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.
Example 3 — Securities
are NOT Called and the Final Underlying Level of the Underlying Shares is below the Downside Threshold
Date
|
Closing Price
|
Payment (per Security)
|
First Observation Date
|
$30 (at or above Coupon Barrier; not callable)
|
$0.31375 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
$27 (at or above Coupon Barrier; below Initial Underlying Level)
|
$0.31375 (Contingent Coupon — Not Callable)
|
Third to Seventh Observation Dates
|
Various (all below Coupon Barrier; below Initial Underlying Level)
|
$0.00 (Not Callable)
|
Final Observation Date
|
$10.50 (below Downside Threshold and Coupon Barrier; below Initial Underlying Level)
|
$10 + [$10 × Share Return] =
$10 + [$10 × -70%] = $3 (Payment at Maturity)
|
|
Total Payment:
|
$3.6275 (-63.725% return)
|
Since the Securities are not called
and the Final Underlying Level of the Underlying Shares is below the Downside Threshold, at maturity MSFL will pay you $3.00 per
Security. When added to the Contingent Coupon payments of $0.6275 received in respect of prior Observation Dates, MSFL will have
paid you $3.6275 per Security over the 3-year term, for a loss on the Securities of 63.725%.
The Securities differ from ordinary
debt securities in that, among other features, MSFL is not necessarily obligated to repay the full amount of your initial investment.
If the Securities are not called on any Observation Date, you may lose a significant portion or all of your initial investment.
Specifically, if the Securities are not called and the Final Underlying Level is less than the Downside Threshold, you will lose
1% (or a fraction thereof) of your principal amount for each 1% (or a fraction thereof) that the Share Return is less than zero.
Any payment on the Securities, including any payment upon an automatic call, any Contingent Coupon or the Payment at Maturity,
is dependent on our ability to satisfy our obligations when they come due. If we are unable to meet our obligations, you may not
receive any amounts due to you under the Securities.
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 product supplement
does not apply to the Securities issued under this free writing prospectus and is superseded by the following discussion.
The following is a general discussion
of the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the
Securities. This discussion applies only to investors in the Securities who:
|
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.
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 hereof, changes to any of which subsequent to the date hereof may affect the tax consequences described herein.
Persons considering the purchase of the Securities should consult their tax advisers with regard to the application of the U.S.
federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local
or non-U.S. taxing jurisdiction.
General
Due to the absence
of statutory, judicial or administrative authorities that directly address the treatment of the Securities or instruments that
are similar to the Securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will agree
with the tax treatment described herein. We intend to treat a Security for U.S. federal income tax purposes as a single financial
contract that provides for a coupon that will be treated as gross income to you at the time received or accrued in accordance
with your regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the
Securities is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively that
this treatment is more likely than not to be upheld, and that alternative treatments are possible.
You should
consult your tax adviser regarding all aspects of the U.S. federal tax consequences of an investment in the Securities (including
possible alternative treatments of the Securities). Unless otherwise stated, the following discussion is based on the treatment
of each Security as described in the previous paragraph.
Tax Consequences
to U.S. Holders
This section
applies to you only if you are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a
Security that is, for U.S. federal income tax purposes:
|
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 Basis
. A U.S. Holder’s
tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Tax Treatment
of Coupon Payments
. Any coupon payment on the Securities should be taxable as ordinary income to a U.S. Holder at the time
received or accrued, in accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange
or Settlement of the Securities
. Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain
or loss equal to the difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax
basis in the Securities sold, exchanged or settled. For this purpose, the amount realized does not include any coupon paid at
settlement and may not include sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any
such gain or loss recognized should be long-term capital gain or loss if the U.S. Holder has held the Securities for more than
one year at the time of the sale, exchange or settlement, and should be short-term capital gain or loss otherwise. The ordinary
income treatment of the coupon payments, in conjunction with the capital loss treatment of any loss recognized upon the sale,
exchange or settlement of the Securities, could result in adverse tax consequences to holders of the Securities because the deductibility
of capital losses is subject to limitations.
Possible Alternative Tax
Treatments of an Investment in the Securities
Due to the absence of authorities
that directly address the proper tax treatment of the Securities, no assurance can be given that the IRS will accept, or that
a court will uphold, the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences
of owning the Securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt
Regulations”). If the IRS were successful in asserting that the Contingent Debt Regulations applied to the Securities, the
timing and character of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to
accrue into income original issue discount on the Securities every year at a “comparable yield” determined at the
time of their issuance, adjusted upward or downward to reflect the difference, if any, between the actual and the projected amount
of any contingent payments on the Securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange
or other disposition of the Securities would be treated as ordinary income, and any loss realized would be treated as ordinary
loss to the extent of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter. The risk
that financial instruments providing for buffers, triggers or similar downside protection features, such as the Securities, would
be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not have
such features.
Other alternative
federal income tax treatments of the Securities are possible, which, if applied, could significantly affect the timing and character
of the income or loss with respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting
comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice
focuses on whether to require holders of “prepaid forward contracts” and similar instruments to accrue income over
the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss
with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance
of factors such as the exchange–traded status of the instruments and the nature of the underlying property to which the
instruments are linked; whether these instruments are or should be subject to the “constructive ownership” rule, which
very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge;
and appropriate transition rules and effective dates. While it is not clear whether instruments such as the Securities would be
viewed as similar to the prepaid forward contracts described in the notice, any Treasury regulations or other guidance promulgated
after consideration of these issues could materially and adversely affect the tax consequences of an investment in the Securities,
possibly with retroactive effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences
of an investment in the Securities, including possible alternative treatments and the issues presented by this notice.
Backup Withholding and Information
Reporting
Backup withholding may apply in
respect of payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities,
unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies
with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not
an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided
that the required information is timely furnished to the IRS. In addition, information returns will be filed with the IRS
in connection with payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities,
unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences
to Non-U.S. Holders
This section applies to you only
if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that
is for U.S. federal income tax purposes:
|
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|
an
individual who is classified as a nonresident alien;
|
|
t
|
a
foreign corporation; or
|
|
t
|
a
foreign estate or trust.
|
The term “Non-U.S.
Holder” does not include any of the following holders:
|
t
|
a
holder who is an individual present in the United States for 183 days or more in the
taxable year of disposition and who is not otherwise a resident of the United States
for U.S. federal income tax purposes;
|
|
t
|
certain
former citizens or residents of the United States; or
|
|
t
|
a
holder for whom income or gain in respect of the Securities is effectively connected
with the conduct of a trade or business in the United States.
|
Such holders
should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities.
Although significant
aspects of the tax treatment of each Security are uncertain, we intend to withhold on any coupon paid to a Non-U.S. Holder generally
at a rate of 30% or at a reduced rate specified by an applicable income tax treaty under an “other income” or similar
provision. We will not be required to pay any additional amounts with respect to amounts withheld. In order to claim an exemption
from, or a reduction in, the 30% withholding tax, a Non-U.S. Holder of the Securities must comply with certification requirements
to establish that it is not a U.S. person and is eligible for such an exemption or reduction under an applicable tax treaty. If
you are a Non-U.S. Holder, you should consult your tax adviser regarding the tax treatment of the Securities, including the possibility
of obtaining a refund of any withholding tax and the certification requirement described above.
Section 871(m) Withholding
Tax on Dividend Equivalents
Section 871(m)
of the Code and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower
applicable treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain
financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”).
Subject to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance
of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, the regulations exempt securities issued before January 1, 2018 that do not have a delta of one with
respect to any Underlying Security. Based on our determination that the Securities do not have a delta of one with respect to
any Underlying Security, our counsel is of the opinion that the Securities should not be Specified Securities and, therefore,
should not be subject to Section 871(m).
Our determination is not binding
on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your
particular circumstances, including whether you enter into other transactions with respect to an Underlying Security. If Section
871(m) withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld.
You should consult your tax adviser regarding the potential application of Section 871(m) to the Securities.
U.S.
Federal Estate Tax
Individual
Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S.
federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained
certain interests or powers) should note that, absent an applicable treaty exemption, the Securities may be treated as U.S.-situs
property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type
described above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the
Securities.
Backup
Withholding and Information Reporting
Information
returns will be filed with the IRS in connection with any coupon payment and may be filed with the IRS in connection with the
payment at maturity on the Securities and the payment of proceeds from a sale, exchange or other disposition. A Non-U.S. Holder
may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with
certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes
an exemption. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the
Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required
information is timely furnished to the IRS.
FATCA Legislation
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. This legislation generally applies to certain financial instruments
that are treated as paying U.S.-source interest or other U.S.-source “fixed or determinable annual or periodical”
income (“FDAP income”). Withholding (if applicable) applies to payments of U.S.-source FDAP income and, for dispositions
after December 31, 2018, to payments of gross proceeds of the disposition (including upon retirement) of certain financial instruments
treated as providing for U.S.-source interest or dividends. While the treatment of the Securities is unclear, you should assume
that any coupon payment with respect to the Securities will be subject to the FATCA rules. It is also possible in light of this
uncertainty that an applicable withholding agent will treat gross proceeds of a disposition (including upon retirement) of the
Securities after 2018 as being subject to the FATCA rules. If withholding applies to the Securities, we will not be required to
pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers
regarding the potential application of FATCA to the Securities.
The discussion
in the preceding paragraphs under “What Are the Tax Consequences of the Securities,” insofar as it purports to describe
provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full opinion of Davis Polk
& Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the Securities.
SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
|
The SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF is an exchange-traded fund that seeks to provide investment results that,
before fees and expenses, correspond generally to the total return performance of publicly traded equity securities of companies
included in the S&P
®
Oil & Gas Exploration & Production Select Industry Index
®
. The
SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF is managed by SPDR
®
Series Trust (the “SPDR Trust”), a registered investment company that consists of numerous separate investment portfolios,
including the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF. Information provided
to or filed with the Securities and Exchange Commission (the “SEC”) by the SPDR Trust pursuant to the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, can be located by reference to SEC file numbers 333-57793
and 811-08839, respectively, through the SEC’s website at.www.sec.gov. In addition, information may be obtained from other
publicly available sources. Neither the issuer nor the agent makes any representation that any such publicly available information
regarding the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF is accurate or complete.
The Underlying Shares are listed on The NYSE Arca Exchange under the ticker symbol “XOP UP.”
We and/or our affiliates may presently
or from time to time engage in business with the SPDR Trust. In the course of such business, we and/or our affiliates may acquire
non-public information with respect to the SPDR Trust, and neither we nor any of our affiliates undertakes to disclose any such
information to you. In addition, one or more of our affiliates may publish research reports with respect to the Underlying Shares.
The statements in the preceding two sentences are not intended to affect the rights of investors in the Securities under the securities
laws. As a prospective purchaser of the Securities, you should undertake an independent investigation of the SPDR Trust as in
your judgment is appropriate to make an informed decision with respect to an investment linked to the Underlying Shares.
“S&P
®
”,
“SPDR
®
” and “S&P
®
Oil & Gas Exploration & Production Select Industry
Index
®
” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”), an
affiliate of The McGraw-Hill Companies, Inc. (“MGH”). The Securities are not sponsored, endorsed, sold, or promoted
by S&P, MGH or the SPDR Trust. S&P, MGH and the SPDR Trust make no representations or warranties to the owners of the
Securities or any member of the public regarding the advisability of investing in the Securities. S&P, MGH and the SPDR Trust
have no obligation or liability in connection with the operation, marketing, trading or sale of the Securities.
The following table sets forth
the published high and low closing prices, as well as the end-of-quarter closing prices, of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF for each quarter in the period from January 1, 2012 through July 20, 2017.
The closing price of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF on July 20,
2017 was $32.04. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
The historical closing prices of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
should not be taken as an indication of future performance, and no assurance can be given as to the closing price of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF on any Observation Date, including the Final Observation
Date.
Quarter Begin
|
Quarter End
|
Quarterly High ($)
|
Quarterly Low ($)
|
Quarterly Close ($)
|
1/1/2012
|
3/31/2012
|
61.34
|
52.67
|
56.91
|
4/1/2012
|
6/30/2012
|
57.85
|
45.20
|
50.40
|
7/1/2012
|
9/30/2012
|
59.35
|
48.73
|
55.69
|
10/1/2012
|
12/31/2012
|
57.38
|
50.69
|
54.07
|
1/1/2013
|
3/31/2013
|
62.10
|
55.10
|
60.49
|
4/1/2013
|
6/30/2013
|
62.61
|
54.71
|
58.18
|
7/1/2013
|
9/30/2013
|
66.47
|
58.62
|
65.89
|
10/1/2013
|
12/31/2013
|
72.74
|
65.02
|
68.53
|
1/1/2014
|
3/31/2014
|
71.83
|
64.04
|
71.83
|
4/1/2014
|
6/30/2014
|
83.45
|
71.19
|
82.28
|
7/1/2014
|
9/30/2014
|
82.08
|
68.83
|
68.83
|
10/1/2014
|
12/31/2014
|
66.84
|
42.75
|
47.86
|
1/1/2015
|
3/31/2015
|
53.94
|
42.55
|
51.66
|
4/1/2015
|
6/30/2015
|
55.63
|
46.43
|
46.66
|
7/1/2015
|
9/30/2015
|
45.22
|
31.71
|
32.84
|
10/1/2015
|
12/31/2015
|
40.53
|
28.64
|
30.22
|
1/1/2016
|
3/31/2016
|
30.96
|
23.60
|
30.35
|
4/1/2016
|
6/30/2016
|
37.50
|
29.23
|
34.81
|
7/1/2016
|
9/30/2016
|
39.12
|
32.75
|
38.46
|
10/1/2016
|
12/31/2016
|
43.42
|
34.73
|
41.42
|
1/1/2017
|
3/31/2017
|
42.21
|
35.17
|
37.44
|
4/1/2017
|
6/30/2017
|
37.89
|
30.17
|
31.92
|
7/1/2017
|
7/20/2017*
|
32.66
|
30.66
|
32.04
|
* 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.
The graph below illustrates the
performance of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF from January 1,
2008 through July 20, 2017, based on information from Bloomberg. Past performance of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF is not indicative of the future performance of the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF.
* The dashed line indicates the Coupon Barrier and Downside Threshold
of $22.16, which is approximately 70% of the Initial Underlying Level.
Past performance is not indicative of future results.
Additional Terms of the Securities
|
The accompanying product supplement
refers to the Principal Amount as the “Stated Principal Amount,” the Initial Underlying Level as the “Initial
Share Price,” the Trade Date as the “Pricing Date,” the Observation Dates as the “Determination Dates,”
the Final Observation Date as the “Final Determination Date,” the Coupon Barrier/Downside Threshold as the “Downside
Threshold Level” and the day on which any automatic call occurs as the “Early Redemption Date.
”
Use
of Proceeds and Hedging
|
The proceeds we receive from the
sale of the Securities will be used for general corporate purposes. We will receive, in aggregate, $10 per Security issued. The
costs of the Securities borne by you and described on page 2 above comprise the cost of issuing, structuring and hedging the Securities.
See also “Use of Proceeds” in the accompanying prospectus.
On or prior to the Strike Date,
we hedged our anticipated exposure in connection with the Securities, by entering into hedging transactions with our affiliates
and/or third party dealers. We expect our hedging counterparties to have taken positions in the Underlying Shares and in futures
or options contracts on the Underlying Shares. Such purchase activity could have increased the price of the Underlying Shares
on the Strike Date, and, as a result, could have increased the Coupon Barrier, which is the price at or above which the Underlying
Shares must close on each Observation Date for you to earn a Contingent Coupon, and the Downside Threshold, which, if the Securities
are not called, is the price at or above which the Underlying Shares must close on the Final Observation Date so that you do not
suffer a significant loss on your initial investment in the Securities. In addition, through our affiliates, we are likely to
modify our hedge position throughout the life of the Securities, including on the Final Observation Date, by purchasing and selling
the Underlying Shares, futures or options contracts on the Underlying Shares, or any other securities or instruments that we may
wish to use in connection with such hedging activities, including by purchasing or selling any such securities or instruments
on the Final Observation Date. As a result, these entities may be unwinding or adjusting hedge positions during the term of the
Securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the Final Observation
Date approaches. We cannot give any assurance that our hedging activities will not affect the value of the Underlying Shares on
the Observation Dates, and, therefore, adversely affect the value of the Securities, whether the Contingent Coupon is payable
or whether the Securities are called prior to maturity and, if not, the payment you will receive at maturity, if any.
Benefit
Plan Investor Considerations
|
Each fiduciary of a pension, profit-sharing
or other employee benefit plan subject to 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 (also “Plans”). Prohibited
transactions within the meaning of ERISA or the Code would likely arise, for example, if the Securities are acquired by or with
the assets of a Plan with respect to which MS & Co. or any of its affiliates is a service provider or other party in interest,
unless the Securities are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of
these “prohibited transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section
4975 of the Code for such 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 Section 4975(d)(20) of the Code may 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 are eligible for
exemptive relief or such purchase, holding and disposition are not prohibited by ERISA or Section 4975 of the Code or 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.
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 their respective affiliates or a family
member and the employee receives any compensation (such as, for example, an addition to bonus) based on the purchase of the Securities
by the account, plan or annuity.
Supplemental
Plan of Distribution; Conflicts of Interest
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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 indicated on the cover of this document. UBS Financial Services Inc. will act as placement agent at an issue price
of $10 per Security. All sales of the Securities will be made to certain fee-based advisory accounts for which UBS Financial Services
Inc. is an investment advisor and will not receive a sales commission.
MS & Co. is our affiliate and
a wholly owned subsidiary of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring
and, when applicable, hedging the Securities. When MS & Co. prices this offering of Securities, it will determine the economic
terms of the Securities such that for each Security the estimated value on the Trade Date will be no lower than the minimum level
described in “Additional Information about Morgan Stanley, MSFL and the Securities” on page 2.
MS & Co. will conduct this
offering in compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”),
regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest. MS &
Co. or any of our other affiliates may not make sales in this offering to any discretionary account.
In order to facilitate the offering
of the Securities, the agent may engage in transactions that stabilize, maintain or otherwise affect the price of the Securities.
Specifically, the agent may sell more Securities than it is obligated to purchase in connection with the offering, creating a
naked short position in the Securities, for its own account. The agent must close out any naked short position by purchasing the
Securities in the open market. A naked short position is more likely to be created if the agent is concerned that there may be
downward pressure on the price of the Securities in the open market after pricing that could adversely affect investors who purchase
in the offering. As an additional means of facilitating the offering, the agent may bid for, and purchase, the Securities or the
Underlying Shares 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.
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