DESCRIPTION OF SECURITIES
Terms not defined herein have the meanings given to such terms
in the accompanying prospectus supplement. The term “Security” refers to each $1,000 Stated Principal Amount of our
Autocallable Securities due December 11, 2019 Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures
Contracts.
Aggregate Principal Amount
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$
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Pricing Date
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June 7, 2019
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Original Issue Date (Settlement Date)
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June 11, 2019 (2 Business Days after the Pricing Date).
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Maturity Date
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December 11, 2019, subject to extension in accordance with the following paragraph.
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If, due to a Market Disruption
Event or otherwise, the scheduled Final Determination Date is postponed so that it falls less than two Business Days prior to the
scheduled Maturity Date, the Maturity Date will be postponed to the second Business Day following such Final Determination Date
as postponed. See “––Final Determination Date” below.
Specified Currency
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U.S. dollars
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Stated Principal Amount
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$1,000 per Security
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Original Issue Price
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$1,000 per Security
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Denominations
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$1,000 and integral multiples thereof
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Underlying Commodity
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West Texas Intermediate light sweet crude oil futures contracts
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Automatic Early Call
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If, on the Review Date, the Commodity Price is at or above the Initial Commodity Price, we will call the Securities, in whole and not in part, for the Call Price on the second Business Day following such Review Date (as may be postponed under “––Review Date” below) (the “Call Date”).
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In the event that the Securities
are subject to Automatic Early Call, we will, or will cause the Calculation Agent to, (i) on the Business Day following the Review
Date (as may be postponed under “––Review Date” below), give notice of the Automatic Early Call of the
Securities and the Call Price, including specifying the payment date of the applicable amount due upon the Automatic Early Call
(the Call Date), to the Trustee, upon which notice the Trustee may conclusively rely, and to The Depository Trust Company, which
we refer to as DTC, and (ii) deliver the aggregate cash amount due with respect to the Securities to the Trustee for delivery to
DTC, as holder of the Securities, on or prior to the applicable Call Date. See “—Book-
Entry Note or Certificated Note”
below, and see “Forms of Securities—The Depositary” in the accompanying prospectus.
Call Price
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The Call Price will equal at least $1,025 (corresponding to at least 102.50% of the Stated Principal Amount). The actual Call Price will be determined on the Pricing Date.
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Payment at Maturity
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If the Securities have not been automatically called prior to maturity, you will receive for each $1,000 Stated Principal Amount of Securities that you hold a Payment at Maturity equal to:
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•
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if the Final Commodity Price is
at or above
the Initial Commodity Price, $1,050 (corresponding
to 105.00% of the Stated Principal Amount),
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•
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if the Final Commodity Price is less than the Initial Commodity Price but is greater than or equal
to $ , which means it has
not
declined
by more than 40%
from the Initial Commodity Price, the $1,000 Stated Principal
Amount, or
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•
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if the Final Commodity Price is less than $ , which means it has declined
by more than 40%
from
the Initial Commodity Price,
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$1,000 +
($1,000 x Commodity Percent Change)
If the Final
Commodity Price declines by more than 40% from the Initial Commodity Price, you will be fully exposed to the decline in the Final
Commodity Price from the Initial Commodity Price. There is no minimum payment at maturity on the Securities. Accordingly, you could
lose your entire initial investment in the Securities.
We will, or
will cause the Calculation Agent to, (i) provide written notice to the Trustee, upon which notice the Trustee may conclusively
rely, and to DTC of the amount of cash, if any, to be delivered with respect to each $1,000 Stated Principal Amount of Securities
on or prior to 10:30 a.m. (New York City time) on the Business Day preceding the Maturity Date, and (ii) deliver the aggregate
cash amount, if any, due with respect to the Securities to the Trustee for delivery to DTC, as holder of the Securities, on or
prior to the Maturity Date. We expect such amount of cash, if any, will be distributed to investors on the Maturity Date in accordance
with the standard rules and procedures of DTC and its direct and indirect participants. See “—Book-Entry Note or Certificated
Note” below, and see “Forms of Securities—The Depositary” in the accompanying prospectus.
Commodity Percent Change
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A fraction, the numerator of which is the Final Commodity Price
minus
the Initial Commodity Price and the denominator of which is the Initial Commodity Price, as described by the following formula:
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Commodity Percent Change
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=
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Final
Commodity Price – Initial Commodity Price
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Initial Commodity Price
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Commodity Price
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The Commodity Price for the Underlying Commodity on any Trading Day will be determined by the Calculation Agent and will equal the official settlement price per barrel of West Texas Intermediate light sweet crude oil on the Relevant Exchange of the first nearby month futures contract, stated in U.S. dollars, as made public by the Relevant Exchange on such date, provided that if such date falls on the last trading day of such futures contract (all pursuant to the rules of the Relevant Exchange), then the second nearby month futures contract on such date.
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Reuters, Bloomberg and various
other third-party sources may report prices of the Underlying Commodity. If any such reported price differs from that as published
by the Relevant Exchange for the Underlying Commodity, the price as published by such Relevant Exchange will prevail.
Initial Commodity Price
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The Commodity Price on the Pricing Date,
provided that
if the Pricing Date is not a Trading Day with respect to the Underlying Commodity or if a Market Disruption Event occurs on the Pricing Date, the Initial Commodity Price will be determined on the immediately succeeding Trading Day on which no Market Disruption Event occurs,
provided further
that if a Market Disruption Event has occurred on each of the five consecutive Trading Days immediately succeeding the Pricing Date, the Calculation Agent will determine the Initial Commodity Price on such fifth succeeding Trading Day by requesting the principal office of each of the three leading dealers in the relevant market, selected by the Calculation Agent, to provide a quotation for the relevant price. If such quotations are provided as requested, the Initial Commodity Price shall be the arithmetic mean of such quotations. If fewer than three quotations are provided as requested, the Initial Commodity Price shall be determined by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account any information that it deems relevant.
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If the Initial Commodity Price
as finally published by the Relevant Exchange differs from the relevant Initial Commodity Price specified in the pricing supplement,
we will include the definitive Initial Commodity Price in an amended pricing supplement.
Final Commodity Price
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The Commodity Price on the Final Determination Date, as determined by the Calculation Agent.
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Review Date
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September 9, 2019;
provided
that if the scheduled Review Date is not a Trading Day with respect to the Underlying Commodity or if a Market Disruption Event occurs on the scheduled Review Date, such Review Date will be postponed and the Commodity Price will be determined on the immediately succeeding Trading Day on which no Market Disruption Event occurs. The Commodity Price will not be determined on a date later than the fifth scheduled Trading Day following the scheduled Review Date. If such date is not a Trading Day with respect to the
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Underlying
Commodity or if there is a Market Disruption Event on such date, the Calculation Agent will determine the Commodity Price on such
fifth scheduled Trading Day by requesting the principal office of each of the three leading dealers in the relevant market, selected
by the Calculation Agent, to provide a quotation for the relevant price. If such quotations are provided as requested, the Commodity
Price will be the arithmetic mean of such quotations. If fewer than three quotations are provided as requested, such Commodity
Price shall be determined by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account
any information that it deems relevant.
Final Determination Date
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December 9, 2019;
provided
that if the scheduled Final Determination Date is not a Trading Day with respect to the Underlying Commodity or if a Market Disruption Event occurs on the scheduled Final Determination Date, such Final Determination Date will be postponed and the Commodity Price will be determined on the immediately succeeding Trading Day on which no Market Disruption Event occurs. The Commodity Price will not be determined on a date later than the fifth scheduled Trading Day following the scheduled Final Determination Date. If such date is not a Trading Day with respect to the Underlying Commodity or if there is a Market Disruption Event on such date, the Calculation Agent will determine the Commodity Price on such fifth scheduled Trading Day by requesting the principal office of each of the three leading dealers in the relevant market, selected by the Calculation Agent, to provide a quotation for the relevant price. If such quotations are provided as requested, the Commodity Price will be the arithmetic mean of such quotations. If fewer than three quotations are provided as requested, such Commodity Price shall be determined by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account any information that it deems relevant.
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Market Disruption Event
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Market Disruption Event means any of Price Source Disruption, Disappearance of Commodity Reference Price, Trading Disruption or Tax Disruption, as determined by the Calculation Agent.
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Price Source Disruption
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Price Source Disruption means the temporary or permanent failure of the Relevant Exchange to announce or publish the Commodity Price.
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Disappearance of Commodity Reference Price
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Disappearance of Commodity Reference Price means either (i) the failure of trading to commence, or the permanent discontinuance of trading, in the Underlying Commodity or futures contracts related to the Underlying Commodity on the Relevant Exchange or (ii) the disappearance of, or of trading in, the Underlying Commodity.
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Trading Disruption
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Trading Disruption means the material suspension of, or material limitation imposed on, trading in the Underlying Commodity or futures contracts related to the Underlying Commodity on the Relevant Exchange.
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Tax Disruption
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Tax Disruption means the imposition of, change in or removal of an excise, severance, sales, use, value-added, transfer, stamp, documentary, recording or similar tax on, or measured by reference to, the Underlying Commodity (other than a tax on, or measured by reference to, overall gross or net income) by any government or taxation authority after the Pricing Date, if the direct effect of such imposition, change or removal is to raise or lower the Commodity Price of the Underlying Commodity on any Trading Day that would otherwise be the Review Date or the Final Determination Date from what it would have been without that imposition, change or removal.
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Business Day
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Any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York.
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Relevant Exchange
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Relevant Exchange means the NYMEX Division, or its successor, of the New York Mercantile Exchange, Inc. (the “NYMEX Division”) or, if the NYMEX Division is no longer the principal exchange or trading market for the Underlying Commodity, such exchange or principal trading market for the Underlying Commodity that serves as the source of prices for the Underlying Commodity and any principal exchanges where options or futures contracts on the Underlying Commodity are traded.
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Trading Day
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Trading Day means a day, as determined by the Calculation Agent, that is a day on which the Relevant Exchange is open for trading during its regular trading session, notwithstanding any such Relevant Exchange closing prior to its scheduled closing time.
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Book Entry
Note or
Certificated Note
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Book Entry. The Securities will be issued in the form of one or more fully registered global securities which will be deposited with, or on behalf of, DTC and will be registered in the name of a nominee of DTC. DTC’s nominee will be the only registered holder of the Securities. Your beneficial interest in the Securities will be evidenced solely by entries on the books of the securities intermediary acting on your behalf as a direct or indirect participant in 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 Securities, for distribution to participants in accordance with DTC’s procedures. For more information regarding DTC and book-entry securities, please read “Forms of Securities—The Depositary” and “Forms of Securities—Global Securities—Registered Global Securities” in the accompanying prospectus.
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Senior Note or Subordinated Note
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Senior
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Trustee
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The Bank of New York Mellon, a New York banking corporation
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Agent
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MS & Co. and its successors
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Calculation Agent
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MSCG and its successors.
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All determinations made by the
Calculation Agent will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive
for all purposes and binding on you, the Trustee, us and the Guarantor.
All calculations and determinations
with respect to the Automatic Early Call and the Payment at Maturity, if any, will be made by the Calculation Agent and will be
rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (
e.g.
, .876545 would be rounded to
.87655); all dollar amounts related to determination of the amount of cash payable per Security, if any, will be rounded to the
nearest ten-thousandth, with five one hundred-thousandths rounded upward (
e.g.
, .76545 would be rounded up to .7655); and
all dollar amounts paid on the aggregate number of Securities, if any, will be rounded to the nearest cent, with one-half cent
rounded upward.
Because the Calculation Agent
is our affiliate, the economic interests of the Calculation Agent and its affiliates may be adverse to your interests as an investor
in the Securities, including with respect to certain determinations and judgments that the Calculation Agent must make in determining
the Initial Commodity Price, the Commodity Price on the Review Date, the Final Commodity Price, whether the Commodity Price on
the Review Date is at or above the Initial Commodity Price and therefore whether the Securities will be called following the Review
Date, or whether a Market Disruption Event has occurred, and, if the Securities are not called prior to maturity, the Payment at
Maturity, if any. See “––Market Disruption Event” below. MSCG is obligated to carry out its duties and
functions as Calculation Agent in good faith and using its reasonable judgment. See also “Risk Factors––The calculation
agent, which is a subsidiary of the issuer, will make determinations with respect to the securities.”
Alternate Exchange
Calculation
in Case of an Event of Default
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In case an Event of Default with respect to the Securities will have occurred and be continuing, the amount declared due and payable per Security upon any acceleration of the Securities will be an amount in cash equal to the value of such Securities on the day that is two business days prior to the date of such acceleration, as determined by the Calculation Agent (acting in good faith and in a commercially reasonable manner) by reference to factors that the Calculation Agent considers relevant, including, without limitation: (i) then-current market interest rates; (ii) our credit spreads as of the Pricing Date, without adjusting for any subsequent changes to our creditworthiness; and (iii) the then-current value of the performance-based component of such Securities. Because the Calculation Agent will take into account movements in market interest rates, any increase in market interest rates since the Pricing Date will lower the value of your claim in comparison to if such movements were not taken into account.
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Notwithstanding
the foregoing, if a voluntary or involuntary liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with
respect to MSFL, then depending on applicable bankruptcy law, your claim may be limited to an amount that could be less than this
amount.
Historical Information
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The following table sets forth the published high and low daily fixing prices of the Underlying Commodity, as well as the end-of-quarter prices of the Underlying Commodity, for each calendar quarter in the period from January 1, 2014 to June 6, 2019. The Commodity Price on June 6, 2019 was $52.59. The graph following the table sets forth the daily fixing prices of the Underlying Commodity for the same period. We obtained the information in the table and graph below from Bloomberg Financial Markets, without independent verification. The Commodity Prices of the Underlying Commodity on the Pricing Date, the Review Date and the Final Determination Date will be determined with reference to the prices published by the Relevant Exchange in accordance with the provisions set forth herein, rather than the prices published by Bloomberg Financial Markets on such dates. The historical performance of the Underlying Commodity set out in the table and graph below should not be taken as an indication of its future performance, and no assurance can be given as to the Commodity Price on any of the Review Dates or as to the Final Commodity Price.
If the Securities are not automatically called prior to maturity and if the Final Commodity Price has declined by more than 40% from the Initial Commodity Price, you will lose some or all of your initial investment at maturity.
We cannot give you any assurance that the Securities will be called prior to maturity or that, if the Securities are not called, the Final Commodity Price will be at or above the Initial Commodity Price so that at maturity you will receive a payment that is greater than the Stated Principal Amount of the Securities. The price of the Underlying Commodity may be, and has recently been, volatile, and we can give you no assurance that the volatility will lessen.
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West Texas Intermediate
Light Sweet Crude Oil Futures Contracts
High and Low Daily Closing
Prices and
End-of-Quarter Prices
January 1, 2014 through
June 6, 2019
(stated in U.S. dollars per
barrel)
West Texas Intermediate Light Sweet Crude Oil Futures Contracts
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High
($)
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Low
($)
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Period
End ($)
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2014
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First Quarter
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104.92
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91.66
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101.58
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Second Quarter
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107.26
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99.42
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105.37
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Third Quarter
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105.34
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91.16
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91.16
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Fourth Quarter
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91.01
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90.73
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53.27
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2015
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First Quarter
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53.53
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43.46
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47.60
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Second Quarter
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61.43
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49.14
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59.47
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Third Quarter
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56.96
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38.24
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45.09
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Fourth Quarter
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49.63
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34.73
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37.04
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2016
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First Quarter
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41.45
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26.21
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38.34
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Second Quarter
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51.23
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35.70
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48.33
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Third Quarter
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48.99
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39.51
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48.24
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Fourth Quarter
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54.06
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43.32
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53.72
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2017
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First Quarter
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54.45
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47.34
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50.60
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Second Quarter
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53.40
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42.53
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46.04
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Third Quarter
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52.22
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44.23
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51.67
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Fourth Quarter
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60.42
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49.29
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60.42
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2018
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First Quarter
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66.14
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59.19
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64.94
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Second Quarter
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74.15
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62.06
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74.15
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Third Quarter
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74.14
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65.01
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73.25
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Fourth Quarter
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76.41
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50.29
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50.29
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2019
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First Quarter
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60.14
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46.54
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60.14
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Second Quarter (through June 6, 2019)
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66.30
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51.68
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52.59
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West
Texas Intermediate Light Sweet Crude Oil Futures Contracts
Daily
Closing Prices
January
1, 2014 to June 6, 2019
Use of Proceeds and Hedging
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The proceeds from the sale of the Securities will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per Security issued, because, when we enter into hedging transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Securities borne by you and described beginning on PS-3 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying prospectus.
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On or prior to the Pricing Date,
we expect to hedge our anticipated exposure in connection with the Securities by entering into hedging transactions with our affiliates
and/or third party dealers. We expect our hedging counterparties to take positions in futures contracts on the Underlying Commodity
or positions in any other available securities or instruments that they may wish to use in connection with such hedging. Such purchase
activity could potentially increase the Initial Commodity Price, which is the price at or above which the Commodity Price must
be on the Review Date in order for the Securities to be automatically called prior to maturity or, if the Securities are not called
prior to maturity, the level at or above which the Final Commodity Price must be so that investors do not suffer a loss on their
initial investment in the Securities. 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 Determination Date
approaches. Additionally, our hedging activities, as well as our other trading activities, during the term of the Securities could
potentially affect the value of the Underlying Commodity on the Determination Dates, and, accordingly, whether the Securities are
called early, or the payment you will receive at maturity.
Supplemental Information
Concerning
Plan of Distribution; Conflicts of Interest
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Selected dealers, which may include our affiliates, and their financial advisors will collectively receive from the agent a fixed sales commission of $ for each Security they sell.
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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 Securities. When MS & Co. prices this offering of Securities,
it will determine the economic terms of the Securities, including the Call Price, such that for each Security the estimated value
on the Pricing Date will be no lower than the minimum level described in “Summary of Pricing Supplement” beginning
on PS-3.
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 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 after the offering. A naked short position in the Securities 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 futures contracts or other instruments on the Underlying Commodity 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 prices
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 in connection
with this offering of the Securities. See “—Use of Proceeds and Hedging” above.
General
No action has been or will
be taken by us, the Agent or any dealer that would permit a public offering of the Securities or possession or distribution
of this pricing supplement or the accompanying prospectus supplement or prospectus in any jurisdiction, other than the United
States, where action for that purpose is required. No offers, sales or deliveries of the Securities, or distribution of this
pricing supplement or the accompanying prospectus supplement or prospectus or any other offering material relating to the
Securities, may be made in or from any jurisdiction except in circumstances which will result in compliance with any
applicable laws and regulations and will not impose any obligations on us, the Agent or any dealer.
The Agent has represented and
agreed, and each dealer through which we may offer the Securities has represented and agreed, that it (i) will comply with all
applicable laws and regulations in force in each non-U.S. jurisdiction in which it purchases, offers, sells or delivers the Securities
or possesses or distributes this pricing supplement and the accompanying prospectus supplement and prospectus and (ii) will obtain
any consent, approval or permission required by it for the purchase, offer or sale by it of the Securities under the laws and regulations
in force in each non-U.S. jurisdiction to which it is subject or in which it makes purchases, offers or sales of the Securities.
We will not have responsibility for the Agent’s or any dealer’s compliance with the applicable laws and regulations
or obtaining any required consent, approval or permission.
In addition to the selling restrictions
set forth in “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus supplement, the following
selling restrictions also apply to the Securities:
Brazil
The Securities have not been
and will not be registered with the Comissão de Valores Mobiliários (The Brazilian Securities Commission). The Securities
may not be offered or sold in the Federative Republic of Brazil except in circumstances which do not constitute a public offering
or distribution under Brazilian laws and regulations.
Chile
The Securities have not been
registered with the Superintendencia de Valores y Seguros in Chile and may not be offered or sold publicly in Chile. No offer,
sales or deliveries of the Securities or distribution of this pricing supplement or the accompanying prospectus supplement or prospectus,
may be made in or from Chile except in circumstances which will result in compliance with any applicable Chilean laws and regulations.
Mexico
The Securities have not been
registered with the National Registry of Securities maintained by the Mexican National Banking and Securities Commission and may
not be offered or sold publicly in Mexico. This pricing supplement, the accompanying prospectus supplement and the accompanying
prospectus may not be publicly distributed in Mexico.
Benefit Plan Investor Considerations
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Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a
“Plan”), should consider
the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing an investment in
the Securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence
and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan.
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In addition,
we and certain of our affiliates, including MS & Co., may each be considered a “party in interest” within the
meaning of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the
“Code”), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (such accounts
and plans, together with other plans, accounts and arrangements subject to Section 4975 of the Code, also “Plans”).
ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans and parties in interest or disqualified
persons. Prohibited transactions within the meaning of ERISA or the Code would likely arise, for example, if the Securities are
acquired by or with the assets of a Plan with
respect to which MS & Co. or any of its affiliates is a service provider or other party in interest, unless the
Securities are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of these “prohibited
transaction” rules could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those
persons, unless exemptive relief is available under an applicable statutory or administrative exemption.
The U.S.
Department of Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief
for direct or indirect prohibited transactions resulting from the purchase or holding of the Securities. Those class exemptions
are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1
(for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by
independent qualified professional asset managers). In addition, ERISA Section 408(b)(17) and Code Section 4975(d)(20) provide
an exemption for the purchase and sale of Securities and the related lending transactions, provided that neither the issuer of
the Securities nor any of its affiliates has or exercises any discretionary authority or control or renders any investment advice
with respect to the assets of the Plan involved in the transaction and provided further that the Plan pays no more, and receives
no less, than “adequate consideration” in connection with the transaction (the so-called “service provider”
exemption). There can be no assurance that any of these class or statutory exemptions will be available with respect to transactions
involving the Securities.
Because
we may be considered a party in interest with respect to many Plans, the Securities may not be purchased, held or disposed of
by any Plan, any entity whose underlying assets include “plan assets” by reason of any Plan’s investment in
the entity (a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase,
holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14
or the service provider exemption or such purchase, holding or disposition is otherwise not prohibited. Any purchaser, including
any fiduciary purchasing on behalf of a Plan, transferee or holder of the Securities will be deemed to have represented, in its
corporate and its fiduciary capacity, by its purchase and holding of the Securities that either (a) it is not a Plan or a Plan
Asset Entity and is not purchasing such Securities on behalf of or with “plan assets” of any Plan or with any assets
of a governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S. law that is substantially
similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its purchase,
holding and disposition of these Securities will not constitute or result in a non-exempt prohibited transaction under Section
406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the
complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it
is particularly important that fiduciaries or other persons considering purchasing the Securities on behalf of or with “plan
assets” of any Plan consult with their counsel regarding the availability of exemptive relief.
The Securities
are contractual financial instruments. The financial exposure provided by the Securities is not a substitute or proxy for, and
is not intended as a substitute or proxy for, individualized investment management or advice for the benefit of any purchaser or
holder of the Securities. The Securities have not been designed and will not be administered in a manner intended to reflect the
individualized needs and objectives of any purchaser or holder of the Securities.
Each purchaser
or holder of any Securities acknowledges and agrees that:
(i) 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;
(ii) 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;
(iii) 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;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) 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.
Each purchaser
and holder of the Securities has exclusive responsibility for ensuring that its purchase, holding and disposition of the Securities
do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any Securities to any Plan
or plan subject to Similar Law is in no respect a representation by us or any of our affiliates or representatives that such an
investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that
such an investment is appropriate for
plans generally or any particular plan. In this regard, neither this discussion nor anything
provided in this document is or is intended to be investment advice directed at any potential Plan purchaser or at Plan purchasers
generally and such purchasers of these Securities should consult and rely on their own counsel and advisers as to whether an investment
in these Securities is suitable.
However,
individual retirement accounts, individual retirement annuities and Keogh plans, as well as employee benefit plans that permit
participants to direct the investment of their accounts, will not be permitted to purchase or hold the Securities if the account,
plan or annuity is for the benefit of an employee of Morgan Stanley or Morgan Stanley Wealth Management or a family member and
the employee receives any compensation (such as, for example, an addition to bonus) based on the purchase of the Securities by
the account, plan or annuity.
United States Federal Taxation
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Prospective investors should note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus supplement does not apply to the Securities issued under this pricing supplement and is superseded by the following discussion.
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The following
summary 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 initial investors in the Securities who:
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purchase the Securities in the original offering; and
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hold the Securities as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the “Code”).
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This discussion
does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances
or to holders subject to special rules, such as:
·
certain
financial institutions;
·
insurance
companies;
·
certain
dealers and traders in securities or commodities;
·
investors
holding the Securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive
sale transaction;
·
U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
·
partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
·
regulated
investment companies;
·
real
estate investment trusts; or
·
tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A
of the Code, respectively.
If an entity
that is classified as a partnership for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment
of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partnership
holding the Securities or a partner in such a partnership, you should consult your tax adviser as to the particular U.S. federal
tax consequences of holding and disposing of the Securities to you.
As the law
applicable to the U.S. federal income taxation of instruments such as the Securities is technical and complex, the discussion below
necessarily represents only a general summary. 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
Although
there is uncertainty regarding the U.S. federal income tax consequences of an investment in the Securities due to the lack of governing
authority, in the opinion of our counsel, under current law, and based on current market conditions, each Security should be treated
as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
Moreover,
our counsel’s opinion is based on market conditions as of the date of this preliminary pricing supplement and is subject
to confirmation on the pricing date.
Due to
the absence of statutory, judicial or administrative authorities that directly address the treatment of the Securities or instruments
that are similar to the Securities for U.S. federal income tax purposes, no assurance can be given that the Internal Revenue Service
(the “IRS”) or a court will agree with the tax treatment described herein. Accordingly, you should consult your tax
adviser regarding all aspects of the U.S. federal tax consequences of an investment in the Securities (including possible alternative
treatments of the Securities). Unless otherwise stated, the following discussion is based on the treatment of the Securities as
described in the previous paragraph.
Tax Consequences
to U.S. Holders
This section
applies to you only if you are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a
Security that is, for U.S. federal income tax purposes:
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a citizen or individual resident of the United States;
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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 Securities
Assuming
the treatment of the Securities as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax
Treatment Prior to Settlement.
A U.S. Holder should not be required to recognize taxable income over the term of the Securities
prior to settlement, other than pursuant to a sale or exchange as described below.
Tax
Basis.
A U.S. Holder’s tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Sale,
Exchange or Settlement of the Securities.
Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize
gain or loss equal to the difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s
tax basis in the Securities sold, exchanged or settled. Any gain or loss recognized upon the sale, exchange or settlement of the
Securities should be short-term capital gain or loss.
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. It is possible, for example, that a Security could be
treated as a short-term debt instrument, with the result that the timing and character of income or loss on the Securities might
differ from the tax treatment described above. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the Securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features.
Other alternative
federal income tax treatments of the Securities are also possible, which if applied could significantly affect the timing and
character of the income or loss with respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released a notice
requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice
focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It
also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded
status of the instruments and the nature of the underlying property to which the instruments are linked; and whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition
rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially
and adversely affect the tax consequences of an investment in the Securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities, including possible
alternative treatments and issues presented by this notice.
Backup
Withholding and Information Reporting
Backup withholding
may apply in respect of the payment on the Securities at maturity and the payment of proceeds from a sale, exchange or other disposition
of the Securities, unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number
and otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding
rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability,
provided that the required information is timely furnished to the IRS. In addition, information returns may be filed with the
IRS in connection with the payment on the Securities and the payment of proceeds from a sale, exchange or other disposition of
the Securities, unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences
to Non-U.S. Holders
This section
applies to you only if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner
of a Security that is, for U.S. federal income tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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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 Securities 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 Securities.
Tax
Treatment upon Sale, Exchange or Settlement of the Securities
In general.
Assuming the treatment of the Securities as set forth above is respected, and subject to the discussion below concerning backup
withholding, a Non-U.S. Holder of the Securities generally will not be subject to U.S. federal income or withholding tax in respect
of amounts paid to the Non-U.S. Holder.
Subject to
the discussion below regarding FATCA, if all or any portion of a Security were recharacterized as a debt instrument, any payment
made to a Non-U.S. Holder with respect to the Securities would not be subject to U.S. federal withholding tax, provided that:
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the Non-U.S. Holder does not own, directly or by attribution, ten percent or more of the total
combined voting power of all classes of Morgan Stanley stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation related, directly or indirectly, to
Morgan Stanley through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest under Section 881(c)(3)(A) of the Code, and
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the certification requirement described below has been fulfilled with respect to the beneficial
owner.
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Certification
Requirement.
The certification requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner
of a Security (or a financial institution holding a Security on behalf of the beneficial owner) furnishes to the applicable withholding
agent an IRS Form W-8BEN (or other appropriate form) on which the beneficial owner certifies under penalties of perjury that it
is not a U.S. person.
In 2007,
the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax
treatment of “prepaid
forward contracts” and similar instruments. Among the issues addressed in the notice is the degree, if any, to which any
income with respect to instruments such as the Securities should be subject to U.S. withholding tax. It is possible that any Treasury
regulations or other guidance promulgated after consideration of this issue could materially and adversely affect the withholding
tax consequences of ownership and disposition of the Securities, possibly on a retroactive basis. Non-U.S. Holders should note
that we currently do not intend to withhold on any payment made with respect to the Securities to Non-U.S. Holders (subject to
compliance by such holders with the certification requirement described above and to the discussion below regarding FATCA). However,
in the event of a change of law or any formal or informal guidance by the IRS, the U.S. Treasury Department or Congress, we may
decide to withhold on payments made with respect to the Securities to Non-U.S. Holders, and we will not be required to pay any
additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult their tax advisers regarding
all aspects of the U.S. federal income tax consequences of an investment in the Securities, including the possible implications
of the notice referred to above.
U.S.
Federal Estate Tax
Individual
Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S.
federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained
certain interests or powers), should note that, absent an applicable treaty exemption, the Securities may be treated as U.S. situs
property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described
above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the Securities.
Backup
Withholding and Information Reporting
Information returns may be
filed with the IRS in connection with the payment on the Securities at maturity as well as in connection with the payment of proceeds
from a sale, exchange or other disposition of the Securities. A Non-U.S. Holder may be subject to backup withholding in respect
of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it
is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. Compliance with the certification
procedures described above under “―Tax Treatment upon Sale, Exchange or Settlement of the Securities ― Certification
Requirement” will satisfy the certification requirements necessary to avoid backup withholding as well. The amount of any
backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal
income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished
to the IRS.
FATCA
Legislation commonly referred
to as “FATCA” generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial
intermediaries) with respect to certain financial instruments, unless various U.S. information reporting and due diligence requirements
have been satisfied. An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may
modify these requirements. FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest
or other U.S.-source “fixed or determinable annual or periodical” income. If the Securities were recharacterized as
debt instruments, FATCA would apply to any payment of amounts treated as interest and to payments of gross proceeds of the disposition
(including upon retirement) of the Securities. Under recently proposed regulations (the preamble to which specifies that taxpayers
are permitted to rely on them pending finalization), no withholding will apply on payments of gross proceeds. If withholding 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, insofar as it purports to describe provisions of U.S. federal income tax laws or legal conclusions
with respect thereto, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal income
tax consequences of an investment in the Securities.