We and/or
our affiliates may presently or from time to time engage in business with Microsoft, including extending loans to, or making equity
investments in, Microsoft or providing advisory services to Microsoft, 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 Microsoft, 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 Microsoft, and the reports may or may not recommend that investors buy or hold Microsoft
Stock. As a purchaser of the Securities, you should undertake an independent investigation of Microsoft as in your judgment is
appropriate to make an informed decision with respect to an investment in Microsoft Stock.
If the Final
Share Price is less than the Downside Threshold Level, you will lose a significant portion or all of your investment.
First Quarter
|
55.23
|
49.28
|
0.36
|
Second Quarter
|
56.46
|
48.43
|
0.36
|
Third Quarter
|
58.30
|
51.16
|
0.36
|
Fourth Quarter
|
63.62
|
56.92
|
0.39
|
2017
|
|
|
|
First Quarter
|
65.86
|
62.30
|
0.39
|
Second Quarter
|
72.52
|
64.95
|
0.39
|
Third Quarter
|
75.44
|
68.17
|
0.39
|
Fourth Quarter
|
86.85
|
74.26
|
0.42
|
2018
|
|
|
|
First Quarter
|
96.77
|
85.01
|
0.42
|
Second Quarter
|
102.49
|
88.52
|
0.42
|
Third Quarter
|
114.67
|
99.05
|
0.42
|
Fourth Quarter
|
115.61
|
94.13
|
0.46
|
2019
|
|
|
|
First Quarter
|
120.22
|
97.40
|
0.46
|
Second Quarter (through June 28, 2019)
|
137.78
|
119.02
|
0.46
|
The following graph shows the daily Closing Prices
of Microsoft Stock from January 1, 2014 through June 28, 2019. 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 Microsoft Corporation
January
1, 2014 through June 28, 2019
*The
red solid line indicates the downside threshold level of $120.564, which is 90% of the initial share price.
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, $10 per Security issued, because, when we enter into hedging transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Securities borne by you and described beginning on page 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.
On or prior
to the Pricing Date, we hedged our anticipated exposure in connection with the Securities by entering into hedging transactions
with our affiliates and/or third party dealers. We expect our hedging counterparties to have taken positions in Microsoft Stock
and in futures and/or options contracts on Microsoft Stock listed on major securities markets. Such purchase activity could have
increased the price of Microsoft Stock on the Pricing Date, and, therefore, could have increased the Downside Threshold Level,
which is the price at or above which Microsoft Stock must close on the Valuation Date so that investors do not suffer a substantial
loss on their initial investment in the Securities. In addition, through our affiliates, we are likely to modify our hedge position
throughout the term of the Securities, including on the Valuation Date, by purchasing and selling Microsoft Stock, futures or options
contracts on Microsoft Stock 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. As a result, these entities may be unwinding or adjusting hedge
positions during the term of the Securities, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the Valuation Date approaches. We cannot give any assurance that our hedging activities will not affect the price
of Microsoft Stock, and, therefore, adversely affect the value of the Securities or the payment you will receive at maturity, if
any.
Supplemental Information Concerning
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Plan of Distribution; Conflicts of Interest
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Under the terms and subject to the conditions contained in the U.S. distribution agreement referred to in the prospectus supplement under “Plan of Distribution (Conflicts of Interest),” the Agent, acting as principal for its own account, has agreed to purchase, and we have agreed to sell, the aggregate principal amount of Securities set forth on the cover of this pricing supplement. The Agent proposes initially to offer the Securities directly to the public at the public offering price set forth on the cover page of this pricing supplement. The Agent may distribute the Securities through Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”), as selected dealer, or other dealers, which may include Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley AG. Morgan Stanley Wealth Management, MSIP and Bank Morgan Stanley AG are affiliates of ours. Selected dealers, including Morgan Stanley Wealth Management, and their financial advisors will collectively receive from the Agent, Morgan Stanley & Co. LLC, a fixed sales commission of $0.25 for each Security they sell. After the initial offering of the Securities, the Agent may vary the offering price and other selling terms from time to time. In addition, Morgan Stanley Wealth Management will receive a structuring fee of $0.05 for each Security.
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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.
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 Microsoft Stock 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 with us in connection
with this offering of 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.
Validity of the Securities
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In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the Securities 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 Securities 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
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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
Securities 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, 2017, which is Exhibit 5-a to the Registration Statement on Form S-3
filed by Morgan Stanley on November 16, 2017.
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 Section 4975 of the Code 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 Section 4975(d)(20) of the Code 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.
Client accounts over which Morgan Stanley, Morgan
Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the
Securities, either directly or indirectly.
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 is a general discussion of the material U.S. federal income tax consequences and certain estate tax consequences of
the ownership and disposition of the Securities. This discussion applies only to investors in the Securities who:
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·
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purchase the Securities
in the original offering; and
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|
·
|
hold the Securities as
capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
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This
discussion does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular
circumstances or to holders subject to special rules, such as:
|
·
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certain
financial institutions;
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·
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certain
dealers and traders in securities or commodities;
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|
·
|
investors
holding the Securities as part of a “straddle,” wash sale, conversion transaction,
integrated transaction or constructive sale transaction;
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·
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U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar;
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·
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partnerships
or other entities classified as partnerships for U.S. federal income tax purposes;
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·
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regulated
investment companies;
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·
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real
estate investment trusts; or
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·
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tax-exempt
entities, including “individual retirement accounts” or “Roth IRAs”
as defined in Section 408 or 408A of the Code, respectively.
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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 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 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, a Security 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 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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·
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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 long-term capital gain or loss if the U.S. Holder has held the Securities for more than one year at such
time, and short-term capital gain or loss otherwise.
Possible
Alternative Tax Treatments of an Investment in the Securities
Due
to the absence of authorities that directly address the proper tax treatment of the Securities, no assurance can be given that
the IRS will accept, or that a court will uphold, the treatment described above. In particular, the IRS could seek to analyze
the U.S. federal income tax consequences of owning the Securities under Treasury regulations governing contingent payment debt
instruments (the “Contingent Debt Regulations”). If the IRS were successful in asserting that the Contingent Debt
Regulations applied to the Securities, the timing and character of income thereon would be significantly affected. Among other
things, a U.S. Holder would be required to accrue into income original issue discount on the Securities every year at a “comparable
yield” determined at the time of their issuance, adjusted upward or downward to reflect the difference, if any, between
the actual and the projected amount of the contingent payment on the Securities. Furthermore, any gain realized by a U.S. Holder
at maturity or upon a sale, exchange or other disposition of the Securities would generally be treated as ordinary income, and
any loss realized would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue
discount and as capital loss thereafter. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for
comparable financial instruments that do not have such features.
Other
alternative federal income tax treatments of the Securities are also possible, which, if applied, could significantly affect the
timing and character of the income or loss with respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released
a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment.
It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;
whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded
status of the instruments and the nature of the underlying property to which the instruments are linked; and whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can
operate
to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments
on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration
of these issues could materially and adversely affect the tax consequences of an investment in the Securities, possibly with retroactive
effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in
the Securities, including possible alternative treatments and the issues presented by this notice.
Backup
Withholding and Information Reporting
Backup
withholding may apply in respect of the payment on the Securities at maturity and the payment of proceeds from a sale, exchange
or other disposition of the Securities, unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification
number and otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup
withholding rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income
tax liability, provided that the required information is timely furnished to the IRS. In addition, information returns may be
filed with the IRS in connection with the payment on the Securities and the payment of proceeds from a sale, exchange or other
disposition of the Securities, unless the U.S. Holder provides proof of an applicable exemption from the information reporting
rules.
Tax
Consequences to Non-U.S. Holders
This
section applies to you only if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial
owner of a Security that is, for U.S. federal income tax purposes:
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an
individual who is classified as a nonresident alien;
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·
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a
foreign corporation; or
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·
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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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·
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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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·
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certain
former citizens or residents of the United States; or
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·
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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 discussions below concerning
backup withholding
and the possible application of Section 871(m) of the Code
,
a Non-U.S. Holder of the Securities generally will not be subject to U.S. federal income or withholding tax in respect of amounts
paid to the Non-U.S. Holder.
Subject
to the discussion regarding the possible application of Section 871(m) of the Code and FATCA, if all or any portion of a Security
were recharacterized as a debt instrument, any payment made to a Non-U.S. Holder with respect to the Securities would not be subject
to U.S. federal withholding tax, provided that:
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·
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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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·
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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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·
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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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·
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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 discussions
below regarding Section 871(m) and FATCA). However, in the event of a change of law or any formal or informal guidance by the
IRS, the U.S. Treasury Department or Congress, we may decide to withhold on payments made with respect to the Securities to Non-U.S.
Holders, and we will not be required to pay any additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders
should consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the Securities,
including the possible implications of the notice referred to above.
Section
871(m) Withholding Tax on Dividend Equivalents
Section
871(m) of the Code and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a
lower applicable treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to
certain financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”).
Subject to certain exceptions, Section 871(m) generally applies to Securities that substantially replicate the economic performance
of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, pursuant to an IRS notice, Section 871(m) will not apply to Securities issued before January 1, 2021
that do not have a delta of one with respect to any Underlying Security. Based on our determination that the Securities do not
have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the Securities should not be Specified
Securities and, therefore, should not be subject to Section 871(m).
Our
determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is
complex
and its application may depend on your particular circumstances, including whether you enter into other transactions with respect
to an Underlying Security. If Section 871(m) withholding is required, we will not be required to pay any additional amounts with
respect to the amounts so withheld. You should consult your tax adviser regarding the potential application of Section 871(m)
to the Securities.
U.S.
Federal Estate Tax
Individual
Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S.
federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained
certain interests or powers), should note that, absent an applicable treaty exemption, the Securities may be treated as U.S. situs
property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type
described above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the
Securities.
Backup
Withholding and Information Reporting
Information
returns may be filed with the IRS in connection with the payment on the Securities at maturity as well as in connection with the
payment of proceeds from a sale, exchange or other disposition of the Securities. A Non-U.S. Holder may be subject to backup withholding
in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish
that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. Compliance with the certification
procedures described above under “―Tax Treatment upon Sale, Exchange or Settlement of the Securities – Certification
Requirement” will satisfy the certification requirements necessary to avoid backup withholding as well. The amount of any
backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal
income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished
to the IRS.
FATCA
Legislation
commonly referred to as “FATCA” generally imposes a withholding tax of 30% on payments to certain non-U.S. entities
(including financial intermediaries) with
respect
to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied.
An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source
“fixed or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies
to payments of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain
financial instruments treated as providing for U.S.-source interest or dividends. 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.