Free
Writing Prospectus No. 946
Registration
Statement Nos. 333-250103; 333-250103-01
Dated
February 26, 2021
Filed
Pursuant to Rule 433
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Morgan
Stanley Finance LLC Trigger GEARS
Linked to the S&P 500® Index due March 17,
2031
Fully and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
These Trigger GEARS (the “Securities”) are unsecured
and unsubordinated debt securities issued by Morgan Stanley Finance LLC (“MSFL”) and fully and unconditionally guaranteed
by Morgan Stanley with returns linked to the performance of the S&P 500® Index (the “Underlying”).
If the Underlying Return is greater than zero, MSFL will pay the Principal Amount at maturity plus a return equal to the product
of (i) the Principal Amount multiplied by (ii) the Underlying Return multiplied by (iii) the Upside Gearing of between 1.10 and
1.20 (the actual Upside Gearing will be determined on the Trade Date). If the Underlying Return is less than or equal to zero,
MSFL will either pay the full Principal Amount at maturity, or, if the Final Level is less than the Downside Threshold, MSFL will
pay significantly less than the full Principal Amount at maturity, if anything, resulting in a loss of principal that is proportionate
to the negative Underlying Return. These long-dated Securities are for investors who seek an equity index-based return and who
are willing to risk a loss on their principal and forgo current income in exchange for the Upside Gearing feature and the contingent
repayment of principal, which applies only if the Final Level is not less than the Downside Threshold, each as applicable at maturity.
Investing in the Securities involves significant risks. You will not receive interest or dividend payments during the term of
the Securities. You may lose a significant portion or all of your Principal Amount. The contingent repayment of principal applies
only if you hold the Securities to maturity.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These Securities are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
q
Enhanced Growth Potential: If the Underlying
Return is greater than zero, the Upside Gearing feature will provide leveraged exposure to the positive performance of the Underlying,
and MSFL will pay the Principal Amount at maturity plus pay a return equal to the Underlying Return multiplied by the Upside Gearing.
If the Underlying Return is less than zero, investors may be exposed to the negative Underlying Return at maturity.
q
Contingent Repayment of Principal
at Maturity: If the Underlying Return is equal to or less than zero and the Final Level is not less than the Downside Threshold,
MSFL will pay the Principal Amount at maturity. However, if the Final Level is less than the Downside Threshold, MSFL will pay
less than the full Principal Amount, if anything, resulting in a significant loss of principal that is proportionate to the negative
Underlying Return. The contingent repayment of principal applies only if you hold the Securities to maturity. Any payment on the
Securities, including any repayment of principal, is subject to our creditworthiness.
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Trade
Date
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March
12, 2021
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Settlement
Date
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March 17, 2021
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Final Valuation Date**
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March 12, 2031
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Maturity Date**
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March 17, 2031
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*Expected.
**Subject to postponement in the event of a Market Disruption
Event or for non-Index Business Days. See “Postponement of Final Valuation Date and Maturity Date” under “Additional
Terms of the Securities.”
The
Securities are significantly riskier than conventional debt INSTRUMENTS. the terms of the securities may not obligate us TO REPAY
THE FULL PRINCIPAL AMOUNT OF THE SECURITIES. the Securities CAN have downside MARKET risk SIMILAR TO the UnDERLYING, WHICH CAN
RESULT IN A LOSS OF A SIGNIFICANT PORTION OR ALL OF YOUR INVESTMENT at maturity. This MARKET risk is in addition to the CREDIT
risk INHERENT IN PURCHASING our DEBT OBLIGATIONS. You should not PURCHASE the Securities if you do not understand or are
not comfortable with the significant risks INVOLVED in INVESTING IN the Securities. THE SECURITIES WILL NOT BE LISTED ON ANY SECURITIES
EXCHANGE.
YOU
SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER ‘‘KEY RISKS’’ BEGINNING ON PAGE 5 OF THIS FREE WRITING
PROSPECTUS BEFORE PURCHASING ANY SECURITIES. EVENTS RELATING TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY
AFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR SECURITIES.
Security
Offering
|
We
are offering Trigger GEARS linked to the S&P 500® Index. The Securities are not subject to a
predetermined maximum gain and, accordingly, any return at maturity will be determined by the performance of the Underlying.
The Securities are offered at a minimum investment of 100 Securities at the Price to Public listed below. The indicative Upside
Gearing range for the Securities is listed below. The actual Upside Gearing, Initial Level and Downside Threshold will be
determined on the Trade Date.
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Underlying
|
Initial
Level
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Upside
Gearing
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Downside
Threshold
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CUSIP
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ISIN
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S&P
500® Index
|
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1.10
to 1.20
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65%
of the Initial Level
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61771U383
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US61771U3831
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See “Additional
Information about Morgan Stanley, MSFL and the Securities” on page 2. The Securities will have the terms set forth in the
accompanying prospectus, prospectus supplement and index supplement and this free writing prospectus.
Neither the Securities
and Exchange Commission nor any other regulatory body has approved or disapproved of these Securities or passed upon the adequacy
or accuracy of this free writing prospectus or the accompanying prospectus supplement, index supplement and prospectus. Any representation
to the contrary is a criminal offense. The Securities are not deposits or savings accounts and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations of, or guaranteed by, a bank.
Estimated
value on the Trade Date
|
Approximately
$8.952 per Security, or within $0.452 of that estimate. See “Additional Information about Morgan Stanley,
MSFL and the Securities” on page 2.
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Price
to Public
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Underwriting
Discount(1)
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Proceeds
to Us(2)
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Per
Security
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$10.00
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$0.50
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$9.50
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Total
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$
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$
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$
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(1)
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UBS
Financial Services Inc., acting as dealer, will receive from Morgan Stanley & Co.
LLC, the agent, a fixed sales commission of $0.50 for each Security it sells. For more
information, please see “Supplemental Plan of Distribution; Conflicts of Interest”
on page 21 of this free writing prospectus.
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(2)
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See
“Use of Proceeds and Hedging” on page 21.
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The agent for this offering, Morgan Stanley & Co. LLC, is
our affiliate and a wholly owned subsidiary of Morgan Stanley. See “Supplemental Plan of Distribution; Conflicts of Interest”
on page 21 of this free writing prospectus.
Morgan
Stanley
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UBS
Financial Services Inc.
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Additional
Information about Morgan Stanley, MSFL and the Securities
|
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 the 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:
References
to “MSFL” refer only to MSFL, references to “Morgan Stanley” refer only to Morgan Stanley and references
to “we,” “our” and “us” refer to MSFL and Morgan Stanley collectively. In this document, the
“Securities” refers to the Trigger GEARS that are offered hereby. Also, references to the accompanying “prospectus”,
“prospectus supplement” and “index supplement” mean the prospectus filed by MSFL and Morgan Stanley dated
November 16, 2020, the prospectus supplement filed by MSFL and Morgan Stanley dated November 16, 2020 and the index supplement
filed by MSFL and Morgan Stanley dated November 16, 2020, respectively.
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 $8.952, or within $0.452 of that estimate. Our estimate
of the value of the Securities as determined on the Trade Date will be set forth in the final pricing supplement.
What
goes into the estimated value on the Trade Date?
In
valuing the Securities on the Trade Date, we take into account that the Securities comprise both a debt component and a performance-based
component linked to the Underlying. The estimated value of the Securities is determined using our own pricing and valuation models,
market inputs and assumptions relating to the Underlying, instruments based on the Underlying, volatility and other factors including
current and expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied
interest rate at which our conventional fixed rate debt trades in the secondary market.
What
determines the economic terms of the Securities?
In
determining the economic terms of the Securities, including the Upside Gearing and the Downside Threshold, we use an internal
funding rate, which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing,
selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the
economic terms of the Securities would be more favorable to you.
What
is the relationship between the estimated value on the Trade Date and the secondary market price of the Securities?
The
price at which MS & Co. purchases the Securities in the secondary market, absent changes in market conditions, including those
related to the Underlying, 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 17 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 Underlying, and to our secondary market credit spreads, it would do so based on values higher than the estimated
value. We expect that those higher values will also be reflected in your brokerage account statements.
MS
& Co. currently intends, but is not obligated, to make a market in the Securities, and, if it once chooses to make a market,
may cease doing so at any time.
Investor
Suitability
|
The
Securities may be suitable for you if:
¨
You fully understand the risks inherent
in an investment in the Securities, including the risk of loss of your entire initial investment.
¨
You can tolerate a loss of all or a substantial
portion of your Principal Amount and are willing to make an investment that may have the same downside market risk as
the Underlying.
¨
You understand and accept the risks associated
with the Underlying.
¨
You are willing to hold the Securities
to maturity, as set forth on the cover of this free writing prospectus, and accept that there may be little or no secondary
market for the Securities.
¨
You believe the Underlying will appreciate
over the term of the Securities and you would be willing to invest in the Securities if the Upside Gearing was set equal
to the bottom of the range indicated on the cover hereof (the actual Upside Gearing will be set on the Trade Date).
¨
You can tolerate fluctuations of the price
of the Securities prior to maturity that may be similar to or exceed the downside fluctuations in the level of the Underlying.
¨
You do not seek current income from your
investment and are willing to forgo dividends paid on the stocks included in the Underlying.
¨
You are willing to assume our credit risk,
and understand that if we default on our obligations you may not receive any amounts due to you including any repayment
of principal.
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The Securities
may not be suitable for you if:
¨
You do not fully understand the risks inherent
in an investment in the Securities, including the risk of loss of your entire initial investment.
¨
You cannot tolerate a loss of all or a
substantial portion of your Principal Amount, and you are not willing to make an investment that may have the same downside
market risk as the Underlying.
¨
You require an investment designed to provide
a full return of principal at maturity.
¨
You do not understand and accept the risks
associated with the Underlying.
¨
You are unable or unwilling to hold the
Securities to maturity, as set forth on the cover of this free writing prospectus, or you seek an investment for which
there will be an active secondary market.
¨
You believe that the level of the Underlying
will decline during the term of the Securities and is likely to close below the Downside Threshold on the Final Valuation
Date.
¨
You would not be willing to invest in the
Securities if the Upside Gearing was set equal to the bottom of the range indicated on the cover hereof (the actual Upside
Gearing will be set on the Trade Date).
¨
You prefer the lower risk, and, therefore,
accept the potentially lower returns, of conventional debt securities with comparable maturities issued by us or another
issuer with a similar credit rating.
¨
You seek current income from your investment
or prefer to receive the dividends paid on the stocks included in the Underlying.
¨
You are not willing or are unable to assume
the credit risk associated with us for any payment on the Securities, including any repayment of principal.
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The
investor suitability considerations identified above are not exhaustive. Whether or not the Securities are a suitable investment
for you will depend on your individual circumstances, and you should reach an investment decision only after you and your investment,
legal, tax, accounting and other advisors have carefully considered the suitability of an investment in the Securities in light
of your particular circumstances. You should also review “Key Risks” on page 5 of this free writing prospectus and
“Risk Factors” beginning on page 7 of the accompanying prospectus for risks related to an investment in the Securities.
For additional information about the Underlying, see the information set forth under “The S&P 500® Index”
on page 15.
Issuer
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Morgan Stanley Finance LLC
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Guarantor
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Morgan Stanley
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Issue Price (per Security)
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$10.00 per Security
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Principal Amount
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$10.00 per Security
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Term
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10 years
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Underlying
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S&P 500® Index
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Downside Threshold
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65% of the Initial Level
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Upside Gearing
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1.10 to 1.20. The actual Upside Gearing will be
determined on the Trade Date.
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Payment at Maturity (per Security)
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If
the Underlying Return is greater than zero, MSFL will pay you an amount calculated as follows:
$10
+ [$10 × (Underlying Return × Upside Gearing)]
If
the Underlying Return is less than or equal to zero and the Final Level is greater than or equal to the Downside Threshold,
MSFL will pay you a cash payment of:
$10
per Security
If
the Final Level is less than the Downside Threshold, MSFL will pay you an amount calculated as follows:
$10
+ ($10 × Underlying Return)
In
this case, you could lose up to all of your Principal Amount in an amount proportionate to the negative Underlying Return.
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Underlying
Return
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Final
Level – Initial Level
Initial
Level
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Initial Level
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The Closing Level of the Underlying on the Trade
Date.
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Final Level
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The Closing Level of the Underlying on the Final
Valuation Date.
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Trade Date
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March 12, 2021
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Settlement Date
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March 17, 2021
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Final Valuation Date
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March 12, 2031*
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Maturity Date
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March 17, 2031*
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CUSIP / ISIN
|
61771U383 / US61771U3831
|
Calculation
Agent
|
Morgan
Stanley & Co. LLC
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*Subject
to postponement in the event of a Market Disruption Event or for non-Trading Days. See “Postponement of Final Valuation
Date and Maturity Date” under “Additional Terms of the Securities.”
|
|
Trade
Date
|
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The Closing Level of the Underlying
(Initial Level) is observed, the Downside Threshold is determined and the Upside Gearing is set.
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|
|
|
|
|
|
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The Final
Level and Underlying Return are determined on the Final Valuation Date.
|
|
Maturity Date
|
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If the
Underlying Return is greater than zero, MSFL will pay you a cash payment per Security equal to:
$10 + [$10
× (Underlying Return × Upside Gearing)]
If the
Underlying Return is less than or equal to zero and the Final Level is greater than or equal to the Downside Threshold
on the Final Valuation Date, MSFL will pay you a cash payment of $10 per $10 Security.
If the
Final Level is less than the Downside Threshold on the Final Valuation Date, MSFL will pay you a cash payment at maturity
equal to:
$10 + ($10
× Underlying Return)
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|
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Under
these circumstances, you will lose a significant portion, and could lose all, of your Principal Amount.
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INVESTING IN THE SECURITIES
INVOLVES SIGNIFICANT RISKS. YOU MAY LOSE YOUR ENTIRE PRINCIPAL AMOUNT. ANY PAYMENT ON THE SECURITIES IS SUBJECT TO OUR CREDITWORTHINESS.
IF WE WERE TO DEFAULT ON OUR PAYMENT OBLIGATIONS, YOU MAY NOT RECEIVE ANY AMOUNTS OWED TO YOU UNDER THE SECURITIES AND YOU COULD
LOSE YOUR ENTIRE INVESTMENT.
An investment in the Securities
involves significant risks. The material 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.
Risks
Relating to an Investment in the Securities
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¨
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The
Securities do not guarantee any return of principal – The terms of the Securities
differ from those of ordinary debt securities in that MSFL is not necessarily obligated
to repay any of the Principal Amount at maturity. If the Final Level is less than the
Downside Threshold (which is 65% of the Initial Level), you will be exposed to the full
negative Underlying Return and the payout owed at maturity by MSFL will be an amount
in cash that is at least 35% less than the $10 Principal Amount of each Security, resulting
in a loss proportionate to the decrease in the value of the Underlying from the Initial
Level to the Final Level. There is no minimum payment at maturity on the Securities,
and, accordingly, you could lose all of your Principal Amount in the Securities.
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|
¨
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You
may incur a loss on your investment if you sell your Securities prior to maturity
– The Downside Threshold is observed on the Final Valuation Date, and the contingent
repayment of principal applies only at maturity. If you are able to sell your Securities
in the secondary market prior to maturity, you may have to sell them at a loss relative
to your initial investment even if the Closing Level of the Underlying is above the Downside
Threshold at that time.
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|
¨
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The
Upside Gearing applies only if you hold the Securities to maturity – You should
be willing to hold your Securities to maturity. If you are able to sell your Securities
prior to maturity in the secondary market, the price you receive will likely not reflect
the full economic value of the Upside Gearing or the Securities themselves, and the return
you realize may be less than the Underlying's return even if such return is positive.
You can receive the full benefit of the Upside Gearing from MSFL only if you hold your
Securities to maturity.
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¨
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The
Securities are subject to our credit risk, and any actual or anticipated changes to our
credit ratings or our credit spreads may adversely affect the market value of the Securities
– You are dependent on our ability to pay all amounts due on the Securities
at maturity, if any, and therefore you are subject to our credit risk. If we default
on our obligations under the Securities, your investment would be at risk and you could
lose some or all of your investment. As a result, the market value of the Securities
prior to maturity will be affected by changes in the market’s view of our creditworthiness.
Any actual or anticipated decline in our credit ratings or increase in our credit spreads
charged by the market for taking our credit risk is likely to adversely affect the market
value of the Securities.
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|
¨
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As
a finance subsidiary, MSFL has no independent operations and will have no independent
assets – As a finance subsidiary, MSFL has no independent operations beyond
the issuance and administration of its securities and will have no independent assets
available for distributions to holders of MSFL securities if they make claims in respect
of such securities in a bankruptcy, resolution or similar proceeding. Accordingly, any
recoveries by such holders will be limited to those available under the related guarantee
by Morgan Stanley and that guarantee will rank pari passu with all other unsecured,
unsubordinated obligations of Morgan Stanley. Holders will have recourse only to a single
claim against Morgan Stanley and its assets under the guarantee. Holders of securities
issued by MSFL should accordingly assume that in any such proceedings they would not
have any priority over and should be treated pari passu with the claims of other
unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued
securities.
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¨
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The
Securities do not pay interest – MSFL will not pay any interest with respect
to the Securities over the term of the Securities.
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¨
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The market price of the
Securities may be influenced by many unpredictable factors – Several
factors, many of which are beyond our control, will influence the value of the Securities in the secondary market and the price
at which MS & Co. may be willing to purchase or sell the Securities in the secondary market (if at all), including:
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|
o
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the value of the Underlying
at any time,
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|
o
|
the volatility (frequency
and magnitude of changes in value) of the Underlying,
|
|
o
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dividend rates on the securities
included in the Underlying,
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|
o
|
interest and yield rates in
the market,
|
|
o
|
geopolitical conditions and
economic, financial, political, regulatory or judicial events that affect the Underlying or stock markets generally and which may
affect the Final Level,
|
|
o
|
the time remaining until the
Securities mature, and
|
|
o
|
any actual or anticipated
changes in our credit ratings or credit spreads.
|
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 are able to sell your Securities prior to maturity, as the Securities are comprised of both a debt component and a performance-based
component linked to the Underlying, and these are the types of factors that also generally affect the values of debt securities
and derivatives linked to the Underlying. 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. For example, you may have to
sell
your Securities at a substantial discount from the principal amount of $10 per Security if the value of the Underlying at the
time of sale is at or below or moderately above its Initial Level, and especially if it is near or below the Downside Threshold,
or if market interest rates rise. You cannot predict the future performance of the Underlying based on its historical performance.
|
¨
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The amount payable on the
Securities is not linked to the level of the Underlying at any time other than the Final Valuation Date –
The Final Level will be based on the Closing Level of the Underlying on
the Final Valuation Date, subject to postponement for non-Index Business Days and certain Market Disruption Events. Even if the
level of the Underlying appreciates prior to the Final Valuation Date but then drops by the Final Valuation Date, the Payment at
Maturity may be significantly less than it would have been had the Payment at Maturity been linked to the level of the Underlying
prior to such drop. Although the actual level of the Underlying on the stated Maturity Date or at other times during the term of
the Securities may be higher than the Final Level, the Payment at Maturity will be based solely on the Closing Level of the Underlying
on the Final Valuation Date as compared to the Initial Level.
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|
¨
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Investing in the Securities
is not equivalent to investing in the Underlying or the stocks composing the Underlying – Investing in the Securities
is not equivalent to investing in the Underlying or the stocks that constitute the Underlying. Investors in the Securities will
not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the stocks that
constitute the Underlying. Additionally, the Underlying is not a “total return” index, which, in addition to reflecting
the market prices of the stocks that constitute the Underlying, would also reflect dividends paid on such stocks. The return on
the Securities will not include such a total return feature.
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|
¨
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The rate we are willing
to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market
credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring
and hedging the Securities in the Issue Price reduce the economic terms of the Securities, cause the estimated value of the Securities
to be less than the Issue Price and will adversely affect secondary market prices – Assuming no change in market conditions
or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the Securities
in secondary market transactions will likely be significantly lower than the Issue Price, because secondary market prices will
exclude the issuing, selling, structuring and hedging-related costs that are included in the Issue Price and borne by you and because
the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge
in a secondary market transaction of this type as well as other factors.
|
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 17 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 Underlying, and to our secondary market credit
spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected
in your brokerage account statements.
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¨
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The estimated value of
the Securities is determined by reference to our pricing and valuation models, which may differ from those of other dealers and
is not a maximum or minimum secondary market price – These pricing and valuation models are proprietary and rely in part
on subjective views of certain market inputs and certain assumptions about future events, which may prove to be incorrect. As a
result, because there is no market-standard way to value these types of securities, our models may yield a higher estimated value
of the Securities than those generated by others, including other dealers in the market, if they attempted to value the Securities.
In addition, the estimated value on the Trade Date does not represent a minimum or maximum price at which dealers, including MS
& Co., would be willing to purchase your Securities in the secondary market (if any exists) at any time. The value of your
Securities at any time after the date of this free writing prospectus will vary based on many factors that cannot be predicted
with accuracy, including our creditworthiness and changes in market conditions. See also “The market price of the Securities
may be influenced by many unpredictable factors” above.
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|
¨
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The Securities will not
be listed on any securities exchange and secondary trading may be limited – The Securities will not be listed on any
securities exchange. Therefore, there may be little or no secondary market for the Securities. MS & Co. currently intends,
but is not obligated, to make a market in the Securities and, if it once chooses to make a market, may cease doing so at any time.
When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on its estimate
of the current value of the Securities, taking into account its bid/offer spread, our credit spreads, market volatility, the notional
size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood
that it will be able to resell the Securities. Even if there is a secondary market, it may not provide enough liquidity to allow
you to trade or sell the Securities easily. Since other broker-dealers may not participate significantly in the secondary market
for the Securities, the price at which you may be able to trade your Securities is likely to depend on the price, if any, at which
MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the Securities, it is likely
that there would be no secondary market for the Securities. Accordingly, you should be willing to hold your Securities to maturity.
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¨
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Hedging
and trading activity by our affiliates could potentially adversely affect the value of the Securities – One or more
of our affiliates and/or third-party dealers expect to carry out hedging activities related to the Securities, including
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trading in the constituent stocks of the Underlying, in futures or options contracts on the Underlying or the constituent stocks of the Underlying, as well as in other instruments related to the Underlying. As a result, these entities may be unwinding or adjusting hedge positions during the term of the Securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the Final Valuation Date approaches. MS & Co. and some of our other affiliates also trade the constituent stocks of the Underlying, in futures or options contracts on the constituent stocks of the Underlying, as well as in other instruments related to the Underlying, on a regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the Trade Date could potentially increase the Initial Level of the Underlying, and, therefore, could increase the Downside Threshold, which is the level at or above which the Underlying must close on the Final Valuation Date so that investors do not suffer a significant loss on their initial investment in the Securities. Additionally, such hedging or trading activities during the term of the Securities, including on the Final Valuation Date, could adversely affect the Closing Level of the Underlying on the Final Valuation Date, and, accordingly, the amount of cash payable at maturity, if any.
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¨
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Potential conflict of interest
– As Calculation Agent, MS & Co. will determine the Initial Level, the Downside Threshold, the Upside Gearing, the Final
Level and whether any Market Disruption Event has occurred and will calculate the amount payable at maturity, if any. Moreover,
certain determinations made by MS & Co., in its capacity as Calculation Agent, may require it to exercise discretion and make
subjective judgments, such as with respect to the occurrence or non-occurrence of Market Disruption Events and the selection of
a Successor Underlying or calculation of the Final Level in the event of a discontinuance of the Underlying or a Market Disruption
Event. These potentially subjective determinations may adversely affect the payout to you at maturity, if any. For further information
regarding these types of determinations, see “Additional Terms of the Securities—Postponement of Final Valuation Date
and Maturity Date,” “—Discontinuance of the Underlying; Alteration of Method of Calculation” and “—Calculation
Agent and Calculations” below. In addition, MS & Co. has determined the estimated value of the Securities on the Trade
Date.
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¨
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Potentially inconsistent
research, opinions or recommendations by Morgan Stanley, UBS or our or their respective affiliates – Morgan Stanley,
UBS and our or their respective affiliates may publish research from time to time on financial markets and other matters that may
influence the value of the Securities, or express opinions or provide recommendations that are inconsistent with purchasing or
holding the Securities. Any research, opinions or recommendations expressed by Morgan Stanley, UBS or our or their respective affiliates
may not be consistent with each other and may be modified from time to time without notice. Investors should make their own independent
investigation of the merits of investing in the Securities and the Underlying to which the Securities are linked.
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¨
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Uncertain Tax Treatment
– Please note that the discussions in this free writing prospectus concerning the U.S. federal income tax consequences
of an investment in the Securities supersede the discussions contained in the accompanying prospectus supplement.
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Subject to the
discussion under “What Are the Tax Consequences of the Securities” in this free writing prospectus, although there
is uncertainty regarding the U.S. federal income tax consequences of an investment in the Securities due to the lack of governing
authority, in the opinion of our counsel, Davis Polk & Wardwell LLP (“our counsel”), under current law, and based
on current market conditions, each Security should be treated as a single financial contract that is an “open transaction”
for U.S. federal income tax purposes. However, because our counsel’s opinion is based in part on market conditions as of
the date of this free writing prospectus, it is subject to confirmation on the Trade Date.
If the Internal
Revenue Service (the “IRS”) were successful in asserting an alternative treatment for the Securities, the timing and
character of income 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 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. We do not plan to request a ruling from the IRS regarding the tax treatment of the Securities, and the IRS or a
court may not agree with the tax treatment described in this free writing prospectus.
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 in particular on whether to require holders of these 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; the degree, if any, to which income (including any mandated accruals) realized by Non-U.S. Holders
(as defined below) should be subject to withholding tax; and 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. While the notice requests comments on appropriate transition rules and effective dates, 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.
Both U.S. and
Non-U.S. Holders should read carefully the discussion under “What Are the Tax Consequences of the Securities” in this
free writing prospectus and consult their tax advisers regarding all aspects of the U.S.
federal tax consequences of an investment
in the Securities as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Risks Relating to the
Underlying
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¨
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The probability that the
Final Level will be less than the Downside Threshold will depend on the volatility of the Underlying — “Volatility”
refers to the frequency and magnitude of changes in the level of the Underlying. Higher expected volatility with respect
to the Underlying as of the Trade Date generally indicates a greater chance as of that date that the Final Level will be less than
the Downside Threshold, which would result in a loss of a significant portion or all of your investment at maturity. However,
the Underlying’s volatility can change significantly over the term of the Securities. The level of the Underlying could
fall sharply, resulting in a significant loss of principal. You should be willing to accept the downside market risk of the
Underlying and the potential loss of a significant portion or all of your investment at maturity.
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¨
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Governmental regulatory
actions could result in material changes to the composition of the Underlying and could negatively affect your return on the Securities.
Governmental regulatory actions, including but not limited to sanctions-related actions by the U.S. or foreign governments, could
make it necessary or advisable for there to be material changes to the composition of the Underlying, depending on the nature of
such governmental regulatory actions and the Underlying constituent stocks that are affected. If any governmental regulatory action
results in the removal of Underlying constituent stocks that have (or historically have had) significant weights within the Underlying,
such removal, or even any uncertainty relating to a possible removal, could have a material and negative effect on the level of
the Underlying and, therefore, your return on the Securities.
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Adjustments to the Underlying
could adversely affect the value of the Securities – The
Underlying Publisher of the Underlying is responsible for calculating and maintaining the Underlying. The Underlying Publisher
may add, delete or substitute the stocks constituting the Underlying or make other methodological changes required by certain corporate
events relating to the stocks constituting the Underlying, such as stock dividends, stock splits, spin-offs, rights offerings and
extraordinary dividends, that could change the value of the Underlying. The Underlying Publisher may discontinue or suspend calculation
or publication of the Underlying at any time. In these circumstances, the Calculation Agent will have the sole discretion to substitute
a Successor Underlying that is comparable to the discontinued Underlying, and is permitted to consider indices that are calculated
and published by the Calculation Agent or any of its affiliates. Any of these actions could adversely affect the value of the Underlying
and, consequently, the value of the Securities.
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Scenario
Analysis and Examples at Maturity
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These examples are based
on hypothetical terms. The actual terms will be determined on the Trade Date.
The below scenario analysis
and examples are provided for illustrative purposes only and are hypothetical. They do not purport to be representative of every
possible scenario concerning increases or decreases in the level of the Underlying relative to the Initial Level. We cannot predict
the Final Level on the Final Valuation Date. You should not take the scenario analysis and these examples as an indication or assurance
of the expected performance of the Underlying. The numbers appearing in the examples below have been rounded for ease of analysis.
The following scenario analysis and examples illustrate the payment at maturity for a $10.00 security on a hypothetical offering
of the Securities, based on the following terms*:
Investment term:
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10 years
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Hypothetical Initial Level:
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3,800
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Hypothetical Downside Threshold:
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2,470 (65% of the hypothetical Initial Level)
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Hypothetical Upside Gearing:
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1.10
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* The actual Initial
Level, Downside Threshold and Upside Gearing for the Securities will be determined on the Trade Date.
Example
1— The level of the Underlying increases from an Initial Level of 3,800 to a Final Level of 4,180. The
Underlying Return is greater than zero and expressed as a formula:
Underlying
Return = (4,180 – 3,800) / 3,800 = 10.00%
Payment
at Maturity = $10 + [$10 × (10.00% × 1.10)] = $11.10
Because
the Underlying Return is equal to 10.00%, the Payment at Maturity is equal to $11.10 per $10.00 Principal Amount of Securities,
resulting in a total return on the Securities of 11.00%.
Example
2— The Final Level is equal to the Initial Level of 3,800. The Underlying Return is zero and expressed as a formula:
Underlying
Return = (3,800 – 3,800) / 3,800 = 0.00%
Payment
at Maturity = $10.00
Because
the Underlying Return is zero, the Payment at Maturity per Security is equal to the original $10.00 Principal Amount per Security,
resulting in a zero percent return on the Securities.
Example
3— The level of the Underlying decreases from an Initial Level of 3,800 to a Final Level of 3,420. The
Underlying Return is negative and expressed as a formula:
Underlying
Return = (3,420 – 3,800) / 3,800 = -10.00%
Payment
at Maturity = $10.00
Because
the Underlying Return is less than zero, but the Final Level is greater than or equal to the Downside Threshold on the Final Valuation
Date, MSFL will pay you a Payment at Maturity equal to $10.00 per $10.00 Principal Amount of Securities, resulting in a zero percent
return on the Securities.
Example
4— The level of the Underlying decreases from an Initial Level of 3,800 to a Final Level of 1,520. The
Underlying Return is negative and expressed as a formula:
Underlying
Return = (1,520 – 3,800) / 3,800 = -60.00%
Payment
at Maturity = $10 + ($10 × -60.00%) = $4.00
Because
the Underlying Return is less than zero and the Final Level is below the Downside Threshold on the Final Valuation Date, the Securities
will be fully exposed to any decline in the level of the Underlying on the Final Valuation Date. Therefore, the Payment at Maturity
is equal to $4.00 per $10.00 Principal Amount of Securities, resulting in a total loss on the Securities of 60.00%.
If
the Final Level is below the Downside Threshold on the Final Valuation Date, the Securities will be fully exposed to any decline
in the Underlying, and you will lose a significant portion or all of your Principal Amount at maturity.
Scenario
Analysis – Hypothetical Payment at Maturity for each $10.00 Principal Amount of Securities.
Performance
of the Underlying*
|
Performance
of the Securities
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Final
Level
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Underlying
Return
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Upside
Gearing
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Payment
at Maturity
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Return
on Securities Purchased at $10.00(1)
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7,600.00
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100.00%
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1.10
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$21.00
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110.00%
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7,220.00
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90.00%
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1.10
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$19.90
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99.00%
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6,840.00
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80.00%
|
1.10
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$18.80
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88.00%
|
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6,460.00
|
70.00%
|
1.10
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$17.70
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77.00%
|
|
6,080.00
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60.00%
|
1.10
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$16.60
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66.00%
|
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5,700.00
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50.00%
|
1.10
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$15.50
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55.00%
|
|
5,320.00
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40.00%
|
1.10
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$14.40
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44.00%
|
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4,940.00
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30.00%
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1.10
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$13.30
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33.00%
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4,560.00
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20.00%
|
1.10
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$12.20
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22.00%
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4,180.00
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10.00%
|
1.10
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$11.10
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11.00%
|
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3,800.00
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0.00%
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N/A
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$10.00
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0.00%
|
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3,420.00
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-10.00%
|
N/A
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$10.00
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0.00%
|
|
3,040.00
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-20.00%
|
N/A
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$10.00
|
0.00%
|
|
2,660.00
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-30.00%
|
N/A
|
$10.00
|
0.00%
|
|
2,470.00
|
-35.00%
|
N/A
|
$10.00
|
0.00%
|
|
2,432.00
|
-36.00%
|
N/A
|
$6.40
|
-36.00%
|
|
2,280.00
|
-40.00%
|
N/A
|
$6.00
|
-40.00%
|
|
1,900.00
|
-50.00%
|
N/A
|
$5.00
|
-50.00%
|
|
1,520.00
|
-60.00%
|
N/A
|
$4.00
|
-60.00%
|
|
1,140.00
|
-70.00%
|
N/A
|
$3.00
|
-70.00%
|
|
760.00
|
-80.00%
|
N/A
|
$2.00
|
-80.00%
|
|
380.00
|
-90.00%
|
N/A
|
$1.00
|
-90.00%
|
|
0.00
|
-100.00%
|
N/A
|
$0.00
|
-100.00%
|
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*
The Underlying excludes cash dividend payments on stocks included in the Underlying.
(1)
This “Return on Securities” is the number, expressed as a percentage, that results from comparing the Payment at Maturity
per $10 Principal Amount Security to the purchase price of $10 per Security.
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 summary is
a general discussion of the principal U.S. federal income tax consequences and certain estate tax consequences of the ownership
and disposition of the Securities. This discussion applies only to investors in the Securities who:
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purchase the Securities in the original offering; and
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hold the Securities as capital assets within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
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This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
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certain financial institutions;
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certain dealers and traders in securities or commodities;
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investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
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U.S. Holders (as defined below) whose functional currency
is not the U.S. dollar;
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partnerships or other entities classified as partnerships
for U.S. federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual retirement
accounts” or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
|
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.
In addition, we will not attempt to ascertain
whether any issuer of any shares to which a Security relates (such shares hereafter referred to as “Underlying Shares”)
is treated as a “passive foreign investment company” (“PFIC”) within the meaning of Section 1297 of the
Code or as a “U.S. real property holding corporation” (“USRPHC”) within the meaning of Section 897 of the
Code. If any issuer of Underlying Shares were so treated, certain adverse U.S. federal income tax consequences might apply, to
a U.S. Holder in the case of a PFIC and to a Non-U.S. Holder (as defined below) in the case of a USRPHC, upon the sale, exchange
or settlement of the Securities. You should refer to information filed with the Securities and Exchange Commission or other governmental
authorities by the issuers of the Underlying Shares and consult your tax adviser regarding the possible consequences to you if
any issuer is or becomes a PFIC or USRPHC.
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. Moreover, 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.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date of this free writing
prospectus, 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
Although there is uncertainty regarding the
U.S. federal income tax consequences of an investment in the Securities due to the lack of governing authority, in the opinion
of our counsel, under current law, and based on current market conditions, each Security should be treated as a single financial
contract that is an “open transaction” for U.S. federal income tax purposes. However, because our counsel’s opinion
is based in part on market conditions as of the date of this free writing prospectus, it is subject to confirmation on the Trade
Date.
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 Internal Revenue Service (the “IRS”) or a
court will agree with the tax treatment described herein.
Accordingly, 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 the Securities as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Security that is, for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
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t
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a corporation, or other entity taxable as a corporation,
created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or
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t
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an estate or trust the income of which is subject to
U.S. federal income taxation regardless of its source.
|
Tax Treatment of the Securities
Assuming the treatment of the Securities as
set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Treatment Prior to Settlement.
A U.S. Holder should not be required to recognize taxable income over the term of the Securities prior to settlement, other than
pursuant to a sale or exchange as described below.
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.
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. Subject to the discussion above regarding the possible application of Section 1297 of the Code, any gain or loss recognized
upon the sale, exchange or settlement of the Securities should be long-term capital gain or loss if the U.S. Holder has held the
Securities for more than one year at such time, and short-term capital gain or loss otherwise.
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 the contingent payment 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 generally 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 also 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 in particular
on whether to require holders of these 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; and 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. While the notice requests comments on appropriate transition rules and effective
dates, 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 the
payment on the Securities at maturity 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 may be filed with the IRS in connection
with the payment on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless
the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are
a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that is, for U.S.
federal income tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
|
The term “Non-U.S. Holder” does
not include any of the following holders:
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a holder who is an individual present in the United
States for 183 days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S.
federal income tax purposes;
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certain former citizens or residents of the United
States; or
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a holder for whom income or gain in respect of the
Securities is effectively connected with the conduct of a trade or business in the United States.
|
Such holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the Securities.
Tax Treatment upon Sale, Exchange or Settlement
of the Securities
In
general. Assuming the treatment of the Securities as set forth above is respected, and subject to the discussions below concerning
backup withholding and the possible application of Section 871(m) of the Code and the discussion above concerning the possible
application of Section 897 of the Code, a Non-U.S. Holder of the Securities generally will
not be subject to U.S. federal income or withholding tax in respect of amounts paid to the Non-U.S. Holder.
Subject to the discussions regarding the possible
application of Sections 871(m) and 897 of the Code and FATCA, if all or any portion of a Security were recharacterized as a debt
instrument, any payment made to a Non-U.S. Holder with respect to the Securities would not be subject to U.S. federal withholding
tax, provided that:
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the Non-U.S. Holder does not own, directly or by attribution,
ten percent or more of the total combined voting power of all classes of Morgan Stanley stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation
related, directly or indirectly, to Morgan Stanley through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest
under Section 881(c)(3)(A) of the Code, and
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the certification requirement described below has been
fulfilled with respect to the beneficial owner.
|
Certification Requirement. The certification
requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Security (or a financial institution
holding a Security on behalf of the beneficial owner) furnishes to the applicable withholding agent an IRS Form W-8BEN (or other
appropriate form) on which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
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. Among the issues addressed in the notice is the degree, if any, to which any income with respect to instruments
such as the Securities should be subject to U.S. withholding tax. It is possible that any Treasury regulations or other guidance
promulgated after consideration of this issue could materially and adversely affect the withholding tax consequences of ownership
and disposition of the Securities, possibly on a retroactive basis. Non-U.S. Holders should note that we currently do not intend
to withhold on any payment made with respect to the Securities to Non-U.S. Holders (subject to compliance by such holders with
the certification requirement described above and to the discussions regarding Sections 871(m) and 897 of the Code and FATCA).
However, in the event of a change of law or any formal or informal guidance by the IRS, the U.S. Treasury Department or Congress,
we may decide to withhold on payments made with respect to
the Securities to Non-U.S. Holders, and we will not be required to pay
any additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult their tax advisers regarding
all aspects of the U.S. federal income tax consequences of an investment in the Securities, including the possible implications
of the notice referred to 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, 2023 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 final 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 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 may be filed with the IRS in connection with the payment on the Securities at maturity as well as in connection with the
payment of proceeds from a sale, exchange or other disposition of the Securities. 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. Compliance with the certification
procedures described above under “―Tax
Treatment upon Sale, Exchange or Settlement of the Securities – Certification Requirement” will satisfy the certification
requirements necessary to avoid backup withholding as well. 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”). If the Securities were recharacterized as debt
instruments, FATCA would apply to any payment of amounts treated as interest and to payments of gross proceeds of the disposition
(including upon retirement) of the Securities. However, 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). If withholding were to apply to the Securities, we would 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 income tax consequences of an investment in the Securities.
The
S&P 500® Index
|
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.
|
Historical
Information
|
The following table
sets forth the published high and low Closing Levels, as well as the end-of-quarter Closing Levels, of the S&P 500®
Index for each quarter in the period from January 1, 2016 through February 24. 2021. The Closing Level of the S&P 500®
Index on February 24. 2021 was 3,925.43. We obtained the information in the table below from Bloomberg Financial Markets,
without independent verification. The historical Closing Levels 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
the Final Valuation Date.
Quarter
Begin
|
Quarter
End
|
Quarterly
High
|
Quarterly
Low
|
Quarterly
Close
|
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
|
12/31/2019
|
3,240.02
|
2,887.61
|
3,230.78
|
1/1/2020
|
3/31/2020
|
3,386.15
|
2,237.40
|
2,584.59
|
4/1/2020
|
6/30/2020
|
3,232.39
|
2,470.50
|
3,100.29
|
7/1/2020
|
9/30/2020
|
3,580.84
|
3,115.86
|
3,363.00
|
10/1/2020
|
12/31/2020
|
3,756.07
|
3,269.96
|
3,756.07
|
1/1/2021
|
2/24/2021*
|
3,934.83
|
3,700.65
|
3,925.43
|
* 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 February 24. 2021, based on
information from Bloomberg. Past performance of the S&P 500® Index is not indicative of the future performance
of the S&P 500® Index.
Additional
Terms of the Securities
|
If the terms contained in this free writing
prospectus differ from those contained 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:
|
t
|
“Closing Level”
means, on any Index Business Day for the Underlying, the closing value of the Underlying, or any Successor Underlying (as defined
under “—Discontinuance of the Underlying; Alteration of Method of Calculation” below) published at the regular
weekday close of trading on that Index Business Day by the Underlying Publisher. In certain circumstances, the Closing Level will
be based on the alternate calculation of the Underlying as described under “—Discontinuance of the Underlying; Alteration
of Method of Calculation.”
|
|
t
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“Underlying Publisher”
means S&P Dow Jones Indices LLC or any successor thereto.
|
|
t
|
“Index Business Day”
means a day, for the Underlying, as determined by the Calculation Agent, on which trading is generally conducted on each of the
Relevant Exchange(s) for the 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.
|
|
t
|
“Market Disruption Event”
means:
|
(i) the
occurrence or existence of any of:
(a) a suspension,
absence or material limitation of trading of stocks then constituting 20 percent or more of the value of the Underlying (or the
Successor Underlying (as defined below under “—Discontinuance of the 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
stocks then constituting 20 percent or more of the value of the Underlying (or the Successor Underlying) 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 the Underlying (or the Successor Underlying) 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 the Underlying is materially suspended or materially
limited at that time, then the relevant percentage contribution of that security to the value of the Underlying shall be based
on a comparison of (x) the portion of the value of the Underlying attributable to that security relative to (y) the overall value
of the 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 the 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 Underlying 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 the Underlying are traded will not include any time when such securities market is itself closed for trading under
ordinary circumstances.
|
t
|
“Relevant Exchange”
means, with respect to the Underlying, the primary exchange(s) or market(s) of trading for (i) any security then included in the
Underlying, or any Successor Underlying, and (ii) any futures or options contracts related to the Underlying or to any security
then included in the Underlying.
|
Postponement
of Final Valuation Date and Maturity Date
If
the scheduled Final Valuation Date is not an Index Business Day or if a Market Disruption Event with respect to the Underlying
occurs on such date, the Closing Level for such date will be determined on the immediately succeeding Index Business Day on which
no Market Disruption Event shall have occurred; provided that the Closing Level with respect to the Final Valuation Date will
not be determined on a date later than the fifth scheduled Index Business Day after the scheduled Final Valuation Date, and if
such date is not an Index Business Day or if there is a Market Disruption Event on such date, the Calculation Agent will determine
the Closing Level of the Underlying on such date in accordance with the formula for calculating such Underlying last in effect
prior to the commencement of the Market Disruption Event (or prior to the non-Index Business Day), without rebalancing or substitution,
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, limitation or non-Index Business Day) on
such date of each security most recently constituting the Underlying.
If
the Final Valuation Date is postponed so that it falls less than two business days prior to the scheduled Maturity Date, the Maturity
Date will be the second business day following the Final Valuation Date, as postponed.
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:
|
o
|
the
lowest amount that a Qualified Financial Institution would charge to effect this assumption
or undertaking, plus
|
|
o
|
the
reasonable expenses, including reasonable attorneys’ fees, incurred by the holders
of the Securities in preparing any documentation necessary for this assumption or undertaking.
|
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 MSFL or Morgan Stanley, 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:
|
o
|
no
quotation of the kind referred to above is obtained, or
|
|
o
|
every
quotation of that kind obtained is objected to within five business days after the due
date as described above.
|
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 Valuation 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:
|
o
|
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
|
|
o
|
P-2
or higher by Moody’s Investors Service or any successor, or any other comparable
rating then used by that rating agency.
|
Discontinuance
of the Underlying; Alteration of Method of Calculation
If
the Underlying Publisher of the Underlying discontinues publication of the Underlying and the Underlying 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 the discontinued Underlying (such index being referred to herein as a “Successor Underlying”),
then any subsequent Closing Level of the Underlying will be determined by reference to the published value of such Successor Underlying
at the regular weekday close of trading on any Index Business Day that the Closing Level is to be determined, and, to the extent
the Closing Level of the Successor Underlying differs from the Closing Level of the Underlying at the time of such substitution,
proportionate adjustments will be made by the Calculation Agent to the Initial Level and Downside Threshold.
Upon
any selection by the Calculation Agent of a Successor Underlying, 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 Underlying Publisher discontinues publication of the Underlying prior to, and such discontinuance is continuing on, the Final
Valuation Date and the Calculation Agent determines, in its sole discretion, that no Successor Underlying is available at such
time, then the Calculation Agent will determine the Closing Level of the Underlying for such date. The Closing Level of the Underlying
will be computed by the Calculation Agent in accordance with the formula for and method of calculating the 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 the Final Valuation Date of each security most recently
constituting the Underlying without any rebalancing or substitution of such securities following such discontinuance. Notwithstanding
these alternative arrangements, discontinuance of the publication of the Underlying may adversely affect the value of the Securities.
If
at any time the method of calculating the Underlying or Successor Underlying, or the value thereof, is changed in a material respect,
or if the Underlying or Successor Underlying 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 Closing Level 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 the Underlying or Successor Underlying, as the case may be, as if such changes or modifications
had not been made, and the Calculation Agent will calculate the Closing Level with reference to the Underlying or Successor Underlying,
as adjusted. Accordingly, if the method of calculating the Underlying or Successor Underlying 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 the Underlying or Successor Underlying 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.
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 Level, the Final Level, the Underlying Return and the Payment at Maturity.
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 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 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
the
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 a postponement of the Final Valuation 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 Valuation Date as postponed.
The Issuer shall,
or shall cause the Calculation Agent to, (i) provide written notice to the Trustee and to the Depositary of the amount of cash,
if any, to be delivered with respect to each stated principal amount of the Securities, on or prior to 10:30 a.m. (New York City
time) on the Business Day preceding the Maturity Date, and (ii) deliver the aggregate cash amount due with respect to the Securities,
if any, to the Trustee for delivery to the Depositary, as holder of the Securities, on the Maturity Date.
Additional
Information About the Securities
|
Use
of Proceeds and Hedging
The
proceeds from the sale of the Securities will be used by us for general corporate purposes. We will receive, in aggregate, $10
per Security issued, because, when we enter into hedging transactions in order to meet our obligations under the Securities, our
hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Securities borne by you and described
on page 2 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Securities. See also
“Use of Proceeds” in the accompanying prospectus.
On
or prior to the Trade Date, we will hedge our anticipated exposure in connection with the Securities, by entering into hedging
transactions with our affiliates and/or third party dealers. We expect our hedging counterparties to take positions in the constituent
stocks of the Underlying, in futures or options contracts on the Underlying or the constituent stocks of the Underlying, as well
as in other instruments related to the Underlying that they may wish to use in connection with such hedging. Such purchase activity
could increase the Initial Level of the Underlying, and, therefore, could increase the Downside Threshold, which is the level
at or above which the Underlying must close on the Final Valuation Date so that you do not suffer a significant loss on your initial
investment in the Securities. In addition, through our affiliates, we are likely to modify our hedge position throughout the term
of the Securities, including on the Final Valuation Date, by purchasing and selling the constituent stocks of the Underlying,
futures or options contracts on the Underlying or the constituent stocks of the Underlying, as well as other instruments related
to the Underlying 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 Valuation 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 Valuation Date approaches. We cannot give any assurance that our hedging activities will not affect the level of
the Underlying, and, therefore, adversely affect the value of the Securities or the amount payable at maturity, if any.
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 $0.50 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 level of the Upside Gearing, 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 constituent stocks of the Underlying 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” and “Securities
Offered on a Global Basis Through the Depositary” in the accompanying prospectus.
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