Free Writing Prospectus No. 1,876
Registration Statement Nos. 333-221595; 333-221595-01
Dated April 25, 2019
Filed Pursuant to Rule 433
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Morgan
Stanley Finance LLC Capped GEARS
Linked to a Basket of International Indices due April 30, 2021
Fully and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
Investment Description
|
These Capped 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 a weighted basket of international indices (the “Basket”),
consisting of the Nikkei 225 Index, the EURO STOXX 50
®
Index, the Hang Seng Index, the MSCI Emerging Markets Index
SM
,
the S&P/ASX 200 Index, the FTSE
®
100 Index and the Swiss Market Index, each of which we refer to as an “Underlier”
and together as the “Underliers.” The Securities provide enhanced returns relative to the Underliers’ actual
positive performance up to a Maximum Gain, but
expose investors fully to the Basket’s negative
performance at maturity. If the Basket 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 Basket Return multiplied by (iii) the Upside Gearing of
3.0, up to the Maximum Gain, which will be set on the Trade Date and is expected to be at least 41.50%. If the Basket Return is
zero, MSFL will pay the full Principal Amount at maturity. However, if the Basket Return is negative, MSFL will pay less than
the full Principal Amount at maturity, resulting in a loss of principal to investors that is proportionate to the full negative
Basket Return. The Securities are for investors who seek an equity basket-based return and who are willing to risk a loss on their
principal, forgo current income and upside returns above the Maximum Gain in exchange for the Upside Gearing feature, 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 up to your entire investment in the Securities.
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.
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Enhanced Growth Potential Up to a Cap:
If the Basket Return is greater than zero, the Upside Gearing feature will provide
leveraged exposure to any positive Basket Return, up to the Maximum Gain, and MSFL will pay the Principal Amount at maturity plus
pay a return equal to the Basket Return multiplied by the Upside Gearing, up to the Maximum Gain. If the Basket Return is less
than zero, investors will be fully exposed to the negative Basket Return at maturity.
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Full Downside Market Exposure:
If the Basket Return is negative, investors will be exposed
to the full downside performance of the Basket and MSFL will pay less than the full Principal Amount at maturity, resulting in
a loss of principal to investors that is proportionate to the negative Basket Return. Accordingly, you may lose some or all of
your Principal Amount. Any payment on the Securities is subject to our creditworthiness.
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Trade Date
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April 25, 2019
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Settlement Date
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April 30, 2019
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Final Valuation Date**
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April 26, 2021
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Maturity Date**
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April 30, 2021
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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 any of the PRINCIPAL
AMOUNT OF THE SECURITIES. the Securities CAN have downside MARKET risk SIMILAR TO the UnDERLIERS, WHICH CAN RESULT IN A LOSS OF
SOME 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.
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Security Offering
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We are offering Capped GEARS Linked to a Basket of International
Indices. The return on the Securities is limited by, and will be subject to, the predetermined Maximum Gain. The Securities are
offered at a minimum investment of 100 Securities at the Price to Public listed below. The indicative Maximum Gain for the Securities
is listed below. The actual Maximum Gain and Initial Levels will be determined on the Trade Date.
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Basket
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Basket
Weighting
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Initial
Level
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Upside
Gearing
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Maximum
Gain
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Initial
Basket Level
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CUSIP
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ISIN
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Nikkei 225 Index (Bloomberg ticker: NKY)
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27.50%
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3.0
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At least 41.50%, which corresponds to a maximum Payment at Maturity of $14.15 per Security
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61768Y224
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US61768Y2248
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EURO STOXX 50
®
Index (Bloomberg ticker: SX5E)
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22.50%
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Hang Seng Index (Bloomberg ticker: HSI)
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15%
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100
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MSCI Emerging Markets Index
SM
(Bloomberg ticker: MXEF)
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15%
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S&P/ASX 200 Index (Bloomberg ticker: AS51)
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10%
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FTSE
®
100 Index (Bloomberg ticker: UKX)
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5%
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Swiss Market Index (Bloomberg ticker: SMI)
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5%
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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
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Approximately $9.702 per Security, or within $0.10 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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$0.20
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$9.80
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Total
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$
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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 $0.20 for each Security it sells. For more information, please see “Supplemental Plan
of Distribution; Conflicts of Interest” on page 36 of this free writing prospectus.
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(2)
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See “Use of Proceeds and Hedging” on page 35.
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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 36 of this free writing prospectus.
Morgan Stanley
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UBS Financial Services Inc.
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Additional Information about Morgan Stanley, MSFL and the Securities
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Morgan Stanley and MSFL have filed a registration
statement (including a prospectus, as supplemented by a 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
Capped 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, 2017, the prospectus
supplement filed by MSFL and Morgan Stanley dated November 16, 2017 and the index supplement filed by MSFL and Morgan Stanley dated
November 16, 2017, respectively.
You should rely only on the information incorporated
by reference or provided in this free writing prospectus or the accompanying prospectus supplement, index supplement and prospectus.
We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the information in this free writing prospectus or the accompanying
prospectus supplement, index supplement and prospectus is accurate as of any date other than the date on the front of this document.
The Issue Price of each Security is $10.
This price includes costs associated with issuing, selling, structuring and hedging the Securities, which are borne by you, and,
consequently, the estimated value of the Securities on the Trade Date will be less than $10. We estimate that the value of each
Security on the Trade Date will be approximately $9.702, or within $0.10 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 Underliers.
The estimated value of the Securities is determined using our own pricing and valuation models, market inputs and assumptions relating
to the Underliers, instruments based on the Underliers, 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 Maximum Gain, 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 Underliers, 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 7 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 Underliers,
and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those
higher values will also be reflected in your brokerage account statements.
MS & Co. currently intends, but is not
obligated, to make a market in the Securities, and, if it once chooses to make a market, may cease doing so at any time.
The Securities may be suitable for you if:
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You fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial
investment in the Securities.
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You can tolerate the loss of some or all of your investment, and are willing to make an investment that has similar downside
market risk as the Underliers included in the Basket.
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You understand and accept the risks associated with the Underliers.
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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.
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You believe the Basket will appreciate over the term of the Securities and that the appreciation is unlikely to exceed the
Maximum Gain of at least 41.50% (the actual Maximum Gain will be determined on the Trade Date and will not be less than 41.50%).
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You understand and accept that your potential return is limited by the Maximum Gain, and you would be willing to invest in
the Securities if the Maximum Gain were set equal to the minimum Maximum Gain indicated on the cover.
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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 Basket.
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You do not seek current income from your investment and are willing to forgo dividends paid on the stocks included in the Underliers.
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You are willing to assume our credit risk, and understand that if we default on our obligations you may not receive any amounts
due to you including any repayment of principal.
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The Securities may not be suitable for you if:
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You do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire
initial investment in the Securities.
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You cannot tolerate the loss of some or all of your investment, or you are not willing to make an investment that has similar
downside market risk as the Underliers included in the Basket.
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You require an investment designed to provide a full return of principal at maturity.
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You do not understand and accept the risks associated with the Underliers.
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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.
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You believe that the level of the Basket will decline during the term of the Securities, or you believe the Basket will appreciate
over the term of the Securities by a percentage that exceeds the Maximum Gain.
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You seek an investment that has unlimited return potential without a cap on appreciation.
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You would be unwilling to invest in the Securities if the Maximum Gain were set equal to the minimum Maximum Gain indicated
on the cover (the actual Maximum Gain will be determined on the Trade Date).
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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.
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You seek current income from your investment or prefer to receive the dividends paid on the stocks included in the Underliers.
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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 Underliers,
see the information set forth under “The Nikkei 225 Index,” “The EURO STOXX 50
®
Index,”
“The Hang Seng Index,” “The MSCI Emerging Markets Index
SM
,” “The S&P/ASX 200 Index,”
“The FTSE
®
100 Index and “The Swiss Market Index” on pages 17, 19, 21, 23, 25, 27 and 29, respectively.
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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2 years
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Basket
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The Securities are linked to a weighted basket of indices,
each of which we refer to as an “Underlier,” as follows:
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Nikkei 225 Index
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27.50%
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EURO STOXX 50
®
Index
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22.50%
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Hang Seng Index
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15%
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MSCI Emerging Markets Index
SM
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15%
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S&P/ASX 200 Index
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10%
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FTSE
®
100 Index
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5%
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Swiss Market Index
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5%
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Upside Gearing
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3.0
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Payment at Maturity (per Security)
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If the Basket Return is greater than zero
, MSFL
will pay you an amount equal to the lesser of:
$10 + [$10 × (Basket
Return × Upside Gearing)]
and
$10 + ($10 ×
Maximum Gain).
If the Basket Return is zero
, MSFL will pay you
a cash payment of:
$10 per Security
If the Basket Return is negative,
MSFL will pay
you an amount calculated as follows:
$10 + ($10 ×
Basket Return)
In this case, you will lose some or all of the principal
amount of the Securities in an amount proportionate to the negative Basket Return.
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Basket Return
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Final Basket Level –
Initial Basket Level
Initial Basket Level
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Maximum Gain
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At least 41.50%, which corresponds to a maximum Payment at Maturity of $14.15 per Security. The actual Maximum Gain will be determined on the Trade Date.
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Initial Basket Level
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100
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Final Basket Level
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On the Final Valuation Date, the Final Basket Level
is calculated as:
100 × [1 + (NKY Return ×
27.50%) +
(SX5E Return × 22.50%) + (HSI Return × 15%) +
(MXEF Return × 15%) + (AS51 Return × 10%) +
(UKX Return × 5%) + (SMI Return × 5%)]
Each of the returns set forth in the formula above refers
to the return of the relevant Underlier, which represents the percentage change from the Initial Level for that Underlier to the
Final Level for that Underlier.
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Trade Date
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April 25, 2019
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Settlement Date
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April 30, 2019
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Final Valuation Date
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April 26, 2021*
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Maturity Date
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April 30, 2021*
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Initial Level
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With respect to each Underlier, the Closing Level of such Underlier on the Trade Date.
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Final Level
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With respect to each Underlier, the Closing Level of such Underlier on the Final Valuation Date.
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CUSIP / ISIN
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61768Y224 / US61768Y2248
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Calculation Agent
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Morgan Stanley & Co. LLC
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*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 the “Additional
Terms of the Securities.”
Trade Date
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The Initial Levels are observed and the Initial Basket Level is
set to 100.
The Maximum Gain is set.
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Maturity Date
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The Final Basket Level and Basket Return are determined on the
Final Valuation Date.
If the Basket Return is greater than zero
, MSFL will pay
you a cash payment per Security equal to the lesser of:
$10 + [$10 × (Basket Return × Upside Gearing)]
and
$10 + ($10 × Maximum Gain)
If the Basket Return is zero
, MSFL will pay you a cash
payment of $10 per $10 Security.
If the Basket Return is negative on the Final Valuation Date
,
MSFL will pay you a cash payment at maturity equal to:
$10 + ($10 × Basket Return)
Under these circumstances, you will lose some or all of the
principal amount of the Securities in an amount proportionate to the negative Basket Return.
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INVESTING IN THE SECURITIES
INVOLVES SIGNIFICANT RISKS. YOU MAY LOSE SOME OR ALL OF YOUR 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. Some of the risks that apply to the Securities are summarized here, but we urge you to also read the
“Risk Factors” section of the accompanying prospectus. You should also consult your investment, legal, tax, accounting
and other advisers before you invest in the Securities.
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Your investment in the Securities may result in a loss of up to your entire initial investment
in the Securities
– The terms of the Securities differ from those of ordinary debt securities in that we will not pay
interest or guarantee the payment of any of the Principal Amount at maturity. If the Basket Return is negative, you will be fully
exposed to the negative Basket Return and MSFL will pay you less than your principal amount at maturity, resulting in a loss of
principal that is proportionate to the decline in the Basket from the Initial Basket Level to the Final Basket Level.
Accordingly,
you could lose the entire principal amount of the Securities.
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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 3.0 times the return of the Basket at the time of sale even if such return is positive and
does not exceed the Maximum Gain. You can receive the full benefit of the Upside Gearing and earn up to the potential Maximum Gain
only if you hold your Securities to maturity.
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The appreciation potential is limited –
The appreciation potential of the Securities
is limited by the Maximum Gain of at least 41.50% (which corresponds to a maximum Payment at Maturity of $14.15 per Security).
The actual Maximum Gain and maximum Payment at Maturity will be determined on the Trade Date. Therefore, although the Upside Gearing
enhances positive Basket Returns, you will not benefit from any positive Basket Return that, when multiplied by the Upside Gearing,
exceeds the Maximum Gain. As a result, any increase in the Final Basket Level over the Initial Basket Level by more than approximately
13.83% (to be determined on the Trade Date) of the Initial Basket Level will not further increase the return on the Securities.
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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 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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As a finance subsidiary, MSFL has no independent
operations and will have no independent assets
– As a finance subsidiary, MSFL has no independent operations beyond the
issuance and administration of its securities and will have no independent assets available for distributions to holders of MSFL
securities if they make claims in respect of such securities in a bankruptcy, resolution or similar proceeding. Accordingly, any
recoveries by such holders will be limited to those available under the related guarantee by Morgan Stanley and that guarantee
will rank
pari passu
with all other unsecured, unsubordinated obligations of Morgan Stanley. Holders will have recourse
only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of securities issued by MSFL should accordingly
assume that in any such proceedings they would not have any priority over and should be treated
pari passu
with the claims
of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued securities.
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The 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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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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the value of the Underliers at any time,
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the volatility (frequency and magnitude of changes
in value) of each of the Underliers,
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dividend rates on the securities included in the Underliers,
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interest and yield rates in the market,
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geopolitical conditions and economic, financial, political,
regulatory or judicial events that affect the Underliers or stock markets generally and which may affect the Final Levels,
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the time remaining until the Securities mature, and
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any actual or anticipated changes in our credit ratings
or credit spreads.
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Some or all of these factors will influence the terms
of the Securities at the time of issuance and the price that you will receive if you 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 Underliers,
and these are the types of factors that also generally affect the values of debt securities and derivatives linked to the Underliers.
For example, you may have to sell your Securities at a
substantial discount from the principal amount of
$10 per Security if the values of the Underliers at the time of sale are at, below or moderately above their Initial Levels or
if market interest rates rise. You cannot predict the future performance of the Underliers based on their historical performance.
If the Basket Return is negative, you will receive at maturity an amount that is less than the $10 Principal Amount of each Security
by an amount proportionate to the negative Basket Return. Accordingly, you could lose up to your entire initial investment in the
Securities. There can be no assurance that there will be any positive Basket Return so that you will receive at maturity an amount
that is greater than the $10 Principal Amount for each Security you hold, or that you will not lose some or all of your investment.
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Changes in the values of one or more of
the Underliers may offset changes in the values of the others
–
Movements
in the values of the Underliers may not correlate with each other. At a time when the values of one or more Underliers increase,
the values of the other Underliers may not increase as much, or may even decline. Therefore, in calculating the Basket Return,
increases in the values of one or more Underliers may be moderated, or wholly offset, by lesser increases or declines in the values
of the other Underliers. If the Final Basket Level is less than the Initial Basket Level, you will receive at maturity an amount
that is less than the amount of your original investment in the Securities.
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The Underliers are not equally weighted
– The Securities are linked to a basket of six Underliers, and the Underliers have significantly differed weights in
determining the level of the Basket. The same percentage change in two of the Underliers could therefore have different effects
on the Final Basket Level because of the unequal weighting. For example, if the weighting of one Underlier is greater than the
weighting of another Underlier, a 5% decrease in the level of the Underlier with the greater weighting will have a greater impact
on the Final Basket Level than a 5% increase in the level of the Underlier with the lesser weighting.
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The amount payable on the Securities is
not linked to the levels of the Underliers at any time other than the Final Valuation Date
–
The
Final Basket Level will be based on the Closing Levels of the Underliers on the Final Valuation Date, subject to postponement for
non-Index Business Days and certain Market Disruption Events. Even if some or all of the Underliers appreciate prior to the Final
Valuation Date but then drop 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 levels of the Underliers prior to such drop. Although the actual levels of
the Underliers on the stated Maturity Date or at other times during the term of the Securities may be higher than their Final Levels,
the Payment at Maturity will be based solely on the Closing Levels of the Underliers on the Final Valuation Date as compared to
their Initial Levels.
|
|
¨
|
The Securities are subject to risks associated
with investments in securities linked to the value of foreign equity (and especially emerging markets) securities
– The
Securities are linked to the value of foreign equity securities. Investments in securities linked to the value of foreign equity
securities involve risks associated with the securities markets in those countries, including risks of volatility in those markets,
governmental intervention in those markets and cross-shareholdings in companies in certain countries. Although the equity securities
included in the Underliers are traded in foreign currencies, the value of your Securities (as measured in U.S. dollars) will not
be adjusted for any exchange rate fluctuations. Also, there is generally less publicly available information about foreign companies
than about U.S. companies that are subject to the reporting requirements of the United States Securities and Exchange Commission,
and foreign companies are subject to accounting, auditing and financial reporting standards and requirements different from those
applicable to U.S. reporting companies. The prices of securities issued in foreign markets may be affected by political, economic,
financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies
and currency exchange laws. In addition, the stocks included in the MSCI Emerging Markets Index
SM
have been issued by
companies in various emerging markets countries, which pose further risks in addition to the risks associated with investing in
foreign equity markets generally. Countries with emerging markets may have relatively unstable governments, may present the risks
of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have
less protection of property rights than more developed countries. The economies of countries with emerging markets may be based
on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme
and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable
to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible
at times. Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United States in
such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency and balance
of payment positions.
|
|
¨
|
The level of the MSCI Emerging Markets
Index
SM
is subject to currency exchange rate risk
– Because the level of the MSCI Emerging Markets Index
SM
is related to the U.S. dollar value of stocks underlying the MSCI Emerging Markets Index
SM
, holders of the Securities
will be exposed to currency exchange rate risk with respect the currencies in which the component securities trade. Exchange rate
movements for a particular currency are volatile and are the result of numerous factors specific to that country including the
supply of, and the demand for, those currencies, as well as government policy, intervention or actions, but are also influenced
significantly from time to time by political or economic developments, and by macroeconomic factors and speculative actions related
to each region. Further, currencies of emerging economies are often subject to more frequent and larger central bank interventions
than the currencies of developed countries and are also more likely to be affected by drastic changes in monetary or exchange rate
policies of the relevant country. The net exposure will depend on the extent to which the currencies of the component countries
strengthen or weaken against the U.S. dollar and the relative weight of each currency. If, taking into account such weighting,
the dollar strengthens against the currencies of the component securities of the MSCI Emerging Markets Index
SM
, the
level of the MSCI Emerging Markets Index
SM
will be adversely affected and the Payment at Maturity on the Securities
may be reduced.
|
Of particular
importance to potential currency exchange risk are:
|
o
|
existing and expected rates of inflation;
|
|
o
|
existing and expected interest rate levels;
|
|
o
|
the balance of payments; and
|
|
o
|
the extent of governmental surpluses or deficits in the countries represented in the MSCI Emerging
Markets Index
SM
and the United States.
|
All of these factors are, in
turn, sensitive to the monetary, fiscal and trade policies pursued by the governments of the countries represented in the MSCI
Emerging Markets Index
SM
, the United States and other countries important to international trade and finance.
|
¨
|
Investing in the Securities is not equivalent
to investing in the Underliers or the stocks composing the Underliers
– Investing in the Securities is not equivalent
to investing in the Underliers or the stocks that constitute the Underliers. 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 Underliers.
Investors in the Securities also will not participate in any appreciation of the Basket that, when multiplied by the Upside Gearing,
exceeds the Maximum Gain, which could be significant. Additionally, the Underliers are not “total return” indices,
which, in addition to reflecting the market prices of the stocks that constitute the Underliers, 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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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 7 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 Underliers, and to our secondary market credit spreads,
it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected in
your brokerage account statements.
|
¨
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The estimated value of the Securities is
determined by reference to our pricing and valuation models, which may differ from those of other dealers and is not a maximum
or minimum secondary market price
– These pricing and valuation models are proprietary and rely in part on subjective
views of certain market inputs and certain assumptions about future events, which may prove to be incorrect. As a result, because
there is no market-standard way to value these types of securities, our models may yield a higher estimated value of the Securities
than those generated by others, including other dealers in the market, if they attempted to value the Securities. In addition,
the estimated value on the Trade Date does not represent a minimum or maximum price at which dealers, including MS & Co., would
be willing to purchase your Securities in the secondary market (if any exists) at any time. The value of your Securities at any
time after the date of this free writing prospectus will vary based on many factors that cannot be predicted with accuracy, including
our creditworthiness and changes in market conditions. See also “The market price of the Securities may be influenced by
many unpredictable factors” above.
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|
¨
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Adjustments to any of the Underliers could
adversely affect the value of the Securities
–
The Underlier
Publisher for each Underlier is responsible for calculating and maintaining such Underlier. The applicable Underlier Publisher
may add, delete or substitute the stocks constituting such Underlier or make other methodological changes required by certain corporate
events relating to the stocks constituting such Underlier, such as stock dividends, stock splits, spin-offs, rights offerings and
extraordinary dividends, that could change the value of the Underlier. The Underlier Publisher may discontinue or suspend calculation
or publication of any of the Underliers at any time. In these circumstances, the Calculation Agent will have the sole discretion
to substitute a Successor Underlier that is comparable to the discontinued Underlier, and is permitted to consider indices that
are calculated and published by the Calculation Agent or any of its affiliates. Any of these actions could adversely affect the
value of any of the Underliers and, consequently, the value of the Securities.
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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.
|
¨
|
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 trading in the constituent stocks of the Underliers,
in futures or options contracts on the Underliers or the constituent stocks of the Underliers, as well as in other instruments
related to the Underliers. 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 Underliers, in futures or options contracts
on the constituent stocks of the Underliers, as well as in other instruments related to the Underliers, 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 Levels of the Underliers, and, therefore, could increase the levels at or above which the Underliers
must close on the Final Valuation Date so that investors do not suffer a 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 Levels of the Underliers on the Final Valuation Date, and, accordingly, the amount of cash payable at maturity, if
any.
|
|
¨
|
Potential conflict of interest
–
As Calculation Agent, MS & Co. will determine the Initial Levels, the Final Levels, the Final Basket Level, the Basket Return
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
Underlier or calculation of the Final Basket Level in the event of a discontinuance of an Underlier 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 an Underlier; 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 Underliers 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.
|
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. 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.
Scenario Analysis and Examples at Maturity
|
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 Basket relative to the Initial Basket Level. We cannot
predict the Final Basket 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 Basket. 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:
|
2 years
|
Initial Basket Level:
|
100
|
Hypothetical Maximum Gain:
|
41.50%, which corresponds to a maximum Payment at Maturity of $14.15 per Security
|
|
The actual Maximum Gain will be determined on the Trade Date.
|
Upside Gearing:
|
3
|
Example 1
—
The level of the Basket
increases
to a Final Basket Level of 105.
The Basket Return is greater than zero and expressed as a formula:
Basket Return = (105 - 100)
/ 100 = 5.00%
Because the Basket Return
is greater than zero, the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser of:
(A) $10.00 + ($10.00 × Basket
Return × Upside Gearing), and
(B) $10.00 + ($10.00 × Maximum
Gain)
= the lesser of (A) $10.00 + ($10.00
× 5% × 3.0) and (B) $10.00 + ($10.00 × 41.50%)
= the lesser of (A) $10.00 + ($10.00
× 15%) and (B) $10.00 + ($10.00 × 41.50%)
= $10.00 + ($10.00 × 15%)
= $10.00 + $1.50
= $11.50
Because the Basket Return of 5.00%
multiplied by the Upside Gearing is less than the hypothetical Maximum Gain of 41.50%, the Payment at Maturity is equal to $11.50
per $10.00 Principal Amount of Securities,
resulting in a total return on the Securities of 15.00%.
Example
2
—
The level of the Basket
increases
to a Final Basket Level of 150.
The Basket Return is greater
than zero and expressed as a formula:
Basket Return = (150 –
100) / 100 = 50.00%
Because the Basket Return is greater than zero,
the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser of:
(A) $10.00
|
+ ($10.00 × Basket Return × Upside Gearing), and
|
(B) $10.00
|
+ ($10.00 × Maximum Gain)
|
|
= the lesser of (A) $10.00 + ($10.00 × 50% × 3.0) and (B) $10.00 + ($10.00 × 41.50%)
|
|
= the lesser of (A) $10.00 + ($10.00 × 150%) and (B) $10.00 + ($10.00 × 41.50%)
|
|
= $10.00 + ($10.00 × 41.50%)
|
|
= $10.00 + $4.15
|
|
= $14.15
|
Because the Basket Return of 50% multiplied by
the Upside Gearing is greater than the hypothetical Maximum Gain of 41.50%, the Payment at Maturity is equal to $14.15 per $10.00
Principal Amount of Securities, the hypothetical maximum Payment at Maturity on the Securities. This represents the hypothetical
maximum amount payable over the 2-year term of the Securities.
Example 3
—
The Final Basket Level
is equal to the Initial Basket Level of 100.
The Basket Return is zero and expressed as a formula:
Basket Return = (100 –
100) / 100 = 0.00%
Payment at Maturity = $10.00
Because the Basket 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 4
—
The level of the Basket
decreases
to a Final Basket Level of 40.
The Basket Return is negative and expressed as a formula:
Basket Return = (40 - 100)
/ 100 = -60.00%
Payment at Maturity = $10
+ ($10
×
-60.00%) = $4.00
Because the Basket Return is negative, at maturity
MSFL will pay less than the Principal Amount, resulting in a loss of principal that is proportionate to the negative Basket Return.
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 Basket Level is below the
Initial Basket Level on the Final Valuation Date, the Securities will be fully exposed to any decline in the Basket, and you will
lose some 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 Basket*
|
Performance
of the Securities
|
Final Basket
Level
|
Basket
Return
|
Upside
Gearing
|
Payment
at Maturity
|
Return
on Securities Purchased at $10.00
(1)
|
200
|
100.00%
|
3.0
|
$14.15
|
41.50%
|
190
|
90.00%
|
3.0
|
$14.15
|
41.50%
|
180
|
80.00%
|
3.0
|
$14.15
|
41.50%
|
170
|
70.00%
|
3.0
|
$14.15
|
41.50%
|
160
|
60.00%
|
3.0
|
$14.15
|
41.50%
|
150
|
50.00%
|
3.0
|
$14.15
|
41.50%
|
140
|
40.00%
|
3.0
|
$14.15
|
41.50%
|
130
|
30.00%
|
3.0
|
$14.15
|
41.50%
|
120
|
20.00%
|
3.0
|
$14.15
|
41.50%
|
113.83
|
13.83%
|
3.0
|
$14.15
|
41.50%
|
110
|
10.00%
|
3.0
|
$13.00
|
30.00%
|
105
|
5.00%
|
3.0
|
$11.50
|
15.00%
|
103
|
3.00%
|
3.0
|
$10.90
|
9.00%
|
100
|
0.00%
|
N/A
|
$10.00
|
0.00%
|
95
|
-5.00%
|
N/A
|
$9.50
|
-5.00%
|
90
|
-10.00%
|
N/A
|
$9.00
|
-10.00%
|
80
|
-20.00%
|
N/A
|
$8.00
|
-20.00%
|
70
|
-30.00%
|
N/A
|
$7.00
|
-30.00%
|
60
|
-40.00%
|
N/A
|
$6.00
|
-40.00%
|
50
|
-50.00%
|
N/A
|
$5.00
|
-50.00%
|
40
|
-60.00%
|
N/A
|
$4.00
|
-60.00%
|
30
|
-70.00%
|
N/A
|
$3.00
|
-70.00%
|
20
|
-80.00%
|
N/A
|
$2.00
|
-80.00%
|
10
|
-90.00%
|
N/A
|
$1.00
|
-90.00%
|
0
|
-100.00%
|
N/A
|
$0.00
|
-100.00%
|
*.
The Basket excludes cash dividend
payments on stocks included in the Underliers.
(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:
|
t
|
purchase the Securities in the original offering;
and
|
|
t
|
hold the Securities as capital assets within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
This discussion does not describe all of the
tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
|
t
|
certain financial institutions;
|
|
t
|
certain dealers and traders in securities or commodities;
|
|
t
|
investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
|
|
t
|
U.S. Holders (as defined below) whose functional currency
is not the U.S. dollar;
|
|
t
|
partnerships or other entities classified as partnerships
for U.S. federal income tax purposes;
|
|
t
|
regulated investment companies;
|
|
t
|
real estate investment trusts; or
|
|
t
|
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. If any issuer of Underlying Shares were so treated, certain adverse U.S. federal income tax consequences might apply to a
U.S. Holder 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.
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:
|
t
|
a citizen or individual resident of the United States;
|
|
t
|
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
|
|
t
|
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.
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:
|
t
|
an individual who is classified as a nonresident alien;
|
|
t
|
a foreign corporation; or
|
|
t
|
a foreign estate or trust.
|
The term “Non-U.S. Holder” does
not include any of the following holders:
|
t
|
a holder who is an individual present in the United
States for 183 days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S.
federal income tax purposes;
|
|
t
|
certain former citizens or residents of the United
States; or
|
|
t
|
a holder for whom income or gain in respect of the
Securities is effectively connected with the conduct of a trade or business in the United States.
|
Such holders should consult their tax advisers
regarding the U.S. federal income tax consequences of an investment in the Securities.
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
, 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 Section 871(m) 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:
|
t
|
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;
|
|
t
|
the Non-U.S. Holder is not a controlled foreign corporation
related, directly or indirectly, to Morgan Stanley through stock ownership;
|
|
t
|
the Non-U.S. Holder is not a bank receiving interest
under Section 881(c)(3)(A) of the Code, and
|
|
t
|
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 below regarding Section 871(m) 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, 2021 that do not have a delta of one with
respect to any Underlying Security. Based on the terms of the Securities and current market conditions, we expect that the Securities
will not have a delta of one with respect to any Underlying Security on the Trade Date. However, we will provide an updated determination
in the 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 Section 871(m) withholding is required,
we will not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser
regarding the potential application of Section 871(m) to the Securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the
property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for
example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers),
should note that, absent an applicable treaty exemption, the Securities may be treated as U.S. situs property subject to U.S. federal
estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described above, should consult their
tax advisers regarding the U.S. federal estate tax consequences of an investment in the Securities.
Backup Withholding and Information Reporting
Information returns 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. 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. 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 Nikkei 225 Index
|
The Nikkei 225 Index is
a stock index calculated, published and disseminated by Nikkei Inc. (formerly known as Nihon Keizai Shimbun, Inc.), which we refer
to as Nikkei, that measures the composite price performance of selected Japanese stocks. The Nikkei 225 Index currently
is based on 225 underlying stocks trading on the Tokyo Stock Exchange (the “TSE”) representing a broad cross-section
of Japanese industries. Stocks listed in the First Section of the TSE are among the most actively traded stocks on the
TSE. All 225 Nikkei Underlying Stocks are stocks listed in the First Section of the TSE. Nikkei rules require
that the 75 most liquid issues (one-third of the component count of the Nikkei 225 Index) be included in the Nikkei 225 Index. Nikkei
first calculated and published the Nikkei 225 Index in 1970. The 225 companies included in the Nikkei 225 Index are
divided into six sector categories: technology, financials, consumer goods, materials, capital goods/others and transportation
and utilities. For additional information about the Nikkei 225 Index, see the information set forth under “Nikkei
225 Index” in the accompanying index supplement.
Nikkei, the publisher of the Nikkei 225 Index, has the copyright
to the Nikkei 225 Index. All rights to the Nikkei 225 Index are owned by Nikkei. Nikkei has the right to
change the contents of the Nikkei 225 Index and to cease compilation and publication of the Nikkei 225 Index. In addition,
Nikkei has no relationship to us or the securities; it does not sponsor, endorse, authorize, sell or promote the securities, and
has no obligation or liability in connection with the administration, marketing or trading of the securities or with the calculation
of the return on your investment. For more information, see “Nikkei 225 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 Nikkei 225 Index for each quarter in the period from January 1, 2014
through April 23, 2019. The Closing Level of the Nikkei 225 Index on April 23, 2019 was 22,259.74. We obtained the information
in the table below from Bloomberg Financial Markets, without independent verification. The historical Closing Levels of the Nikkei
225 Index should not be taken as an indication of future performance, and no assurance can be given as to the Closing Level of
the Nikkei 225 Index on the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
16,291.31
|
14,008.47
|
14,827.83
|
4/1/2014
|
6/30/2014
|
15,376.24
|
13,910.16
|
15,162.10
|
7/1/2014
|
9/30/2014
|
16,374.14
|
14,778.37
|
16,173.52
|
10/1/2014
|
12/31/2014
|
17,935.64
|
14,532.51
|
17,450.77
|
1/1/2015
|
3/31/2015
|
19,754.36
|
16,795.96
|
19,206.99
|
4/1/2015
|
6/30/2015
|
20,868.03
|
19,034.84
|
20,235.73
|
7/1/2015
|
9/30/2015
|
20,841.97
|
16,930.84
|
17,388.15
|
10/1/2015
|
12/31/2015
|
20,012.40
|
17,722.42
|
19,033.71
|
1/1/2016
|
3/31/2016
|
19,033.71
|
14,952.61
|
16,758.67
|
4/1/2016
|
6/30/2016
|
17,572.49
|
14,952.02
|
15,575.92
|
7/1/2016
|
9/30/2016
|
17,081.98
|
15,106.98
|
16,449.84
|
10/1/2016
|
12/31/2016
|
19,494.53
|
16,251.54
|
19,114.37
|
1/1/2017
|
3/31/2017
|
19,633.75
|
18,787.99
|
18,909.26
|
4/1/2017
|
6/30/2017
|
20,230.41
|
18,335.63
|
20,033.43
|
7/1/2017
|
9/30/2017
|
20,397.58
|
19,274.82
|
20,356.28
|
10/1/2017
|
12/31/2017
|
22,939.18
|
20,356.28
|
22,764.94
|
1/1/2018
|
3/31/2018
|
24,124.15
|
20,617.86
|
21,454.30
|
4/1/2018
|
6/30/2018
|
23,002.37
|
21,292.29
|
22,304.51
|
7/1/2018
|
9/30/2018
|
24,120.04
|
21,546.99
|
24,120.04
|
10/1/2018
|
12/31/2018
|
24,270.62
|
19,155.74
|
20,014.77
|
1/1/2019
|
3/31/2019
|
21,822.04
|
19,561.96
|
21,205.81
|
4/1/2019
|
4/23/2019*
|
22,277.97
|
21,505.31
|
22,259.74
|
* 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 Nikkei 225
Index from January 1, 2008 through April 23, 2019, based on information from Bloomberg.
Past performance of the Nikkei 225
Index is not indicative of the future performance of the Nikkei 225 Index.
The EURO STOXX 50
®
Index
|
The EURO STOXX 50
®
Index was created by STOXX Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50
®
Index began on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50
®
Index is composed of 50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes
stocks selected from the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across
all market sectors. For additional information about the EURO STOXX 50
®
Index, see the information set forth under
“EURO STOXX 50
®
Index” in the accompanying index supplement.
“EURO STOXX 50
®
” and “STOXX
®
”
are registered trademarks of STOXX Limited. For more information, see “EURO STOXX 50
®
Index” in the
accompanying index supplement.
|
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 EURO STOXX 50
®
Index for each
quarter in the period from January 1, 2014 through April 23, 2019. The Closing Level of the EURO STOXX 50
®
Index
on April 23, 2019 was 3,503.85. We obtained the information in the table below from Bloomberg Financial Markets, without independent
verification. The historical Closing Levels of the EURO STOXX 50
®
Index should not be taken as an indication of
future performance, and no assurance can be given as to the Closing Level of the EURO STOXX 50
®
Index on the Final
Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
3,172.43
|
2,962.49
|
3,161.60
|
4/1/2014
|
6/30/2014
|
3,314.80
|
3,091.52
|
3,228.24
|
7/1/2014
|
9/30/2014
|
3,289.75
|
3,006.83
|
3,225.93
|
10/1/2014
|
12/31/2014
|
3,277.38
|
2,874.65
|
3,146.43
|
1/1/2015
|
3/31/2015
|
3,731.35
|
3,007.91
|
3,697.38
|
4/1/2015
|
6/30/2015
|
3,828.78
|
3,424.30
|
3,424.30
|
7/1/2015
|
9/30/2015
|
3,686.58
|
3,019.34
|
3,100.67
|
10/1/2015
|
12/31/2015
|
3,506.45
|
3,069.05
|
3,267.52
|
1/1/2016
|
3/31/2016
|
3,178.01
|
2,680.35
|
3,004.93
|
4/1/2016
|
6/30/2016
|
3,151.69
|
2,697.44
|
2,864.74
|
7/1/2016
|
9/30/2016
|
3,091.66
|
2,761.37
|
3,002.24
|
10/1/2016
|
12/31/2016
|
3,290.52
|
2,954.53
|
3,290.52
|
1/1/2017
|
3/31/2017
|
3,500.93
|
3,230.68
|
3,500.93
|
4/1/2017
|
6/30/2017
|
3,658.79
|
3,409.78
|
3,441.88
|
7/1/2017
|
9/30/2017
|
3,594.85
|
3,388.22
|
3,594.85
|
10/1/2017
|
12/31/2017
|
3,697.40
|
3,503.96
|
3,503.96
|
1/1/2018
|
3/31/2018
|
3,672.29
|
3,278.72
|
3,361.50
|
4/1/2018
|
6/30/2018
|
3,592.18
|
3,340.35
|
3,395.60
|
7/1/2018
|
9/30/2018
|
3,527.18
|
3,293.36
|
3,399.20
|
10/1/2018
|
12/31/2018
|
3,414.16
|
2,937.36
|
3,001.42
|
1/1/2019
|
3/31/2019
|
3,409.00
|
2,954.66
|
3,351.71
|
4/1/2019
|
4/23/2019*
|
3,503.85
|
3,385.38
|
3,503.85
|
* Available information
for the indicated period includes data for less than the entire calendar quarter, and, accordingly, the “Quarterly High,”
“Quarterly Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the EURO STOXX
50
®
Index from January 1, 2008 through April 23, 2019, based on information from Bloomberg.
Past performance
of the EURO STOXX 50
®
Index is not indicative of the future performance of the EURO STOXX 50
®
Index.
The Hang Seng Index
|
The Hang Seng Index was
developed, and is calculated, maintained and published, by Hang Seng Indexes Company (formerly HIS Services Limited), a wholly
owned subsidiary of the Hang Seng Bank, and was first calculated and published on November 24, 1969. The Hang Seng Index is a market
capitalization weighted stock market index of the Hong Kong Stock Exchange (the “HKSE”) and purports to be an indicator
of the performance of the Hong Kong stock market. Only companies with a primary listing on the Main Board of the HKSE are eligible
to be constituents of the Hang Seng Index. For additional information about the Hang Seng Index, see the information set forth
under “Hang Seng Index” in the accompanying index supplement.
“Hang Seng
®
Index” is a trademark
of Hang Seng Indexes Company. For more information, see “Hang Seng 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 Hang Seng Index for each quarter in the period from January 1, 2014
through April 23, 2019. The Closing Level of the Hang Seng Index on April 23, 2019 was 29,963.24. We obtained the information in
the table below from Bloomberg Financial Markets, without independent verification. The historical Closing Levels of the Hang Seng
Index should not be taken as an indication of future performance, and no assurance can be given as to the Closing Level of the
Hang Seng Index on the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
23,340.05
|
21,182.16
|
22,151.06
|
4/1/2014
|
6/30/2014
|
23,319.17
|
21,746.26
|
23,190.72
|
7/1/2014
|
9/30/2014
|
25,317.95
|
22,932.98
|
22,932.98
|
10/1/2014
|
12/31/2014
|
24,111.98
|
22,585.84
|
23,605.04
|
1/1/2015
|
3/31/2015
|
24,909.90
|
23,485.41
|
24,900.89
|
4/1/2015
|
6/30/2015
|
28,442.75
|
25,082.75
|
26,250.03
|
7/1/2015
|
9/30/2015
|
26,282.32
|
20,556.60
|
20,846.30
|
10/1/2015
|
12/31/2015
|
23,151.94
|
20,846.30
|
21,914.40
|
1/1/2016
|
3/31/2016
|
21,914.40
|
18,319.58
|
20,776.70
|
4/1/2016
|
6/30/2016
|
21,622.25
|
19,694.33
|
20,794.37
|
7/1/2016
|
9/30/2016
|
24,099.70
|
20,495.29
|
23,297.15
|
10/1/2016
|
12/31/2016
|
23,952.50
|
21,574.76
|
22,000.56
|
1/1/2017
|
3/31/2017
|
24,593.12
|
22,000.56
|
24,111.59
|
4/1/2017
|
6/30/2017
|
26,063.06
|
23,825.88
|
25,764.58
|
7/1/2017
|
9/30/2017
|
28,159.77
|
25,340.85
|
27,554.30
|
10/1/2017
|
12/31/2017
|
30,003.49
|
27,554.30
|
29,919.15
|
1/1/2018
|
3/31/2018
|
33,154.12
|
29,459.63
|
30,093.38
|
4/1/2018
|
6/30/2018
|
31,541.08
|
28,356.26
|
28,955.11
|
7/1/2018
|
9/30/2018
|
28,955.11
|
26,345.04
|
27,788.52
|
10/1/2018
|
12/31/2018
|
27,788.52
|
24,585.53
|
25,845.70
|
1/1/2019
|
3/31/2019
|
29,466.28
|
25,064.36
|
29,051.36
|
4/1/2019
|
4/23/2019*
|
30,157.49
|
29,562.02
|
29,963.24
|
* 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 Hang Seng
Index from January 1, 2008 through April 23, 2019, based on information from Bloomberg.
Past performance of the Hang Seng
Index is not indicative of the future performance of the Hang Seng Index.
The MSCI Emerging Markets Index
SM
|
The MSCI Emerging Markets
Index
SM
is a stock index calculated, published and disseminated daily by MSCI Inc. (“MSCI”) and is intended
to provide performance benchmarks for certain emerging equity markets including Brazil, Chile, China, Colombia, Czech Republic,
Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa,
Taiwan, Thailand, Turkey and United Arab Emirates.
For additional information
about the MSCI Emerging Markets Index
SM
, see the information set forth under “MSCI Emerging Markets Index
SM
”
in the accompanying index supplement.
|
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 MSCI Emerging Markets Index
SM
for each quarter in the period
from January 1, 2014 through April 23, 2019. The Closing Level of the MSCI Emerging Markets Index
SM
on April 23, 2019
was 1,089.76. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
The historical Closing Levels of the MSCI Emerging Markets Index
SM
should not be taken as an indication of future performance,
and no assurance can be given as to the Closing Level of the MSCI Emerging Markets Index
SM
on the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
1,002.66
|
916.56
|
994.65
|
4/1/2014
|
6/30/2014
|
1,057.59
|
993.12
|
1,050.78
|
7/1/2014
|
9/30/2014
|
1,100.98
|
1,005.33
|
1,005.33
|
10/1/2014
|
12/31/2014
|
1,016.07
|
909.98
|
956.31
|
1/1/2015
|
3/31/2015
|
993.82
|
934.73
|
974.57
|
4/1/2015
|
6/30/2015
|
1,067.01
|
959.42
|
972.25
|
7/1/2015
|
9/30/2015
|
971.91
|
771.77
|
792.05
|
10/1/2015
|
12/31/2015
|
868.56
|
771.22
|
794.14
|
1/1/2016
|
3/31/2016
|
836.80
|
688.52
|
836.80
|
4/1/2016
|
6/30/2016
|
853.69
|
781.84
|
834.10
|
7/1/2016
|
9/30/2016
|
927.29
|
819.19
|
903.46
|
10/1/2016
|
12/31/2016
|
918.68
|
838.96
|
862.27
|
1/1/2017
|
3/31/2017
|
973.08
|
861.88
|
958.37
|
4/1/2017
|
6/30/2017
|
1,019.11
|
952.92
|
1,010.80
|
7/1/2017
|
9/30/2017
|
1,112.92
|
1,002.48
|
1,081.72
|
10/1/2017
|
12/31/2017
|
1,158.45
|
1,081.72
|
1,158.45
|
1/1/2018
|
3/31/2018
|
1,273.07
|
1,142.85
|
1,170.88
|
4/1/2018
|
6/30/2018
|
1,184.13
|
1,046.71
|
1,069.52
|
7/1/2018
|
9/30/2018
|
1,092.36
|
1,003.33
|
1,047.91
|
10/1/2018
|
12/31/2018
|
1,046.40
|
934.80
|
965.78
|
1/1/2019
|
3/31/2019
|
1,070.95
|
949.57
|
1,058.13
|
4/1/2019
|
4/23/2019*
|
1,096.39
|
1,070.09
|
1,089.76
|
* Available information
for the indicated period includes data for less than the entire calendar quarter, and, accordingly, the “Quarterly High,”
“Quarterly Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the MSCI Emerging
Markets Index
SM
from January 1, 2008 through April 23, 2019, based on information from Bloomberg.
Past performance
of the MSCI Emerging Markets Index
SM
is not indicative of the future performance of the MSCI Emerging Markets Index
SM
.
The S&P/ASX 200 Index
|
The S&P/ASX 200 Index
is Australia’s large-capitalization tradable equity index and Australia’s institutional benchmark. The S&P/ASX
200 Index measures the performance of the 200 largest index-eligible stocks listed on the Australian Securities Exchange by float-adjusted
market capitalization. Only stocks that are actively and regularly traded are considered for inclusion in the S&P/ASX 200 Index.
The index is float-adjusted, and, as of August 2014, covers approximately 80% of Australian equity market capitalization. For additional
information about the S&P/ASX 200 Index, see the information set forth under “S&P/ASX 200 Index” in the accompanying
index supplement.
“Standard & Poor’s
®
,” “S&P
®
”
and “S&P/ASX 200
®
” are trademarks of Standard and Poor’s Financial Services LLC. For more
information, see “S&P/ASX 200 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/ASX 200 Index for each quarter in the period from January
1, 2014 through April 23, 2019. The Closing Level of the S&P/ASX 200 Index on April 23, 2019 was 6,319.417. We obtained the
information in the table below from Bloomberg Financial Markets, without independent verification. The historical Closing Levels
of the S&P/ASX 200 Index should not be taken as an indication of future performance, and no assurance can be given as to the
Closing Level of the S&P/ASX 200 Index on the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
5,462.309
|
5,070.311
|
5,394.831
|
4/1/2014
|
6/30/2014
|
5,536.073
|
5,358.948
|
5,395.747
|
7/1/2014
|
9/30/2014
|
5,658.511
|
5,264.217
|
5,292.812
|
10/1/2014
|
12/31/2014
|
5,549.130
|
5,152.343
|
5,411.018
|
1/1/2015
|
3/31/2015
|
5,975.491
|
5,299.237
|
5,891.505
|
4/1/2015
|
6/30/2015
|
5,982.694
|
5,422.487
|
5,459.010
|
7/1/2015
|
9/30/2015
|
5,706.715
|
4,918.429
|
5,021.629
|
10/1/2015
|
12/31/2015
|
5,351.565
|
4,909.555
|
5,295.900
|
1/1/2016
|
3/31/2016
|
5,295.900
|
4,765.346
|
5,082.785
|
4/1/2016
|
6/30/2016
|
5,408.017
|
4,924.385
|
5,233.375
|
7/1/2016
|
9/30/2016
|
5,587.392
|
5,197.500
|
5,435.921
|
10/1/2016
|
12/31/2016
|
5,699.068
|
5,156.556
|
5,665.800
|
1/1/2017
|
3/31/2017
|
5,896.229
|
5,610.972
|
5,864.905
|
4/1/2017
|
6/30/2017
|
5,956.523
|
5,665.721
|
5,721.494
|
7/1/2017
|
9/30/2017
|
5,785.102
|
5,655.420
|
5,681.610
|
10/1/2017
|
12/31/2017
|
6,088.143
|
5,651.766
|
6,065.129
|
1/1/2018
|
3/31/2018
|
6,135.807
|
5,759.365
|
5,759.365
|
4/1/2018
|
6/30/2018
|
6,232.134
|
5,751.924
|
6,194.633
|
7/1/2018
|
9/30/2018
|
6,352.236
|
6,128.717
|
6,207.561
|
10/1/2018
|
12/31/2018
|
6,185.486
|
5,467.639
|
5,646.400
|
1/1/2019
|
3/31/2019
|
6,263.885
|
5,557.755
|
6,180.731
|
4/1/2019
|
4/23/2019*
|
6,319.417
|
6,181.259
|
6,319.417
|
* 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/ASX
200 Index from January 1, 2008 through April 23, 2019, based on information from Bloomberg.
Past performance of the S&P/ASX
200 Index is not indicative of the future performance of the S&P/ASX 200 Index.
The FTSE
®
100 Index
|
The FTSE
®
100 Index, which is calculated, published and disseminated by FTSE Russell, is a free-float-adjusted index which measures the composite
price performance of stocks of the largest 100 companies (determined on the basis of market capitalization) traded on the London
Stock Exchange. The 100 stocks included in the FTSE
®
100 Index (the “FTSE Underlying Stocks”) are selected
from a reference group of stocks trading on the London Stock Exchange which are in turn selected by excluding certain stocks that
have low liquidity based on public float, accuracy and reliability of prices, size and number of trading days. The FTSE Underlying
Stocks are selected from this reference group by selecting 100 stocks with the largest market value. For additional information
about the FTSE
®
100 Index, see the information set forth under “FTSE
TM
100 Index” in the
accompanying index supplement.
“FTSE
TM
” and “Footsie
TM
”
are trademarks of London Stock Exchange Plc and The Financial Times Limited. For more information, see “FTSE
TM
100 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 FTSE
®
100 Index for each quarter in the period from
January 1, 2014 through April 23, 2019. The Closing Level of the FTSE
®
100 Index on April 23, 2019 was 7,523.07.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical
Closing Levels of the FTSE
®
100 Index should not be taken as an indication of future performance, and no assurance
can be given as to the Closing Level of the FTSE
®
100 Index on the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
6,865.86
|
6,449.27
|
6,598.37
|
4/1/2014
|
6/30/2014
|
6,878.49
|
6,541.61
|
6,743.94
|
7/1/2014
|
9/30/2014
|
6,877.97
|
6,567.36
|
6,622.72
|
10/1/2014
|
12/31/2014
|
6,750.76
|
6,182.72
|
6,566.09
|
1/1/2015
|
3/31/2015
|
7,037.67
|
6,366.51
|
6,773.04
|
4/1/2015
|
6/30/2015
|
7,103.98
|
6,520.98
|
6,520.98
|
7/1/2015
|
9/30/2015
|
6,796.45
|
5,898.87
|
6,061.61
|
10/1/2015
|
12/31/2015
|
6,444.08
|
5,874.06
|
6,242.32
|
1/1/2016
|
3/31/2016
|
6,242.32
|
5,536.97
|
6,174.90
|
4/1/2016
|
6/30/2016
|
6,504.33
|
5,923.53
|
6,504.33
|
7/1/2016
|
9/30/2016
|
6,941.19
|
6,463.59
|
6,899.33
|
10/1/2016
|
12/31/2016
|
7,142.83
|
6,693.26
|
7,142.83
|
1/1/2017
|
3/31/2017
|
7,429.81
|
7,099.15
|
7,322.92
|
4/1/2017
|
6/30/2017
|
7,547.63
|
7,114.36
|
7,312.72
|
7/1/2017
|
9/30/2017
|
7,542.73
|
7,215.47
|
7,372.76
|
10/1/2017
|
12/31/2017
|
7,687.77
|
7,300.49
|
7,687.77
|
1/1/2018
|
3/31/2018
|
7,778.64
|
6,888.69
|
7,056.61
|
4/1/2018
|
6/30/2018
|
7,877.45
|
7,030.46
|
7,636.93
|
7/1/2018
|
9/30/2018
|
7,776.65
|
7,273.54
|
7,510.20
|
10/1/2018
|
12/31/2018
|
7,510.28
|
6,584.68
|
6,728.13
|
1/1/2019
|
3/31/2019
|
7,355.31
|
6,692.66
|
7,279.19
|
4/1/2019
|
4/23/2019*
|
7,523.07
|
7,317.38
|
7,523.07
|
* 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 FTSE
®
100 Index from January 1, 2008 through April 23, 2019, based on information from Bloomberg.
Past performance of the FTSE
®
100 Index is not indicative of the future performance of the FTSE
®
100 Index.
The Swiss Market Index
|
The Swiss Market Index
(“SMI
®
”) represents approximately 85% of the free-float capitalization of the Swiss equity market. The
Swiss Market Index consists of the 20 largest and most liquid equities of the Swiss Performance Index
®
. The composition
of the Swiss Market Index is reviewed annually, and in order to ensure a high degree of continuity in the composition of the Swiss
Market Index, the component stocks are subject to a special procedure for adding them to the Swiss Market Index or removing them
based on free-float market capitalization and liquidity. For additional information about the Swiss Market Index, see the information
set forth under “Swiss Market Index” in the accompanying index supplement.
SMI
®
is a trademark of SIX Swiss Exchange. For
more information, see “Swiss Market 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 Swiss Market Index for each quarter in the period from January 1,
2014 through April 23, 2019. The Closing Level of the Swiss Market Index on April 23, 2019 was 9,635.07. We obtained the information
in the table below from Bloomberg Financial Markets, without independent verification. The historical Closing Levels of the Swiss
Market Index should not be taken as an indication of future performance, and no assurance can be given as to the Closing Level
of the Swiss Market Index on the Final Valuation Date.
Quarter Begin
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
8,532.99
|
8,092.53
|
8,453.82
|
4/1/2014
|
6/30/2014
|
8,752.86
|
8,280.53
|
8,554.52
|
7/1/2014
|
9/30/2014
|
8,840.17
|
8,274.65
|
8,835.14
|
10/1/2014
|
12/31/2014
|
9,212.85
|
8,057.54
|
8,983.37
|
1/1/2015
|
3/31/2015
|
9,396.29
|
7,899.59
|
9,128.98
|
4/1/2015
|
6/30/2015
|
9,471.46
|
8,780.91
|
8,780.91
|
7/1/2015
|
9/30/2015
|
9,526.79
|
8,278.07
|
8,513.41
|
10/1/2015
|
12/31/2015
|
9,016.56
|
8,375.31
|
8,818.09
|
1/1/2016
|
3/31/2016
|
8,818.09
|
7,496.62
|
7,807.89
|
4/1/2016
|
6/30/2016
|
8,292.45
|
7,594.49
|
8,020.15
|
7/1/2016
|
9/30/2016
|
8,320.99
|
7,898.21
|
8,139.01
|
10/1/2016
|
12/31/2016
|
8,259.45
|
7,593.20
|
8,219.87
|
1/1/2017
|
3/31/2017
|
8,704.39
|
8,219.87
|
8,658.89
|
4/1/2017
|
6/30/2017
|
9,127.61
|
8,529.28
|
8,906.89
|
7/1/2017
|
9/30/2017
|
9,176.99
|
8,814.54
|
9,157.46
|
10/1/2017
|
12/31/2017
|
9,452.32
|
9,084.04
|
9,381.87
|
1/1/2018
|
3/31/2018
|
9,611.61
|
8,509.29
|
8,740.97
|
4/1/2018
|
6/30/2018
|
9,000.89
|
8,456.95
|
8,609.30
|
7/1/2018
|
9/30/2018
|
9,201.22
|
8,529.59
|
9,087.99
|
10/1/2018
|
12/31/2018
|
9,175.21
|
8,195.64
|
8,429.30
|
1/1/2019
|
3/31/2019
|
9,525.92
|
8,429.30
|
9,477.84
|
4/1/2019
|
4/23/2019*
|
9,635.07
|
9,484.91
|
9,635.07
|
* 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 Swiss Market
Index from January 1, 2008 through April 23, 2019, based on information from Bloomberg.
Past performance of the Swiss Market
Index is not indicative of the future performance of the Swiss Market Index.
Additional Terms of the Securities
|
If the terms discussed in this free writing
prospectus differ from those discussed in the prospectus supplement, index supplement or prospectus, the terms contained in this
free writing prospectus will control.
Some Definitions
We have defined some of the terms that we use
frequently in this free writing prospectus below:
|
t
|
“Closing Level”
on any Index Business Day means (i) with respect to each of the Nikkei 225 Index, the EURO STOXX 50
®
Index, the
Hang Seng Index, the S&P/ASX 200 Index, the FTSE
®
100 Index and the Swiss Market Index, the closing value of
such Underlier, or any Successor Underlier (as defined under “—Discontinuance of an Underlier; Alteration of Method
of Calculation” below) published at the regular weekday close of trading on such Index Business Day by the Underlier Publisher
for such Underlier, and (ii) with respect to the MSCI Emerging Markets Index
SM
, the closing value of such Underlier
or any Successor Underlier reported by Bloomberg Financial Services, or any successor reporting service the Calculation Agent may
select, on that Index Business Day. In certain circumstances, the Closing Level for an Underlier will be based on the alternate
calculation of such Underlier as described under “—Discontinuance of an Underlier; Alteration of Method of Calculation.”
|
The Closing Level
of the MSCI Emerging Markets Index
SM
reported by Bloomberg Financial Services may be lower or higher than the official
Closing Level of such Underlier published by the Underlier Publisher of such Underlier.
|
t
|
“Underlier Publisher”
means, with respect to the Nikkei 225 Index, Nikkei Inc. or any successor thereto; with respect to the SX5E Index, STOXX Limited
or any successor thereto; with respect to the HSI Index, Hang Seng Indexes Company or any successor thereto; with respect to the
MSCI Emerging Markets Index
SM
, MSCI Inc., or any successor thereto; with respect to the S&P/ASX 200 Index, S&P
Dow Jones Indices or any successor thereto; with respect to the FTSE
®
100 Index, FTSE Russell or any successor thereto;
and with respect to the Swiss Market Index, SIX Group Ltd. or any successor thereto.
|
|
t
|
“Index Business Day”
means, with respect to each Underlier, a day, as determined by the Calculation Agent, on which trading is generally conducted on
the Relevant Exchange, other than a day on which trading on any Relevant Exchange is scheduled to close prior to the time of the
posting of its regular final weekday closing price.
|
|
t
|
“Market Disruption
Event” means, with respect to each Underlier:
|
|
(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 such Underlier (or Successor
Underlier (as defined below under “—Discontinuance of an Underlier; 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 such Underlier (or Successor Underlier) during the last one-half hour
preceding the close of the principal trading session on such Relevant Exchange are materially inaccurate, or
(c) the suspension,
material limitation or absence of trading on any major U.S. securities market for trading in futures or options contracts or exchange-traded
funds related to such Underlier (or Successor Underlier) 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 with respect to any Underlier, if trading in a security included in such Underlier
is materially suspended or materially limited at that time, then the relevant percentage contribution of that security to the value
of such Underlier shall be based on a comparison of (x) the portion of the value of such Underlier attributable to that security
relative to (y) the overall value of such Underlier, in each case immediately before that suspension or limitation.
For the purpose
of determining whether a Market Disruption Event has occurred with respect to any Underlier: (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 any exchange-traded fund will not constitute a Market Disruption Event, (3) a suspension of trading in futures or options
contracts or exchange-traded funds on such Underlier 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 such Underlier and (4) a “suspension,
absence or material limitation of
trading”
on any Relevant Exchange or on the primary market on which futures or options contracts or exchange-traded funds related to such
Underlier are traded will not include any time when such securities market is itself closed for trading under ordinary circumstances.
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“Relevant Exchange”
means, with respect to each Underlier, the primary exchange(s) or market(s) of trading for (i) any security then included in such
Underlier, or any Successor Underlier, and (ii) any futures or options contracts related to such Underlier or to any security then
included in such Underlier.
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Postponement of Final Valuation Date and
Maturity Date
If the scheduled Final Valuation Date is not
an Index Business Day with respect to any Underlier or if a Market Disruption Event occurs on such date with respect to any Underlier,
the Closing Level with respect to such affected Underlier (but not the unaffected Underliers) for such date will be determined
on the immediately succeeding Index Business Day on which no Market Disruption Event occurs with respect to such affected Underlier.
The Final Basket Level will be determined on the date on which the Closing Level for each of the Underliers for such date has been
determined; provided that the Closing Level for any affected Underlier 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. If such date is not an Index
Business Day or if there is a Market Disruption Event with respect to the affected Underlier on such date, the Calculation Agent
will determine the Closing Level of such Underlier on such date in accordance with the formula for calculating such Underlier 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 such Underlier.
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:
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the lowest amount that a Qualified Financial Institution would charge to effect this assumption or undertaking, plus
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the reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the Securities in preparing
any documentation necessary for this assumption or undertaking.
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During the Default Quotation Period for the Securities, which
we describe below, the holders of the Securities and/or we may request a Qualified Financial Institution to provide a quotation
of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the
other party in writing of the quotation. The amount referred to in the first bullet point above will equal the lowest—or,
if there is only one, the only—quotation obtained, and as to which notice is so given, during the Default Quotation Period.
With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds,
to the assumption or undertaking by the Qualified Financial Institution providing the quotation and notify the other party in writing
of those grounds within two business days after the last day of the Default Quotation Period, in which case that quotation will
be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to 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:
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no quotation of the kind referred to above is obtained, or
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every quotation of that kind obtained is objected to within five business days after the due date as described above.
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If either of these two events occurs, the Default Quotation Period
will continue until the third business day after the first business day on which prompt notice of a quotation is given as described
above. If that quotation is objected to as described above within five business days after that first business day, however, the
Default Quotation Period will continue as described in the prior sentence and this sentence.
In any event, if the Default Quotation Period and the subsequent
two business day objection period have not ended before the Final 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:
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A-2 or higher by Standard & Poor’s Ratings Services or any successor, or any other comparable rating then used by
that rating agency, or
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P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating
agency.
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Discontinuance of an Underlier; Alteration
of Method of Calculation
If an Underlier Publisher of the relevant Underlier
discontinues publication of such Underlier and the Underlier Publisher or another entity (including MS & Co.) publishes a successor
or substitute index that the Calculation Agent determines, in its sole discretion, to be comparable to such discontinued Underlier
(such index being referred to herein as a “Successor Underlier”), then any subsequent Closing Level for the discontinued
Underlier will be determined by reference to the published value of such Successor Underlier at the regular weekday close of trading
on any Index Business Day that the Closing Level for such Underlier is to be determined, and, to the extent the Closing Level of
the Successor Underlier differs from the Closing Level of the relevant Underlier at the time of such substitution, proportionate
adjustments will be made by the Calculation Agent for purposes of calculating payments on the Securities.
Upon any selection by the Calculation Agent
of a Successor Underlier, 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 an Underlier Publisher discontinues publication
of the relevant Underlier prior to, and such discontinuance is continuing on, the Final Valuation Date and the Calculation Agent
determines, in its sole discretion, that no Successor Underlier is available at such time, then the Calculation Agent will determine
the Closing Level for such Underlier for such date. The Closing Level of such Underlier will be computed by the Calculation Agent
in accordance with the formula for and method of calculating such Underlier 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 such Underlier without
any rebalancing or substitution of such securities following such discontinuance. Notwithstanding these alternative arrangements,
discontinuance of the publication of any Underlier may adversely affect the value of the Securities.
If at any time the method of calculating an
Underlier or Successor Underlier, or the value thereof, is changed in a material respect, or if an Underlier or Successor Underlier
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 for such index is to be determined, make such calculations
and adjustments as, in the good faith judgment of the Calculation Agent, may be necessary in order to arrive at a value of a stock
index comparable to such Underlier or Successor Underlier, 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 such Underlier or Successor Underlier, as adjusted.
Accordingly, if the method of calculating such Underlier or Successor Underlier 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 such index), then the Calculation Agent
will adjust such index in order to arrive at a value of such Underlier or Successor Underlier 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 Levels, the
Final Levels, the Final Basket Level, the Basket 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 will be rounded to the nearest one billionth, with five ten-billionths rounded upward (e.g., .9876543215 would be rounded
to .987654322); 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 Basket
Level or whether a Market Disruption Event has occurred. See “—Discontinuance of an Underlier; 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
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Use of Proceeds and Hedging
The proceeds from the sale of the Securities
will be used by us for general corporate purposes. We will receive, in aggregate, $10 per Security issued, because, when we enter
into hedging transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost
of the Agent’s commissions. The costs of the Securities borne by you and described on page 2 above comprise the Agent’s
commissions and the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying
prospectus.
On or prior to the Trade Date, we will hedge
our anticipated exposure in connection with the Securities, by entering into hedging transactions with our affiliates and/or third
party dealers. We expect our hedging counterparties to take positions in the constituent stocks of the Underliers, in futures or
options contracts on the Underliers or the constituent stocks of the Underliers, as well as in other instruments related to the
Underliers that they may wish to use in connection with such hedging. Such purchase activity could increase the Initial Levels
of the Underliers, and, therefore, could increase the levels at or above which the Underliers must close on the Final Valuation
Date so that you do not suffer a 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 Underliers, futures or options contracts on the Underliers or the constituent stocks
of the Underliers, as well as other instruments related to the Underliers 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 levels of the Underliers, and, therefore, adversely affect the value of the Securities
or the amount payable at maturity, if any.
Benefit Plan Investor Considerations
Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the Securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions
between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the Securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the Securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the Securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and the related lending transactions,
provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control
or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further that the
Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called
“service provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available
with respect to transactions involving the Securities.
Because we may be considered a party in interest with respect
to many Plans, the Securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the Securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the Securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such Securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the
Code (“Similar Law”) or (b) its purchase, holding
and disposition of these Securities will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA
or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the Securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The Securities are contractual financial instruments. The financial
exposure provided by the Securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the Securities. The Securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the Securities.
Each purchaser or holder of any Securities acknowledges and agrees
that:
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(i)
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the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the
purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of
the purchaser or holder with respect to (A) the design and terms of the Securities, (B) the purchaser or holder’s investment
in the Securities, or (C) the exercise of or failure to exercise any rights we have under or with respect to the Securities;
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(ii)
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we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to
the Securities and (B) all hedging transactions in connection with our obligations under the Securities;
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(iii)
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any and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those
entities and are not assets and positions held for the benefit of the purchaser or holder;
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(iv)
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our interests are adverse to the interests of the purchaser or holder; and
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(v)
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neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets,
positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment
advice.
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Each purchaser and holder of the Securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the Securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any Securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular
plan. In this regard, neither this discussion nor anything provided in this document is or is intended to be investment advice
directed at any potential Plan purchaser or at Plan purchasers generally and such purchasers of these Securities should consult
and rely on their own counsel and advisers as to whether an investment in these Securities is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the Securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the Securities by the account, plan or annuity.
Supplemental Plan of
Distribution; Conflicts of Interest
MS & Co. will act as the agent for this
offering. We will agree to sell to MS & Co., and MS & Co. will agree to purchase, all of the Securities at the issue price
less the underwriting discount indicated on the cover of this document. UBS Financial Services Inc., acting as dealer, will receive
from MS & Co. a fixed sales commission of $0.20 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 Maximum Gain, 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 Underliers in the open market to stabilize the price of the Securities. Any of these activities may raise or maintain the
market price of the Securities above independent market levels or prevent or
retard a decline in the market price of the
Securities. The agent is not required to engage in these activities, and may end any of these activities at any time. An affiliate
of the agent has entered into a hedging transaction with us in connection with this offering of Securities. See “—Use
of Proceeds and Hedging” above.
Form of Securities
The Securities will be issued in the form of
one or more fully registered global securities which will be deposited with, or on behalf of, the Depositary and will be registered
in the name of a nominee of the Depositary. The Depositary’s nominee will be the only registered holder of the Securities.
Your beneficial interest in the Securities will be evidenced solely by entries on the books of the securities intermediary acting
on your behalf as a direct or indirect participant in the Depositary. In this free writing prospectus, all references to payments
or notices to you will mean payments or notices to the Depositary, as the registered holder of the Securities, for distribution
to participants in accordance with the Depositary’s procedures. For more information regarding the Depositary and book entry
notes, please read “Form of Securities—The Depositary” in the accompanying prospectus supplement and “Securities
Offered on a Global Basis Through the Depositary” in the accompanying prospectus.
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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