Russell 2000®
Index
High and Low Index Closing
Values and End-of-Quarter Index Closing Values
January 1, 2014 through September
30, 2019
RTY
Index
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High
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Low
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Period
End
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2013
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First Quarter
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953.07
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872.60
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951.54
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Second Quarter
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999.99
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901.51
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977.48
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Third Quarter
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1,078.41
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989.47
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1,073.79
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Fourth Quarter
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1,163.64
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1,043.46
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1,163.64
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2014
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First Quarter
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1,208.651
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1,093.594
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1,173.038
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Second Quarter
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1,192.960
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1,095.986
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1,192.960
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Third Quarter
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1,208.150
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1,101.676
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1,101.676
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Fourth Quarter
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1,219.109
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1,049.303
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1,204.696
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2015
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First Quarter
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1,266.373
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1,154.709
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1,252.772
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Second Quarter
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1,295.799
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1,215.417
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1,253.947
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Third Quarter
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1,273.328
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1,083.907
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1,100.688
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Fourth Quarter
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1,204.159
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1,097.552
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1,135.889
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2016
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First Quarter
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1,114.028
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953.715
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1,114.028
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Second Quarter
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1,188.954
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1,089.646
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1,151.923
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Third Quarter
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1,263.438
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1,139.453
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1,251.646
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Fourth Quarter
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1,388.073
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1,156.885
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1,357.130
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2017
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First Quarter
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1,413.635
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1,345.598
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1,385.920
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Second Quarter
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1,425.985
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1,345.244
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1,415.359
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Third Quarter
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1,490.861
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1,356.905
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1,490.861
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Fourth Quarter
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1,548.926
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1,464.095
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1,535.511
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2018
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First Quarter
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1,610.706
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1,463.793
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1,529.427
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Second Quarter
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1,706.985
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1,492.531
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1,643.069
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Third Quarter
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1,740.753
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1,653.132
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1,696.571
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Fourth Quarter
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1,672.992
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1,266.925
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1,348.559
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2019
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First Quarter
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1,590.062
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1,330.831
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1,539.739
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Second Quarter
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1,614.976
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1,465.487
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1,566.572
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Third Quarter (through September 30, 2019)
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1,585.599
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1,456.039
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1,523.373
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Historical Daily Index Closing
Values of the Russell 2000® Index
January 1, 2014 through September
30, 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 hedged our anticipated exposure in connection with the Securities by entering into hedging transactions
with our affiliates and/or third-party dealers. We expect our hedging counterparties to have taken positions in the Basket Components
and in futures and/or options contracts on the Basket Components or component stocks of the S&P 500® Index,
the EURO STOXX 50® Index and the Russell 2000® Index listed on major securities markets. Such purchase
activity could have increased the values of the Basket Components on the Pricing Date, and, therefore, could have increased the
values at or above which the Basket Components must close on the Determination Date so that you do not sustain a loss on your initial
investment in the Securities. In addition, through our affiliates, we are likely to modify our hedge position throughout the life
of the Securities by purchasing and selling stocks constituting the S&P 500® Index, the EURO STOXX 50®
Index and the Russell 2000® Index, futures and/or options contracts on the Basket Components or component stocks
of the S&P 500® Index, the EURO STOXX 50® Index and the Russell 2000® Index listed
on major securities or commodities markets or positions in any other available securities or instruments that we may wish to use
in connection with such hedging activities, including by buying any such securities or instruments on the Pricing Date and/or selling
such securities or instruments on the Determination Date. As a result, these entities may be unwinding or adjusting hedge positions
during the term of the Securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge
as the Determination Date approaches. We cannot give any assurance that our hedging activities will not affect the values of the
Basket Components, and, therefore, adversely affect the value of the Securities or the payment you will receive at maturity.
Supplemental Information Concerning
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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 $2.50 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.
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, any of the Basket Components or the securities underlying the Basket Components 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, index 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, index 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, index 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, index
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, the accompanying
index 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 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
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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.
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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 these 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 these 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 these 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 these Securities.
Because we may be considered
a party in interest with respect to many Plans, these 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 these Securities will be deemed to have represented, in its corporate and its fiduciary
capacity, by its purchase and holding thereof 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 these 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
these 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 of these 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 the Securities should consult and rely on their own counsel and advisers as to whether an investment
in the 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, 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 document and is superseded by the following discussion.
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The following
summary is a general discussion of the principal U.S. federal income tax consequences and certain estate tax consequences of the
ownership and disposition of the Securities. This discussion applies only to investors in the Securities who:
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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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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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U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
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partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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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.
In addition, we will not attempt
to ascertain whether any issuer of any shares to which a Security relates (such shares hereafter referred to as “Underlying
Shares”) is treated as a “passive foreign investment company” (“PFIC”) within the meaning of Section
1297 of the Code or as a “U.S. real property holding corporation” (“USRPHC”) within the meaning of Section
897 of the Code. If
any issuer of Underlying Shares were so treated, certain adverse U.S. federal income tax consequences might
apply, to a U.S. Holder in the case of a PFIC and to a Non-U.S. Holder (as defined below) in the case of a USRPHC, upon the sale,
exchange or settlement of the Securities. You should refer to information filed with the Securities and Exchange Commission or
other governmental authorities by the issuers of the Underlying Shares and consult your tax adviser regarding the possible consequences
to you if any issuer is or becomes a PFIC or USRPHC.
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 document, 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.
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. Subject to the discussion above regarding the possible application of Section 1297 of the
Code, any gain or loss recognized upon the sale, exchange or settlement of the Securities should be long-term capital gain or loss
if the U.S. Holder has held the Securities for more than one year at such time, and short-term capital gain or loss otherwise.
Possible Alternative Tax
Treatments of an Investment in the Securities
Due to the absence of authorities
that directly address the proper tax treatment of the Securities, no assurance can be given that the IRS will accept, or that a
court will uphold, the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences
of owning the Securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the Securities, the timing and character
of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the Securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of the contingent payment on
the Securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
Securities would generally be treated as ordinary income, and any loss realized would be treated as
ordinary loss to the extent
of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter. 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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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 discussions below concerning
backup withholding and the possible application of Section 871(m) of the Code and the discussion above concerning the possible
application of Section 897 of the Code, a Non-U.S. Holder of the Securities generally will
not be subject to U.S. federal income or withholding tax in respect of amounts paid to the Non-U.S. Holder.
Subject to the discussions regarding
the possible application of Sections 871(m) and 897 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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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 discussions regarding Sections 871(m) and 897 of the Code and FATCA).
However, in the event of a change of law or any formal or informal guidance by the IRS, the U.S. Treasury Department or Congress,
we may decide to withhold on payments made with respect to the 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 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”). If the Securities
were recharacterized as debt instruments, FATCA would apply to any payment of amounts treated as interest and to
payments of gross
proceeds of the disposition (including upon retirement) of the Securities. However, under recently proposed regulations (the preamble
to which specifies that taxpayers are permitted to rely on them pending finalization), no withholding will apply on payments of
gross proceeds (other than amounts treated as FDAP income). If withholding were to apply to the Securities, we would not be required
to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers
regarding the potential application of FATCA to the Securities.
The discussion in the preceding
paragraphs under “United States Federal Taxation,” insofar as it purports to describe provisions of U.S. federal income
tax laws or legal conclusions with respect thereto, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the
material U.S. federal income tax consequences of an investment in the Securities.