CALCULATION
OF REGISTRATION FEE
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Title of Each Class of Securities Offered
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Maximum Aggregate Offering
Price
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Amount of Registration
Fee
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Trigger PLUS due 2024
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$1,000,000
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$109.10
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PROSPECTUS Dated November 16, 2020
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Pricing Supplement No. 1,969 to
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PROSPECTUS SUPPLEMENT Dated November 16, 2020
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Registration Statement Nos. 333-250103; 333-250103-01
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Dated July 16, 2021
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Rule 424(b)(2)
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$1,000,000
Morgan Stanley Finance LLC
GLOBAL MEDIUM-TERM NOTES, SERIES A
Senior Notes
Trigger PLUS due July 18, 2024
Based on the Worst Performing of the American
Depositary Shares of Alibaba Group Holding Limited and the Common Shares of Cleveland-Cliffs Inc.
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Securities
The Trigger PLUS are unsecured obligations of Morgan Stanley Finance
LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. Unlike ordinary debt securities, the Trigger
PLUS do not pay interest and do not guarantee any return of principal at maturity. Instead, at maturity, you will receive for each $1,000
stated principal amount of Trigger PLUS that you hold an amount in cash based upon the worst performing of the American depositary shares
of Alibaba Group Holding Limited and the common shares of Cleveland-Cliffs Inc., which we refer to as Alibaba Stock and Cleveland-Cliffs
Stock, respectively, and collectively as the “underlying stocks.” At maturity, if the final share price of each underlying
stock is greater than its respective initial share price, you will receive the stated principal amount of your investment plus
leveraged upside performance of the worst performing underlying stock. If the final share price of either underlying stock is less
than or equal to its respective initial share price, but the final share price of each underlying stock is greater than
or equal to 75% of its respective initial share price, which we refer to as the respective trigger level, you will receive the stated
principal amount of your investment. However, if the final share price of either underlying stock is less than its respective trigger
level, you will be negatively exposed to the full amount of the percentage decline in the worst performing underlying stock and will lose
1% of the stated principal amount for every 1% of decline in the price of the worst performing underlying stock from its respective initial
share price. Under these circumstances, the payment at maturity will be less than the stated principal amount and will represent a loss
of at least 25%, and possibly all, of your investment. Investors may lose their entire initial investment in the Trigger PLUS. Because
the payment at maturity of the Trigger PLUS is based on the worst performing of the underlying stocks, a decline in either underlying
stock to less than its respective trigger level will result in a loss of a significant portion or all of your investment even if the other
underlying stock has appreciated or has not declined as much. The Trigger PLUS are for investors who seek a common stock-based return
and who are willing to risk their principal, risk exposure to the worst performing of two underlying stocks and forgo current income in
exchange for the leverage feature and the limited protection against loss that applies only if the final share price of each underlying
stock is greater than or equal to its respective trigger level. The Trigger PLUS are notes issued as part of MSFL’s Series A Global
Medium-Term Notes program.
All payments are subject to our credit risk. If we default on
our obligations, you could lose some or all of your investment. These Trigger PLUS 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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•
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The stated principal amount and issue price of each Trigger PLUS is $1,000.
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We will not pay interest on the Trigger PLUS.
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At maturity, you will receive for each $1,000 stated principal amount of Trigger PLUS that you hold:
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º
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If the final share price of each underlying stock is greater than its respective initial
share price: $1,000 + ($1,000 × leverage factor × share percent change of the worst performing underlying stock)
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º
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If the final share price of either underlying stock is less than or equal to its respective
initial share price but the final share price of each underlying stock is greater than or equal to its respective trigger
level: $1,000
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º
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If the final share price of either underlying stock is less than its respective trigger
level: ($1,000 × share performance factor of the worst performing underlying stock)
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Under these circumstances, the payment
at maturity will be less than the stated principal amount and will represent a loss of at least 25%, and possibly all, of your investment.
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•
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The leverage factor is 349%.
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•
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The trigger level of each underlying stock is equal to 75% of the respective initial share price
and is as follows:
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º
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With respect to the Alibaba Stock, $157.133, which is approximately 75% of its initial share price
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º
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With respect to the Cleveland-Cliffs Stock, $17.085, which is 75% of its initial share price
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•
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The worst performing underlying stock is the underlying stock with the lower share percent change.
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The share percent change with respect to each underlying stock will be equal to (i) the final share
price minus the initial share price, divided by (ii) the initial share price.
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•
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The share performance factor with respect to each underlying stock will be equal to (i) the final
share price divided by (ii) the initial share price.
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•
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The initial share price with respect to each underlying stock is as follows:
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º
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With respect to the Alibaba Stock, $209.51
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º
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With respect to the Cleveland-Cliffs Stock, $22.78
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•
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The final share price with respect to each underlying stock will equal the closing price of one share
of such underlying stock times the adjustment factor for such underlying stock, each as of July 15, 2024, which we refer to as the valuation
date. The adjustment factor for each underlying stock will be initially set at 1.0 and is subject to change upon certain corporate events
affecting such underlying stock.
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•
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Investing in the Trigger PLUS is not equivalent to investing in Alibaba Stock or Cleveland-Cliffs
Stock.
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•
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The Trigger PLUS will not be listed on any securities exchange.
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The estimated value of the Trigger PLUS on the pricing date is $958.10 per Trigger PLUS. See “Summary
of Pricing Supplement” beginning on PS-2.
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•
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The CUSIP number for the Trigger PLUS is 61773FGM9 and the ISIN for the Trigger PLUS is US61773FGM95.
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You should read the more detailed description of the Trigger PLUS
in this pricing supplement. In particular, you should review and understand the descriptions in “Summary of Pricing Supplement,”
“Final Terms” and “Additional Information about the Trigger PLUS.”
The Trigger PLUS are riskier than ordinary debt securities. See
“Risk Factors” beginning on PS-11.
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved these securities, or determined if this pricing supplement is truthful or complete. Any representation
to the contrary is a criminal offense.
PRICE $1,000 PER TRIGGER PLUS
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Price
to public(1)
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Agent’s
commissions and fees(2)
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Proceeds
to us(3)
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Per Trigger PLUS
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$1,000
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$6
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$994
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Total
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$1,000,000
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$6,000
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$994,000
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(1) The Trigger PLUS will be sold only to investors
purchasing the Trigger PLUS in fee-based advisory accounts.
(2)MS & Co. expects to sell all of the Trigger
PLUS that it purchases from us to an unaffiliated dealer at a price of $994 per Trigger PLUS, for further sale to certain fee-based advisory
accounts at the price to public of $1,000 per Trigger PLUS. MS & Co. will not receive a sales commission with respect to the Trigger
PLUS. See “Additional Information About the Trigger PLUS—Supplemental Information Concerning Plan of Distribution; Conflicts
of Interest.” For additional information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus
supplement.
(3) See “Additional Information About the
Trigger PLUS—Use of Proceeds and Hedging” on PS-38.
The agent for this offering, Morgan Stanley & Co. LLC, is our
affiliate. See “Additional Information About the Trigger PLUS—Supplemental Information Concerning Plan of Distribution; Conflicts
of Interest.”
The Trigger PLUS 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.
As used in this document, “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
MORGAN STANLEY
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the Trigger
PLUS due July 18, 2024 Based on the Worst Performing of the American Depositary Shares of Alibaba Group Holding Limited and the Common
Shares of Cleveland-Cliffs Inc., which we refer to as the Trigger PLUS, we are offering to you in general terms only. You should read
the summary together with the more detailed information that is contained in the rest of this pricing supplement and in the accompanying
prospectus and prospectus supplement. You should carefully consider, among other things, the matters set forth in “Risk Factors.”
The Trigger PLUS offered are medium-term debt
securities issued by MSFL and are fully and unconditionally guaranteed by Morgan Stanley. The return on the Trigger PLUS at maturity is
based upon the worst performing of the American depositary shares of Alibaba Group Holding Limited and the common shares of Cleveland-Cliffs
Inc., which we refer to as Alibaba Stock and Cleveland-Cliffs Stock, respectively, and collectively as the “underlying stocks.”
The Trigger PLUS are for investors who seek a common stock-based return and who are willing to risk their principal, risk exposure to
the worst performing of two underlying stocks and forgo current income in exchange for the leverage feature and the limited protection
against loss that applies only if the final share price of each underlying stock is greater than or equal to its respective trigger level.
The Trigger PLUS do not guarantee any return of principal at maturity, and all payments on the Trigger PLUS are subject to our credit
risk.
“Performance Leveraged Upside SecuritiesSM”
and “PLUSSM” are our service marks.
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Each Trigger PLUS costs $1,000
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We are offering Trigger PLUS due July 18, 2024, Based on the Worst Performing of the American Depositary Shares of Alibaba Group Holding Limited and the Common Shares of Cleveland-Cliffs Inc. (the “Trigger PLUS”). The stated principal amount and issue price of each Trigger PLUS is $1,000.
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The original issue price of each Trigger PLUS includes costs associated
with issuing, selling, structuring and hedging the Trigger PLUS, which are borne by you, and, consequently, the estimated value of the
Trigger PLUS on the pricing date is less than $1,000. We estimate that the value of each Trigger PLUS on the pricing date is $958.10.
What goes into the estimated value on the pricing date?
In valuing the Trigger PLUS on the pricing date, we take into account
that the Trigger PLUS comprise both a debt component and a performance-based component linked to the underlying stocks. The estimated
value of the Trigger PLUS is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying
stocks, instruments based on the underlying stocks, 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 Trigger PLUS?
In determining the economic terms of the Trigger PLUS, including the
leverage factor and the trigger levels, 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 Trigger PLUS would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the
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secondary market price of the Trigger PLUS?
The price at which MS & Co. purchases the Trigger PLUS in the secondary
market, absent changes in market conditions, including those related to the underlying stocks, may vary from, and be lower than, the estimated
value on the pricing 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 Trigger PLUS are not fully deducted upon issuance, for a period of up to 6 months following
the issue date, to the extent that MS & Co. may buy or sell the Trigger PLUS in the secondary market, absent changes in market conditions,
including those related to the underlying stocks, 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. may, but is not obligated to, make a market in the Trigger
PLUS, and, if it once chooses to make a market, may cease doing so at any time.
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The Trigger PLUS do not pay interest and do not guarantee the return of any principal at maturity
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Unlike ordinary debt securities, the Trigger PLUS do not pay interest
and do not guarantee any return of principal at maturity. If the final share price of either underlying stock is less than its
respective trigger level (which is 75% of its respective initial share price), you will lose 1% of the stated principal amount for every
1% of decline in the price of the worst performing underlying stock from its respective initial share price. Under these circumstances,
the payment at maturity will be less than the stated principal amount and will represent a loss of at least 25%, and possibly all, of
your investment. Investors may lose their entire initial investment in the Trigger PLUS.
Because the payment at maturity of the Trigger PLUS is based on the
worst performing of the underlying stocks, a decline in either underlying stock to less than its respective trigger level will
result in a loss of a significant portion or all of your investment even if the other underlying stock has appreciated or has not declined
as much.
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Payment at maturity
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At maturity, you will receive for each $1,000 stated principal amount
of Trigger PLUS that you hold an amount in cash based upon the final share price of each underlying stock, as compared to its initial
share price, determined as follows:
•
If the final share price of each underlying stock is greater than its respective initial share price, you
will receive for each $1,000 stated principal amount of Trigger PLUS that you hold a payment at maturity equal to:
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$1,000 + ($1,000 × leverage factor × share percent change of the worst performing underlying stock)
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where,
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leverage factor = 349%
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worst performing underlying stock = the underlying stock with the lower share percent change
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share percent change = with respect to each underlying stock, a fraction, the numerator of which is the final share price of such underlying stock minus the initial share price of such underlying stock and the denominator of which is the initial share price of such underlying stock, as expressed by the following formula:
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share percent change
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=
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final share price – initial share price
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initial share price
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final share price = with respect to each underlying stock, the closing price of one share of such underlying stock times the adjustment factor for such underlying stock, each as of the valuation date,
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initial share price = with respect
to each underlying stock, as follows:
o
With respect to the Alibaba Stock, $209.51
o
With respect to the Cleveland-Cliffs Stock, $22.78
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and
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adjustment factor = with respect to each underlying stock, 1.0, subject to change upon certain corporate events affecting such underlying stock.
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• If the final share price of either underlying stock is less than or equal to its respective initial share price but the final share price of each underlying stock is greater than or equal to its respective trigger level, you will receive for each $1,000 stated principal amount of Trigger PLUS that you hold a payment at maturity equal to:
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$1,000
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where,
trigger level = 75% of the respective initial share price,
as follows:
o
With respect to the Alibaba Stock, $157.133, which is approximately 75% of its initial share price.
o
With respect to the Cleveland-Cliffs Stock, $17.085, which is 75% of its initial share price.
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• If the final share price of either underlying stock is less than 75% of its respective initial share price, you will receive for each $1,000 stated principal amount of Trigger PLUS that you hold a payment at maturity equal to:
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($1,000 × share performance factor of the worst performing underlying stock)
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where,
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share performance factor = with respect to each underlying stock, a fraction, the numerator of which is the final share price of such underlying stock and the denominator of which is the initial share price of such underlying stock, as expressed by the following formula:
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share performance factor
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=
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final share price
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initial share price
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If the final share price of either underlying stock is less than its respective trigger level, you will lose 1% of the stated principal amount for every 1% of decline in the price of the worst performing underlying stock from its respective initial share price. Under these circumstances, the payment at maturity will be less than the stated principal amount and will represent a loss of at least 25%, and possibly all, of your investment. Investors may lose their entire initial investment in the Trigger PLUS.
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You can review the historical prices of Alibaba Stock and Cleveland-Cliffs Stock for the period from January 1, 2018 through July 16, 2021 in the section of this pricing supplement entitled “Additional Information About the Trigger PLUS—Historical Information.” You cannot predict the future performance of Alibaba Stock or Cleveland-Cliffs Stock based on their historical performance.
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The Trigger PLUS may come to be based on the closing prices of the common stocks of companies other than Alibaba Group Holding Limited or Cleveland-Cliffs Inc.
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Following certain corporate events relating to the underlying stocks, such as a stock-for-stock merger where Alibaba Group Holding Limited or Cleveland-Cliffs Inc. is not the surviving entity, you will receive at maturity an amount based on the closing price of the common stock of a successor corporation to Alibaba Group Holding Limited or Cleveland-Cliffs Inc. Following certain other corporate events relating to Alibaba Stock or Cleveland-Cliffs Stock, such as a merger event where holders of such underlying stock would receive all or a substantial portion of their consideration in cash or a significant cash dividend or distribution of property with respect to such underlying stock, you will receive at maturity an amount based on the closing prices of the common stocks of three companies in the same industry group as Alibaba Group Holding Limited or Cleveland-Cliffs Inc., as applicable, in lieu of, or in addition to, such underlying stock. In the event of such a corporate event, the equity-linked nature of the Trigger PLUS would be significantly altered. We describe the specific corporate events that can lead to these adjustments and the procedures for selecting those other reference stocks in the section of this pricing supplement called “Final Terms—Antidilution Adjustments.” You should read this section in order to understand these and other adjustments that may be made to your Trigger PLUS.
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The adjustment factors may be changed
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During the term of the Trigger PLUS, our affiliate, Morgan Stanley & Co. LLC or its successors, which we refer to as MS & Co., acting as calculation agent, may make changes to the adjustment factors, each initially set at 1.0, to reflect the occurrence of certain corporate events relating to the underlying stocks. You should read about these adjustments in the sections of this pricing supplement called “Risk Factors—The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the underlying stocks,” “Final Terms—Adjustment Factor” and “—Antidilution Adjustments.”
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You have no shareholder rights
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Investing in the Trigger PLUS is not equivalent to investing in Alibaba Stock or Cleveland-Cliffs Stock. As an investor in the Trigger PLUS, you will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the underlying stocks. In addition, you do not have the right to exchange your Trigger PLUS for the underlying stocks at any time.
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Postponement of maturity date
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If the scheduled valuation date is not a trading day or if a market
disruption event occurs on that day so that the valuation date falls less than two business days prior to the scheduled maturity date,
the maturity date will be postponed to the second business day following the valuation date as postponed.
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You may revoke your offer to purchase the Trigger PLUS prior to our acceptance
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We are using this pricing supplement to solicit from you an offer to
purchase the Trigger PLUS. You may revoke your offer to purchase the Trigger PLUS at any time prior to the time at which we
accept such offer by notifying the relevant agent. We reserve the right to change the terms of, or reject any offer to purchase,
the Trigger PLUS prior to their issuance. In the event of any material changes to the terms of the Trigger PLUS, we will notify
you.
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Morgan Stanley & Co. LLC will be the calculation agent
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We have appointed our affiliate, Morgan Stanley & Co. LLC, which we refer to as MS & Co., to act as calculation agent for The Bank of New York Mellon, a New York banking corporation, the trustee for our senior notes. As calculation agent, MS & Co. will determine the initial share prices, the final share prices, the share percent changes or the share performance factors, what, if any, adjustments should be made to the adjustment factors to reflect certain corporate and other events affecting an underlying stock, and whether a market disruption event has occurred, and will calculate the amount of cash, if any, you will receive at maturity.
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Morgan Stanley & Co. LLC will be the agent; conflicts of interest
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The agent for the offering of Trigger PLUS, MS & Co., a wholly
owned subsidiary of Morgan Stanley and an affiliate of MSFL, will conduct this offering in compliance with the requirements of FINRA Rule
5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding a FINRA member firm’s
distribution of the securities of an affiliate and related conflicts of interest. In accordance with FINRA Rule 5121, MS &
Co. or any of our other affiliates may not make sales in this offering to any discretionary account without the prior written approval
of the customer. See “Additional Information About the Trigger PLUS—Supplemental Information Concerning Plan of
Distribution; Conflicts of Interest” on PS-39.
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No affiliation with
Alibaba Group Holding Limited or Cleveland-Cliffs Inc.
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Alibaba Group Holding Limited and Cleveland-Cliffs Inc. are not affiliates
of ours and are not involved with this offering in any way. The obligations represented by the Trigger PLUS are obligations
of ours and not of Alibaba Group Holding Limited or Cleveland-Cliffs Inc.
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Where you can find more information on the Trigger PLUS
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The Trigger PLUS are senior unsecured notes issued as part of our Series
A medium-term note program. You can find a general description of our Series A medium-term note program in the accompanying
prospectus supplement dated November 16, 2020 and prospectus dated November 16, 2020. We describe the basic features of this
type of note in the section of the prospectus supplement called “Description of Notes—Notes Linked to Commodity Prices, Single
Securities, Baskets of Securities or Indices” and in the section of the prospectus called “Description of Debt Securities.”
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For a detailed description of the terms of the Trigger PLUS, you
should read the section of this pricing supplement called “Final Terms.” You should also read the “Additional
Information About the Trigger PLUS” section. You should also read about the material risks involved in investing in Trigger
PLUS in the section of this pricing supplement called “Risk Factors.” The tax and accounting treatment of investments
in equity-linked securities such as the Trigger PLUS may differ from that of investments in ordinary debt securities or common stock. See
the section of this pricing supplement called “Additional
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Information About the Trigger PLUS—United States Federal Taxation.” We urge you to consult with your investment, legal, tax, accounting and other advisers with regard to any proposed or actual investment in the Trigger PLUS.
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HYPOTHETICAL PAYOUTS ON THE TRIGGER PLUS AT
MATURITY
The following hypothetical examples illustrate
how to calculate the payment at maturity on the Trigger PLUS. The following examples are for illustrative purposes only. The actual initial
share price and trigger level for each underlying stock are set forth on the cover of this document. Any payment at maturity on the Trigger
PLUS is subject to our credit risk. The below examples are based on the following terms:
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•
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Issue Price per Trigger PLUS: $1,000
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•
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Hypothetical Initial Share Price:
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Ø
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With respect to the Alibaba Stock: $200.00
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Ø
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With respect to the Cleveland-Cliffs Stock: $20.00
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•
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Hypothetical Trigger Level:
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Ø
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With respect to the Alibaba Stock: $150.00, 75% of the respective hypothetical initial share price
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Ø
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With respect to the Cleveland-Cliffs Stock: $15.00, 75% of the respective hypothetical initial share price
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EXAMPLE
1: The final share price of each underlying stock is greater than its respective initial share price.
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Final share price
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Alibaba Stock: $300.00
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Cleveland-Cliffs Stock: $22.00
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Share percent change
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Alibaba Stock: ($300.00 – $200.00) / $200.00
= 50%
Cleveland-Cliffs Stock: ($22.00 – $20.00) /
$20.00 = 10%
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Payment at maturity
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=
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$1,000 + ($1,000 × leverage factor × share percent change of the worst performing underlying stock)
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=
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$1,000 + ($1,000 × 349% × 10%)
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=
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$1,349
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In example 1, the final share prices of both the
Alibaba Stock and Cleveland-Cliffs Stock are greater than their respective initial share prices. The Alibaba Stock has appreciated by
50% and the Cleveland-Cliffs Stock has appreciated by 10%. Therefore, investors receive at maturity the stated principal amount plus
349% of the appreciation of the worst performing underlying stock, which is the Cleveland-Cliffs Stock in this example. Investors receive
$1,349 per Trigger PLUS at maturity.
EXAMPLE 2: The final share price of one underlying
stock is greater than its respective initial share price while the final share price of the
other underlying stock is less than its respective initial share price, but neither underlying stock has decreased below its respective
trigger level.
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Final share price
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Alibaba Stock: $194.00
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Cleveland-Cliffs Stock: $24.00
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Share percent change
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Alibaba Stock: ($194.00 – $200.00) / $200.00
= -3%
Cleveland-Cliffs Stock: ($24.00 – $20.00) /
$20.00 = 20%
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Payment at maturity
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=
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$1,000
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In example 2, the final share price of the Cleveland-Cliffs
Stock is greater than its respective initial share price, while the final share price of the Alibaba Stock is less than its initial share
price. The Cleveland-Cliffs Stock has appreciated by 20% and the Alibaba Stock has depreciated by 3%. Neither underlying stock has decreased
below its respective trigger level. Therefore, investors receive at maturity the stated principal amount. Investors receive $1,000 per
Trigger PLUS at maturity.
EXAMPLE 3: The final share price of one underlying
stock is greater than its initial share price while the final share price of the other underlying stock is less than its respective trigger
level.
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Final share price
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Alibaba Stock: $220.00
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Cleveland-Cliffs Stock: $14.00
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Share percent change
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Alibaba Stock: ($220.00 – $200.00) / $200.00
= 10%
Cleveland-Cliffs Stock: ($14.00 – $20.00) /
$20.00 = -30%
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Share performance factor
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Alibaba Stock: $220.00 / $200.00 = 110%
Cleveland-Cliffs Stock: $14.00 / $20.00 = 70%
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Payment at maturity
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=
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($1,000 × share performance factor of the worst performing underlying stock)
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=
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($1,000 × 70%)
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=
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$700
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In example 3, the final share price of the Alibaba
Stock is greater than its initial share price, while the final share price of the Cleveland-Cliffs Stock is less than its respective trigger
level. While the Alibaba Stock has appreciated by 10%, the Cleveland-Cliffs Stock has declined by 30%. Therefore, investors are exposed
to the negative performance of the Cleveland-Cliffs Stock, which is the worst performing underlying stock in this example, and receive
a payment at maturity of $700 per Trigger PLUS. In this example, investors are exposed to the negative performance of the worst performing
underlying stock even though the other underlying stock has appreciated in value by 10% because the final share price of each underlying
stock is not greater than or equal to its respective trigger level.
EXAMPLE 4: The final share price of each underlying
stock is less than its respective initial share price, but neither underlying stock has decreased below its respective trigger level.
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Final share price
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Alibaba Stock: $198.00
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Cleveland-Cliffs Stock: $19.60
|
|
Share percent change
|
|
Alibaba Stock: ($198.00 – $200.00) / $200.00
= -1%
Cleveland-Cliffs Stock: ($19.60 – $20.00) /
$20.00 = -2%
|
|
Payment at maturity
|
=
|
$1,000
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In
example 4, the final share price of each underlying stock is less than its respective initial share price, but neither underlying stock
has decreased below its respective trigger level. The Alibaba Stock has declined by 1% and the Cleveland-Cliffs Stock has declined by
2%. Therefore, investors receive at maturity the stated principal amount. Investors receive $1,000 per Trigger PLUS at maturity.
EXAMPLE 5: The final share price of each underlying stock is less
than its respective trigger level.
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Final share price
|
|
Alibaba Stock: $80.00
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|
|
|
|
Cleveland-Cliffs Stock: $14.00
|
|
Share percent change
|
|
Alibaba Stock: ($80.00 – $200.00) / $200.00
= -60%
Cleveland-Cliffs Stock: ($14.00 – $20.00) /
$20.00 = -30%
|
|
Share performance factor
|
|
Alibaba Stock: $80.00 / $200.00 = 40%
Cleveland-Cliffs Stock: $14.00 / $20.00 = 70%
|
|
Payment at maturity
|
=
|
($1,000 × share performance factor of the worst performing underlying stock)
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|
|
=
|
($1,000 × 40%)
|
|
|
=
|
$400
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In example 5, the final share
prices of both the Alibaba Stock and Cleveland-Cliffs Stock are less than their respective trigger levels. The Alibaba Stock has declined
by 60% and the Cleveland-Cliffs Stock has declined by 30%. Therefore, investors are exposed to the negative performance of the Alibaba
Stock, which is the worst performing underlying stock in this example, and receive a payment at maturity of $400 per Trigger PLUS.
Because the payment at maturity
of the Trigger PLUS is based on the worst performing of the underlying stocks, a decline in EITHER underlying stock to less than its respective
trigger level will result in a loss of a significant portion or all of your investment even if the other underlying stock has appreciated
or has not declined as much. You could lose your entire initial investment.
ADDITIONAL INFORMATION
ABOUT THE TRIGGER PLUS
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Interest Rate
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None
|
|
Book Entry Note or Certificated Note
|
Book Entry. The Trigger PLUS will be issued in the form of one or more fully registered global securities which will be deposited with, or on behalf of, DTC and will be registered in the name of a nominee of DTC. DTC’s nominee will be the only registered holder of the Trigger PLUS. Your beneficial interest in the Trigger PLUS will be evidenced solely by entries on the books of the securities intermediary acting on your behalf as a direct or indirect participant in DTC. In this pricing supplement, all references to actions taken by “you” or to be taken by “you” refer to actions taken or to be taken by DTC and its participants acting on your behalf, and all references to payments or notices to you will mean payments or notices to DTC, as the registered holder of the Trigger PLUS, for distribution to participants in accordance with DTC’s procedures. For more information regarding DTC and book entry notes, please read “Forms of Securities—The Depositary” and “Forms of Securities—Global Securities—Registered Global Securities” in the accompanying prospectus.
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|
Alibaba Stock; Public Information
|
Alibaba Group Holding Limited operates as a holding company and provides internet infrastructure, e-commerce, online financial and internet content services through its subsidiaries. Alibaba Stock is registered under the Exchange Act. Companies with securities registered under the Exchange Act are required to file periodically certain financial and other information specified by the Securities and Exchange Commission (the “Commission”). Information provided to or filed with the Commission can be accessed through a website maintained by the Commission. The address of the Commission’s website is.www.sec.gov. Information provided to or filed with the Commission by Alibaba Group Holding Limited pursuant to the Exchange Act can be located by reference to Commission file number 001-36614. In addition, information regarding Alibaba Group Holding Limited may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. We make no representation or warranty as to the accuracy or completeness of such information.
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This pricing supplement relates only
to the Trigger PLUS referenced hereby and does not relate to Alibaba Stock or other securities of Alibaba Group Holding Limited. We have
derived all disclosures contained in this pricing supplement regarding Alibaba Group Holding Limited from the publicly available documents
described in the preceding paragraph. In connection with the offering of the Trigger PLUS, neither we nor the Agent has participated in
the preparation of such documents or made any due diligence inquiry with respect to Alibaba Group Holding Limited in connection with the
offering of the Trigger PLUS. Neither we nor the Agent makes any representation that such publicly available documents are or any other
publicly available information regarding Alibaba Group Holding Limited is accurate
or complete. Furthermore, we cannot
give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness
of the publicly available documents described in the preceding paragraph) that would affect the trading price of Alibaba Stock (and therefore
the price of Alibaba Stock at the time we priced the Trigger PLUS) have been publicly disclosed. Subsequent disclosure of any such events
or the disclosure of or failure to disclose material future events concerning Alibaba Group Holding Limited could affect the value received
at maturity with respect to the Trigger PLUS and therefore the value of the Trigger PLUS.
Neither we nor any of our affiliates
makes any representation to you as to the performance of Alibaba Stock.
We and/or our affiliates may presently
or from time to time engage in business with Alibaba Group Holding Limited, including extending loans to, or making equity investments
in, Alibaba Group Holding Limited or providing advisory services to Alibaba Group Holding Limited, including merger and acquisition advisory
services. In the course of such business, we and/or our affiliates may acquire non-public information with respect to Alibaba Group Holding
Limited, 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 Alibaba Group Holding Limited, and the reports may or may not recommend that investors
buy or hold Alibaba Stock. As a purchaser of the Trigger PLUS, you should undertake an independent investigation of Alibaba Group Holding
Limited as in your judgment is appropriate to make an informed decision with respect to an investment linked to Alibaba Stock.
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Cleveland-Cliffs Stock; Public Information
|
Cleveland-Cliffs Inc. is a mining and natural resources company. Cleveland-Cliffs Stock is registered under the Exchange Act. Companies with securities registered under the Exchange Act are required to file periodically certain financial and other information specified by the Securities and Exchange Commission (the “Commission”). Information provided to or filed with the Commission can be accessed through a website maintained by the Commission. The address of the Commission’s website is.www.sec.gov. Information provided to or filed with the Commission by Cleveland-Cliffs Inc. pursuant to the Exchange Act can be located by reference to Commission file number 001-08944. In addition, information regarding Cleveland-Cliffs Inc. may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. We make no representation or warranty as to the accuracy or completeness of such information.
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This pricing supplement relates only
to the Trigger PLUS referenced hereby and does not relate to Cleveland-Cliffs Stock or other securities of Cleveland-Cliffs Inc. We have
derived all disclosures contained in this pricing supplement regarding
Cleveland-Cliffs Inc. from the publicly
available documents described in the preceding paragraph. In connection with the offering of the Trigger PLUS, neither we nor the Agent
has participated in the preparation of such documents or made any due diligence inquiry with respect to Cleveland-Cliffs Inc. in connection
with the offering of the Trigger PLUS. Neither we nor the Agent makes any representation that such publicly available documents are or
any other publicly available information regarding Cleveland-Cliffs Inc. is accurate or complete. Furthermore, we cannot give any assurance
that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available
documents described in the preceding paragraph) that would affect the trading price of Cleveland-Cliffs Stock (and therefore the price
of Cleveland-Cliffs Stock at the time we priced the Trigger PLUS) have been publicly disclosed. Subsequent disclosure of any such events
or the disclosure of or failure to disclose material future events concerning Cleveland-Cliffs Inc. could affect the value received at
maturity with respect to the Trigger PLUS and therefore the value of the Trigger PLUS.
Neither we nor any of our affiliates
makes any representation to you as to the performance of Cleveland-Cliffs Stock.
We and/or our affiliates may presently
or from time to time engage in business with Cleveland-Cliffs Inc., including extending loans to, or making equity investments in, Cleveland-Cliffs
Inc. or providing advisory services to Cleveland-Cliffs Inc., including merger and acquisition advisory services. In the course of such
business, we and/or our affiliates may acquire non-public information with respect to Cleveland-Cliffs Inc., 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 Cleveland-Cliffs Inc., and the reports may or may not recommend that investors buy or hold Cleveland-Cliffs Stock. As
a purchaser of the Trigger PLUS, you should undertake an independent investigation of Cleveland-Cliffs Inc. as in your judgment is appropriate
to make an informed decision with respect to an investment linked to Cleveland-Cliffs Stock.
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Historical Information
|
The following tables set forth the published high and low Closing Prices, as well as end-of-quarter Closing Prices, of Alibaba Stock and Cleveland-Cliffs Stock for each quarter in the period from January 1, 2018 through July 16, 2021. The graphs following each Underlying Stock’s historical table set forth the historical performance of the respective Underlying Stock for the same period. On July 16, 2021, the Closing Price for the Alibaba Stock was $212.10 and the Closing Price for the Cleveland-Cliffs Stock was $19.93. We obtained the information in the tables and graphs below from Bloomberg Financial Markets, without independent verification. The historical prices of the Underlying Stocks should not be taken as an indication of future performance, and no assurance can be given as to the Closing Prices of the Underlying
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Stocks on the Valuation Date. The price
of the Worst Performing Underlying Stock may decrease below its respective Trigger Level so that you will receive a Payment at Maturity
that is significantly less than the stated principal amount of the Trigger PLUS.
If the Final Share Price of either Underlying
Stock is less than its respective Trigger Level, you will lose a significant portion or all of your investment.
Alibaba Group Holding Limited
Historical High, Low and Period End
Closing Prices
January 1, 2018 through July 16, 2021
|
|
High ($)
|
Low ($)
|
Period End ($)
|
|
2018
|
|
|
|
|
First Quarter
|
205.22
|
173.70
|
183.54
|
|
Second Quarter
|
210.86
|
167.52
|
185.53
|
|
Third Quarter
|
197.98
|
156.36
|
164.76
|
|
Fourth Quarter
|
163.74
|
131.89
|
137.07
|
|
2019
|
|
|
|
|
First Quarter
|
187.25
|
130.60
|
182.45
|
|
Second Quarter
|
195.21
|
149.26
|
169.45
|
|
Third Quarter
|
182.51
|
153.67
|
167.23
|
|
Fourth Quarter
|
216.38
|
161.93
|
212.10
|
|
2020
|
|
|
|
|
First Quarter
|
230.48
|
176.34
|
194.48
|
|
Second Quarter
|
228.75
|
187.11
|
215.70
|
|
Third Quarter
|
298.00
|
215.95
|
293.98
|
|
Fourth Quarter
|
317.14
|
222.00
|
232.73
|
|
2021
|
|
|
|
|
First Quarter
|
270.83
|
222.72
|
226.73
|
|
Second Quarter
|
244.01
|
206.08
|
226.78
|
|
Third Quarter (through July 16, 2021)
|
221.87
|
199.85
|
212.10
|
The following graph shows the daily Closing Prices of Alibaba
Stock from January 1, 2016 through July 16, 2021. We obtained the information in the graph below from Bloomberg Financial Markets, without
independent verification. The historical Closing Prices should not be taken as an indication of future performance, and no assurance can
be given as to the Closing Price on the Valuation Date.
Historical Daily Closing Prices of
Alibaba Stock
January 1, 2016 through July 16, 2021
Cleveland-Cliffs Inc.
Historical High, Low and Period End
Closing Prices
January 1, 2018 through July 16, 2021
|
|
High ($)
|
Low ($)
|
Period End ($)
|
|
2018
|
|
|
|
|
First Quarter
|
8.81
|
6.45
|
6.95
|
|
Second Quarter
|
9.00
|
6.73
|
8.43
|
|
Third Quarter
|
12.91
|
8.20
|
12.66
|
|
Fourth Quarter
|
12.77
|
7.57
|
7.69
|
|
2019
|
|
|
|
|
First Quarter
|
11.83
|
7.63
|
9.99
|
|
Second Quarter
|
10.69
|
8.70
|
10.67
|
|
Third Quarter
|
11.30
|
6.78
|
7.22
|
|
Fourth Quarter
|
8.86
|
6.76
|
8.40
|
|
2020
|
|
|
|
|
First Quarter
|
8.00
|
3.07
|
3.95
|
|
Second Quarter
|
7.06
|
3.46
|
5.52
|
|
Third Quarter
|
6.95
|
4.99
|
6.42
|
|
Fourth Quarter
|
14.56
|
6.70
|
14.56
|
|
2021
|
|
|
|
|
First Quarter
|
20.11
|
13.34
|
20.11
|
|
Second Quarter
|
24.44
|
16.60
|
21.56
|
|
Third Quarter (through July 16, 2021)
|
23.08
|
19.93
|
19.93
|
The following graph shows the daily Closing Prices of Cleveland-Cliffs
Stock from January 1, 2016 through July 16, 2021. We obtained the information in the graph below from Bloomberg Financial Markets, without
independent verification. The historical Closing Prices should not be taken as an indication of future performance, and no assurance can
be given as to the Closing Price on the Valuation Date.
Historical Daily Closing Prices of
Cleveland-Cliffs Stock
January 1, 2016 through July 16, 2021
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Use of Proceeds and Hedging
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The proceeds from the sale of the Trigger PLUS will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per Trigger PLUS issued, because, when we enter into hedging transactions in order to meet our obligations under the Trigger PLUS, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Trigger PLUS borne by you and described beginning on PS-2 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Trigger PLUS. See also “Use of Proceeds” in the accompanying prospectus.
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On or prior to the day on which the
Initial Share Price of each Underlying Stock is determined, we expect to hedge our anticipated exposure in connection with the Trigger
PLUS by taking positions in the Underlying Stocks or in options contracts on the Underlying Stocks that are listed on major securities
markets or positions in any other available securities or instruments that we may wish to use in connection with such hedging. Such purchase
activity could potentially increase the Initial Share Price of either Underlying Stock, and therefore could increase the price at or above
which such Underlying Stock must close so that you do not suffer a significant loss on your initial investment in the Trigger PLUS (depending
also on the performance of the other Underlying Stock). In addition, through our affiliates, we are likely to modify our hedge position
throughout the term of the Trigger PLUS by purchasing and selling the Underlying Stocks, futures or options contracts on the Underlying
Stocks that are listed on major securities markets or positions in any other available securities or instruments that we may wish to use
in connection with such hedging activities, including by selling any such securities or instruments on the Valuation Date. As a result,
these entities may be unwinding or adjusting hedge positions during the term of the Trigger PLUS, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the Valuation Date approaches. We cannot give any assurance that our hedging
activities will not affect the value of either Underlying Stock and, therefore, adversely affect the value of the Trigger PLUS or the
payment you will receive at maturity,
if any (depending also on the performance of the other Underlying Stock).
|
Supplemental Information Concerning
|
|
|
Plan of Distribution; Conflicts of Interest
|
MS & Co. expects to sell all of the Trigger PLUS that it purchases from us to an unaffiliated dealer at a price of $994 per Trigger PLUS, for further sale to certain fee-based advisory accounts at the price to public of $1,000 per Trigger PLUS. MS & Co. will not receive a sales commission with respect to the Trigger PLUS.
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MS & Co. is
an affiliate of MSFL 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 Trigger PLUS.
MS & Co. will conduct this offering
in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred
to as 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 Trigger PLUS, the Agent may engage in transactions that stabilize, maintain or otherwise affect the price of the Trigger PLUS.
Specifically, the Agent may sell more Trigger PLUS than it is obligated to purchase in connection with the offering, creating a naked
short position in the Trigger PLUS for its own account. The Agent must close out any naked short position by purchasing the Trigger PLUS
in the open market after the offering. A naked short position in the Trigger PLUS is more likely to be created if the Agent is concerned
that there may be downward pressure on the price of the Trigger PLUS 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 Trigger PLUS
in the open market to stabilize the price of the Trigger PLUS. Any of these activities may raise or maintain the market price of the Trigger
PLUS above independent market prices or prevent or retard a decline in the market price of the Trigger PLUS. 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
in connection with this offering of the Trigger PLUS. See “—Use of Proceeds and Hedging” above.
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Validity of the Trigger PLUS.
|
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the Trigger PLUS offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such Trigger PLUS will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to
|
applicable
bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles
of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided
that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable
law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent
conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under
the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation
Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions
about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the Trigger
PLUS and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated
in the letter of such counsel dated November 16, 2020, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan
Stanley on November 16, 2020.
|
United States Federal Taxation
|
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 Trigger PLUS issued under this pricing supplement 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 Trigger
PLUS. This discussion applies only to investors in the Trigger PLUS who:
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|
·
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purchase the Trigger PLUS in the original offering; and
|
|
|
·
|
hold the Trigger PLUS as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
This discussion does not describe all
of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
|
|
·
|
certain financial institutions;
|
|
|
·
|
certain dealers and traders in securities or commodities;
|
|
|
·
|
investors holding the Trigger PLUS as part of a “straddle,” wash sale, conversion transaction, integrated transaction
or constructive sale transaction;
|
|
|
·
|
U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
|
|
|
·
|
partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
|
|
|
·
|
regulated investment companies;
|
|
|
·
|
real estate investment trusts; or
|
|
|
·
|
tax-exempt entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or
408A of the Code, respectively.
|
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the Trigger PLUS, 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 Trigger PLUS 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 Trigger PLUS to you.
In addition, we will not attempt to ascertain
whether any issuer of any shares to which a Trigger PLUS relates (such shares hereafter referred to as “Underlying Shares”)
is treated as a “passive foreign investment company” (“PFIC”) within the meaning of Section 1297 of the Code or
as a “U.S. real property holding corporation” (“USRPHC”) within the meaning of Section 897 of the Code. If any
issuer of Underlying Shares were so treated, certain adverse U.S. federal income tax consequences might apply, to a U.S. Holder in the
case of a PFIC and to a Non-U.S. Holder (as defined below) in the case of a USRPHC, upon the sale, exchange or settlement of the Trigger
PLUS. You should refer to information filed with the Securities and Exchange Commission or other governmental authorities by the issuers
of the Underlying Shares and consult your tax adviser regarding the possible consequences to you if any issuer is or becomes a PFIC or
USRPHC.
As the law applicable to the U.S. federal
income taxation of instruments such as the Trigger PLUS 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 pricing
supplement, changes to any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering
the purchase of the Trigger PLUS 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 Trigger PLUS due to the lack of governing authority, in the opinion of
our counsel, under current
law, and based on current market conditions,
a Trigger PLUS should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax
purposes.
Due to the absence of statutory, judicial
or administrative authorities that directly address the treatment of the Trigger PLUS or instruments that are similar to the Trigger PLUS
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 Trigger PLUS (including possible alternative treatments of the Trigger PLUS). Unless otherwise
stated, the following discussion is based on the treatment of the Trigger PLUS 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 Trigger PLUS that is, for U.S. federal
income tax purposes:
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|
·
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a citizen or individual resident of the United States;
|
|
|
·
|
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
|
|
|
·
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an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
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Tax Treatment of the Trigger PLUS
Assuming the treatment of the Trigger
PLUS 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 Trigger PLUS 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 Trigger PLUS should equal the amount paid by the U.S. Holder to acquire the Trigger PLUS.
Sale, Exchange or Settlement of the
Trigger PLUS. Upon a sale, exchange or settlement of the Trigger PLUS, 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 Trigger PLUS 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 Trigger PLUS should be long-term capital gain or loss if the U.S. Holder has held the Trigger
PLUS 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 Trigger PLUS
Due to the absence of authorities that
directly address the proper tax treatment of the Trigger PLUS, 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 Trigger PLUS 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 Trigger PLUS, 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 Trigger PLUS 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 Trigger PLUS.
Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the Trigger PLUS would generally
be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S. Holder’s prior
accruals of original issue discount and as capital loss thereafter. The risk that financial instruments providing for buffers, triggers
or similar downside protection features, such as the Trigger PLUS, 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 Trigger PLUS are also possible, which, if applied, could significantly affect the timing and character of the income or loss with
respect to the Trigger PLUS. 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 Trigger PLUS,
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 Trigger PLUS, 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 Trigger PLUS at maturity and the payment of proceeds from a sale, exchange or other disposition of the Trigger PLUS,
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 Trigger
PLUS and the payment of proceeds from a sale, exchange or other disposition of the Trigger PLUS, 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 Trigger PLUS that is, for
U.S. federal income tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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The term “Non-U.S. Holder”
does not include any of the following holders:
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a holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes;
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certain former citizens or residents of the United States; or
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a holder for whom income or gain in respect of the Trigger PLUS is effectively connected with the conduct of a trade or business in
the United States.
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Such holders should consult their tax
advisers regarding the U.S. federal income tax consequences of an investment in the Trigger PLUS.
Tax Treatment upon Sale, Exchange
or Settlement of the Trigger PLUS
In
general. Assuming the treatment of the Trigger PLUS as set forth above is respected,
and subject to the discussions below concerning backup withholding and the possible application of Section 871(m) of the Code and
the discussion above concerning the possible application of Section 897 of the Code, a Non-U.S.
Holder of the Trigger PLUS generally will not be subject to U.S. federal income or withholding
tax in respect of amounts paid to the Non-U.S. Holder.
Subject to the discussions regarding the
possible application of Sections 871(m) and 897 of the Code and FATCA, if all or any portion of a Trigger PLUS were recharacterized as
a debt instrument, any payment made to a Non-U.S. Holder with respect to the Trigger PLUS would not be subject to U.S. federal withholding
tax, provided that:
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the Non-U.S. Holder does not own, directly or by attribution, ten percent or more of the total combined voting power of all classes
of Morgan Stanley stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation related, directly or indirectly, to Morgan Stanley through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest under Section 881(c)(3)(A) of the Code, and
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the certification requirement described below has been fulfilled with respect to the beneficial owner.
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Certification Requirement. The
certification requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Trigger PLUS (or a financial
institution holding a Trigger PLUS 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 Trigger PLUS 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 Trigger PLUS, 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 Trigger PLUS to Non-U.S. Holders (subject to compliance by such holders with the certification requirement
described above and to the discussions regarding Sections 871(m) and 897 of the Code and FATCA). However, in the event of a change of
law or any formal or informal
guidance by the IRS, the U.S. Treasury
Department or Congress, we may decide to withhold on payments made with respect to the Trigger PLUS 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 Trigger PLUS, including the possible implications
of the notice referred to above.
Section 871(m) Withholding Tax on
Dividend Equivalents
Section 871(m) of the Code and Treasury
regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding
tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities
or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m) generally
applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as determined based
on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant to an IRS notice, Section
871(m) will not apply to securities issued before January 1, 2023 that do not have a delta of one with respect to any Underlying Security.
Based on our determination that the Trigger PLUS do not have a delta of one with respect to any Underlying Security, our counsel is of
the opinion that the Trigger PLUS 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 Trigger PLUS.
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 Trigger PLUS 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 Trigger PLUS.
Backup Withholding and Information
Reporting
Information returns may be filed with
the IRS in connection with the payment on the Trigger PLUS at maturity as well as in connection with the payment of proceeds from a sale,
exchange or other disposition of the Trigger PLUS. 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 Trigger PLUS – Certification Requirement” will satisfy
the certification requirements necessary to avoid backup withholding as well. The amount of any backup withholding from a payment to a
Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the
Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA”
generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect
to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An intergovernmental
agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements. FATCA generally applies
to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed or determinable annual
or periodical” income (“FDAP income”). If the Trigger PLUS 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
Trigger PLUS. However, under proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending
finalization), no withholding will apply on payments of gross proceeds (other than amounts treated as FDAP income). If withholding were
to apply to the Trigger PLUS, 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 Trigger PLUS.
The discussion in the preceding paragraphs
under “United States Federal Taxation,” 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 Trigger PLUS.