplement or the accompanying product supplement, index supplement and prospectus. We have not authorized
anyone to provide you with different information. We are not making an offer of these Securities in any state where the offer is
not permitted. You should not assume that the information in this pricing supplement or the accompanying product supplement, index
supplement and prospectus is accurate as of any date other than the date on the front of this document.
The Issue Price of each Security is $10. This price includes
costs associated with issuing, selling, structuring and hedging the Securities, which are borne by you, and, consequently, the
estimated value of the Securities on the Trade Date is less than $10. We estimate that the value of each Security on the Trade
Date is $9.913.
What goes into the estimated value on the Trade Date?
In valuing the Securities on the Trade Date, we take into account
that the Securities comprise both a debt component and a performance-based component linked to the Underlyings. The estimated value
of the Securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the Underlyings,
instruments based on the Underlyings, 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 Coupon Barriers, the Downside Thresholds and the Contingent Coupon Rate, 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
Trade 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 Underlyings, may vary from, and be lower
than, the estimated value on the Trade Date, because the secondary market price takes into account our secondary market credit
spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other
factors. However, because the costs associated with issuing, selling, structuring and hedging the Securities are not fully deducted
upon issuance, for a period of up to 6 months following the Settlement Date, to the extent that MS & Co. may buy or sell the
Securities in the secondary market, absent changes in market conditions, including those related to the Underlyings, and to our
secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those higher values
will also be reflected in your brokerage account statements.
MS & Co. currently intends, but is not obligated, to make
a market in the Securities, and, if it once chooses to make a market, may cease doing so at any time.
Investor Suitability
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The Securities may be suitable for you if:
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The Securities may not be suitable for you if:
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You
fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
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You
can tolerate a loss of all or a substantial portion of your investment and are willing to make an investment that will have the
same downside market risk, subject to the respective Downside Thresholds at maturity, as the Least Performing Underlying.
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You
accept that you may not receive a Contingent Coupon on some or all of the Coupon Payment Dates.
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You
understand and accept the risks associated with the Underlyings.
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You
believe both the INDU Index and the RTY Index will close at or above their respective Coupon Barriers on the Observation Dates,
and above their respective Downside Thresholds on the Final Observation Date.
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You
are willing to invest in the Securities based on the Contingent Coupon Rate specified on the cover hereof.
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You
understand that the linkage to two Underlyings does not provide any portfolio diversification benefits and instead means that a
decline in the value beyond the relevant Coupon Barrier or Downside Threshold of either the INDU Index or the RTY Index will result
in no Contingent Coupon payments or a significant loss on your investment, respectively, even if the other Underlying appreciates
or does not decline as much.
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You
understand and accept that you will not participate in any appreciation in the values of the Underlyings and that your potential
return is limited to the Contingent Coupons, if any.
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You
can tolerate fluctuations in the value of the Securities prior to maturity that may be similar to or exceed the downside value
fluctuations of the Least Performing Underlying.
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You
do not seek guaranteed current income from this investment and are willing to forgo dividends paid on the stocks comprising the
Underlyings.
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You
are willing to invest in Securities that may be called early or you are otherwise willing to hold the Securities to maturity, as
set forth on the cover of this pricing supplement.
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You
accept that there may be little or no secondary market for the Securities and that any secondary market will depend in large part
on the price, if any, at which MS & Co. is willing to trade the Securities.
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You
are willing to assume our credit risk, and understand that if we default on our obligations you may not receive any amounts due
to you and could lose your entire investment.
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You
do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial
investment.
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You
cannot tolerate a loss of all or a substantial portion of your investment, or are unwilling to make an investment that will have
the same downside market risk, subject to the respective Downside Thresholds at maturity, as the Least Performing Underlying.
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You
require an investment designed to provide a full return of principal at maturity.
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You
do not understand and accept the risks associated with the Underlyings.
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You
do not accept that you may not receive a Contingent Coupon on some or all of the Coupon Payment Dates.
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You
believe that the value of one of the INDU Index or the RTY Index will decline during the term of the Securities and is likely to
close below its Coupon Barrier on the Observation Dates or below its Downside Threshold on the Final Observation Date.
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You
are unwilling to invest in the Securities based on the Contingent Coupon Rate specified on the cover hereof.
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You
are not comfortable with an investment linked to two Underlyings such that a decline in the value beyond the relevant Coupon Barrier
or Downside Threshold of either the INDU Index or the RTY Index will result in no Contingent Coupon payments or a significant loss
on your investment, respectively, even if the other Underlying appreciates or does not decline as much .
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You
seek an investment that participates in the appreciation in the values of the Underlyings or that has unlimited return potential.
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You
cannot tolerate fluctuations in the value of the Securities prior to maturity that may be similar to or exceed the downside value
fluctuations of the Least Performing Underlying.
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You
prefer the lower risk, and therefore accept the potentially lower returns, of fixed income investments with comparable maturities
and credit ratings.
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You
seek guaranteed current income from this investment or prefer to receive the dividends paid on the stocks comprising the Underlyings.
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You
are unable or unwilling to invest in Securities that may be called early, or you are otherwise unable or unwilling to hold the
Securities to maturity, as set forth on the cover of this pricing supplement, or you seek an investment for which there will be
an active secondary market.
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You
are not willing to assume our credit risk for all payments under the Securities, including any repayment of principal.
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The investor suitability considerations identified above are
not exhaustive. Whether or not the Securities are a suitable investment for you will depend on your individual circumstances, and
you should reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully
considered the suitability of an investment in the Securities in light of your particular circumstances. You should also review
carefully the sections entitled “Key Risks” beginning on page 8 of this pricing supplement and “Risk Factors”
beginning on page 5 of the accompanying prospectus and page S-36 of the accompanying product supplement for risks related to an
investment in the Securities. For additional information about the Underlyings, see the information set forth under “The
Dow Jones Industrial Average
SM
” on page 19 and “The Russell 2000
®
Index” on page 21.
Final 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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Issue Price
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$10.00 per Security. The Securities are offered at a minimum investment of 100 Securities.
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Underlyings
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The Dow Jones Industrial Average
SM
(the “INDU Index”) and the Russell 2000
®
Index (the “RTY Index”)
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Principal Amount
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$10.00 per Security
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Term
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Approximately 3 years, unless earlier called
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Automatic Call Feature
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The Securities will be called automatically if the Observation
Date Closing Values of
both the INDU Index and the RTY Index
on any Observation Date beginning January 29, 2020 are
equal
to or greater than
their respective Initial Underlying Values.
If the Securities are called, MSFL will pay you the Principal
Amount
plus
the Contingent Coupon otherwise due for that Observation Date on the Coupon Payment Date related to such Observation
Date, and no further payments will be made on the Securities.
The Securities will not be called if the Observation
Date Closing Value of
either
of the Underlyings is below its respective Initial Underlying Value.
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Contingent Coupon
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If the Observation Date Closing Values of
both the INDU Index
and the RTY Index are equal to or greater than
their respective Coupon Barriers on any Observation Date, we will pay you the
Contingent Coupon for that Observation Date on the relevant Coupon Payment Date.
If the Observation Date Closing Value of
either the INDU Index
or the RTY Index
is
less than
its Coupon Barrier on any Observation Date, the Contingent Coupon for that Observation
Date will not accrue or be payable and that Contingent Coupon payment will be lost.
Each Contingent Coupon is a fixed amount based on equal quarterly
installments at the Contingent Coupon Rate, which is a per-annum rate. The Contingent Coupon amount of $0.193 for each Security
(based on the per-annum rate of 7.72%) would be applicable to each Observation Date on which the Index Closing Values of
both
the INDU Index and the RTY Index
are greater than or equal to their respective Coupon Barriers.
Contingent Coupon payments on the Securities are
not guaranteed. MSFL will not pay you the Contingent Coupon for any Observation Date on which the Index Closing Value of either
the INDU Index or the RTY Index is less than its respective Coupon Barrier.
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Contingent Coupon Rate
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The Contingent Coupon Rate is 7.72% per annum.
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Observation Dates
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Quarterly, callable beginning January 29, 2020. See “Observation Dates and Coupon Payment Dates” on page 6 for details.
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Trade Date
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July 29, 2019
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Settlement Date
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July 31, 2019
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Final Observation Date
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July 29, 2022*
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Maturity Date
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August 3, 2022*
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Coupon Payment Dates
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With respect to each Observation Date, as set forth under “Observation Dates and Coupon Payment Dates” on page 6.
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Payment at Maturity (per Security)
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MSFL will pay you a cash payment on the Maturity Date linked
to the performance of the Least Performing Underlying during the term of the Securities, as follows:
If the Securities have not been automatically called and the
Final Underlying Values of
both the INDU Index and the RTY Index are equal to or greater than
their respective Downside
Thresholds (which are the same as their respective Coupon Barriers), MSFL will pay you the $10 Principal Amount plus the Contingent
Coupon with respect to the Final Observation Date.
If the Securities have not been automatically called and the
Final Underlying Value of
either the INDU Index or the RTY Index
is
less than
its respective Downside Threshold,
MSFL will pay you an amount calculated as follows:
$10 × (1 + Underlying Return of the
Least Performing Underlying)
In this case, you will lose a significant portion and
could lose all of the Principal Amount in an amount proportionate to the decline of the Least Performing Underlying from the Trade
Date to the Final Observation Date, even if the other Underlying appreciates or does not decline as much.
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Observation Date Closing Value
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With respect to each of the Underlyings, the Index Closing Value of such Underlying on any Observation Date
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Least Performing Underlying
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The Underlying with the larger percentage decrease from the Initial Underlying Value to the Final Underlying Value.
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Underlying Return
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With respect to each Underlying,
Final Underlying Value –
Initial Underlying Value
Initial Underlying Value
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*Subject to postponement in the event of a Market Disruption Event or for non-Index Business Days. See “Postponement of Determination Dates” in the accompanying product supplement
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Initial Underlying Value
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With respect to the INDU Index, 27,221.35
With respect to the RTY Index, 1,569.025
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Final Underlying Value
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With respect to each Underlying, the Index Closing Value of such Underlying on the Final Observation Date
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Downside Threshold
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With respect to the INDU Index, 19,054.95, which is
approximately 70% of the Initial Underlying Value of such Underlying
With respect to the RTY Index, 1,098.318, which is approximately
70% of the Initial Underlying Value of such Underlying
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Coupon Barrier
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With respect to the INDU Index, 19,054.95, which is
approximately 70% of the Initial Underlying Value of such Underlying
With respect to the RTY Index, 1,098.318, which is approximately
70% of the Initial Underlying Value of such Underlying
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Record Date
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The record date for each Contingent Coupon shall be the date one business day prior to such scheduled Coupon Payment Date;
provided
, however, that any Contingent Coupon payable at maturity or upon an automatic call shall be payable to the person to whom the Payment at Maturity or the payment upon an automatic call, as the case may be, shall be payable.
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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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Observation
Dates
(1)
and Coupon Payment Dates
(2)
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Observation Dates
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Coupon Payment Dates
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10/29/2019*
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10/31/2019*
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1/29/2020
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1/31/2020
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4/29/2020
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5/1/2020
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7/29/2020
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7/31/2020
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10/29/2020
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11/2/2020
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1/29/2021
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2/2/2021
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4/29/2021
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5/4/2021
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7/29/2021
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8/2/2021
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10/29/2021
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11/2/2021
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1/31/2022
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2/2/2022
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4/29/2022
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5/4/2022
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7/29/2022 (Final Observation Date)
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Maturity Date
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* The Securities are not subject to an automatic call until the
second Observation Date, which is January 29, 2020.
(1) Subject to postponement in the event of a Market Disruption
Event or for non-Index Business Days. See “Postponement of Determination Dates” in the accompanying product supplement.
(2) If, due to a Market Disruption Event or otherwise, any Observation
Date is postponed so that it falls less than two business days prior to the scheduled Coupon Payment Date, the Coupon Payment Date
will be postponed to the second business day following that Observation Date as postponed,
provided
that the Coupon Payment
Date with respect to the Final Observation Date will be the Maturity Date. No additional coupon will accrue on an account of any
such postponement.
Trade
Date
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The Initial Underlying Values, Downside Thresholds and Coupon Barriers of both the INDU Index and the RTY Index are determined. The Contingent Coupon Rate is set.
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Quarterly (callable after
approximately 6 months)
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If the Observation Date Closing Values of
both
the INDU
Index and the RTY Index are equal to or greater than their respective Coupon Barriers on any Observation Date, MSFL will pay you
a Contingent Coupon on the Coupon Payment Date. However, if the Observation Date Closing Value of
either Underlying
is below
its Coupon Barrier, no coupon will be payable on the related Coupon Payment Date.
If the Observation Date Closing Values of
both
the INDU Index and the RTY Index
are equal to or greater than their respective Initial Underlying Values
on any Observation
Date beginning on January 29, 2020, the Securities will be called and MSFL will pay you a cash payment per Security equal to the
Principal Amount
plus
the Contingent Coupon otherwise due for that Observation Date, and no further payments will be made
on the Securities.
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Maturity
Date
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The Final Underlying Values are determined as of the Final Observation
Date.
If the Securities have not been called and the Final Underlying
Values of
both the INDU Index and the RTY Index are equal to or greater than
their respective Downside Thresholds (which
will be the same as their respective Coupon Barriers), MSFL will pay you the $10 Principal Amount plus the Contingent Coupon with
respect to the Final Observation Date.
However, if the Final Underlying Value
of either the INDU
Index or the RTY Index is less than its Downside Threshold
, MSFL will pay you an amount calculated as follows:
$10 × (1 + Underlying Return of the Least Performing Underlying)
per Security
This amount will be significantly less than the $10
Principal Amount by an amount proportionate to the negative Underlying Return of the Least Performing Underlying, and you could
lose your entire investment.
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Investing in the Securities
involves significant risks. You may lose YOUR ENTIRE principal amount. Any payment on the Securities is subject to OUR creditworthiness.
If we were to default on our payment obligations, you may not receive any amounts owed to you under the Securities and you could
lose your entire investment.
The Issuer will not
pay a quarterly Contingent Coupon if the Observation Date Closing Value for either of the Underlyings is below its respective Coupon
Barrier. The Issuer will not automatically call the Securities if the Observation Date Closing Value of either of the Underlyings
is below its respective Initial Underlying Value. You will lose a significant portion or all of your principal amount at maturity
if the Securities are not called and the Final Underlying Value of either of the Underlyings is below its RESPECTIVE Downside Threshold.
An investment in the Securities involves significant risks. Some
of the risks that apply to the Securities are summarized here, but we urge you to also read the “Risk Factors” section
of the accompanying prospectus and product supplement. You should also consult your investment, legal, tax, accounting and other
advisers in connection with your investment in the Securities.
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The Securities do not guarantee the payment of regular interest
or the return of any principal.
The terms of the Securities differ from those of ordinary debt securities in that the Securities
do not guarantee the payment of regular interest or the return of any of the Principal Amount at maturity. Instead, if the Securities
have not been called prior to maturity and if the Final Underlying Value of
either the INDU Index or the RTY Index
is less
than its respective Downside Threshold, you will be exposed to the decline in the value of the Least Performing Underlying from
its Initial Underlying Value to its Final Underlying Value, on a 1-to-1 basis, resulting in a significant loss of your initial
investment that is proportionate to the decline of the Least Performing Underlying over the term of the Securities, even if the
other Underlying appreciates or does not decline as much.
You could lose your entire Principal Amount.
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You are exposed to the market risk of both Underlyings.
Your
return on the Securities is not linked to a basket consisting of the Underlyings. Rather, it will be contingent upon the independent
performance of each of the INDU Index and the RTY Index. Unlike an instrument with a return linked to a basket of underlying assets,
in which risk is mitigated and diversified among all of the components of the basket, you will be exposed to the risks related
to both the INDU Index and the RTY Index. Poor performance by either of the Underlyings over the term of the Securities may negatively
affect your return and will not be offset or mitigated by positive performance by the other Underlying. For the Securities to be
automatically called or to receive any Contingent Coupon payment or contingent repayment of principal at maturity from MSFL, both
Underlyings must close at or above their respective Initial Underlying Values, Coupon Barriers or Downside Thresholds, respectively,
on the applicable Observation Date or Final Observation Date, as applicable. In addition, if not called prior to maturity, you
may incur a loss proportionate to the negative return of the Least Performing Underlying even if the other Underlying appreciates
during the term of the Securities. Accordingly, your investment is subject to the market risk of both Underlyings. Additionally,
movements in the values of the Underlyings may be correlated or uncorrelated at different times during the term of the Securities,
and such correlation (or lack thereof) could have an adverse effect on your return on the Securities. For example, the likelihood
that one of the Underlyings will close below its Coupon Barrier on an Observation Date or below its Downside Threshold on the Final
Observation Date will increase when the movements in the values of the Underlyings are uncorrelated. This results in a greater
potential for a Contingent Coupon to not be paid during the term of the Securities and for a significant loss of principal at maturity
if the Securities are not previously called. If the performance of the Underlyings is not correlated or is negatively correlated,
the risk of not receiving a Contingent Coupon and of incurring a significant loss of principal at maturity is greater. In addition,
correlation generally decreases for each additional Underlying to which the Securities are linked, resulting in a greater potential
for a significant loss of principal at maturity.
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Because the Securities are linked to the performance of the least
performing between the INDU Index and the RTY Index, you are exposed to greater risk of receiving no Contingent Coupon payments
or sustaining a significant loss on your investment than if the Securities were linked to just the INDU Index or just the RTY Index.
The risk that you will not receive any Contingent Coupons and/or lose a significant portion or all of your initial investment in
the Securities is greater if you invest in the Securities as opposed to substantially similar securities that are linked to the
performance of just the INDU Index or just the RTY Index. With two Underlyings, it is more likely that either Underlying will close
below its Coupon Barrier on the quarterly Observation Dates or below its Downside Threshold on the Final Observation Date than
if the Securities were linked to only one of the Underlyings, and therefore it is more likely that you will not receive any Contingent
Coupons or will receive an amount in cash significantly less than the principal amount on the Maturity Date.
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The Contingent Coupon is based solely on the Observation Date Closing
Values.
Whether the Contingent Coupon will be paid with respect to an Observation Date will be based on the Observation Date
Closing Values of both Underlyings. As a result, you will not know whether you will receive the Contingent Coupon with respect
to any Coupon Payment Date until the related Observation Date. Moreover, because the Contingent Coupon is based solely on the Observation
Date Closing Values on a specific Observation Date, if the Observation Date Closing Value of either the INDU Index or the RTY Index
is less than its respective Coupon Barrier, you will not receive any Contingent Coupon with respect to such Observation Date, even
if the Index Closing Values of the Underlyings were higher on other days during the term of the Securities.
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You will not receive any Contingent Coupon for any quarterly period
where the Observation Date Closing Value of either the INDU Index or the RTY Index is less than or equal to its Coupon Barrier.
A Contingent Coupon will be paid with respect to a quarterly period only if the Observation Date Closing Values of
both
the INDU Index and the RTY Index
are greater than or equal to their respective Coupon Barriers. If the Observation Date Closing
Values of
either
of the Underlyings is below its respective Coupon Barrier, the Issuer will not pay you a Contingent Coupon
for that quarterly period. If, on each Observation Date over the term of the Securities, either the INDU Index or the RTY Index
closes below its respective Coupon Barrier, you will not receive any Contingent Coupons during the 3-year term of the Securities.
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Investors will not participate in any appreciation in the values
of either of the Underlyings.
Investors will not participate in any appreciation in the values of either of the Underlyings
from their respective Initial Underlying Values, and the return on the Securities will be limited to the Contingent Coupon, if
any, that is paid with respect to each Observation Date on which the Observation Date Closing Values of both the INDU Index and
the RTY Index are greater than or equal to their respective Coupon Barriers prior to maturity or an automatic call. The return
on the Securities will be limited to the Contingent Coupons, if any, regardless of the appreciation of either of the Underlyings,
which could be significant. It is possible that, on most or all of the Observation Dates, the Index Closing Value of either Underlying
could be below its respective Coupon Barrier so that you may receive few or no Contingent Coupons. In addition, if the Securities
are not called prior to maturity, you may be exposed to the full downside market risk of the Least Performing Underlying and lose
a significant portion or all of your investment despite not being able to participate in any potential appreciation of either of
the Underlyings. If you do not earn sufficient Contingent Coupons over the term of the Securities, the overall return on the Securities
may be less than the amount that would be paid on a conventional debt security of ours of comparable maturity.
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You may incur a loss on your investment if you are able to sell
your Securities prior to maturity.
The Downside Thresholds are considered only at maturity. If you are able to sell your Securities
in the secondary market prior to maturity, you may have to sell them at a loss relative to your initial investment even if the
Index Closing Values of both Underlyings are above their respective Downside Thresholds at that time. If you hold the Securities
to maturity and the Securities have not been called, MSFL will either repay you the full principal amount per Security (in addition
to the Contingent Coupon for the Final Observation Date), if the Final Underlying Values of both the INDU Index and the RTY Index
are equal to or greater than their respective Downside Thresholds, or if either of the Underlyings closes below its respective
Downside Threshold on the Final Observation Date, MSFL will repay significantly less than the Principal Amount, if anything, at
maturity, resulting in a loss on your Principal Amount that is proportionate to the decline in the value of the Least Performing
Underlying from the Trade Date to the Final Observation Date.
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Early redemption risk.
The term of your investment in the Securities
may be limited to as short as six months by the automatic call feature of the Securities. If the Securities are called prior to
maturity, you will not be able to receive any further Contingent Coupons for any future Observation Dates, and you may be forced
to invest in a lower interest rate environment and may not be able to reinvest at comparable terms or for similar returns. However,
under no circumstances will the Securities be redeemed in the first year of the term of the Securities. Generally, the longer the
Securities have been outstanding, the less likely it is that they will be automatically called, because the level of at least one
of the Underlyings will necessarily have declined from its respective Initial Underlying Value if the Securities were not called
following an Observation Date, and there will be less time remaining until maturity in which the level(s) of such Underlying(s)
can recover.
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A higher Contingent Coupon Rate and/or lower Coupon Barriers and
Downside Thresholds may reflect greater expected volatility of the Underlyings, and greater expected volatility generally indicates
an increased risk of declines in the levels of the Underlyings and, potentially, a significant loss at maturity.
The economic
terms for the Securities, including the Contingent Coupon Rate, the Coupon Barriers and the Downside Thresholds, are based, in
part, on the expected volatility of the Underlyings at the time the terms of the Securities are set. “Volatility” refers
to the frequency and magnitude of changes in the levels of the Underlyings. Higher expected volatility with respect to the Underlyings
as of the Trade Date generally indicates a greater expectation as of that date that the Final Underlying Levels of either Underlying
could ultimately be less than its Downside Threshold on the Final Observation Date, which would result in a loss of a significant
portion or all of the Principal Amount. At the time the terms of the Securities are set, higher expected volatility will generally
be reflected in a higher Contingent Coupon Rate and/or lower Coupon Barriers and Downside Thresholds, as compared to otherwise
comparable securities. Therefore, a relatively higher Contingent Coupon Rate, which would increase the upside return if the Observation
Date Closing Values are greater than or equal to the Coupon Barriers on the quarterly Observation Dates, may indicate an increased
risk that the levels of the Underlyings will decrease substantially, which would result in few or no Contingent Coupons and a significant
loss at maturity. In addition, and as described above in "The Securities do not guarantee the payment of regular interest
or the return of any principal," in general, the higher potential return on the Securities as compared to the return payable
on our ordinary debt securities with a comparable maturity indicates the risk that you may not receive a positive return on the
Securities and may lose a significant portion or all of your investment. Further, relatively lower Downside Thresholds may not
indicate that the Securities have a greater likelihood of a return of principal at maturity. You should be willing to accept the
downside market risk of the Underlyings and the potential to lose a significant portion or all of your Principal Amount at maturity.
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The Securities are subject to our credit risk, and any actual or
anticipated changes to our credit ratings or our credit spreads may adversely affect the market value of the Securities.
You
are dependent on our ability to pay all amounts due on the Securities, including Contingent Coupons, if any, and any payments upon
an automatic call or at maturity, and therefore you are subject to our credit risk. If we default on our obligations under the
Securities, your investment would be at risk and you could lose some or all of your investment. As a result, the market value of
the Securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any actual or
anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit risk is
likely to adversely affect the market value of the Securities.
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As a finance subsidiary, MSFL has no independent operations and
will have no independent assets
. As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration
of its securities and will have no independent assets available for distributions to holders of MSFL securities if they make claims
in respect of such securities in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries by such holders will
be limited to those available under the related guarantee by Morgan Stanley and that guarantee will rank
pari passu
with
all other unsecured, unsubordinated obligations of Morgan Stanley. Holders will have recourse only to a single claim against Morgan
Stanley and its assets under the guarantee. Holders of securities issued by MSFL should accordingly assume that in any such proceedings
they would not have any priority over and should be treated
pari passu
with the claims of other unsecured, unsubordinated
creditors of Morgan Stanley, including holders of Morgan Stanley-issued securities.
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The market price of the Securities will be influenced by many unpredictable
factors.
Several factors, many of which are beyond our control, will influence the value of the Securities in the secondary
market and the price at which MS & Co. may be willing to purchase or sell the Securities in the secondary market. Although
we expect that generally the Index Closing Values of the Underlyings on any day will affect the value of the Securities more than
any other single factor, other factors that may influence the value of the Securities include:
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o
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the value and volatility (frequency and magnitude of changes in value) of the Underlyings,
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o
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whether the Observation Date Closing Value of either Underlying has been below its Coupon Barrier on any Observation Date,
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o
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dividend rates on the stocks comprising the Underlyings,
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o
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interest and yield rates in the market,
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o
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time remaining until the Securities mature,
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o
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the Underlyings or equities
markets generally and which may affect the Final Underlying Values,
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o
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the occurrence of certain events affecting either of the Underlyings that may or may not require an adjustment to its composition,
and
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o
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any actual or anticipated changes in our credit ratings or credit spreads.
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Some or all of these factors will
influence the terms of the Securities at the time of issuance and the price that you will receive if you sell your Securities prior
to maturity, as the Securities are comprised of both a debt component and a performance-based component linked to the Underlyings,
and these are the types of factors that also generally affect the values of debt securities and derivatives linked to the Underlyings.
The value of each of the Underlyings may be, and each has recently been, extremely volatile, and we can give you no assurance that
the volatility will lessen. See “Historical Information” below. You may receive less, and possibly significantly less,
than the Principal Amount per Security if you try to sell your Securities prior to maturity.
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The Securities are linked to the Russell 2000
®
Index
and are subject to risks associated with small-capitalization companies.
The Russell 2000
®
Index consists of stocks issued
by companies with relatively small market capitalization. These companies often have greater stock price volatility, lower trading
volume and less liquidity than large-capitalization companies and, therefore, the Russell 2000
®
Index may be more
volatile than indices that consist of stocks issued by large-capitalization companies. Stock prices of small-capitalization companies
are also more vulnerable than those of large-capitalization companies to adverse business and economic developments, and the stocks
of small-capitalization companies may be thinly traded. In addition, small capitalization companies are typically less well-established
and less stable financially than large-capitalization companies and may depend on a small number of key personnel, making them
more vulnerable to loss of personnel. Such companies tend to have smaller revenues, less diverse product lines, smaller shares
of their product or service markets, fewer financial resources and less competitive strengths than large-capitalization companies
and are more susceptible to adverse developments related to their products.
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Investing in the Securities is not equivalent to investing in the
Underlyings.
Investing in the Securities is not equivalent to investing in either Underlying or the component stocks of either
Underlying. Investors in the Securities will not have voting rights or rights to receive dividends or other distributions or any
other rights with respect to stocks that constitute the Underlyings. Further, you will not participate in any potential appreciation
of either Underlying even though you may be exposed to its full decline at maturity. Additionally, the Underlyings are not “total
return” indices, which, in addition to reflecting the market prices of the stocks that constitute the Underlyings, would
also reflect dividends paid on such stocks. The return on the Securities will not reflect such a total return feature.
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Adjustments to the Dow Jones Industrial Average
SM
or
the Russell 2000
®
Index could adversely affect the value of the Securities.
The Underlying Publisher of each
of the Dow Jones Industrial Average
SM
and the Russell 2000
®
Index is responsible for calculating and
maintaining such Underlying. The Underlying Publisher may add, delete or substitute the stocks constituting either Underlying or
make other methodological changes required by certain corporate events relating to the stocks constituting either Underlying, such
as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change the value of the Underlying.
The Underlying Publisher may discontinue or suspend calculation or publication of the Underlying at any time. In these circumstances,
the Calculation Agent will have the sole discretion to substitute a Successor Underlying that is comparable to the discontinued
Underlying, and is permitted to consider indices that are calculated and published by the Calculation Agent or any of its affiliates.
Any of these actions could adversely affect the value of any of the Underlyings and, consequently, the value of the Securities.
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The rate we are willing to pay for securities of this type, maturity
and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both
the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the Securities in the Issue
Price reduce the economic terms of the Securities, cause the estimated value of the Securities to be less than the Issue Price
and will adversely affect secondary market prices
– Assuming no change in market conditions or any other relevant factors,
the prices, if any, at which dealers, including MS & Co., may be willing to purchase the Securities in secondary market transactions
will likely be significantly lower than the Issue Price, because secondary market prices will exclude the issuing, selling, structuring
and hedging-related costs that are included in the Issue Price and borne by you and because the secondary market prices will reflect
our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of
this type as well as other factors.
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The inclusion of the costs of issuing,
selling, structuring and hedging the Securities in the Issue Price and the lower rate we are willing to pay as issuer make the
economic terms of the Securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the Securities are not fully deducted upon issuance, for a period of up to 6 months
following the Settlement Date, to the extent that MS & Co. may buy or sell the Securities in the secondary market, absent changes
in market conditions, including those related to the Underlyings, and to our secondary market credit spreads, it would do so based
on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account
statements.
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The estimated value of the Securities is determined by reference
to our pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum secondary market
price
. These pricing and valuation models are proprietary and rely in part on subjective views of certain market inputs and
certain assumptions about future events, which may prove to be incorrect. As a result, because there is no market-standard way
to value these types of securities, our models may yield a higher estimated value of the Securities than those generated by others,
including other dealers in the market, if they attempted to value the Securities. In addition, the estimated value on the Trade
Date does not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your
Securities in the secondary market (if any exists) at any time. The value of your Securities at any time after the date of this
pricing supplement will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes
in market conditions. See also “The market price of the Securities will be influenced by many unpredictable factors”
above.
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The Securities will not be listed on any securities exchange and secondary trading may be limited.
The Securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the Securities. MS & Co. currently intends, but is not
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obligated, to make a market in the Securities. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Securities easily. Because we do not expect that other broker-dealers will participate significantly in the secondary market for the Securities, the price at which you may be able to trade your Securities is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the Securities, it is likely that there would be no secondary market for the Securities. Accordingly, you should be willing to hold your Securities to maturity.
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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 have carried out, and will continue
to carry out, hedging activities related to the Securities (and to other instruments linked to the Underlyings), including trading
in the stocks that constitute the Underlyings as well as in other instruments related to the Underlyings. As a result, these entities
may be unwinding or adjusting hedge positions during the term of the Securities, and the hedging strategy may involve greater and
more frequent dynamic adjustments to the hedge as the Final Observation Date approaches. Some of our subsidiaries also trade the
stocks that constitute the Underlyings and other financial instruments related to the Underlyings on a regular basis as part of
their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the Trade Date could
have increased the Initial Underlying Value, and, as a result, could have increased the Coupon Barrier of either of the Underlyings,
which is the level at or above which such Underlying must close on each Observation Date in order for you to earn a Contingent
Coupon, and the Downside Threshold of either of the Underlyings, which if the Securities are not called prior to maturity, is the
level at or above which such Underlying must close on the Final Observation Date in order for you to avoid being exposed to the
negative performance of the Least Performing Underlying at maturity (in each case, depending also on the performance of the other
Underlying). Additionally, such hedging or trading activities during the term of the Securities could potentially affect the values
of the Underlyings on the Observation Dates and, accordingly, whether the Contingent Coupon is payable or whether the Securities
are automatically called prior to maturity and, if the Securities are not called prior to maturity, the payout to you at maturity,
if any (in each case, depending also on the performance of the other Underlying).
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The Calculation Agent, which is our affiliate, will make determinations
with respect to the Securities.
As Calculation Agent, MS & Co. has determined the Initial Underlying Values, the Coupon
Barriers and the Downside Thresholds and will determine the Observation Date Closing Levels and the Final Underlying Value of each
Underlying, whether a Contingent Coupon is payable with respect to each Observation Date, whether a Market Disruption Event has
occurred and the payment that you will receive upon a call or at maturity, if any. Moreover, certain determinations made by MS
& Co., in its capacity as Calculation Agent, may require it to exercise discretion and make subjective judgments, such as with
respect to the occurrence or nonoccurrence of Market Disruption Events. These potentially subjective determinations may affect
the payout to you upon a call or at maturity, if any. For further information regarding these types of determinations, see “Description
of Auto-Callable Securities—Postponement of Determination Dates,” “—Discontinuance of Any Underlying; Alteration
of Method of Calculation” and “—Calculation Agent and Calculations” in the accompanying product supplement.
In addition, MS & Co. has determined the estimated value of the Securities on the Trade Date.
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The U.S. federal income tax consequences of an investment in the
Securities are uncertain.
There is no direct legal authority as to the proper treatment of the Securities for U.S. federal
income tax purposes, and, therefore, significant aspects of the tax treatment of the Securities are uncertain.
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Please read the discussion under
“What Are the Tax Consequences of the Securities” in this pricing supplement concerning the U.S. federal income tax
consequences of an investment in the Securities. We intend to treat a Security for U.S. federal income tax purposes as a single
financial contract that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance
with your regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction
with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the Securities, could result in
adverse tax consequences to holders of the Securities because the deductibility of capital losses is subject to limitations. We
do not plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the Securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the Securities, the timing and character of income or loss on the Securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the Securities
as debt instruments. In that event, U.S. Holders (as defined below) would be required to accrue into income original issue discount
on the Securities every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference,
if any, between the actual and the projected amount of any contingent payments on the Securities) and recognize all income and
gain in respect of the Securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar
downside protection features, such as the Securities, would be recharacterized as debt is greater than the risk of recharacterization
for comparable financial instruments that do not have such features.
Non-U.S. Holders (as defined
below) should note that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision, and will
not be required to pay any additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the Securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the Securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the Securities are the character and
timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an
investment in the Securities, including possible alternative treatments,
the issues presented by this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Hypothetical Payments on the Securities at Maturity
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The examples below illustrate the payment upon a call or at maturity
for a $10 Security on a hypothetical offering of the Securities, with the following assumptions (the actual terms for the Securities
were determined on the Trade Date and are specified on the cover hereof; amounts may have been rounded for ease of reference):
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Term: Approximately 3 years
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Hypothetical Initial Underlying Value:
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Contingent Coupon Rate: 7.72% per annum (or 1.93% per quarter)
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Contingent Coupon: $0.193 per quarter
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Observation Dates: Quarterly, callable after approximately 6 months
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Hypothetical Coupon Barriers:
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INDU Index: 18,900, which is 70% of the Hypothetical Initial Underlying Value of the INDU Index
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RTY Index: 1,050, which is 70% of the Hypothetical Initial Underlying Value of the RTY Index
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Hypothetical Downside Thresholds:
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INDU Index: 18,900, which is 70% of the Hypothetical Initial Underlying Value of the INDU Index
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RTY Index: 1,050, which is 70% of the Hypothetical Initial Underlying Value of the RTY Index
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Example 1 — Securities are Called on the Second Observation
Date
Date
|
Index Closing Value
|
Payment (per Security)
|
INDU Index
|
RTY Index
|
First Observation Date
|
22,400 (
at or above
Coupon Barrier)
|
1,200 (
at or above
Coupon Barrier)
|
$0.193 (Contingent Coupon — Not Callable)
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Second Observation Date
|
30,000 (
at or above
Coupon Barrier and Initial Underlying Value)
|
1,650 (
at or above
Coupon Barrier and Initial Underlying Value)
|
$10.193 (Settlement Amount)
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Total Payment:
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$10.386 (3.86% return)
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Both the INDU Index and RTY Index close above their respective
Coupon Barriers on the first Observation Date and therefore a Contingent Coupon is paid on the related Coupon Payment Date. Because
both the INDU Index and the RTY Index close above their respective Initial Underlying Values on the second Observation Date (which
is six months after the Trade Date and is the first Observation Date on which the Securities are callable), the Securities are
called after such Observation Date. MSFL will pay you on the call settlement date a total of $10.193 per Security, reflecting your
principal amount plus the applicable Contingent Coupon. When added to the Contingent Coupon payment of $0.193 received in respect
of the prior Observation Date, MSFL will have paid you a total of $10.386 per Security for a 3.86% total return on the Securities.
No further amount will be owed to you under the Securities, and you do not participate in the appreciation of the Underlyings.
Example 2 — Securities are Called on the Fourth Observation
Date
Date
|
Index Closing Value
|
Payment (per Security)
|
INDU Index
|
RTY Index
|
First Observation Date
|
22,400 (
at or above
Coupon Barrier)
|
1,200 (
at or above
Coupon Barrier)
|
$0.193 (Contingent Coupon — Not Callable)
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Second Observation Date
|
21,300 (
at or above
Coupon Barrier)
|
1,100 (
at or above
Coupon Barrier)
|
$0.193 (Contingent Coupon — Not Called)
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Third Observation Date
|
20,000 (
at or above
Coupon Barrier)
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1,350 (
at or above
Coupon Barrier)
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$0.193 (Contingent Coupon — Not Called)
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Fourth Observation Date
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28,000 (
at or above
Coupon Barrier and Initial Underlying Value)
|
1,700 (
at or above
Coupon Barrier and Initial Underlying Value)
|
$10.193 (Settlement Amount)
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Total Payment:
|
$10.772 (7.72% return)
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Both the INDU Index and
RTY Index close above their respective Coupon Barriers on the first three Observation Dates and therefore a Contingent Coupon is
paid on each related Coupon Payment Date. Because both the INDU Index and the RTY Index close above their respective Initial Underlying
Values on the fourth Observation Date (which is one year after the Trade Date), the Securities are called after such Observation
Date. MSFL will pay you on the call settlement date a total of $10.193 per Security, reflecting your principal amount plus the
applicable Contingent Coupon. When added to the Contingent Coupon payments of $0.579 received in respect of the prior Observation
Dates, MSFL will have paid
you a total of $10.772
per Security for a 7.72% total return on the Securities. No further amount will be owed to you under the Securities, and you do
not participate in the appreciation of the Underlyings.
Example 3 — Securities are NOT Called and the Final
Underlying Values of both the INDU Index and the RTY Index are at or above their respective Coupon Barriers and Downside Thresholds.
Date
|
Index Closing Value
|
Payment (per Security)
|
INDU Index
|
RTY Index
|
First Observation Date
|
21,250 (
at or above
Coupon Barrier)
|
1,150 (
at or above
Coupon Barrier)
|
$0.193 (Contingent Coupon — Not Callable)
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Second Observation Date
|
23,400 (
at or above
Coupon Barrier)
|
1,200 (
at or above
Coupon Barrier)
|
$0.193 (Contingent Coupon — Not Called)
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Third to Eleventh Observation Dates
|
Various (
all at or above
Coupon Barrier;
all below
Initial Underlying Value)
|
Various (
all below
Coupon Barrier and Initial Underlying Value)
|
$0 (Not Called)
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Final Observation Date
|
28,500 (
at or above
Coupon Barrier and Downside Threshold)
|
1,600 (
at or above
Coupon Barrier and Downside Threshold)
|
$10.193 (Settlement Amount)
|
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|
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Total Payment:
|
$10.579 (5.79% return)
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Both the INDU Index and the RTY Index close above their respective
Coupon Barriers on the first two Observation Dates and therefore a Contingent Coupon is paid on each related Coupon Payment Date.
On each of the third to eleventh Observation Dates, the INDU Index closes at or above its Coupon Barrier (but below its Initial
Underlying Value, where applicable) but the RTY Index closes below its Coupon Barrier. Therefore, no Contingent Coupon is paid
on any related Coupon Payment Date. On the Final Observation Date, both the INDU Index and the RTY Index close above their respective
Coupon Barriers and Downside Thresholds. Therefore, at maturity, MSFL will pay you a total of $10.193 per Security, reflecting
your principal amount plus the applicable Contingent Coupon. When added to the total Contingent Coupon payments of $0.386 received
in respect of the prior Observation Dates, MSFL will have paid you a total of $10.579 per Security for a 5.79% total return on
the Securities over three years. You do not participate in any appreciation of the Underlyings.
Example 4 — Securities are NOT Called and the Final
Underlying Value of one of the Underlyings is below its respective Downside Threshold
Date
|
Index Closing Value
|
Payment (per Security)
|
INDU Index
|
RTY Index
|
First Observation Date
|
20,500 (
at or above
Coupon Barrier)
|
1,500 (
at or above
Coupon Barrier)
|
$0.193 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
24,300 (
at or above
Coupon Barrier)
|
750 (
below
Coupon Barrier)
|
$0 (Not Called)
|
Third to Eleventh Observation Dates
|
Various (
all below
Coupon Barrier and Initial Underlying Value)
|
Various (
all below
Coupon Barrier and Initial Underlying Value)
|
$0 (Not Called)
|
Final Observation Date
|
21,000 (
at or above
Coupon Barrier and Downside Threshold)
|
600 (
below
Coupon Barrier and Downside Threshold)
|
$10 + [$10 × Underlying Return
of the Least Performing Underlying] =
$10 + [$10 × -60%] =
$10 - $6 =
$4 (Payment at Maturity)
|
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|
|
|
|
|
Total Payment:
|
$4.193 (-58.07% return)
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Both the INDU Index and the RTY Index close above their respective
Coupon Barriers on the first Observation Date, and, therefore a Contingent Coupon is paid on the related Coupon Payment Date.
On
the second Observation Date, the INDU Index closes at or above its Coupon Barrier (but below its Initial Underlying Value), but
the RTY Index closes below its Coupon Barrier. Therefore, no Contingent Coupon is paid on the related Coupon Payment Date.
On
each of the third to eleventh Observation Dates, both the INDU Index and the RTY Index close below their respective Coupon Barriers
and thus no Contingent Coupon is paid on any related Coupon Payment Date. On the Final Observation Date, the INDU Index closes
above its Coupon Barrier and Downside Threshold but the RTY Index closes below its Coupon Barrier and Downside Threshold. Therefore,
at maturity, investors are exposed to the downside performance of the Least Performing Underlying and MSFL will pay you $4 per
Security, which reflects the percentage decrease of the Least Performing Underlying from the Trade Date to the Final Observation
Date. When added to the Contingent Coupon payment of $0.193 received in respect of the prior Observation Dates, MSFL will have
paid you $4.193 per Security, for a loss on the Securities of 58.07%.
The Securities differ from ordinary debt securities in that,
among other features, MSFL is not necessarily obligated to repay the full amount of your initial investment. If the Securities
are not called on any Observation Date, you may lose a significant portion or all of your initial investment. Specifically, if
the Securities are not called and the Final Underlying Value of either Underlying is less than its respective Downside Threshold,
you will lose 1% (or a fraction thereof) of your Principal Amount for each 1% (or a fraction thereof) that the Underlying Return
of the Least Performing Underlying is less than zero. Any payment on the Securities, including any Contingent Coupon, payment upon
an automatic call or the Payment at Maturity, is dependent on our ability to satisfy our obligations when they come due. If we
are unable to meet our obligations, you may not receive any amounts due to you under the Securities.
The Issuer will not pay a quarterly Contingent Coupon if the
Observation Date Closing Value for either of the Underlyings is below its respective Coupon Barrier. The Issuer will not automatically
call the Securities if the Observation Date Closing Value of either of the Underlyings is below its respective Initial Underlying
Value. You will lose a significant portion or all of your principal amount
at maturity if the Securities are not called and the Final
Underlying Value of either of the Underlyings is below its respective Downside Threshold.
What Are the Tax Consequences of the Securities?
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the Securities
issued under this pricing supplement and is superseded by the following discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of the ownership and disposition of the Securities. This discussion
applies only to investors in the Securities who:
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purchase the Securities in the original offering; and
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t
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hold the Securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
This discussion does not describe all of
the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
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certain financial institutions;
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certain dealers and traders in securities or commodities;
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t
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investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
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t
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U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
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t
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partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
|
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the Securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the Securities to you.
As the law applicable to the U.S. federal
income taxation of instruments such as the Securities is technical and complex, the discussion below necessarily represents only
a general summary. The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum
tax consequences or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not
address the consequences to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the Securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial
or administrative authorities that directly address the treatment of the Securities or instruments that are similar to the Securities
for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will agree with the tax treatment described
herein. We intend to treat a Security for U.S. federal income tax purposes as a single financial contract that provides for a coupon
that will be treated as gross income to you at the time received or accrued in accordance with your regular method of tax accounting.
In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the Securities is reasonable under current law;
however, our counsel has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to
be upheld, and that alternative treatments are possible.
You should consult your tax adviser regarding
all aspects of the U.S. federal tax consequences of an investment in the Securities (including possible alternative treatments
of the Securities). Unless otherwise stated, the following discussion is based on the treatment of each Security as described in
the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Security that is, for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
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t
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a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia; or
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t
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an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
Tax Treatment of the Securities
Assuming the treatment of the Securities
as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis
. A U.S. Holder’s
tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Tax Treatment of Coupon Payments
.
Any coupon payment on the Securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in
accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities
. Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the Securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the Securities, could
result in adverse tax consequences to holders of the Securities because the deductibility of capital losses is subject to limitations.
Possible Alternative Tax Treatments of an Investment in
the Securities
Due to the absence of authorities that directly
address the proper tax treatment of the Securities, no assurance can be given that the IRS will accept, or that a court will uphold,
the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning
the Securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the Securities, the timing and character
of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the Securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on
the Securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
Securities would be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S.
Holder’s prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments providing
for buffers, triggers or similar downside protection features, such as the Securities, would be recharacterized as debt is greater
than the risk of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal income tax treatments
of the Securities are possible, which, if applied, could significantly affect the timing and character of the income or loss with
respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S.
federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses on whether
to require holders of “prepaid forward contracts” and similar instruments to accrue income over the term of their investment.
It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange–traded
status of the instruments and the nature of the underlying property to which the instruments are linked; whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge; and appropriate transition rules and effective dates.
While it is not clear whether instruments such as the Securities would be viewed as similar to the prepaid forward contracts described
in the notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the Securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities, including possible
alternative treatments and the issues presented by this notice.
Backup Withholding and Information
Reporting
Backup withholding may apply in respect of
payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless a U.S.
Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable
requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax
and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required
information is timely furnished to the IRS. In addition, information returns will be filed with the IRS in connection with
payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless the
U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are
a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that is for U.S.
federal income tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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The term “Non-U.S. Holder” does
not include any of the following holders:
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a holder who is an individual present in the United States for 183
days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income
tax purposes;
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certain former citizens or residents of the United States; or
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a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
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Such holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the Securities.
Although significant aspects of the tax treatment
of each Security are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision. We will not
be required to pay any additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction
in, the 30% withholding tax, a Non-U.S. Holder of the Securities must comply with certification requirements to establish that
it is not a U.S. person and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S.
Holder, you should consult your tax adviser regarding the tax treatment of the Securities, including the possibility of obtaining
a refund of any withholding tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code and Treasury regulations
promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax
on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities
or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m)
generally applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as
determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant
to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have a delta of one with
respect to any Underlying Security. Based on our determination 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
(other than amounts treated as FDAP income). While the treatment of the Securities is unclear, you should assume that any coupon
payment with respect to the Securities will be subject to the FATCA rules. If withholding applies to the Securities, we will not
be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their
tax advisers regarding the potential application of FATCA to the Securities.
The discussion in the preceding paragraphs
under “What Are the Tax Consequences of the Securities,” insofar as it purports to describe provisions of U.S. federal
income tax laws or legal conclusions with respect thereto, constitutes the full opinion of Davis Polk & Wardwell LLP regarding
the material U.S. federal tax consequences of an investment in the Securities.
The Dow Jones Industrial Average
SM
|
The Dow Jones Industrial Average
SM
is a price-weighted
index composed of 30 common stocks that is published by S&P Dow Jones Indices LLC, the marketing name and a licensed trademark
of CME Group Inc., as representative of the broad market of U.S. industry. For additional information about the Dow Jones
Industrial Average
SM
, see the information set forth under “Dow Jones Industrial Average
SM
” in
the accompanying index supplement.
“Dow Jones,” “Dow Jones Industrial Average,”
“Dow Jones Indexes” and “DJIA” are service marks of Dow Jones Trademark Holdings LLC. For more information,
see “Dow Jones Industrial Average
SM
” in the accompanying index supplement.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the Dow Jones Industrial Average
SM
for each quarter in the
period from January 1, 2014 through July 29, 2019. The closing value of the Dow Jones Industrial Average
SM
on July 29,
2019 was 27,221.35. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
The historical closing values of the Dow Jones Industrial Average
SM
should not be taken as an indication of future performance,
and no assurance can be given as to the level of the Dow Jones Industrial Average
SM
on any Observation Date, including
the Final Observation Date.
Quarter Begin
|
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
|
3/31/2014
|
16,530.94
|
15,372.80
|
16,457.66
|
4/1/2014
|
|
6/30/2014
|
16,947.08
|
16,026.75
|
16,826.60
|
7/1/2014
|
|
9/30/2014
|
17,279.74
|
16,368.27
|
17,042.90
|
10/1/2014
|
|
12/31/2014
|
18,053.71
|
16,117.24
|
17,823.07
|
1/1/2015
|
|
3/31/2015
|
18,288.63
|
17,164.95
|
17,776.12
|
4/1/2015
|
|
6/30/2015
|
18,312.39
|
17,596.35
|
17,619.51
|
7/1/2015
|
|
9/30/2015
|
18,120.25
|
15,666.44
|
16,284.70
|
10/1/2015
|
|
12/31/2015
|
17,918.15
|
16,272.01
|
17,425.03
|
1/1/2016
|
|
3/31/2016
|
17,716.66
|
15,660.18
|
17,685.09
|
4/1/2016
|
|
6/30/2016
|
18,096.27
|
17,140.24
|
17,929.99
|
7/1/2016
|
|
9/30/2016
|
18,636.05
|
17,840.62
|
18,308.15
|
10/1/2016
|
|
12/31/2016
|
19,974.62
|
17,888.28
|
19,762.60
|
1/1/2017
|
|
3/31/2017
|
21,115.55
|
19,732.40
|
20,663.22
|
4/1/2017
|
|
6/30/2017
|
21,528.99
|
20,404.49
|
21,349.63
|
7/1/2017
|
|
9/30/2017
|
22,412.59
|
21,320.04
|
22,405.09
|
10/1/2017
|
|
12/31/2017
|
24,837.51
|
22,557.60
|
24,719.22
|
1/1/2018
|
|
3/31/2018
|
26,616.71
|
23,533.20
|
24,103.11
|
4/1/2018
|
|
6/30/2018
|
25,322.31
|
23,644.19
|
24,271.41
|
7/1/2018
|
|
9/30/2018
|
26,743.50
|
24,174.82
|
26,458.31
|
10/1/2018
|
|
12/31/2018
|
26,828.39
|
21,792.20
|
23,327.46
|
1/1/2019
|
|
3/31/2019
|
26,091.95
|
22,686.22
|
25,928.68
|
4/1/2019
|
|
6/30/2019
|
26,753.17
|
24,815.04
|
26,599.96
|
7/1/2019
|
|
7/29/2019*
|
27,359.16
|
26,717.43
|
27,221.35
|
*Available information for the indicated period includes data
for less than the entire calendar quarter and accordingly, the “Quarterly High,”
“Quarterly Low” and “Quarterly Close”
data indicated are for this shortened period only.
The graph below illustrates the performance of the
Dow Jones Industrial Average
SM
from January 1, 2008 through July 29, 2019, based on information from Bloomberg.
* The dotted line indicates the
Coupon Barrier and Downside Threshold of 19,054.95, which is approximately 70% of the Initial Underlying Value.
Past performance is not indicative of future results.
The
Russell 2000
®
Index is an index calculated, published and disseminated by FTSE Russell, and measures the composite
price performance of stocks of 2,000 companies incorporated in the U.S. and its territories. All 2,000 stocks are traded on a major
U.S. exchange and are the 2,000 smallest securities that form the Russell 3000
®
Index. The Russell 3000
®
Index
is composed of the 3,000 largest U.S. companies as determined by market capitalization and represents approximately 98% of the
U.S. equity market. The Russell 2000
®
Index consists of the smallest 2,000 companies included in the Russell
3000
®
Index and represents a small portion of the total market capitalization of the Russell 3000
®
Index.
The Russell 2000
®
Index is designed to track the performance of the small-capitalization segment of the U.S.
equity market. For additional information about the Russell 2000
®
Index, see the information set forth under
“Russell 2000
®
Index” in the accompanying index supplement.
The
“Russell 2000
®
Index” is a trademark of FTSE Russell. For more information, see “Russell
2000
®
Index” in the accompanying index supplement
.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the Russell 2000
®
Index for each quarter in the period
from January 1, 2014 through July 29, 2019. The closing value of the Russell 2000
®
Index on July 29, 2019 was 1,569.025.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical
closing values of the Russell 2000
®
Index should not be taken as an indication of future performance, and no assurance
can be given as to the level of the Russell 2000
®
Index on any Observation Date, including the Final Observation
Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
1,208.651
|
1,093.594
|
1,173.038
|
4/1/2014
|
6/30/2014
|
1,192.964
|
1,095.986
|
1,192.964
|
7/1/2014
|
9/30/2014
|
1,208.150
|
1,101.676
|
1,101.676
|
10/1/2014
|
12/31/2014
|
1,219.109
|
1,049.303
|
1,204.696
|
1/1/2015
|
3/31/2015
|
1,266.373
|
1,154.709
|
1,252.772
|
4/1/2015
|
6/30/2015
|
1,295.799
|
1,215.417
|
1,253.947
|
7/1/2015
|
9/30/2015
|
1,273.328
|
1,083.907
|
1,100.688
|
10/1/2015
|
12/31/2015
|
1,204.159
|
1,097.552
|
1,135.889
|
1/1/2016
|
3/31/2016
|
1,114.028
|
953.715
|
1,114.028
|
4/1/2016
|
6/30/2016
|
1,188.954
|
1,089.646
|
1,151.923
|
7/1/2016
|
9/30/2016
|
1,263.438
|
1,139.453
|
1,251.646
|
10/1/2016
|
12/31/2016
|
1,388.073
|
1,156.885
|
1,357.130
|
1/1/2017
|
3/31/2017
|
1,413.635
|
1,345.598
|
1,385.920
|
4/1/2017
|
6/30/2017
|
1,425.985
|
1,345.244
|
1,415.359
|
7/1/2017
|
9/30/2017
|
1,490.861
|
1,356.905
|
1,490.861
|
10/1/2017
|
12/31/2017
|
1,548.926
|
1,464.095
|
1,535.511
|
1/1/2018
|
3/31/2018
|
1,610.706
|
1,463.793
|
1,529.427
|
4/1/2018
|
6/30/2018
|
1,706.985
|
1,492.531
|
1,643.069
|
7/1/2018
|
9/30/2018
|
1,740.753
|
1,653.132
|
1,696.571
|
10/1/2018
|
12/31/2018
|
1,672.992
|
1,266.925
|
1,348.559
|
1/1/2019
|
3/31/2019
|
1,590.062
|
1,330.831
|
1,539.739
|
4/1/2019
|
6/30/2019
|
1,614.976
|
1,465.487
|
1,566.572
|
7/1/2019
|
7/29/2019*
|
1,580.417
|
1,544.783
|
1,569.025
|
*Available information for the indicated period includes data
for less than the entire calendar quarter and accordingly, the “Quarterly High,” “Quarterly Low” and “Quarterly
Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the Russell 2000
®
Index from January 1, 2008 through July 29, 2019, based on information from Bloomberg.
* The dotted line indicates the
Coupon Barrier and Downside Threshold of 1,098.318, which is approximately 70% of the Initial Underlying Value.
Past performance is not indicative of future results.
Correlation of the Underlyings
|
The graph below illustrates the daily performance of the Dow
Jones Industrial Average
SM
and the Russell 2000
®
Index from January 1, 2008 through July 29, 2019. For
comparison purposes, each Underlying has been “normalized” to have a closing value of 100 on January 1, 2008 by dividing
the closing value of that Underlying on each Index Business Day by the closing value of that Underlying on January 1, 2008 and
multiplying by 100. We obtained the closing values used to determine the normalized closing values set forth below from Bloomberg,
without independent verification.
A closer relationship between the daily returns of two or more
underlying assets over a given period indicates that such underlying assets have been more positively correlated. Lower (or more-negative)
correlation among two or more underlying assets over a given period may indicate that it is less likely that those underlying assets
will subsequently move in the same direction. Therefore, lower correlation among the Underlyings may indicate a greater potential
for one of the Underlyings to close below its respective Coupon Barrier or Downside Threshold on an Observation Date, including
the Final Observation Date, as applicable, because there may be a greater likelihood that at least one of the Underlyings will
decrease in value significantly. However, even if the Underlyings have a higher positive correlation, one or both of the Underlyings
may close below the respective Coupon Barrier(s) or Downside Threshold(s) on an Observation Date or the Final Observation Date,
as applicable, as the Underlyings may both decrease in value. Moreover, the actual correlation among the Underlyings may
differ, perhaps significantly, from their historical correlation. A higher Contingent Coupon Rate is generally associated
with lower correlation among the Underlyings, which may indicate a greater potential for missed Contingent Coupons and/or a significant
loss on your investment at maturity. See “Key Risks — You are exposed to the market risk of both Underlyings”,
“—Because the Securities are linked to the performance of the least performing between the INDU Index and the RTY Index,
you are exposed to greater risk of receiving no Contingent Coupon payments or sustaining a significant loss on your investment
than if the Securities were linked to just the INDU Index or just the RTY Index” and “—A higher Contingent Coupon
Rate and/or lower Coupon Barriers and Downside Thresholds may reflect greater expected volatility of the Underlyings, and greater
expected volatility generally indicates an increased risk of declines in the levels of the Underlyings and, potentially, a significant
loss at maturity.” herein.
Past performance and correlation of the Underlyings are not indicative
of the future performance or correlation of the Underlyings.
Additional Terms of the Securities
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If the terms described herein are inconsistent with those described
in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
The accompanying product supplement refers to the Principal
Amount as the “Stated Principal Amount,” the Initial Level as the “Initial Index Value,” the Trade Date
as the “Pricing Date,” the Observation Dates as the “Determination Dates,” the Final Observation Date as
the “Final Determination Date,” the Coupon Barrier/Downside Threshold” as the “Downside Threshold Level”
and the day on which any automatic call occurs as the “Early Redemption Date.”
Index Publishers
With respect to the INDU Index, S&P Dow Jones Indices LLC,
or any successor thereto.
With respect to the RTY Index, FTSE Russell or any successor
thereto.
“Index Closing Value” on any Index Business Day means,
(i) with respect to the INDU Index, the closing value of such Underlying, or any relevant Successor Index (as defined under “—Discontinuance
of Any Underlying Index; Alteration of Method of Calculation” in the accompanying product supplement) published at the regular
weekday close of trading on that Index Business Day by the relevant Index Publisher, and (ii) with respect to the RTY Index, the
closing value of such Underlying or any Successor Index reported by Bloomberg Financial Services, or any successor reporting service
the Calculation Agent may select, on that Index Business Day. In certain circumstances, the Index Closing Value for an Underlying
will be based on the alternate calculation of such Underlying as described under “—Discontinuance of Any Underlying
Index; Alteration of Method of Calculation” in the accompanying product supplement.
Day-Count Convention
Interest will be computed on the basis of a 360-day year of twelve
30-day months.
Issuer Notice to Registered Security Holders, the Trustee
and the Depositary
In the event that the Maturity Date of the Securities is postponed
due to a postponement of the Final Observation Date, the Issuer shall give notice of such postponement and, once it has been determined,
of the date to which the Maturity Date has been rescheduled (i) to each registered holder of the Securities by mailing notice of
such postponement by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon
the registry books, (ii) to the Trustee by facsimile confirmed by mailing such notice to the Trustee by first class mail, postage
prepaid, at its New York office and (iii) to The Depository Trust Company (the “Depositary”) by telephone or facsimile
confirmed by mailing such notice to the Depositary by first class mail, postage prepaid. Any notice that is mailed to
a registered holder of the Securities in the manner herein provided shall be conclusively presumed to have been duly given to such
registered holder, whether or not such registered holder receives the notice. The Issuer shall give such notice as promptly
as possible, and in no case later than (i) with respect to notice of postponement of the Maturity Date, the Business Day immediately
preceding the scheduled Maturity Date and (ii) with respect to notice of the date to which the Maturity Date has been rescheduled,
the Business Day immediately following the Final Observation Date as postponed.
In the event that the Securities are subject to Automatic Call,
the Issuer shall, (i) on the Business Day following the applicable Observation Date, give notice of the Automatic Call and the
applicable automatic call payment, including specifying the payment date of the applicable amount due upon the Automatic Call,
(x) to each registered holder of the Securities by mailing notice of such Automatic Call by first class mail, postage prepaid,
to such registered holder’s last address as it shall appear upon the registry books, (y) to the Trustee by facsimile confirmed
by mailing such notice to the Trustee by first class mail, postage prepaid, at its New York office and (z) to the Depositary by
telephone or facsimile confirmed by mailing such notice to the Depositary by first class mail, postage prepaid and (ii) on or prior
to the Automatic Call Date, deliver the aggregate cash amount due with respect to the Securities to the Trustee for delivery to
the Depositary, as holder of the securities. Any notice that is mailed to a registered holder of the Securities in the
manner herein provided shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered
holder receives the notice. This notice shall be given by the Issuer or, at the Issuer’s request, by the Trustee in the name
and at the expense of the Issuer, with any such request to be accompanied by a copy of the notice to be given.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee, on which notice the Trustee may conclusively rely, and to the Depositary of the amount of
cash to be delivered as Contingent Coupon, if any, with respect to the Securities on or prior to 10:30 a.m. (New York City time)
on the Business Day preceding each Coupon Payment Date, and (ii) deliver the aggregate cash amount due, if any, with respect to
the Contingent Coupon to the Trustee for delivery to the Depositary, as holder of the Securities, on or prior to the applicable
Coupon Payment Date.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee and to the Depositary of the amount of cash, if any, to be delivered with respect to the
Securities, on or prior to 10:30 a.m. (New York City time) on the Business Day preceding the Maturity Date, and (ii) deliver the
aggregate cash amount due with respect to the Securities, if any, to the Trustee for delivery to the Depositary, as holder of the
Securities, on or prior to the Maturity Date.
Additional Information About the Securities
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