Free Writing Prospectus No. 2,840
Registration Statement Nos. 333-221595; 333-221595-01
Dated November 13, 2019
These Trigger Callable 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 S&P
500® Index (the “SPX Index”), the Dow Jones Industrial AverageSM (the “INDU Index”)
and the EURO STOXX 50® Index (the “SX5E Index,” and together with the SPX Index and the INDU Index,
the “Underlyings”). If the Index Closing Value of each of the SPX Index, the INDU Index and the SX5E Index on
a quarterly Observation Date (the “Observation Date Closing Value”) is equal to or greater than its respective Coupon
Barrier, MSFL will make a Contingent Coupon payment with respect to that Observation Date on the related Coupon Payment Date. However,
if the Observation Date 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, beginning on November 19, 2020, MSFL will have the right to call
the Securities at its discretion on any quarterly Coupon Payment Date for the principal amount plus any Contingent Coupon otherwise
due with respect to the related Observation Date, and no further amounts will be owed to you. Any early redemption of the Securities
will be at MSFL’s discretion and will not automatically occur based on the performance of the Underlyings. If the Securities
are not called prior to maturity and the Final Underlying Value of each of the SPX Index, the INDU Index and the SX5E Index
is equal to or greater than its respective Downside Threshold, MSFL will make a cash payment to you at maturity equal to the principal
amount of your Securities and, if payable, 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 enhanced income
in exchange for the risk of losing their principal at maturity, the risk of receiving no Contingent Coupons during the term of
the Securities and the risk of an early redemption of the Securities at MSFL’s discretion. 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 SPX Index, the INDU 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 of any of the Underlyings beyond the relevant Coupon Barrier on any Observation Date or beyond the Downside Threshold
on the Final Observation Date 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. 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 have the right to call the Securities early at its discretion. 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 Underlying
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 all Underlyings are greater than their respective Downside Thresholds at the time of sale.
This free writing prospectus relates to Securities linked to
the least performing Underlying among the S&P 500® Index, the Dow Jones Industrial AverageSM and
the EURO STOXX 50® Index. The actual Contingent Coupon Rate and the Initial Underlying Value, Coupon Barrier and
Downside Threshold for each of the SPX Index, the INDU Index and the SX5E 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.
(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 31 of
this free writing prospectus.
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 31 of this free writing prospectus.
Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by a prospectus supplement and an index supplement) with the SEC for the offering to which this communication
relates. Before you invest, you should read the prospectus in that registration statement, the prospectus supplement, the index
supplement and any other documents relating to this offering that Morgan Stanley and MSFL have filed with the SEC for more complete
information about Morgan Stanley, MSFL and this offering. You may get these documents for free by visiting EDGAR on the SEC website
at.www.sec.gov. Alternatively, Morgan Stanley, MSFL, any underwriter or any dealer participating
in this offering will arrange to send you the prospectus, the prospectus supplement and index supplement if you so request by calling
toll-free 1-(800)-584-6837.
You may access the accompanying prospectus supplement, index
supplement and prospectus on the SEC website at.www.sec.gov as follows:
You should rely only on the information incorporated by reference
or provided in this free writing prospectus or the accompanying prospectus supplement, index supplement and prospectus. We have
not authorized anyone to provide you with different information. We are not making an offer of these Securities in any state where
the offer is not permitted. You should not assume that the information in this free writing prospectus or the accompanying prospectus
supplement, index supplement and prospectus is accurate as of any date other than the date on the front of this document.
The Issue Price of each Security is $10. This price includes
costs associated with issuing, selling, structuring and hedging the Securities, which are borne by you, and, consequently, the
estimated value of the Securities on the Trade Date will be less than $10. We estimate that the value of each Security on the Trade
Date will be approximately $9.383, 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.
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.
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.
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.
*
The Securities are not callable until the fourth Coupon Payment Date, which is November 19, 2020.
(1)
Subject to postponement in the event of a Market Disruption Event or for non-Index Business Days. See “Postponement of Observation
Dates and Coupon Payment Dates (including the Call Dates and the Maturity Date)” under “Additional Terms of the Securities”
below.
(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 / Call Date, the Coupon Payment Date / Call 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. You should also consult your investment, legal, tax, accounting and other advisers before you invest
in the Securities.
On the other hand, MSFL will be
less likely to exercise its call right when the Index Closing Value of any Underlying is below its Coupon Barrier Level and/or
when the Final Underlying Value of any Underlying is expected to be below its Downside Threshold, such that you will receive no
Contingent Coupons and/or that you will suffer a significant loss on your initial investment in the Securities at maturity. Therefore,
if MSFL does not exercise its call right, it is more likely that you will receive few or no Contingent Coupons and suffer a significant
loss at maturity.
limited to the Contingent Coupon
that is paid with respect to each Observation Date on which the Observation Date Closing Value of each of the SPX Index, the INDU
Index and the SX5E Index is greater than its respective Coupon Barrier prior to maturity or a call by MSFL. If called, the return
on the Securities will be limited to any Contingent Coupons regardless of the appreciation of any of the Underlyings, which could
be significant. It is also possible that, on any Observation Date, the Observation Date 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 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.
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.
be
incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher
estimated value of the Securities than those generated by others, including other dealers in the market, if they attempted to
value the Securities. In addition, the estimated value on the Trade Date does not represent a minimum or maximum price at which
dealers, including MS & Co., would be willing to purchase your Securities in the secondary market (if any exists) at any time.
The value of your Securities at any time after the date of this free writing prospectus will vary based on many factors that cannot
be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “The market price
of the Securities may be influenced by many unpredictable factors” above.
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
are set forth on the cover hereof or will be determined on the Trade Date; amounts may have been rounded for ease of reference):
Example 1 — Securities are Called on the Fourth Coupon
Payment Date (the first Coupon Payment Date on which MSFL can call the Securities)
Date
|
Index Closing Value
|
Payment (per Security)
|
SPX Index
|
INDU Index
|
SX5E Index
|
First Observation Date
|
3,100 (at or above Coupon Barrier)
|
27,250 (at or above Coupon Barrier)
|
3,900 (at or above Coupon Barrier)
|
$0.16 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
3,400 (at or above Coupon Barrier)
|
28,300 (at or above Coupon Barrier)
|
4,050 (at or above Coupon Barrier)
|
$0.16 (Contingent Coupon — Not Callable)
|
Third Observation Date
|
3,300 (at or above Coupon Barrier)
|
27,250 (at or above Coupon Barrier)
|
4,050 (at or above Coupon Barrier)
|
$0.16 (Contingent Coupon — Not Callable)
|
Fourth Observation Date
|
3,300 (at or above Coupon Barrier)
|
28,310 (at or above Coupon Barrier)
|
3,950 (at or above Coupon Barrier)
|
$10.16 (Settlement Amount)
|
|
|
|
Total Payment:
|
$10.64 (6.40% return)
|
Each of the SPX Index, the INDU Index and the SX5E Index closes
above its respective Coupon Barrier on the first, second, third and fourth Observation Dates, and therefore a Contingent Coupon
is paid on the related Coupon Payment Date. MSFL calls the Securities on the fourth Coupon Payment Date, which is the first Coupon
Payment Date on which MSFL can exercise its call right. On the Call Date, MSFL will pay you a total of $10.16 per Security, reflecting
your principal amount plus the applicable Contingent Coupon otherwise due with respect to the relevant Observation Date. When added
to the Contingent Coupon payments of $0.16 received in respect of the prior Observation Dates, MSFL will have paid you a total
of $10.64 per Security for a 6.40% total return over the 1-year term of 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 SPX Index, the INDU Index and the SX5E Index is at or above its respective Downside Threshold
Date
|
Index Closing Value
|
Payment (per Security)
|
SPX Index
|
INDU Index
|
SX5E Index
|
First Observation Date
|
2,900 (at or above Coupon Barrier)
|
27,000 (at or above Coupon Barrier)
|
2,900 (at or above Coupon Barrier)
|
$0.16 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
2,850 (at or above Coupon Barrier)
|
25,500 (at or above Coupon Barrier)
|
2,950 (at or above Coupon Barrier)
|
$0.16 (Contingent Coupon — Not Callable)
|
Third Observation Date
|
3,000 (at or above Coupon Barrier)
|
24,300 (at or above Coupon Barrier)
|
2,000 (below Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Observation Date
|
2,600 (at or above
|
22,000 (at or above
|
2,100 (below Coupon
|
$0 (Not Called)
|
|
Coupon Barrier)
|
Coupon Barrier)
|
Barrier)
|
|
Fifth to Thirty-Ninth Observation Dates
|
Various (all at or above Coupon Barrier)
|
Various (at or above Coupon Barrier)
|
Various (all below Coupon Barrier)
|
$0 (Not Called)
|
Final Observation Date
|
2,250 (at or above Coupon Barrier and Downside Threshold)
|
23,500 (at or above Coupon Barrier and Downside Threshold)
|
3,000 (at or above Coupon Barrier and Downside Threshold)
|
$10.16 (Settlement Amount)
|
|
|
|
|
Total Payment:
$10.48 (4.80% return)
|
In this example, MSFL does not call the Securities prior to maturity.
Each of the SPX Index, the INDU 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, the SPX Index and the INDU Index close at or above their respective Coupon Barriers, 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, each
of the SPX Index, the INDU Index and the SX5E Index closes above its Coupon Barrier and Downside Threshold. Therefore, at maturity,
MSFL will pay you a total of $10.16 per Security, reflecting your principal amount plus the applicable Contingent Coupon. When
added to the Contingent Coupon payment of $0.32 received in respect of prior Observation Dates, MSFL will have paid you a total
of approximately $10.48 per Security for a 4.80% total return on the Securities over 10 years. You do not participate in any appreciation
of the Underlyings.
Example 3 — Securities are NOT Called and the Final
Underlying Value of at least one of the Underlyings is below the Downside Threshold
Date
|
Index Closing Value
|
|
SPX Index
|
INDU Index
|
SX5E Index
|
Payment (per Security)
|
First Observation Date
|
2,400 (at or above Coupon Barrier)
|
26,000 (at or above Coupon Barrier)
|
2,950 (at or above Coupon Barrier)
|
$0.16 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
2,300 (at or above Coupon Barrier)
|
23,500 (at or above Coupon Barrier)
|
3,000 (at or above Coupon Barrier)
|
$0.16 (Contingent Coupon — Not Callable)
|
Third Observation Date
|
2,250 (at or above Coupon Barrier)
|
13,500 (below Coupon Barrier)
|
2,100 (below Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Observation Date
|
2,350 (at or above Coupon Barrier)
|
10,000 (below Coupon Barrier)
|
1,700 (below Coupon Barrier)
|
$0 (Not Called)
|
Fifth to Thirty-Ninth Observation Dates
|
Various (all below Coupon Barrier)
|
Various (all below Coupon Barrier)
|
Various (all below Coupon Barrier)
|
$0 (Not Called)
|
Final Observation Date
|
2,200 (at or above Coupon Barrier
and Downside Threshold)
|
12,150 (below Coupon Barrier and Downside
Threshold)
|
1,400 (below Coupon Barrier and Downside
Threshold)
|
$10 + [$10 × Index Return
of the Least Performing Underlying] =
$10 + [$10 × -60%] =
$10 - $6 =
$4 (Payment at Maturity)
|
|
|
|
|
Total Payment:
$4.32 (-56.80% return)
|
In this example, MSFL does not call the Securities prior to maturity.
Each of the SPX Index, the INDU 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. During each of the third and fourth Observation
Dates, the SPX Index closes at or above its Coupon Barrier but the INDU Index and the SX5E Index close below their respective Coupon
Barriers. 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 SPX Index, the INDU 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, the SPX Index closes above its
Coupon Barrier and Downside Threshold, but the INDU Index and the SX5E Index close below their respective Coupon Barriers and Downside
Thresholds. Therefore, at maturity, investors are exposed to the downside performance of the Least Performing Underlying (which,
in this example, is the SX5E Index), and MSFL will pay you $4 per Security, which reflects the percentage decrease of the Least
Performing Underlying from the Trade Date to the Final Observation Date. When added to the Contingent Coupon payments of $0.32
received in respect of prior Observation Dates, MSFL will have paid you $4.32 per Security for a loss on the Securities of 56.80%.
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 Coupon Payment 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 Downside Threshold, you will
lose 1% (or a fraction thereof) of your principal amount for each 1% (or a fraction thereof) that the Index Return of the Least
Performing Underlying is less than zero. Any payment on the Securities, including any Contingent Coupon, payment upon an Issuer
Call or the Payment at Maturity, is dependent on our ability to satisfy its obligations when they come due. If we are is 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 on any Observation Date. The Issuer
will have the right to call the Securities early at its discretion. 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.
What
Are the Tax Consequences of the Securities?
|
Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying prospectus 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
|
|
·
|
hold the Securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
This
discussion does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular
circumstances or to holders subject to special rules, such as:
|
·
|
certain financial institutions;
|
|
·
|
certain dealers and traders in securities or commodities;
|
|
·
|
investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
|
|
·
|
U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
|
|
·
|
partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
|
|
·
|
regulated investment companies;
|
|
·
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real estate investment trusts; or
|
|
·
|
tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
|
If
an entity that is classified as a partnership for U.S. federal income tax purposes holds the Securities, the U.S. federal income
tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are
a partnership holding the Securities or a partner in such a partnership, you should consult your tax adviser as to the particular
U.S. federal tax consequences of holding and disposing of the Securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the Securities is technical and complex, the discussion below necessarily represents only a general
summary. The effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences
or consequences resulting from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This
discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury
regulations, all as of the date hereof, changes to any of which subsequent to the date hereof may affect the tax consequences
described herein. Persons considering the purchase of the Securities should consult their tax advisers with regard to the application
of the U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any
state, local or non-U.S. taxing jurisdiction.
General
Due
to the absence of statutory, judicial or administrative authorities that directly address the treatment of the Securities or instruments
that are similar to the Securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will
agree with the tax treatment described herein. We intend to treat a Security for U.S. federal income tax purposes as a single
financial contract that provides for a coupon that will be treated as gross income to you at the time received or accrued in accordance
with your regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the
Securities is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively that
this 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:
|
·
|
a citizen or individual resident of the United States;
|
|
·
|
a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia; or
|
|
·
|
an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
Tax
Treatment of the Securities
Assuming
the treatment of the Securities as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Basis. A U.S. Holder’s
tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Tax Treatment of Coupon Payments. Any coupon
payment on the Securities should be taxable as ordinary income to a U.S. Holder at the time received or accrued, in accordance
with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Settlement of the
Securities. Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Securities
sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include
sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized should
be long-term capital gain or loss if the U.S. Holder has held the Securities for more than one year at the time of the sale, exchange
or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in
conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the Securities, could
result in adverse tax consequences to holders of the Securities because the deductibility of capital losses is subject to limitations.
Possible
Alternative Tax Treatments of an Investment in the Securities
Due
to the absence of authorities that directly address the proper tax treatment of the Securities, no assurance can be given that
the IRS will accept, or that a court will uphold, the treatment described above. In particular, the IRS could seek to analyze
the U.S. federal income tax consequences of owning the Securities under Treasury regulations governing contingent payment debt
instruments (the “Contingent Debt Regulations”). If the IRS were successful in asserting that the Contingent Debt
Regulations applied to the Securities, the timing and character of income thereon would be significantly affected. Among other
things, a U.S. Holder would be required to accrue into income original issue discount on the Securities every year at a “comparable
yield” determined at the time of their issuance, adjusted upward or downward to reflect the difference, if any, between
the actual and the projected amount of any contingent payments on the Securities. Furthermore, any gain realized by a U.S. Holder
at maturity or upon a sale, exchange or other disposition of the Securities would be treated as ordinary income, and any loss
realized would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue discount
and as capital loss thereafter. The risk that financial instruments providing for buffers, triggers or similar downside protection
features, such as the Securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable
financial instruments that do not have such features.
Other
alternative federal income tax treatments of the Securities are possible, which, if applied, could significantly affect the timing
and character of the income or loss with respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released
a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
The notice focuses on whether to require holders of “prepaid forward contracts” and similar instruments to accrue
income over the term of their investment. It also asks for comments on a number of related topics, including the character of
income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime;
the relevance of factors such as the exchange–traded status of the instruments and the nature of the underlying property
to which the instruments are linked; whether these instruments are or should be subject to the “constructive ownership”
rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest
charge; and appropriate transition rules and effective dates. While it is not clear whether instruments such as the Securities
would be viewed as similar to the prepaid forward contracts described in the notice, any Treasury regulations or other guidance
promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in
the Securities, possibly with retroactive effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income
tax consequences of an investment in the Securities, including possible alternative treatments and the issues presented by this
notice.
Backup Withholding and Information Reporting
Backup
withholding may apply in respect of payments on the Securities and the payment of proceeds from a sale, exchange or other disposition
of the Securities, unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number
and otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding
rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability,
provided that the required information is timely furnished to the IRS. In addition, information returns will be filed with
the IRS in connection with payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of
the Securities, unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax
Consequences to Non-U.S. Holders
This
section applies to you only if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial
owner of a Security that is for U.S. federal income tax purposes:
|
·
|
an individual who is classified as a nonresident alien;
|
|
·
|
a foreign corporation; or
|
|
·
|
a foreign estate or trust.
|
The
term “Non-U.S. Holder” does not include any of the following holders:
|
·
|
a holder who is an individual present in the United States for 183
days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income
tax purposes;
|
|
·
|
certain former citizens or residents of the United States; or
|
|
·
|
a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
|
Such
holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities.
Although
significant aspects of the tax treatment of each Security are uncertain, we intend to withhold on any coupon paid to a Non-U.S.
Holder generally at a rate of 30% or at a reduced rate specified by an applicable income tax treaty under an “other income”
or similar provision. We will not be required to pay any additional amounts with respect to amounts withheld. In order to claim
an exemption from, or a reduction in, the 30% withholding tax, a Non-U.S. Holder of the Securities must comply with certification
requirements to establish that it is not a U.S. person and is eligible for such an exemption or reduction under an applicable
tax treaty. If you are a Non-U.S. Holder, you should consult your tax adviser regarding the tax treatment of the Securities, including
the possibility of obtaining a refund of any withholding tax and the certification requirement described above.
Section
871(m) Withholding Tax on Dividend Equivalents
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 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 November 11, 2019. The closing value of the S&P 500® Index on November 11, 2019 was
3,087.01. 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
|
9/30/2019
|
3,025.86
|
2,840.60
|
2,976.74
|
10/1/2019
|
11/11/2019*
|
3,093.08
|
2,887.61
|
3,087.01
|
* 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 November 11, 2019,
based on information from Bloomberg.
*
The dotted line indicates the hypothetical Coupon Barrier and the solid line indicates the hypothetical Downside Threshold, assuming
the closing value of the SPX Index on November 11, 2019 were its Initial Underlying Value.
Past performance is not indicative of future results.
The Dow Jones Industrial AverageSM
|
The Dow Jones Industrial AverageSM is a price-weighted
index composed of 30 common stocks that is published by S&P Dow Jones Indices LLC, the marketing name and a licensed trademark
of CME Group Inc., as representative of the broad market of U.S. industry. For additional information about the Dow Jones
Industrial AverageSM, see the information set forth under “Dow Jones Industrial AverageSM” in
the accompanying index supplement.
“Dow Jones,” “Dow Jones Industrial Average,”
“Dow Jones Indexes” and “DJIA” are service marks of Dow Jones Trademark Holdings LLC. For more information,
see “Dow Jones Industrial AverageSM” in the accompanying index supplement.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the Dow Jones Industrial AverageSM for each quarter in the
period from January 1, 2014 through November 11, 2019. The closing value of the Dow Jones Industrial AverageSM on November
11, 2019 was 27,691.49. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
The historical closing values of the Dow Jones Industrial AverageSM should not be taken as an indication of future performance,
and no assurance can be given as to the level of the Dow Jones Industrial AverageSM on any Observation Date, including
the Final Observation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
16,530.94
|
15,372.80
|
16,457.66
|
4/1/2014
|
6/30/2014
|
16,947.08
|
16,026.75
|
16,826.60
|
7/1/2014
|
9/30/2014
|
17,279.74
|
16,368.27
|
17,042.90
|
10/1/2014
|
12/31/2014
|
18,053.71
|
16,117.24
|
17,823.07
|
1/1/2015
|
3/31/2015
|
18,288.63
|
17,164.95
|
17,776.12
|
4/1/2015
|
6/30/2015
|
18,312.39
|
17,596.35
|
17,619.51
|
7/1/2015
|
9/30/2015
|
18,120.25
|
15,666.44
|
16,284.70
|
10/1/2015
|
12/31/2015
|
17,918.15
|
16,272.01
|
17,425.03
|
1/1/2016
|
3/31/2016
|
17,716.66
|
15,660.18
|
17,685.09
|
4/1/2016
|
6/30/2016
|
18,096.27
|
17,140.24
|
17,929.99
|
7/1/2016
|
9/30/2016
|
18,636.05
|
17,840.62
|
18,308.15
|
10/1/2016
|
12/31/2016
|
19,974.62
|
17,888.28
|
19,762.60
|
1/1/2017
|
3/31/2017
|
21,115.55
|
19,732.40
|
20,663.22
|
4/1/2017
|
6/31/2017
|
21,528.99
|
20,404.49
|
21,349.63
|
7/1/2017
|
9/30/2017
|
22,412.59
|
21,320.04
|
22,405.09
|
10/1/2017
|
12/31/2017
|
24,837.51
|
22,557.60
|
24,719.22
|
1/1/2018
|
3/31/2018
|
26,616.71
|
23,533.20
|
24,103.11
|
4/1/2018
|
6/30/2018
|
25,322.31
|
23,644.19
|
24,271.41
|
7/1/2018
|
9/30/2018
|
26,743.50
|
24,174.82
|
26,458.31
|
10/1/2018
|
12/31/2018
|
26,828.39
|
21,792.20
|
23,327.46
|
1/1/2019
|
3/31/2019
|
26,091.95
|
22,686.22
|
25,928.68
|
4/1/2019
|
6/30/2019
|
26,753.17
|
24,815.04
|
26,599.96
|
7/1/2019
|
9/30/2019
|
27,359.16
|
25,479.42
|
26,916.83
|
10/1/2019
|
11/11/2019*
|
27,691.49
|
26,078.62
|
27,691.49
|
* Available information for the indicated period includes data
for less than the entire calendar quarter, and, accordingly, the “Quarterly High,” “Quarterly Low” and
“Quarterly Close” data indicated are for this shortened period only.
The
graph below illustrates the performance of the Dow Jones Industrial AverageSM from January 1, 2008 through November
11, 2019, based on information from Bloomberg.
*
The dotted line indicates the hypothetical Coupon Barrier and the solid line indicates the hypothetical Downside Threshold, assuming
the closing value of the INDU Index on November 11, 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 November 11, 2019. The closing value of the EURO STOXX 50® Index on November 11, 2019
was 3,696.82. 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
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1/1/2018
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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
|
11/11/2019*
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3,706.68
|
3,413.31
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3,696.82
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* 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 November 11, 2019,
based on information from Bloomberg.
*
The dotted line indicates the hypothetical Coupon Barrier and the solid line indicates the hypothetical Downside Threshold, assuming
the closing value of the SX5E Index on November 11, 2019 were its Initial Underlying Value.
Past performance is not indicative
of future results.
Correlation of the Underlyings
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The graph below illustrates the daily performance of the Dow
Jones Industrial AverageSM, the S&P 500® Index and the EURO STOXX 50® Index from January
1, 2008 through November 11, 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 on any Observation Date
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)
on any Observation Date or below the Downside Threshold on 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 — Because the Securities are linked to the performance of the least performing among the SPX Index, the INDU 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 one of the Underlyings” and “— A higher Contingent
Coupon Rate and/or lower Coupon Barriers and Downside Thresholds may reflect greater expected volatility of the Underlyings, and
greater expected volatility generally indicates an increased risk of declines in the levels of the Underlyings and, potentially,
a significant loss at maturity.” herein.
Past performance and correlation of the Underlyings are not indicative
of the future performance or correlation of the Underlyings.
Additional Terms of the Securities
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If the terms discussed in this free writing prospectus differ
from those discussed in the prospectus supplement, index supplement or prospectus, the terms contained in this free writing prospectus
will control.
Some Definitions
We have defined some of the terms that we use frequently in this
free writing prospectus below:
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“Index Closing Value” on any Index Business
Day means, with respect to each of the SPX Index, the INDU Index and the SX5E Index, the closing value of such Underlying, or any
relevant Successor Index (as defined under “—Discontinuance of an Underlying; Alteration of Method of Calculation”
below) published at the regular weekday close of trading on that Index Business Day by the relevant Index Publisher.
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“Index Publisher” means, with respect
to each of the SPX Index and the INDU Index, S&P Dow Jones Indices LLC, or any successor thereto; and with respect to the SX5E
Index, STOXX Limited, or any successor thereto.
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“Index Business Day” means a day, for
any Underlying, as determined by the Calculation Agent, on which trading is generally conducted on each of the Relevant Exchange(s)
for such Underlying, other than a day on which trading on such exchange(s) is scheduled to close prior to the time of the posting
of its regular final weekday closing price.
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“Market Disruption Event” means, with
respect to any Underlying:
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(i) the
occurrence or existence of any of:
(a) a suspension, absence or material
limitation of trading of securities then constituting 20 percent or more of the value of such Underlying (or any relevant Successor
Index (as defined below under “—Discontinuance of an Underlying; Alteration of Method of Calculation”)) on the
Relevant Exchange for such securities for more than two hours of trading or during the one-half hour period preceding the close
of the principal trading session on such Relevant Exchange, or
(b) a breakdown or failure in the
price and trade reporting systems of any Relevant Exchange as a result of which the reported trading prices for securities then
constituting 20 percent or more of the value of such Underlying (or a Successor Index) during the last one-half hour preceding
the close of the principal trading session on such Relevant Exchange are materially inaccurate, or
(c) the suspension, material limitation
or absence of trading on any major U.S. securities market for trading in futures or options contracts or exchange-traded funds
related to such Underlying (or a Successor Index) for more than two hours of trading or during the one-half hour period preceding
the close of the principal trading session on such market,
in each case as determined by the
Calculation Agent in its sole discretion; and
(ii) a
determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with
respect to the Securities.
For the purpose of determining whether a Market Disruption
Event exists at any time, if trading in a security included in such Underlying is materially suspended or materially limited at
that time, then the relevant percentage contribution of that security to the value of such Underlying shall be based on a comparison
of (x) the portion of the value of such Underlying attributable to that security relative to (y) the overall value of such Underlying,
in each case immediately before that suspension or limitation.
For the purpose of determining whether
a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a Market
Disruption Event if it results from an announced change in the regular business hours of the Relevant Exchange or market, (2) a
decision to permanently discontinue trading in the relevant futures or options contract or exchange-traded fund will not constitute
a Market Disruption Event, (3) a suspension of trading in futures or options contracts or exchange-traded funds on such Underlying
by the primary securities market trading in such contracts or funds by reason of (a) a price change exceeding limits set by such
securities exchange or market, (b) an imbalance of orders relating to such contracts or funds, or (c) a disparity in bid and ask
quotes relating to such contracts or funds will constitute a suspension, absence or material limitation of trading in futures or
options contracts or exchange-traded funds related to the Index and (4) a “suspension, absence or material limitation of
trading” on any Relevant Exchange or on the primary market on which futures or options contracts or exchange-traded funds
related to such Underlying are traded will not include any time when such securities market is itself closed for trading under
ordinary circumstances.
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“Relevant Exchange” means, with respect
to any Underlying, the primary exchange(s) or market(s) of trading for (i) any security then included in such Underlying, or any
relevant Successor Index, and (ii) any futures or options contracts related to such Underlying or to any security then included
in such Underlying.
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Postponement of Observation Dates and Coupon Payment Dates
(including the Call Dates and the Maturity Date)
If any scheduled Observation Date, including the Final Observation
Date, is not an Index Business Day with respect to any Underlying, or if there is a Market Disruption Event on such day with respect
to any Underlying, the relevant Observation Date solely with respect to that affected Underlying shall be the next succeeding Index
Business Day with respect to that Underlying on which there is no Market Disruption Event with respect to that Underlying; provided
that if a Market Disruption Event with respect to that Underlying has occurred on each of the five Index Business Days with respect
to that Underlying immediately succeeding the relevant scheduled Observation Date, then (i) such fifth succeeding Index Business
Day shall be deemed to be the relevant Observation Date with respect to that affected Underlying, notwithstanding the occurrence
of a Market Disruption Event with respect to that Underlying on such day, and (ii) with respect to any such fifth Index Business
Day on which a Market Disruption Event occurs with respect to that Underlying, the Calculation Agent shall determine the Observation
Date Closing Value on such fifth Index Business Day in accordance with the formula for and method of calculating that Underlying
last in effect prior to the commencement of the Market Disruption Event, using the closing price (or, if trading in the relevant
securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed
but for such suspension or limitation) at the close of the principal trading session of the Relevant Exchange on such Index Business
Day of each security most recently constituting that affected Underlying without any rebalancing or substitution of such securities
following the commencement of the Market Disruption Event.
If any scheduled Coupon Payment Date (including a scheduled Call
Date) is not a Business Day, that Contingent Coupon, if any, (or the Settlement Amount, if applicable), shall be paid on the next
succeeding business day; provided that the Contingent Coupon, if any, with respect to the Final Observation Date shall be
paid on the Maturity Date; provided further that if, due to a Market Disruption Event or otherwise, any Observation Date
with respect to any Underlying is postponed so that it falls less than two business days prior to the scheduled Coupon Payment
Date, Call Date or Maturity Date, as applicable, the Coupon Payment Date, Call Date or Maturity Date, as applicable, shall be postponed
to the second business day following the Observation Date as postponed, by which date the Observation Date Closing Value of each
Underlying has been determined. In any of these cases, no adjustment shall be made to any Contingent Coupon payment made on that
postponed date.
Alternate Exchange Calculation in case of an Event of Default
If an event of default with respect to the Securities shall have
occurred and be continuing, the amount declared due and payable upon any acceleration of the Securities (the “Acceleration
Amount”) will be an amount, determined by the Calculation Agent in its sole discretion, that is equal to the cost of having
a Qualified Financial Institution, of the kind and selected as described below, expressly assume all our payment and other obligations
with respect to the Securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations
providing substantially equivalent economic value to you with respect to the Securities. That cost will equal:
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the lowest amount that a Qualified Financial Institution would charge to effect this assumption or undertaking, plus
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the reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the Securities in preparing
any documentation necessary for this assumption or undertaking.
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During the Default Quotation Period for the Securities, which
we describe below, the holders of the Securities and/or we may request a Qualified Financial Institution to provide a quotation
of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the
other party in writing of the quotation. The amount referred to in the first bullet point above will equal the lowest—or,
if there is only one, the only—quotation obtained, and as to which notice is so given, during the Default Quotation Period.
With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds,
to the assumption or undertaking by the Qualified Financial Institution providing the quotation and notify the other party in writing
of those grounds within two business days after the last day of the Default Quotation Period, in which case that quotation will
be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to Morgan Stanley or MSFL, then depending
on applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount.
If the maturity of the Securities is accelerated because of an
event of default as described above, we shall, or shall cause the Calculation Agent to, provide written notice to the Trustee at
its New York office, on which notice the Trustee may conclusively rely, and to the Depositary of the Acceleration Amount and the
aggregate cash amount due, if any, with respect to the Securities as promptly as possible and in no event later than two business
days after the date of such acceleration.
Default Quotation Period
The Default Quotation Period is the period beginning on the day
the Acceleration Amount first becomes due and ending on the third business day after that day, unless:
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no quotation of the kind referred to above is obtained, or
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every quotation of that kind obtained is objected to within five business days after the due date as described above.
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If either of these two events occurs, the Default Quotation Period
will continue until the third business day after the first business day on which prompt notice of a quotation is given as described
above. If that quotation is objected to as described above within five business days after that first business day, however, the
Default Quotation Period will continue as described in the prior sentence and this sentence.
In any event, if the Default Quotation Period and the subsequent
two business day objection period have not ended before the Final Observation Date, then the Acceleration Amount will equal the
principal amount of the Securities.
Qualified Financial Institutions
For the purpose of determining the Acceleration Amount at any
time, a Qualified Financial Institution must be a financial institution organized under the laws of any jurisdiction in the United
States or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date
of issue and rated either:
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A-2 or higher by Standard & Poor’s Ratings Services or any successor, or any other comparable rating then used by
that rating agency, or
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P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating
agency.
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Discontinuance of an Underlying; Alteration of Method of Calculation
If the Index Publisher of an Underlying discontinues publication
of such Underlying and the Index Publisher or another entity (including MS & Co.) publishes a successor or substitute index
that the Calculation Agent determines, in its sole discretion, to be comparable to such discontinued Underlying (such index being
referred to herein as a “Successor Index”), then any subsequent Observation Date Closing Value of such Underlying will
be determined by reference to the published value of such Successor Index at the regular weekday close of trading on any date on
which the Observation Date Closing Value is to be determined, and, to the extent the value of the Successor Index differs from
the value of the relevant Underlying at the time of such substitution, proportionate adjustments will be made by the Calculation
Agent to the relevant Initial Underlying Value, Coupon Barrier and Downside Threshold.
Upon any selection by the Calculation Agent of a Successor Index,
the Calculation Agent will cause written notice thereof to be furnished to the Trustee, to us and to the Depositary, as holder
of the Securities, within three business days of such selection. We expect that such notice will be made available to you, as a
beneficial owner of such Securities, in accordance with the standard rules and procedures of the Depositary and its direct and
indirect participants.
If the Index Publisher discontinues publication of an Underlying
prior to, and such discontinuance is continuing on, any day on which an Observation Date Closing Value must be determined and the
Calculation Agent determines, in its sole discretion, that no Successor Index is available at such time, then the Calculation Agent
will determine the Observation Date Closing Value of such Underlying for each such date. The Observation Date Closing Value of
such Underlying will be computed by the Calculation Agent in accordance with the formula for and method of calculating such Underlying
last in effect prior to such discontinuance, using the closing price (or, if trading in the relevant securities has been materially
suspended or materially limited, its good faith estimate of the closing price that would have prevailed but for such suspension
or limitation) at the close of the principal trading session of the Relevant Exchange on each such date of each security most recently
constituting such Underlying without any rebalancing or substitution of such securities following such discontinuance. Notwithstanding
these alternative arrangements, discontinuance of the publication of an Underlying may adversely affect the value of the Securities.
If at any time the method of calculating an Underlying or Successor
Index, or the value thereof, is changed in a material respect, or if such Underlying or Successor Index is in any other way modified
so that such index does not, in the opinion of the Calculation Agent, fairly represent the value of such index had such changes
or modifications not been made, then, from and after such time, the Calculation Agent will, at the close of business in New York
City on each date on which the Observation Date Closing Value is to be determined, make such calculations and adjustments as, in
the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock index comparable to
such Underlying or Successor Index, as the case may be, as if such changes or modifications had not been made, and the Calculation
Agent will calculate the Observation Date Closing Value with reference to such Underlying or Successor Index, as adjusted. Accordingly,
if the method of calculating such Underlying or Successor Index is modified so that the value of such index is a fraction of what
it would have been if it had not been modified (e.g., due to a split in the index), then the Calculation Agent will adjust such
index in order to arrive at a value of such Underlying or Successor Index as if it had not been modified (e.g., as if such split
had not occurred).
Trustee
The “Trustee” for each offering of notes issued under
our Senior Debt Indenture, including the Securities, will be The Bank of New York Mellon, a New York banking corporation (as successor
Trustee to JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase Bank)).
Agent
The “agent” is MS & Co.
Calculation Agent and Calculations
The “Calculation Agent” for the Securities will be
MS & Co. As Calculation Agent, MS & Co. will determine, among other things, the Initial Underlying Values, the Coupon Barriers,
the Downside Thresholds, the Observation Date Closing Values on each Observation Date, the Final Underlying Values, whether a Contingent
Coupon is payable with respect to any Observation Date and the Payment at Maturity, if any.
All determinations made by the Calculation Agent will be at the
sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and binding
on you, the Trustee and us.
All calculations with respect to the Contingent Coupon, payment
upon Issuer Call, and Payment at Maturity, if any, will be rounded to the nearest one hundred-thousandth, with five one-millionths
rounded upward (e.g., .876545 would be rounded to .87655); all dollar amounts related to determination of the amount of cash payable
per Security, if any, will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545
would be rounded up to .7655); and all dollar amounts paid on the aggregate number of Securities will be rounded to the nearest
cent, with one-half cent rounded upward.
Because the Calculation Agent is our affiliate, the economic
interests of the Calculation Agent and its affiliates may be adverse to your interests, as an owner of the Securities, including
with respect to certain determinations and judgments that the Calculation Agent must make in determining the Final Level or whether
a Market Disruption Event has occurred. See “—Discontinuance of an Underlying; Alteration of Method of Calculation,”
and the definition of Market Disruption Event. MS & Co. is obligated to carry out its duties and functions as Calculation Agent
in good faith and using its reasonable judgment.
Issuer Notice to Registered Security Holders, the Trustee
and the Depositary
In the event that the Maturity Date of the Securities is postponed
due to 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.
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, on or prior to
10:30 a.m. (New York City time) on the Business Day preceding each Coupon Payment Date, of the amount of cash, if any, to be delivered
with respect to each Principal Amount of the Securities 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 Coupon Payment Date.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee, on which notice the Trustee may conclusively rely, and to the Depositary, on or prior to
10:30 a.m. (New York City time) on the Business Day preceding the Call Date or the Business Day preceding the Maturity Date, as
applicable, of the amount of cash, if any, to be delivered with respect to each Principal Amount of the Securities 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 Call Date or Maturity Date, as applicable.
Additional Information About the Securities
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Use of Proceeds and Hedging
The proceeds from the sale of the Securities will be used by
us for general corporate purposes. We will receive, in aggregate, $10 per Security issued, because, when we enter into hedging
transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost of the Agent’s
commissions. The costs of the Securities borne by you and described on page 2 above comprise the Agent’s commissions and
the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying prospectus.
On or prior to the Trade Date, we will hedge our anticipated
exposure in connection with the Securities, by entering into hedging transactions with our affiliates and/or third party dealers.
We expect our hedging counterparties to take positions in the 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 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 Underlyings).
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.
Form of Securities
The Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, the Depositary and will be registered in the name of
a nominee of the Depositary. The Depositary’s nominee will be the only registered holder of the Securities. Your beneficial
interest in the Securities will be evidenced solely by entries on the books of the securities intermediary acting on your behalf
as a direct or indirect participant in the Depositary. In this free writing prospectus, all references to payments or notices to
you will mean payments or notices to the Depositary, as the registered holder of the Securities, for distribution to participants
in accordance with the Depositary’s procedures. For more information regarding the Depositary and book entry notes, please
read “Form of Securities—The Depositary” in the accompanying prospectus supplement and “Securities Offered
on a Global Basis Through the Depositary” in the accompanying prospectus.
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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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