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.
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.
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.
creditworthiness and changes in
market conditions. See also “The market price of the Securities will be influenced by many unpredictable factors” above.
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.
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.
The examples below illustrate the payment upon a call or at maturity
for a $10 Security on a hypothetical offering of the Securities, with the following assumptions (the actual terms for the Securities
will be determined on the Trade Date; amounts may have been rounded for ease of reference):
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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NDX Index
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SX5E Index
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First Observation Date
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8,100 (at or above Coupon Barrier)
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3,150 (at or above Coupon Barrier)
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$0.15 (Contingent Coupon — Not Callable)
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Second Observation Date
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7,500 (at or above Coupon Barrier)
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2,300 (at or above Coupon Barrier)
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$0.15 (Contingent Coupon — Not Callable)
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Third Observation Date
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7,600 (at or above Coupon Barrier)
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2,250 (at or above Coupon Barrier)
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$0.15 (Contingent Coupon — Not Callable)
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Fourth Observation Date
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8,200 (at or above Coupon Barrier and Initial Underlying Value)
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3,200 (at or above Coupon Barrier and Initial Underlying Value)
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$10.15 (Settlement Amount)
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Total Payment:
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$10.60 (6.0% return)
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Both the NDX Index and SX5E Index close above their respective
Coupon Barriers on the first three Observation Dates and therefore a Contingent Coupon is paid on each related Coupon Payment Date.
Because both the NDX Index and the SX5E Index close above their respective Initial Underlying Values 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 $10.15 per Security, reflecting
your principal amount plus the applicable Contingent Coupon. When added to the Contingent Coupon payments of $0.45 received in
respect of the prior Observation Dates, MSFL will have paid you a total of $10.15 per Security for a 6.0% 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 Values of both the NDX Index and the SX5E Index are at or above their respective Coupon Barriers and Downside Thresholds.
Date
|
Index Closing Value
|
Payment (per Security)
|
NDX Index
|
SX5E Index
|
First Observation Date
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7,800 (at or above Coupon Barrier)
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2,250 (at or above Coupon Barrier)
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$0.15 (Contingent Coupon — Not Callable)
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Second Observation Date
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6,500 (at or above Coupon Barrier)
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3,100 (at or above Coupon Barrier)
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$0.15 (Contingent Coupon — Not Callable)
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Third Observation Date
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5,900 (at or above Coupon Barrier)
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1,700 (below Coupon Barrier)
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$0 (Not Callable)
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Fourth Observation Date
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6,400 (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 Called)
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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 below Coupon Barrier and Initial Underlying Value)
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$0 (Not Called)
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Final Observation Date
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9,000 (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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$10.15 (Settlement Amount)
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Total Payment:
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$10.45 (4.5% return)
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Both the NDX Index and the SX5E Index close above their respective
Coupon Barriers on the first two Observation Dates and therefore a Contingent Coupon is paid on each related Coupon Payment Date.
On each of the third to thirty-ninth Observation Dates, the NDX Index closes at or above its Coupon Barrier (but below its Initial
Underlying Value, where applicable) but the SX5E Index closes below its Coupon Barrier. Therefore, no Contingent Coupon is paid
on any related Coupon Payment Date. On the Final Observation Date, both the NDX Index and the SX5E Index close above their respective
Coupon Barriers and Downside Thresholds. Therefore, at maturity, MSFL will pay you a total of $10.15 per Security, reflecting your
principal amount plus the applicable Contingent Coupon. When added to the total Contingent Coupon payments of $0.30 received in
respect of the prior Observation Dates, MSFL will have paid you a total of $10.45 per Security for a 4.5% 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 Values of both the NDX Index and the SX5E Index are at or above their respective Downside
Thresholds but the Final Underlying Value of one Underlying is below its respective Coupon Barrier
Date
|
Index Closing Value
|
Payment (per Security)
|
NDX Index
|
SX5E Index
|
First Observation Date
|
8,150 (at or above Coupon Barrier)
|
2,200 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
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Second Observation Date
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7,950 (at or above Coupon Barrier)
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2,500 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
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Third Observation Date
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6,700 (at or above Coupon Barrier)
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1,850 (below Coupon Barrier)
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$0 (Not Callable)
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Fourth Observation Date
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7,200 (at or above Coupon Barrier; below Initial Index Value)
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1,600 (below Coupon Barrier and Initial Index Value)
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$0 (Not Called)
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Fifth to Thirty-Ninth Observation Dates
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Various (all at or above Coupon Barrier; all below Initial Index Value)
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Various (all below Coupon Barrier and Initial Index Value)
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$0 (Not Called)
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Final Observation Date
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4,500 (below Coupon Barrier, at or above Downside Threshold)
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2,300 (at or above Coupon Barrier and Downside Threshold)
|
$10.00 (Principal Amount)
|
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Total Payment:
|
$10.30 (3.0% return)
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Both the NDX Index and
the SX5E Index close above their respective Coupon Barriers on the first two Observation Dates and therefore a Contingent Coupon
is paid on each related Coupon Payment Date. On each of the third to thirty-ninth Observation Dates, the NDX Index closes at or
above its Coupon Barrier (but below its Initial Index Value, where applicable) but the SX5E Index closes below its Coupon Barrier.
Therefore, no Contingent Coupon is paid on any related Coupon Payment Date. On the Final Observation Date, both the NDX Index and
the SX5E Index close above their respective Downside Thresholds, but the NDX Index closes below its Coupon Barrier. Therefore,
at maturity, MSFL will pay you a total of $10.00 per Security, reflecting your Principal Amount, but you will not receive a Contingent
Coupon with respect to the Final Observation Date. When added to the Contingent Coupon payments of $0.30 received in respect of
the prior Observation Dates, MSFL will have paid you a total of $10.30 per Security for a 3.0% total return on the Securities over
ten years.
Example 4 — Securities are NOT Called and the Final
Underlying Value of one of the Underlyings is below its respective Downside Threshold
Date
|
Index Closing Value
|
Payment (per Security)
|
NDX Index
|
SX5E Index
|
First Observation Date
|
8,050 (at or above Coupon Barrier)
|
2,150 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
8,100 (at or above Coupon Barrier)
|
2,400 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Third Observation Date
|
8,010 (at or above Coupon Barrier)
|
1,750 (below Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Observation Date
|
7,700 (at or above Coupon Barrier; below Initial Underlying Value)
|
1,600 (below Coupon Barrier and Initial Underlying Value)
|
$0 (Not Called)
|
Fifth to Thirty-Ninth Observation Dates
|
Various (all below Coupon Barrier and Initial Underlying Value)
|
Various (all below Coupon Barrier and Initial Underlying Value)
|
$0 (Not Called)
|
Final Observation Date
|
7,000 (at or above Coupon Barrier and Downside Threshold)
|
1,200 (below Coupon Barrier and Downside Threshold)
|
$10 + [$10 × Underlying Return
of the Least Performing Underlying] =
$10 + [$10 × -60%] =
$10 - $6 =
$4 (Payment at Maturity)
|
|
|
Total Payment:
|
$4.30 (-57.0% return)
|
Both the NDX Index and the SX5E Index close above their respective
Coupon Barriers on the first two Observation Dates, and, therefore a Contingent Coupon is paid on each related Coupon Payment Date.
On each of the third and fourth Observation Dates, the NDX Index closes at or above its Coupon Barrier (but below its Initial Underlying
Value, 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,
both the NDX Index and the SX5E Index close below their respective
Coupon Barriers and thus no Contingent Coupon is paid on any related Coupon Payment Date. On the Final Observation Date, the NDX
Index closes above its Coupon Barrier and Downside Threshold 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 $0.30 received in respect of the prior Observation Dates,
MSFL will have paid you $4.30 per Security, for a loss on the Securities of 57.0%.
The Securities differ from ordinary debt securities in that,
among other features, MSFL is not necessarily obligated to repay the full amount of your initial investment. If the Securities
are not called on any Observation Date, you may lose a significant portion or all of your initial investment. Specifically, if
the Securities are not called and the Final Underlying Value of either Underlying is less than its respective Downside Threshold,
you will lose 1% (or a fraction thereof) of your Principal Amount for each 1% (or a fraction thereof) that the Underlying Return
of the Least Performing Underlying is less than zero. Any payment on the Securities, including any Contingent Coupon, payment upon
an automatic call or the Payment at Maturity, is dependent on our ability to satisfy our obligations when they come due. If we
are unable to meet our obligations, you may not receive any amounts due to you under the Securities.
The Issuer will not pay a quarterly Contingent Coupon if the
Observation Date Closing Value for either of the Underlyings is below its respective Coupon Barrier. The Issuer will not automatically
call the Securities if the Observation Date Closing Value of either of the Underlyings is below its respective Initial Underlying
Value. You will lose a significant portion or all of your principal amount at maturity if the Securities are not called and the
Final Underlying Value of either of the Underlyings is below its respective Downside Threshold.
What
Are the Tax Consequences of the Securities?
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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:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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The term “Non-U.S. Holder” does
not include any of the following holders:
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a holder who is an individual present in the United States for 183
days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income
tax purposes;
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certain former citizens or residents of the United States; or
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a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
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Such holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the Securities.
Although significant aspects of the tax treatment
of each Security are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally at a rate of 30% or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision. We will not
be required to pay any additional amounts with respect to amounts withheld. In order to claim an exemption from, or a reduction
in, the 30% withholding tax, a Non-U.S. Holder of the Securities must comply with certification requirements to establish that
it is not a U.S. person and is eligible for such an exemption or reduction under an applicable tax treaty. If you are a Non-U.S.
Holder, you should consult your tax adviser regarding the tax treatment of the Securities, including the possibility of obtaining
a refund of any withholding tax and the certification requirement described above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code and Treasury regulations
promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax
on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities
or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m)
generally applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as
determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant
to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2021 that do not have a delta of one with
respect to any Underlying Security. Based on 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 NASDAQ-100 Index®, which is calculated, maintained
and published by Nasdaq, Inc., is a modified capitalization-weighted index of 100 of the largest and most actively traded equity
securities of non-financial companies listed on The NASDAQ Stock Market LLC. The NASDAQ-100 Index includes companies across a variety
of major industry groups. At any moment in time, the value of the NASDAQ-100 Index equals the aggregate value of the then-current
NASDAQ-100 Index share weights of each of the NASDAQ-100 Index component securities, which are based on the total shares outstanding
of each such NASDAQ-100 Index component security, multiplied by each such security’s respective last sale price on NASDAQ
(which may be the official closing price published by NASDAQ), and divided by a scaling factor, which becomes the basis for the
reported NASDAQ-100 Index value. For additional information about the NASDAQ-100 Index® Index, see the information
set forth under “NASDAQ-100 Index®” in the accompanying index supplement.
“Nasdaq®,” “NASDAQ-100®”
and “NASDAQ-100 Index®” are trademarks of Nasdaq, Inc. For more information, see “NASDAQ-100 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 NASDAQ 100 Index® for each quarter in the period from
January 1, 2014 through October 3, 2019. The closing value of the NASDAQ 100 Index® on October 3, 2019 was 7,638.395.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical
closing values of the NASDAQ 100 Index® should not be taken as an indication of future performance, and no assurance
can be given as to the level of the NASDAQ 100 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
|
3,727.185
|
3,440.502
|
3,595.736
|
4/1/2014
|
6/30/2014
|
3,849.479
|
3,446.845
|
3,849.479
|
7/1/2014
|
9/30/2014
|
4,103.083
|
3,857.938
|
4,049.445
|
10/1/2014
|
12/31/2014
|
4,337.785
|
3,765.281
|
4,236.279
|
1/1/2015
|
3/31/2015
|
4,483.049
|
4,089.648
|
4,333.688
|
4/1/2015
|
6/30/2015
|
4,548.740
|
4,311.257
|
4,396.761
|
7/1/2015
|
9/30/2015
|
4,679.675
|
4,016.324
|
4,181.060
|
10/1/2015
|
12/31/2015
|
4,719.053
|
4,192.963
|
4,593.271
|
1/1/2016
|
3/31/2016
|
4,497.857
|
3,947.804
|
4,483.655
|
4/1/2016
|
6/30/2016
|
4,565.421
|
4,201.055
|
4,417.699
|
7/1/2016
|
9/30/2016
|
4,891.363
|
4,410.747
|
4,875.697
|
10/1/2016
|
12/31/2016
|
4,965.808
|
4,660.457
|
4,863.620
|
1/1/2017
|
3/31/2017
|
5,439.742
|
4,911.333
|
5,436.232
|
4/1/2017
|
6/30/2017
|
5,885.296
|
5,353.586
|
5,646.917
|
7/1/2017
|
9/30/2017
|
6,004.380
|
5,596.956
|
5,979.298
|
10/1/2017
|
12/31/2017
|
6,513.269
|
5,981.918
|
6,396.422
|
1/1/2018
|
3/31/2018
|
7,131.121
|
6,306.100
|
6,581.126
|
4/1/2018
|
6/30/2018
|
7,280.705
|
6,390.837
|
7,040.802
|
7/1/2018
|
9/30/2018
|
7,660.180
|
7,014.554
|
7,627.650
|
10/1/2018
|
12/31/2018
|
7,645.453
|
5,899.354
|
6,329.964
|
1/1/2019
|
3/31/2019
|
7,493.270
|
6,147.128
|
7,378.771
|
4/1/2019
|
6/30/2019
|
7,845.729
|
6,978.018
|
7,671.075
|
7/1/2019
|
9/30/2019
|
8,016.953
|
7,415.691
|
7,749.449
|
10/1/2019
|
10/3/2019*
|
7,684.142
|
7,550.786
|
7,638.395
|
*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
NASDAQ 100 Index® from January 1, 2008 through October 3, 2019, based on information from Bloomberg.
* The dotted line indicates the
hypothetical Coupon Barrier and the solid line indicates the hypothetical Downside Threshold, in each case assuming the closing
value of the NASDAQ 100 Index® on October 3, 2019 were its Initial Underlying Value.
Past performance is not indicative of future results.
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 October 3, 2019. The closing value of the EURO STOXX 50® Index on October 3, 2019 was
3,417.37. 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
|
9/30/2019
|
3,571.39
|
3,282.78
|
3,569.45
|
10/1/2019
|
10/3/2019*
|
3,518.25
|
3,413.31
|
3,417.37
|
*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 October 3, 2019, based on information from Bloomberg.
* The dotted line indicates the
hypothetical Coupon Barrier and the solid line indicates the hypothetical Downside Threshold, in each case assuming the closing
value of the EURO STOXX 50® Index on October 3, 2019 were 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 NASDAQ
100 Index® and the EURO STOXX 50® Index from January 1, 2008 through October 3, 2019. For comparison
purposes, each Underlying has been “normalized” to have a closing value of 100 on January 1, 2008 by dividing the closing
value of that Underlying on each Index Business Day by the closing value of that Underlying on January 1, 2008 and multiplying
by 100. We obtained the closing values used to determine the normalized closing values set forth below from Bloomberg, without
independent verification.
A closer relationship between the daily returns of two or more
underlying assets over a given period indicates that such underlying assets have been more positively correlated. Lower (or more-negative)
correlation among two or more underlying assets over a given period may indicate that it is less likely that those underlying assets
will subsequently move in the same direction. Therefore, lower correlation among the Underlyings may indicate a greater potential
for one of the Underlyings to close below its respective Coupon Barrier or Downside Threshold on an Observation Date, including
the Final Observation Date, as applicable, because there may be a greater likelihood that at least one of the Underlyings will
decrease in value significantly. However, even if the Underlyings have a higher positive correlation, one or both of the Underlyings
may close below the respective Coupon Barrier(s) or Downside Threshold(s) on an Observation Date or the Final Observation Date,
as applicable, as the Underlyings may both decrease in value. Moreover, the actual correlation among the Underlyings may
differ, perhaps significantly, from their historical correlation. A higher Contingent Coupon Rate is generally associated
with lower correlation among the Underlyings, which may indicate a greater potential for missed Contingent Coupons and/or a significant
loss on your investment at maturity. See “Key Risks — You are exposed to the market risk of both Underlyings”,
“—Because the Securities are linked to the performance of the least performing between the NDX 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 NDX 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 NDX Index, Nasdaq, Inc. 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 each of the NDX 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.
Additional Information About the Securities
|
Use of Proceeds and Hedging
The proceeds from the sale of the Securities will be used by
us for general corporate purposes. We will receive, in aggregate, $10 per Security issued, because, when we enter into hedging
transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost of the Agent’s
commissions. The costs of the Securities borne by you and described on page 2 above comprise the Agent’s commissions and
the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying prospectus.
On or prior to the Trade Date, we will hedge our anticipated
exposure in connection with the Securities, by entering into hedging transactions with our affiliates and/or third party dealers.
We expect our hedging counterparties to take positions in the constituent stocks of the Underlyings and 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 the Initial Underlying Value, and, as a result, the Coupon Barrier of
either of the Underlyings, which is the level at or above which such Underlying must close on each Observation Date in order for
you to earn a Contingent Coupon, and the Downside Threshold of either of the Underlyings, which if the Securities are not called
prior to maturity, is the level at or above which such Underlying must close on the Final Observation Date in order for you to
avoid being exposed to the negative performance of the Least Performing Underlying at maturity (in each case, depending also on
the performance of the other Underlying). 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, including
the Contingent Coupon Rate, 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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