Free Writing Prospectus No. 2,376
Registration Statement Nos. 333-221595; 333-221595-01
Dated August 7, 2019
Filed Pursuant to Rule 433
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Morgan Stanley Finance LLC
Trigger Autocallable Contingent Yield Notes
Linked to the Least Performing
Underlying among the MSCI Emerging Markets Index
SM
, the S&P 500
®
Index and the EURO STOXX 50
®
Index due August 10, 2029
Fully
and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
These Trigger Autocallable Contingent Yield Notes (the “Securities”)
are unsecured and unsubordinated debt obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally
guaranteed by Morgan Stanley. The Securities provide a return
based on the least performing underlying
among the MSCI Emerging
Markets Index
SM
(the “MXEF Index”), the S&P 500
®
Index (the “SPX Index”)
and the EURO STOXX 50
®
Index (the “SX5E Index,” and together with the MXEF Index and the SPX Index,
the “Underlyings”). If the Index Closing Value of
each of the MXEF Index, the SPX Index and the SX5E Index
(each,
an “Underlying”) on a quarterly Observation Date (the “Observation Date Closing Values”) is equal to or
greater than its respective Coupon Barrier, MSFL will make a Contingent Coupon payment with respect to that Observation Date. However,
if the Index Closing Value of
any of the Underlyings
is below its respective Coupon Barrier, no coupon will accrue or be
payable with respect to that Observation Date. In addition, MSFL will automatically call the Securities early if the Observation
Date Closing Value for
each of the MXEF Index, the SPX Index and the SX5E Index
on any quarterly Observation Date beginning
after approximately one year (August 7, 2020) is equal to or greater than its respective Initial Underlying Value. If the Securities
are called, MSFL will pay the principal amount plus the Contingent Coupon for that Observation Date and no further amounts will
be owed to you. If the Securities are not called prior to maturity and the Final Underlying Values of
each of the MXEF Index,
the SPX Index and the SX5E Index
is equal to or greater than its respective Downside Threshold (which is the same as its respective
Coupon Barrier), MSFL will make a cash payment to you at maturity equal to the principal amount of your Securities plus the Contingent
Coupon with respect to the Final Observation Date. However, if the Final Underlying Value of
any of the Underlyings
is less
than its respective Downside Threshold, MSFL will pay you significantly less than the full 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
Underlying with the largest
percentage decrease from its Initial Underlying Value to its Final Underlying Value (the “Least Performing Underlying”),
even if the other Underlyings have appreciated or have not declined as much. These long-dated Securities may be appropriate
for investors who seek an opportunity for potentially enhanced income in exchange for the risk of losing their principal at maturity
and the risk of receiving no Contingent Coupons during the term of the Securities. Your return will be solely the Contingent Coupons,
if any, and you will not participate in any appreciation of any of the Underlyings. Because all payments on the Securities are
based on the least performing underlying among the MXEF Index, the SPX Index and the SX5E Index, the fact that the Securities are
linked to three Underlyings does not provide any asset diversification benefits and instead means that a decline in the value beyond
the relevant Coupon Barrier and Downside Threshold of any of the MXEF Index, the SPX Index, or the SX5E Index will result in no
Contingent Coupon payments and a significant loss on your investment, even if the other Underlyings appreciate or do not decline
as much.
Investing in the Securities involves significant risks. The Issuer will not pay a quarterly Contingent Coupon if the
Observation Date Closing Value for any of the Underlyings is below its respective Coupon Barrier. The Issuer will not automatically
call the Securities if the Observation Date Closing Value of any 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 any of the Underlyings is below its Downside Threshold. Generally, the higher the Contingent Coupon Rate
for the Securities, the greater risk of loss on those Securities. If you sell the Securities prior to maturity, you may receive
substantially less than the principal amount even if the values of each of the Underlyings are greater than their respective Downside
Thresholds at the time of sale.
All payments are subject to our credit risk. If we default
on our obligations, you could lose a significant portion or all of your investment. These Securities are not secured obligations
and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
q
Automatically
Callable:
MSFL will automatically call the Securities and pay
you the principal amount plus the Contingent Coupon otherwise due for the quarterly Observation Date only if the Observation Date
Closing Value of
each of the MXEF Index, the SPX Index and the SX5E Index
on any quarterly Observation Date beginning August
7, 2020 is equal to or greater than its respective Initial Underlying Value, and no further payment will be made on the Securities.
If the Securities are not called, investors will have the potential for downside equity market risk of the Least Performing Underlying
at maturity.
q
Contingent
Coupon:
If the Observation Date Closing Value of
each of
the MXEF Index, the SPX Index and the SX5E Index
on any quarterly Observation Date is equal to or greater than its respective
Coupon Barrier, MSFL will make a Contingent Coupon payment with respect to that Observation Date. However, if the Observation Date
Closing Value of
any Underlying
is below its Coupon Barrier, no coupon will be payable with respect to that Observation
Date.
q
Contingent
Downside Market Exposure at Maturity:
If, at maturity, the Securities have not been called and the Final Underlying Value
of
each of the MXEF Index, the SPX Index and the SX5E Index
is equal to or greater than its respective Downside Threshold
(which is the same as its respective Coupon Barrier), MSFL will make a cash payment to you at maturity equal to the principal
amount of your Securities plus the Contingent Coupon with respect to the Final Observation Date. However, if the Final Underlying
Value of
any Underlying
is less than its respective Downside Threshold on the Final Observation Date, MSFL will repay less
than the principal amount, if anything, at maturity, resulting in a significant 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. If you
sell the Securities prior to maturity, you may receive substantially less than the principal amount even if the values of all
of the Underlyings are greater than their respective Downside Thresholds at the time of sale. Any payment on the Securities is
subject to our creditworthiness.
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Strike Date (with respect to the SPX
Index and the SX5E Index)
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August 6, 2019
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Strike Date (with respect to the MXEF
Index)
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August 7, 2019
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Trade Date
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August 7, 2019
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Settlement Date
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August 12, 2019 (3 business days after the Trade Date)
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Observation
Dates
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Quarterly,
callable beginning August 7, 2020.
See “Observation Dates and Coupon Payment Dates” on page 7 for details.
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Final Observation Date**
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August 7, 2029
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Maturity Date**
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August 10, 2029
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*
Expected.
In the event that we make any change to the expected Trade Date and Settlement Date, we may change the Observation Dates, the Final
Observation Date and/or the Maturity Date so that the stated term of the Securities remains the same.
** 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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NOTICE TO INVESTORS: THE SECURITIES ARE SIGNIFICANTLY RISKIER
THAN CONVENTIONAL DEBT INSTRUMENTS. THE SECURITIES DO NOT GUARANTEE THE REPAYMENT OF THE FULL PRINCIPAL AMOUNT AT MATURITY, AND
THE SECURITIES WILL HAVE DOWNSIDE MARKET RISK SIMILAR TO THE LEAST PERFORMING OF THE THREE UNDERLYINGS, SUBJECT TO THE RESPECTIVE
DOWNSIDE THRESHOLDS AT MATURITY. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK INHERENT IN PURCHASING OUR DEBT OBLIGATIONS.
YOU SHOULD NOT PURCHASE THE SECURITIES IF YOU DO NOT UNDERSTAND OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS INVOLVED IN INVESTING
IN THE SECURITIES. THE SECURITIES WILL NOT BE LISTED ON ANY SECURITIES EXCHANGE.
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER “KEY
RISKS” BEGINNING ON PAGE 8 BEFORE PURCHASING ANY SECURITIES. EVENTS RELATING TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES,
COULD ADVERSELY AFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR SECURITIES. YOU MAY LOSE A SIGNIFICANT PORTION OR ALL OF YOUR
PRINCIPAL AMOUNT.
This free writing prospectus relates to Securities linked to
the least performing underlying among the MSCI Emerging Markets Index
SM
, the S&P 500
®
Index and the
EURO STOXX 50
®
Index. The actual Initial Underlying Value, Coupon Barrier and Downside Threshold for the MXEF Index
will be determined on the Trade Date. The Securities are offered at a minimum investment of $1,000 in denominations of $10 and
integral multiples thereof.
Underlying
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Initial Underlying Value
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Coupon Barrier/Downside Threshold
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Contingent Coupon Rate
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CUSIP
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ISIN
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MSCI Emerging Markets Index
SM
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80% of the Initial Underlying Value
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S&P 500
®
Index
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2,881.77
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2,305.42, which is approximately 80% of the Initial Underlying Value
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12.21% per annum
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61769Q659
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US61769Q6594
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EURO STOXX 50
®
Index
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3,291.66
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2,633.33, which is approximately 80% of the Initial Underlying Value
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See “Additional Information about Morgan Stanley, MSFL
and the Securities” on page 2. The Securities will have the terms set forth in the accompanying prospectus, product supplement
and index supplement and this free writing prospectus.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these Securities or passed upon the adequacy or accuracy of this free writing prospectus
or the accompanying product supplement, index supplement or prospectus. Any representation to the contrary is a criminal offense.
The Securities are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality, nor are they obligations of, or guaranteed by, a bank.
Estimated value on the Trade Date
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Approximately $9.516 per Security, or within $0.30 of that estimate. See “Additional Information about Morgan Stanley and the Securities” on page 2.
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Price to Public
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Underwriting Discount
(1)
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Proceeds to Us
(2)
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Per Security
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$10.00
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$0.35
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$9.65
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Total
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$
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$
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$
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(1) UBS Financial Services
Inc., acting as dealer, will receive from Morgan Stanley & Co. LLC, the agent, a fixed sales commission of $0.35 for each Security
it sells. For more information, please see “Supplemental Plan of Distribution; Conflicts of Interest” on page 29 of
this free writing prospectus.
(2) See “Use
of Proceeds and Hedging” on page 28.
The agent for this offering, Morgan Stanley & Co. LLC (“MS
& Co.”), is our affiliate and a wholly owned subsidiary of Morgan Stanley. See “Supplemental Plan of Distribution;
Conflicts of Interest” on page 29 of this free writing prospectus.
Morgan Stanley
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UBS Financial Services Inc.
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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. Before you invest, 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:
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 free writing prospectus 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 free writing prospectus 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 will be less than $10. We estimate that the value of each Security on the Trade
Date will be approximately $9.516, or within $0.30 of that estimate. Our estimate of the value of the Securities as determined
on the Trade Date will be set forth in the final pricing supplement.
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 12 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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t
You
fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
t
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.
t
You
accept that you may not receive a Contingent Coupon on some or all of the Coupon Payment Dates.
t
You
understand and accept the risks associated with the Underlyings.
t
You
believe each of the MXEF Index, the SPX Index and the SX5E Index will close at or above its respective Coupon Barrier on the Observation
Dates, and above its respective Downside Threshold on the Final Observation Date.
t
You
are willing to invest in the Securities based on the Contingent Coupon Rate specified on the cover hereof.
t
You
understand that the linkage to three 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 any of the MXEF Index, the SPX Index or the
SX5E Index will result in no Contingent Coupon payments or a significant loss on your investment, respectively, even if the other
Underlyings appreciate or do not decline as much .
t
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.
t
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.
t
You
do not seek guaranteed current income from this investment and are willing to forgo dividends paid on the stocks comprising the
Underlyings.
t
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 free writing prospectus.
t
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.
t
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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|
t
You
do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial
investment.
t
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.
t
You
require an investment designed to provide a full return of principal at maturity.
t
You
do not understand and accept the risks associated with the Underlyings.
t
You
do not accept that you may not receive a Contingent Coupon on some or all of the Coupon Payment Dates.
t
You
believe that the value of one of the MXEF Index, the SPX Index or the SX5E Index will decline during the term of the Securities
and is likely to close below its respective Coupon Barrier on the Observation Dates or below its respective Downside Threshold
on the Final Observation Date.
t
You
are not willing to invest in the Securities based on the Contingent Coupon Rate specified on the cover hereof.
t
You
are not comfortable with an investment linked to three Underlyings such that a decline in the value beyond the relevant Coupon
Barrier or Downside Threshold of any of the MXEF Index, the SPX Index or the SX5E Index will result in no Contingent Coupon payments
or a significant loss on your investment, respectively, even if the other Underlyings appreciate or do not decline as much .
t
You
seek an investment that participates in the appreciation in the values of the Underlyings or that has unlimited return potential.
t
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.
t
You
prefer the lower risk, and therefore accept the potentially lower returns, of fixed income investments with comparable maturities
and credit ratings.
t
You
seek guaranteed current income from this investment or prefer to receive the dividends paid on the stocks comprising the Underlyings.
t
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 free writing prospectus, or you seek an investment for which there will
be an active secondary market.
t
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 free writing prospectus
and “Risk Factors” beginning on page 7 of the accompanying prospectus and page S-38 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 MSCI Emerging Markets Index
SM
” on page 20, “The S&P 500
®
Index” on page 22 and “The EURO STOXX 50
®
Index”
on page 24.
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.
|
Underlyings
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The MSCI Emerging Markets Index
SM
(the “MXEF Index”), the S&P 500
®
Index (the “SPX Index”) and the EURO STOXX 50
®
Index (the “SX5E Index”)
|
Principal Amount
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$10.00 per Security
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Term
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Approximately 10 years, unless earlier called
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Automatic Call Feature
|
The Securities will be called automatically if the Observation
Date Closing Values of
each of the MXEF Index, the SPX Index and the SX5E Index
on any Observation Date beginning August
7, 2020 is
equal to or greater than
its respective Initial Underlying Value.
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
any
of the Underlyings is below its respective Initial Underlying Value.
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Contingent Coupon
|
If the Observation Date Closing Value of
each of the MXEF
Index, SPX Index and the SX5E Index is equal to or greater than
its respective Coupon Barrier 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
any of the MXEF Index,
the SPX Index or the SX5E 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 will be a fixed amount based on equal
quarterly installments at the Contingent Coupon Rate, which is a per-annum rate. The Contingent Coupon amount of $0.3053 for each
Security (based on the per-annum rate of 12.21%) would be applicable to each Observation Date on which the Index Closing Value
of
each of the MXEF Index, the SPX Index and the SX5E Index
is greater than or equal to its respective Coupon Barrier.
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 any of
the MXEF Index, the SPX Index or the SX5E Index is less than its respective Coupon Barrier.
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Contingent Coupon Rate
|
The Contingent Coupon Rate is 12.21% per annum.
|
Observation Dates
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Quarterly, callable beginning August 7, 2020. See “Observation Dates and Coupon Payment Dates” on page 7 for details.
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Strike Date (with respect to the SPX Index and the SX5E Index)
|
August 6, 2019
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Strike Date (with respect to the MXEF Index)
|
August 7, 2019
|
Trade Date
|
August 7, 2019
|
Settlement Date
|
August 12, 2019
|
Final Observation Date
|
August 7, 2029*
|
Maturity Date
|
August 10, 2029*
|
Coupon Payment Dates
|
With respect to each Observation Date, as set forth under “Observation Dates and Coupon Payment Dates” on page 7.
|
Payment at Maturity (per Security)
|
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 Value of
each of the MXEF Index, the SPX Index and the SX5E Index is equal to or greater than
its respective
Downside Threshold (which is the same as its respective Coupon Barrier), 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
any of the MXEF Index, the SPX Index or the SX5E 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 Underlyings have appreciated or have not declined as much.
|
Observation Date Closing Value
|
With respect to each of the Underlyings, the Index Closing Value of such Underlying on any Observation Date
|
Least Performing Underlying
|
The Underlying with the largest percentage decrease from the Initial Underlying Value to the Final Underlying Value.
|
Underlying Return
|
With respect to each Underlying,
Final Underlying Value –
Initial Underlying Value
Initial Underlying Value
|
* 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.
|
Initial Underlying Value
|
With respect to the SPX Index, 2,881.77.
With respect to the SX5E Index, 3,291.66.
With respect to the MXEF Index, the Index Closing Value
of such Underlying on the Trade Date.
|
Final Underlying Value
|
With respect to each Underlying, the Index Closing Value of such Underlying on the Final Observation Date
|
Downside Threshold
|
With respect to the SPX Index, 2,305.42, which is approximately
80% of the Initial Underlying Value of such Underlying.
With respect to the SX5E Index, 2,633.33, which is approximately
80% of the Initial Underlying Value of such Underlying.
With respect to the MXEF Index, 80% of the Initial Underlying
Value of such Underlying, as specified on the cover page of this free writing prospectus.
|
Coupon Barrier
|
With respect to the SPX Index, 2,305.42, which is approximately
80% of the Initial Underlying Value of such Underlying.
With respect to the SX5E Index, 2,633.33, which is approximately
80% of the Initial Underlying Value of such Underlying.
With respect to the MXEF Index, 80% of the Initial Underlying
Value of such Underlying, as specified on the cover page of this free writing prospectus.
|
Record Date
|
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
|
The Bank of New York Mellon
|
Calculation Agent
|
MS & Co.
|
Investment Timeline
|
Strike Date (with respect to the SPX Index and the SX5E Index)
|
The Initial Underlying Value, Downside Threshold and Coupon Barrier of each of the SPX Index and the SX5E Index were determined.
|
|
|
Trade Date
|
The Initial Underlying Value, Downside Threshold and Coupon Barrier of the MXEF Index are determined.
|
|
|
Quarterly (callable after
approximately 1 year)
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If the Observation Date Closing Value of
each of
the MXEF
Index, the SPX Index and the SX5E Index is equal to or greater than its respective Coupon Barrier on any Observation Date, MSFL
will pay you a Contingent Coupon on the Coupon Payment Date. However, if the Observation Date Closing Value of
any Underlying
is below its Coupon Barrier, no coupon will be payable on the related Coupon Payment Date.
If the Observation Date Closing Value of
each of
the MXEF Index, the SPX Index and the SX5E Index
is equal to or greater than its respective Initial Underlying Value
on any Observation Date beginning on August 7, 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
Value of
each of the MXEF Index, the SPX Index and the SX5E Index is equal to or greater than
its respective Downside Threshold
(which is the same as its respective Coupon Barrier), 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
any of the MXEF
Index, the SPX Index or the SX5E 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)
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 ANY of the Underlyings is below its respective Coupon
Barrier. The Issuer will not automatically call the Securities if the Observation Date Closing Value of any 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 Any of the Underlyings is below its RESPECTIVE Downside Threshold.
Observation Dates
(1)
and Coupon Payment Dates
(2)
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Observation Dates
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Coupon Payment Dates
|
Observation Dates
|
Coupon Payment Dates
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11/7/2019*
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11/12/2019*
|
11/7/2024
|
11/12/2024
|
2/7/2020*
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2/11/2020*
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2/7/2025
|
2/11/2025
|
5/7/2020*
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5/11/2020*
|
5/7/2025
|
5/9/2025
|
8/7/2020
|
8/11/2020
|
8/7/2025
|
8/11/2025
|
11/9/2020
|
11/12/2020
|
11/7/2025
|
11/12/2025
|
2/8/2021
|
2/10/2021
|
2/9/2026
|
2/11/2026
|
5/7/2021
|
5/11/2021
|
5/7/2026
|
5/11/2026
|
8/9/2021
|
8/11/2021
|
8/7/2026
|
8/11/2026
|
11/8/2021
|
11/10/2021
|
11/9/2026
|
11/12/2026
|
2/7/2022
|
2/9/2022
|
2/8/2027
|
2/10/2027
|
5/9/2022
|
5/11/2022
|
5/7/2027
|
5/11/2027
|
8/8/2022
|
8/10/2022
|
8/9/2027
|
8/11/2027
|
11/7/2022
|
11/9/2022
|
11/8/2027
|
11/10/2027
|
2/7/2023
|
2/9/2023
|
2/7/2028
|
2/9/2028
|
5/8/2023
|
5/10/2023
|
5/8/2028
|
5/10/2028
|
8/7/2023
|
8/9/2023
|
8/7/2028
|
8/9/2028
|
11/7/2023
|
11/9/2023
|
11/7/2028
|
11/9/2028
|
2/7/2024
|
2/9/2024
|
2/7/2029
|
2/9/2029
|
5/7/2024
|
5/9/2024
|
5/7/2029
|
5/9/2029
|
8/7/2024
|
8/9/2024
|
8/7/2029 (Final Observation Date)
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8/10/2029 (Maturity Date)
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* The Securities are not subject to an automatic call until the
fourth Observation Date, which is August 7, 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.
An investment in the Securities involves significant risks. Some
of the risks that apply to the Securities are summarized here, but we urge you to also read the “Risk Factors” section
of the accompanying prospectus and product supplement. You should also consult your investment, legal, tax, accounting and other
advisers before you invest in the Securities.
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The
Securities do not guarantee the payment of regular interest or the return of any principal.
The terms of the Securities differ
from those of ordinary debt securities in that the Securities do not guarantee the payment of regular interest or the return of
any of the Principal Amount at maturity. Instead, if the Securities have not been called prior to maturity and if the Final Underlying
Value of
any of the MXEF Index, the SPX Index or the SX5E 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 Underlyings have appreciated or have not declined
as much.
You could lose your entire Principal Amount.
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You
are exposed to the market risk of all three 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 MXEF Index, the SPX Index and
the SX5E 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 each of the MXEF Index, the SPX Index and
the SX5E Index. Poor performance by any 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 Underlyings. For the Securities to be automatically called
or to receive any Contingent Coupon payment or contingent repayment of principal at maturity from MSFL, all three 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 Underlyings appreciate or do
not decline as much during the term of the Securities. Accordingly, your investment is subject to the market risk of all three
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 among the MXEF Index, the SPX Index and the SX5E 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 MXEF Index, just the SPX Index or just the SX5E 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
MXEF Index, just the SPX Index or just the SX5E Index. With three Underlyings, it is more likely that one or more Underlyings
will close below their respective Coupon Barriers on the quarterly Observation Dates or below their respective Downside Thresholds
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 all three 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 any of the MXEF Index, the SPX Index
or the SX5E 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 any of the MXEF Index, the SPX Index or the SX5E 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 Value
of
each of the MXEF Index, the SPX Index and the SX5E Index
is greater than or equal to its respective Coupon Barrier. If
the Observation Date Closing Values of
any
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, the MXEF Index,
the SPX Index or the SX5E Index closes below its respective Coupon Barrier, you will not receive any Contingent Coupons during
the 10-year term of the Securities.
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Investors
will not participate in any appreciation in the values of any of the Underlyings.
Investors will not participate in any appreciation
in the value of any of the Underlyings from its respective Initial Underlying Value, 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
Value of each of the MXEF Index, the SPX Index and the SX5E Index is greater than or equal to their respective Coupon Barrier
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 any of the Underlyings, which could be significant. It is possible that, on most or all of the Observation
Dates, the Index Closing Values of one or more Underlyings could be below their Coupon Barriers 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 any of the Underlyings. If
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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 all of the 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 (possibly in addition to the Contingent Coupon for the Final Observation
Date), if the Final Underlying Values of each of the MXEF Index, the SPX Index and the SX5E Index are equal to or greater than
their respective Downside Thresholds, or if any 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 one year 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 any 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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the value and volatility (frequency and magnitude of changes in value) of the Underlyings,
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whether the Observation Date Closing Value of any Underlying has been below its Coupon Barrier on any Observation Date,
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dividend rates on the stocks comprising the Underlyings,
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interest and yield rates in the market,
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time remaining until the Securities mature,
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the Underlyings or equities
markets generally and which may affect the Final Underlying Values,
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the occurrence of certain events affecting any of the Underlyings that may or may not require an adjustment to its composition,
and
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any actual or anticipated changes in our credit ratings or credit spreads.
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Some or all of these factors will
influence the terms of the Securities at the time of issuance and the price that you will receive if you 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.
Generally, the longer the time remaining to maturity, the more the market price of the Securities will be affected by the other
factors described above. 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 MSCI Emerging Markets Index
SM
and the EURO STOXX 50
®
Index and are
subject to risks associated with investments in securities linked to the value of foreign equity (and especially emerging markets)
securities.
The Securities are linked to the value of foreign equity securities. Investments in securities linked to the
value of foreign equity securities involve risks associated with the securities markets in those countries, including risks of
volatility in those markets, governmental intervention in those markets and cross-shareholdings in companies in certain countries.
Although the equity securities included in the MSCI Emerging Markets Index
SM
and the EURO STOXX 50
®
Index are traded in foreign currencies, the value of your Securities (as measured in U.S. dollars) will not be adjusted
for any exchange rate fluctuations. Also, there is generally less publicly available information about foreign companies than
about U.S. companies that are subject to the reporting requirements of the United States Securities and Exchange Commission, and
foreign companies are subject to accounting, auditing and financial reporting standards and requirements different from those
applicable to U.S. reporting companies. The prices of securities issued in foreign markets may be affected by political, economic,
financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies
and currency exchange laws. In addition, the stocks included in the MSCI Emerging Markets Index
SM
have been issued
by companies in various emerging markets countries, which pose further risks in addition to the risks associated with investing
in foreign equity markets generally. Countries with emerging markets may have relatively unstable governments, may present the
risks of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets, and
may have less protection of property rights than more developed countries. The economies of countries with emerging markets may
be based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or
impossible at times. Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United
States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency
and balance of payment positions.
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The
level of the MSCI Emerging Markets Index
SM
is subject to currency exchange rate risk.
Because the level of
the MSCI Emerging Markets Index
SM
is related to the U.S. dollar value of stocks underlying the MSCI Emerging Markets
Index
SM
, holders of the Securities will be exposed to currency exchange rate risk with respect the currencies in which
the component securities trade. Exchange rate movements for a particular currency are volatile and are the result of numerous
factors specific to that country including the supply of, and the demand for, those currencies, as well as government policy,
intervention or actions, but are also influenced significantly from time to time by political or economic developments, and by
macroeconomic factors and speculative actions related to each region. Further, currencies of emerging economies are often subject
to more frequent and larger central bank interventions than the currencies of developed countries and are also more likely to
be affected by drastic changes in monetary or exchange rate policies of the relevant country. The net exposure will depend on
the extent to which the currencies of the component countries strengthen or weaken against the U.S. dollar and the relative weight
of each currency. If, taking into account such weighting, the dollar strengthens against the currencies of the component securities
of the MSCI Emerging Markets Index
SM
, the level of the MSCI Emerging Markets Index
SM
will be adversely
affected and the Payment at Maturity on the Securities may be reduced.
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Of particular importance to potential
currency exchange risk are:
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existing and expected rates of inflation;
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existing and expected interest rate levels;
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the balance of payments; and
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the extent of governmental surpluses or deficits in the countries represented in the MSCI Emerging Markets Index
SM
and the United States.
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All of these factors are, in turn,
sensitive to the monetary, fiscal and trade policies pursued by the governments of the countries represented in the MSCI Emerging
Markets Index
SM
, the United States and other countries important to international trade and finance.
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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 any Underlying or the component stocks of any 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
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any
potential appreciation of any 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 MSCI Emerging Markets Index
SM
, S&P
500
®
Index or the EURO STOXX 50
®
Index could adversely affect the value of the Securities.
The
Underlying Publisher of each of the MSCI Emerging Markets Index
SM,
the S&P 500
®
Index and the EURO
STOXX 50
®
Index is responsible for calculating and maintaining such Underlying. The Underlying Publisher may add,
delete or substitute the stocks constituting the relevant Underlying or make other methodological changes required by certain corporate
events relating to the stocks constituting such 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 relevant 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 12 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
free writing prospectus will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness
and changes in market conditions. See also “The market price of the Securities will be influenced by many unpredictable factors”
above.
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The Securities will not be listed on any securities exchange and
secondary trading may be limited.
The Securities will not be listed on any securities exchange. Therefore, there may be little
or no secondary market for the Securities. MS & Co. currently intends, but is not obligated, to make a market in the Securities.
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.
With respect to the SPX Index
and SX5E Index, 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 such Underlyings), including trading in the stocks that
constitute such Underlyings as well as in other instruments related to such Underlyings. With respect to the MXEF Index, one or
more of our affiliates and/or third-party dealers expect to carry out hedging activities related to the Securities (and to other
instruments linked to such Underlying), including trading in the stocks that constitute such Underlying as well as in other instruments
related to such Underlying. As a result, these entities may be unwinding or adjusting hedge positions during the term of
the Securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the Final Observation
Date approaches. Some of our subsidiaries also trade the stocks that constitute the 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 of the SPX Index and the
SX5E Index and could potentially increase the Initial Underlying Value of the MXEF Index, and, as a result, could have increased
or could potentially increase, as applicable, the Coupon Barrier of any 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
any 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 Underlyings). Any of these hedging or trading
activities on or prior to the Trade Date, with respect to the MXEF Index, could potentially increase the Initial Underlying Value,
and, as a
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result,
the Coupon Barrier of any of the Underlyings. 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 Underlyings).
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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 of each of the SPX Index and the SX5E Index. In addition, as Calculation Agent, MS & Co.
will determine the Initial Underlying Value, the Coupon Barrier and the Downside Threshold of the MXEF Index, 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 free writing prospectus concerning the U.S. federal income
tax consequences of an investment in the Securities. We intend to treat a Security for U.S. federal income tax purposes as a single
financial contract that provides for a coupon that will be treated as gross income to you at the time received or accrued, in accordance
with your regular method of tax accounting. Under this treatment, the ordinary income treatment of the coupon payments, in conjunction
with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the Securities, could result in
adverse tax consequences to holders of the Securities because the deductibility of capital losses is subject to limitations. We
do not plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the tax treatment of the Securities,
and the IRS or a court may not agree with the tax treatment described herein. If the IRS were successful in asserting an alternative
treatment for the Securities, the timing and character of income or loss on the Securities might differ significantly from the
tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize the Securities
as debt instruments. In that event, U.S. Holders (as defined below) would be required to accrue into income original issue discount
on the Securities every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference,
if any, between the actual and the projected amount of any contingent payments on the Securities) and recognize all income and
gain in respect of the Securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar
downside protection features, such as the Securities, would be recharacterized as debt is greater than the risk of recharacterization
for comparable financial instruments that do not have such features.
Non-U.S. Holders (as defined
below) should note that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision, and will
not be required to pay any additional amounts with respect to amounts withheld.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. While it is not clear whether the Securities would be viewed as similar to the prepaid forward contracts
described in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these
issues could materially and adversely affect the tax consequences of an investment in the Securities, possibly with retroactive
effect. The notice focuses on a number of issues, the most relevant of which for holders of the Securities are the character and
timing of income or loss and the degree, if any, to which income realized by non-U.S. investors should be subject to withholding
tax. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an
investment in the Securities, including possible alternative treatments, the issues presented by this notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Hypothetical Payments on the Securities at Maturity
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The examples below illustrate the payment upon a call or at maturity
for a $10 Security on a hypothetical offering of the Securities, with the following assumptions (with respect to the SPX Index
and the SX5E Index, the actual Initial Underlying Value, Coupon Barrier and Downside Threshold were determined on the Strike Date
and are specified on the cover hereof; the other actual terms for the Securities will be determined on the Trade Date; amounts
may have been rounded for ease of reference):
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Term: Approximately 10 years
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Hypothetical Initial Underlying Value:
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Contingent Coupon Rate: 12.21% per annum (or 3.0525% per quarter)
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Contingent Coupon: $0.3053 per quarter
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Observation Dates: Quarterly, callable after approximately 1 year
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Hypothetical Coupon Barriers:
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MXEF Index: 800, which is 80% of the Hypothetical Initial Underlying Value of the MXEF Index
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SPX Index: 2,240, which is 80% of the Hypothetical Initial Underlying Value of the SPX Index
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SX5E Index: 2,400, which is 80% of the Hypothetical Initial Underlying Value of the SX5E Index
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Hypothetical Downside Thresholds:
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MXEF Index: 800, which is 80% of the Hypothetical Initial Underlying Value of the MXEF Index
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SPX Index: 2,240, which is 80% of the Hypothetical Initial Underlying Value of the SPX Index
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SX5E Index: 2,400, which is 80% of the Hypothetical Initial Underlying Value of the SX5E Index
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Example 1 — Securities are Called on the Fourth Observation
Date
Date
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Index Closing Value
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Payment (per Security)
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MXEF Index
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SPX Index
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SX5E Index
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First Observation Date
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1,000
(at or above
Coupon Barrier)
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2,300
(at or above
Coupon Barrier)
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2,750 (
at or above
Coupon Barrier)
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$0.3053 (Contingent Coupon — Not Callable)
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Second Observation Date
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950
(at or above
Coupon Barrier)
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2,450
(at or above
Coupon Barrier)
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2,500
(at or above
Coupon Barrier)
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$0.3053 (Contingent Coupon — Not Callable)
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Third Observation Date
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1,300
(at or above
Coupon Barrier)
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2,350
(at or above
Coupon Barrier)
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2,600
(at or above
Coupon Barrier)
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$0.3053 (Contingent Coupon — Not Callable)
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Fourth Observation Date
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1,360 (
at or above
Coupon Barrier and Initial Underlying Value)
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2,200 (
at or above
Coupon Barrier and Initial Underlying Value)
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2,800 (
at or above
Coupon Barrier and Initial Underlying Value)
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$10.3053 (Settlement Amount)
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Total Payment:
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$11.2212 (12.21% return)
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Each of the MXEF Index, the SPX Index and SX5E Index closes above
its respective Coupon Barrier on the first three Observation Dates and therefore a Contingent Coupon is paid on each related Coupon
Payment Date. Because each of the MXEF Index, the SPX Index and the SX5E Index closes above its respective Initial Underlying Value
on the fourth Observation Date (which is one year 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
$10.3053 per Security, reflecting your principal amount plus the applicable Contingent Coupon. When added to the Contingent Coupon
payments of $0.9159 received in respect of the prior Observation Dates, MSFL will have paid you a total of $11.2212 per Security
for a 12.21% 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 NOT Called and the Final
Underlying Value of each of the MXEF Index, the SPX Index and the SX5E Index is at or above its respective Coupon Barrier and Downside
Threshold.
Date
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Index Closing Value
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Payment (per Security)
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MXEF Index
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SPX Index
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SX5E Index
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First Observation Date
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850
(at or above
Coupon Barrier)
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2,300
(at or above
Coupon Barrier)
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2,250 (
at or above
Coupon Barrier)
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$0.3053 (Contingent Coupon — Not Callable)
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Second Observation Date
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950 (
at or above
Coupon Barrier)
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2,400 (
at or above
Coupon Barrier)
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2,900 (
at or above
Coupon Barrier)
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$0.3053 (Contingent Coupon — Not Callable)
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Third Observation Date
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900 (
at or above
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2,350 (
at or above
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2,300 (
below
Coupon
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$0 (Not Callable)
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Coupon Barrier)
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Coupon Barrier)
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Barrier)
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Fourth Observation Date
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950 (
at or above
Coupon Barrier;
below
Initial Underlying Value)
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2,400 (
at or above
Coupon Barrier;
below
Initial Underlying Value)
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2,000 (
below
Coupon Barrier and Initial Underlying Value)
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$0 (Not Callable)
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Fifth to Thirty-Ninth Observation Dates
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Various (
all at or above
Coupon Barrier;
all below
Initial Underlying Value)
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Various (
all at or above
Coupon Barrier;
all below
Initial Underlying Value)
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Various (
all below
Coupon Barrier and Initial Underlying Value)
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$0 (Not Callable)
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Final Observation Date
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900 (
at or above
Coupon Barrier and Downside Threshold)
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2,300 (
at or above
Coupon Barrier and Downside Threshold)
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2,500 (
at or above
Coupon Barrier and Downside Threshold)
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$10.3053 (Settlement Amount)
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Total Payment:
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$10.9159 (9.159% return)
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Each of the MXEF Index, the SPX Index and the SX5E Index closes
above its respective Coupon Barrier 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 thirty-ninth Observation Dates, both the MXEF Index and SPX Index close at or above
their respective Coupon Barriers (but below their respective Initial Underlying Values, where applicable) but the SX5E Index closes
below its respective Coupon Barrier. Therefore, no Contingent Coupon is paid on any related Coupon Payment Date. On the Final Observation
Date, each of the MXEF Index, the SPX Index and the SX5E Index closes above its respective Coupon Barrier and Downside Threshold.
Therefore, at maturity, MSFL will pay you a total of $10.3053 per Security, reflecting your principal amount plus the applicable
Contingent Coupon. When added to the total Contingent Coupon payments of $0.6106 received in respect of the prior Observation Dates,
MSFL will have paid you a total of $10.9159 per Security for a 9.159% total return on the Securities over ten years. You do not
participate in any appreciation of the Underlyings.
Example 3 — Securities are NOT Called and the Final
Underlying Value of one of the Underlyings is below its respective Downside Threshold
Date
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Index Closing Value
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Payment (per Security)
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MXEF Index
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SPX Index
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SX5E Index
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First Observation Date
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1,250
(at or above
Coupon Barrier)
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2,500
(at or above
Coupon Barrier)
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2,450 (
at or above
Coupon Barrier)
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$0.3053 (Contingent Coupon — Not Callable)
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Second Observation Date
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1,230 (
at or above
Coupon Barrier)
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1,800 (
at or above
Coupon Barrier)
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2,400 (
at or above
Coupon Barrier)
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$0.3053 (Contingent Coupon — Not Callable)
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Third Observation Date
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1,175 (
at or above
Coupon Barrier)
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1,900 (
at or above
Coupon Barrier)
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1,750 (
below
Coupon Barrier)
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$0 (Not Callable)
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Fourth Observation Date
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950 (
at or above
Coupon Barrier;
below
Initial Underlying Value)
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1,850 (
at or above
Coupon Barrier;
below
Initial Underlying Value)
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1,600 (
below
Coupon Barrier and Initial Underlying Value)
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$0 (Not Callable)
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Fifth to Thirty-Ninth Observation Dates
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Various (
all below
Coupon Barrier and Initial Underlying Value)
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Various (
all below
Coupon Barrier and Initial Underlying Value)
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Various (
all below
Coupon Barrier and Initial Underlying Value)
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$0 (Not Callable)
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Final Observation Date
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900 (
at or above
Coupon Barrier and Downside Threshold)
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2,400 (
at or above
Coupon Barrier and Downside Threshold)
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1,200 (
below
Coupon Barrier and Downside Threshold)
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$10 + [$10 × Underlying Return
of the Least Performing Underlying] =
$10 + [$10 × -60%] =
$10 - $6 =
$4 (Payment at Maturity)
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Total Payment:
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$4.6106 (-53.894% return)
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Each of the MXEF Index, the SPX Index and the SX5E Index closes
above its respective Coupon Barrier on the first two Observation Dates, and, therefore a Contingent Coupon is paid on each related
Coupon Payment Date. On each of the third and fourth Observation Dates, both the MXEF Index and the SPX Index close at or above
their respective Coupon Barriers (but below their respective Initial Underlying Values, where applicable), but the SX5E Index closes
below its Coupon Barrier. Therefore, no Contingent Coupon is paid on either related Coupon Payment Date. On each of the fifth to
the thirty-ninth Observation Dates, each of the MXEF Index, the SPX Index and the SX5E Index closes below its respective Coupon
Barrier and thus no Contingent Coupon is paid on any related Coupon Payment Date. On the Final Observation Date, both the MXEF
Index and the SPX Index close above their respective Coupon Barriers and Downside Thresholds but the SX5E 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 total Contingent Coupon payments of $0.6106 received in respect
of the prior Observation Dates, MSFL will have paid you $4.6106 per Security, for a loss on the Securities of 53.894%.
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 any 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 any of the Underlyings is below its respective Coupon Barrier. The Issuer will not automatically
call the Securities if the Observation Date Closing Value of any 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 any of the Underlyings is below its respective Downside Threshold.
What Are the Tax Consequences of the Securities?
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Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the Securities
issued under this free writing prospectus and is superseded by the following discussion.
The
following is a general discussion of the material U.S. federal income tax consequences and certain estate tax consequences of
the ownership and disposition of the Securities. This discussion applies only to investors in the Securities who:
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purchase the Securities in the original offering; and
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hold the Securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
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This
discussion does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular
circumstances or to holders subject to special rules, such as:
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certain financial institutions;
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certain dealers and traders in securities or commodities;
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investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
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U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
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partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
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If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. If you are a partnership holding the Securities or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the Securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the Securities is technical and complex, the discussion below necessarily represents only a general
summary. The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences
or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the Securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the absence of statutory, judicial or administrative authorities
that directly address the treatment of the Securities or instruments that are similar to the Securities for U.S. federal income
tax purposes, no assurance can be given that the IRS or a court will agree with the tax treatment described herein. We intend to
treat a Security for U.S. federal income tax purposes as a single financial contract that provides for a coupon that will be treated
as gross income to you at the time received or accrued in accordance with your regular method of tax accounting. In the opinion
of our counsel, Davis Polk & Wardwell LLP, this treatment of the Securities is reasonable under current law; however, our counsel
has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative
treatments are possible. Moreover, our counsel’s opinion is based on market conditions as of the date of this free writing
prospectus and is subject to confirmation on the Trade Date.
You should consult your tax adviser regarding
all aspects of the U.S. federal tax consequences of an investment in the Securities (including possible alternative treatments
of the Securities). Unless otherwise stated, the following discussion is based on the treatment of each Security as described in
the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Security that is, for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
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a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
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Tax Treatment of the Securities
Assuming
the treatment of the Securities as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax
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:
|
t
|
an individual who is classified as a nonresident alien;
|
|
t
|
a foreign corporation; or
|
|
t
|
a foreign estate or trust.
|
The term “Non-U.S. Holder” does
not include any of the following holders:
|
t
|
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;
|
|
t
|
certain former citizens or residents of the United States; or
|
|
t
|
a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
|
Such holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the Securities.
Although significant aspects of the tax treatment of each Security
are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at a reduced rate specified
by an applicable income tax treaty under an “other income” or similar provision. We will not be required to pay any
additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction in, the 30% withholding
tax, a Non-U.S. Holder of the Securities must comply with certification requirements to establish that it is not a U.S. person
and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S. Holder, you should consult
your tax adviser regarding the tax treatment of the Securities, including the possibility of obtaining a refund of any withholding
tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code and Treasury regulations promulgated
thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend
equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices
that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m) generally
applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as determined
based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant to an IRS
notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have a delta of one with respect
to any Underlying Security. Based on the terms of the Securities and current market conditions, we expect that the Securities will
not have a delta of one with respect to any Underlying Security on the Trade Date. However, we will provide an updated determination
in the pricing supplement. Assuming that the Securities do not have a delta of one with respect to any Underlying Security, our
counsel is of the opinion that the Securities should not be Specified Securities and, therefore, should not be subject to Section
871(m).
Our determination is not binding on the IRS, and the IRS may
disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including
whether you enter into other transactions with respect to an Underlying Security. If Section 871(m) withholding is required, we
will not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser
regarding the potential application of Section 871(m) to the Securities.
U.S.
Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which
is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that,
absent an applicable treaty exemption, the Securities may be treated as U.S.-situs property subject to U.S. federal estate tax.
Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers
regarding the U.S. federal estate tax consequences of an investment in the Securities.
Backup
Withholding and Information Reporting
Information returns will be filed with the IRS in connection
with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the Securities and the payment
of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder may be subject to backup withholding in respect of amounts
paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S.
person for U.S. federal income tax purposes or otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability
and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies to payments
of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain financial
instruments treated as providing for U.S.-source interest or dividends. Under recently proposed regulations (the preamble to which
specifies that taxpayers are permitted to rely on them pending finalization), no withholding will apply on payments of gross proceeds
(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 MSCI Emerging Markets Index
SM
|
The MSCI Emerging Markets Index
SM
is a stock
index calculated, published and disseminated daily by MSCI Inc. (“MSCI”) and is intended to provide performance benchmarks
for certain emerging equity markets including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia,
Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United
Arab Emirates. For additional information about the MSCI Emerging Markets Index
SM
, see the information set
forth under “MSCI Emerging Markets Index
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 MSCI Emerging Markets Index
SM
for each quarter in the period
from January 1, 2014 through August 6, 2019. The closing value of the MSCI Emerging Markets Index
SM
on August 6, 2019
was 972.67. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
The historical closing values of the MSCI Emerging Markets Index
SM
should not be taken as an indication of future performance,
and no assurance can be given as to the level of the MSCI Emerging Markets Index
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
|
1,002.66
|
916.56
|
994.65
|
4/1/2014
|
6/30/2014
|
1,057.59
|
993.12
|
1,050.78
|
7/1/2014
|
9/30/2014
|
1,100.98
|
1,005.33
|
1,005.33
|
10/1/2014
|
12/31/2014
|
1,016.07
|
909.98
|
956.31
|
1/1/2015
|
3/31/2015
|
993.82
|
934.73
|
974.57
|
4/1/2015
|
6/30/2015
|
1,067.01
|
959.42
|
972.25
|
7/1/2015
|
9/30/2015
|
971.91
|
771.77
|
792.05
|
10/1/2015
|
12/31/2015
|
868.56
|
771.22
|
794.14
|
1/1/2016
|
3/31/2016
|
836.80
|
688.52
|
836.80
|
4/1/2016
|
6/30/2016
|
853.69
|
781.84
|
834.10
|
7/1/2016
|
9/30/2016
|
927.29
|
819.19
|
903.46
|
10/1/2016
|
12/31/2016
|
918.68
|
838.96
|
862.27
|
1/1/2017
|
3/31/2017
|
973.08
|
861.88
|
958.37
|
4/1/2017
|
6/30/2017
|
1,019.11
|
952.92
|
1,010.80
|
7/1/2017
|
9/30/2017
|
1,112.92
|
1,002.48
|
1,081.72
|
10/1/2017
|
12/31/2017
|
1,158.45
|
1,082.97
|
1,158.45
|
1/1/2018
|
3/31/2018
|
1,273.07
|
1,142.85
|
1,170.88
|
4/1/2018
|
6/30/2018
|
1,184.13
|
1,046.71
|
1,069.52
|
7/1/2018
|
9/30/2018
|
1,092.36
|
1,003.33
|
1,047.91
|
10/1/2018
|
12/31/2018
|
1,046.40
|
934.80
|
965.78
|
1/1/2019
|
3/31/2019
|
1,070.95
|
949.57
|
1,058.13
|
4/1/2019
|
6/30/2019
|
1,096.39
|
984.81
|
1,054.86
|
7/1/2019
|
8/6/2019*
|
1,064.63
|
972.67
|
972.67
|
* 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 MSCI Emerging
Markets Index
SM
from January 1, 2008 through August 6, 2019, based on information from Bloomberg.
*
The dotted line indicates the hypothetical Coupon Barrier and Downside Threshold, assuming the closing value of the MSCI Emerging
Markets Index
SM
on August 6, 2019 were its Initial Underlying Value.
Past performance is not indicative of future results.
The S&P 500
®
Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies selected
to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500
®
Index is based
on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time
as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941 through
1943. For additional information about the S&P 500
®
Index, see the information set forth under “S&P
500
®
Index” in the accompanying index supplement.
“Standard & Poor’s
®
,” “S&P
®
,”
“S&P 500
®
,” “Standard & Poor’s 500” and “500” are trademarks of
Standard and Poor’s Financial Services LLC. For more information, see “S&P 500
®
Index” in
the accompanying index supplement.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the S&P 500
®
Index for each quarter in the period from
January 1, 2014 through August 6, 2019. The closing value of the S&P 500
®
Index on August 6, 2019 was 2,881.77.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical
closing values of the S&P 500
®
Index should not be taken as an indication of future performance, and no assurance
can be given as to the level of the S&P 500
®
Index on any Observation Date, including the Final Observation
Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
1,878.04
|
1,741.89
|
1,872.34
|
4/1/2014
|
6/30/2014
|
1,962.87
|
1,815.69
|
1,960.23
|
7/1/2014
|
9/30/2014
|
2,011.36
|
1,909.57
|
1,972.29
|
10/1/2014
|
12/31/2014
|
2,090.57
|
1,862.49
|
2,058.90
|
1/1/2015
|
3/31/2015
|
2,117.39
|
1,992.67
|
2,067.89
|
4/1/2015
|
6/30/2015
|
2,130.82
|
2,057.64
|
2,063.11
|
7/1/2015
|
9/30/2015
|
2,128.28
|
1,867.61
|
1,920.03
|
10/1/2015
|
12/31/2015
|
2,109.79
|
1,923.82
|
2,043.94
|
1/1/2016
|
3/31/2016
|
2,063.95
|
1,829.08
|
2,059.74
|
4/1/2016
|
6/30/2016
|
2,119.12
|
2,000.54
|
2,098.86
|
7/1/2016
|
9/30/2016
|
2,190.15
|
2,088.55
|
2,168.27
|
10/1/2016
|
12/31/2016
|
2,271.72
|
2,085.18
|
2,238.83
|
1/1/2017
|
3/31/2017
|
2,395.96
|
2,257.83
|
2,362.72
|
4/1/2017
|
6/30/2017
|
2,453.46
|
2,328.95
|
2,423.41
|
7/1/2017
|
9/30/2017
|
2,519.36
|
2,409.75
|
2,519.36
|
10/1/2017
|
12/31/2017
|
2,690.16
|
2,529.12
|
2,673.61
|
1/1/2018
|
3/31/2018
|
2,872.87
|
2,581.00
|
2,640.87
|
4/1/2018
|
6/30/2018
|
2,786.85
|
2,581.88
|
2,718.37
|
7/1/2018
|
9/30/2018
|
2,930.75
|
2,713.22
|
2,913.98
|
10/1/2018
|
12/31/2018
|
2,925.51
|
2,351.10
|
2,506.85
|
1/1/2019
|
3/31/2019
|
2,854.88
|
2,447.89
|
2,834.40
|
4/1/2019
|
6/30/2019
|
2,954.18
|
2,744.45
|
2,941.76
|
7/1/2019
|
8/6/2019*
|
3,025.86
|
2,844.74
|
2,881.77
|
|
*
|
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 S&P 500
®
Index from January 1, 2008 through August 6, 2019,
based on information from Bloomberg.
* The
dotted line indicates the Coupon Barrier and Downside Threshold of 2,305.42, which is approximately 80% of its Initial Underlying
Value.
Past performance is not indicative of future results.
The EURO STOXX 50
®
Index
|
The EURO STOXX 50
®
Index was created by STOXX
Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50
®
Index began
on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50
®
Index is
composed of 50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes stocks selected
from the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across all market sectors.
For additional information about the EURO STOXX 50
®
Index, see the information set forth under “EURO STOXX
50
®
Index” in the accompanying index supplement.
“EURO STOXX 50
®
” and “STOXX
®
”
are registered trademarks of STOXX Limited. For more information, see “EURO STOXX 50
®
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 EURO STOXX 50
®
Index for each quarter in the period
from January 1, 2014 through August 6, 2019. The closing value of the EURO STOXX 50
®
Index on August 6, 2019 was
3,291.66. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The
historical closing values of the EURO STOXX 50
®
Index should not be taken as an indication of future performance,
and no assurance can be given as to the level of the EURO STOXX 50
®
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
|
3,172.43
|
2,962.49
|
3,161.60
|
4/1/2014
|
6/30/2014
|
3,314.80
|
3,091.52
|
3,228.24
|
7/1/2014
|
9/30/2014
|
3,289.75
|
3,006.83
|
3,225.93
|
10/1/2014
|
12/31/2014
|
3,277.38
|
2,874.65
|
3,146.43
|
1/1/2015
|
3/31/2015
|
3,731.35
|
3,007.91
|
3,697.38
|
4/1/2015
|
6/30/2015
|
3,828.78
|
3,424.30
|
3,424.30
|
7/1/2015
|
9/30/2015
|
3,686.58
|
3,019.34
|
3,100.67
|
10/1/2015
|
12/31/2015
|
3,506.45
|
3,069.05
|
3,267.52
|
1/1/2016
|
3/31/2016
|
3,178.01
|
2,680.35
|
3,004.93
|
4/1/2016
|
6/30/2016
|
3,151.69
|
2,697.44
|
2,864.74
|
7/1/2016
|
9/30/2016
|
3,091.66
|
2,761.37
|
3,002.24
|
10/1/2016
|
12/31/2016
|
3,290.52
|
2,954.53
|
3,290.52
|
1/1/2017
|
3/31/2017
|
3,500.93
|
3,230.68
|
3,500.93
|
4/1/2017
|
6/30/2017
|
3,658.79
|
3,409.78
|
3,441.88
|
7/1/2017
|
9/30/2017
|
3,594.85
|
3,388.22
|
3,594.85
|
10/1/2017
|
12/31/2017
|
3,697.40
|
3,503.96
|
3,503.96
|
1/1/2018
|
3/31/2018
|
3,672.29
|
3,278.72
|
3,361.50
|
4/1/2018
|
6/30/2018
|
3,592.18
|
3,340.35
|
3,395.60
|
7/1/2018
|
9/30/2018
|
3,527.18
|
3,293.36
|
3,399.20
|
10/1/2018
|
12/31/2018
|
3,414.16
|
2,937.36
|
3,001.42
|
1/1/2019
|
3/31/2019
|
3,409.00
|
2,954.66
|
3,351.71
|
4/1/2019
|
6/30/2019
|
3,514.62
|
3,280.43
|
3,473.69
|
7/1/2019
|
8/6/2019*
|
3,544.15
|
3,291.66
|
3,291.66
|
* 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 EURO STOXX
50
®
Index from January 1, 2008 through August 6, 2019, based on information from Bloomberg.
*
The dotted line indicates the Coupon Barrier and Downside Threshold of 2,633.33, which is approximately 80% of its Initial Underlying
Value.
Past performance is not indicative of future results.
Correlation of the Underlyings
|
The graph below illustrates the daily performance of the MSCI
Emerging Markets Index
SM
, the S&P 500
®
Index and the EURO STOXX 50
®
Index from January
1, 2008 through August 5, 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 more 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 all 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 all three Underlyings”,
“— Because the Securities are linked to the performance of the least performing among the MXEF Index, the SPX Index
and the SX5E 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 MXEF Index, just the SPX Index or just the SX5E 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
|
If the terms contained in this free writing prospectus differ
from those discussed in the product supplement, index supplement or prospectus, the terms contained in this free writing prospectus
will 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 MXEF Index, MSCI Inc. or any successor thereto.
With respect to the SPX Index, S&P Dow Jones Indices LLC
or any successor thereto.
With respect to the SX5E Index, STOXX Limited, or any successor
thereto.
“Index Closing Value” on any Index Business Day means,
with respect to the MXEF Index, the SPX Index and the SX5E 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. 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.
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Additional Information About the Securities
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Use of Proceeds and Hedging
The proceeds from the sale of the Securities will be used by
us for general corporate purposes. We will receive, in aggregate, $10 per Security issued, because, when we enter into hedging
transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost of the Agent’s
commissions. The costs of the Securities borne by you and described on page 2 above comprise the Agent’s commissions and
the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying prospectus.
On or prior to the Trade Date, we hedged and will hedge our anticipated
exposure in connection with the Securities, by entering into hedging transactions with our affiliates and/or third party dealers.
We expect our hedging counterparties to have taken and to take positions in the constituent stocks of the Underlyings, in futures
or options contracts on the Underlyings or the constituent stocks of the Underlyings, as well as in other instruments related to
the Underlyings that they may wish to use in connection with such hedging. Any of these hedging or trading activities on or prior
to the Trade Date, could potentially increase, as applicable, the Initial Underlying Value, and, as a result, the Coupon Barrier
of any 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 any 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). In addition, through our affiliates, we are likely to modify our hedge position throughout the term of
the Securities, including on the Final Observation Date, by purchasing and selling the stocks constituting the Underlyings, futures
or options contracts on the Underlyings or their component stocks listed on major securities markets or positions in any other
available securities or instruments that we may wish to use in connection with such hedging activities., including by purchasing
or selling any such securities or instruments on the Final Observation Date. As a result, these entities may be unwinding or adjusting
hedge positions during the term of the Securities, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the Final Observation Date approaches. We cannot give any assurance that our hedging activities will not affect
the values of the Underlyings and, therefore, adversely affect the value of the Securities or the payment you will receive at maturity,
if any, if not previously called.
Benefit Plan Investor Considerations
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the Securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the Securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the Securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the Securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and the related lending transactions,
provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control
or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further that the
Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called
“service provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available
with respect to transactions involving the Securities.
Because we may be considered a party in interest with respect
to many Plans, the Securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the Securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the Securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such Securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the Code (“Similar Law”) or (b) its purchase, holding and disposition of these Securities will not constitute or result
in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the Securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The Securities are contractual financial instruments. The financial
exposure provided by the Securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the Securities. The Securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the Securities.
Each purchaser or holder of any Securities acknowledges and agrees
that:
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(i)
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the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the
purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of
the purchaser or holder with respect to (A) the design and terms of the Securities, (B) the purchaser or holder’s investment
in the Securities, or (C) the exercise of or failure to exercise any rights we have under or with respect to the Securities;
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(ii)
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we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to
the Securities and (B) all hedging transactions in connection with our obligations under the Securities;
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(iii)
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any and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those
entities and are not assets and positions held for the benefit of the purchaser or holder;
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(iv)
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our interests are adverse to the interests of the purchaser or holder; and
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(v)
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neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets,
positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment
advice.
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Each purchaser and holder of the Securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the Securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any Securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these Securities should consult
and rely on their own counsel and advisers as to whether an investment in these Securities is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the Securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley, Morgan Stanley Wealth Management or their respective affiliates or a family member and the employee receives any compensation
(such as, for example, an addition to bonus) based on the purchase of Securities by the account, plan or annuity.
Supplemental Plan of Distribution; Conflicts of Interest
MS & Co. will act as the agent for this offering. We will
agree to sell to MS & Co., and MS & Co. will agree to purchase, all of the Securities at the issue price less the underwriting
discount indicated on the cover of this document. UBS Financial Services Inc., acting as dealer, will receive from MS & Co.
a fixed sales commission of $0.35 for each Security it sells.
MS & Co. is our affiliate and a wholly owned subsidiary of
Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the Securities. When MS & Co. prices this offering of Securities, it will determine the economic terms of the Securities such
that for each Security the estimated value on the Trade Date will be no lower than the minimum level described in “Additional
Information about Morgan Stanley, MSFL and the Securities” on page 2.
MS & Co. will conduct this offering in compliance with the
requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”), regarding a FINRA member
firm’s distribution of the securities of an affiliate and related conflicts of interest. MS & Co. or any of our other
affiliates may not make sales in this offering to any discretionary account.
In order to facilitate the offering of the Securities, the agent
may engage in transactions that stabilize, maintain or otherwise affect the price of the Securities. Specifically, the agent may
sell more Securities than it is obligated to purchase in connection with the offering, creating a naked short position in the Securities,
for its own account. The agent must close out any naked short position by purchasing the Securities in the open market. A naked
short position is more likely to be created if the agent is concerned that there may be downward pressure on the price of the Securities
in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of
facilitating the offering, the agent may bid for, and purchase, the Securities or the stocks constituting the Underlyings in the
open market to stabilize the price of the Securities. Any of these activities may raise or maintain the market price of the Securities
above independent market levels or prevent or retard a decline in the market price of the Securities. The agent is not required
to engage in these activities, and may end any of these activities at any time. An affiliate of the agent has entered into a hedging
transaction with us in connection with this offering of Securities. See “—Use of Proceeds and Hedging” above.
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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From Jun 2024 to Jul 2024
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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From Jul 2023 to Jul 2024