All determinations made by the Calculation
Agent will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes
and binding on you, the Trustee, us and the Guarantor.
All calculations and determinations
with respect to the Automatic Early Call and the Payment at Maturity, if any, will be made by the Calculation Agent and will be rounded
to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., .876545 would be rounded to .87655); all
dollar amounts related to determination of the amount of cash payable per
Security, if any, will be rounded to
the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to .7655); and all
dollar amounts paid on the aggregate number of Securities, if any, will be rounded to the nearest cent, with one-half cent rounded upward.
Because the Calculation Agent is our
affiliate, the economic interests of the Calculation Agent and its affiliates may be adverse to your interests as an investor in the Securities,
including with respect to certain determinations and judgments that the Calculation Agent must make in determining the Initial Commodity
Price, the Commodity Price on each Review Date, the Final Commodity Price, whether the Commodity Price on either of the two Review Dates
is at or above the Initial Commodity Price and therefore whether the Securities will be called following such Review Date, whether a Market
Disruption Event has occurred, and, if the Securities are not called prior to maturity, the Payment at Maturity, if any. MSCG is obligated
to carry out its duties and functions as Calculation Agent in good faith and using its reasonable judgment. See also “Risk Factors––The
calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities.”
Notwithstanding
the foregoing, if a voluntary or involuntary liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect
to MSFL, then depending on applicable bankruptcy law, your claim may be limited to an amount that could be less than this amount.
period. We obtained
the information in the table and graph below from Bloomberg Financial Markets, without independent verification. The Commodity Price of
the Underlying Commodity on each day on which such price must be determined, including the Pricing Date, the Review Dates and the Final
Determination Date, will be determined with reference to the prices published by the Relevant Exchange in accordance with the provisions
set forth herein, rather than the prices published by Bloomberg Financial Markets on such dates. The historical performance of the Underlying
Commodity set out in the table and graph below should not be taken as an indication of its future performance, and no assurance can be
given as to the Commodity Price on any date, including the Review Dates, or as to the Final Commodity Price. If the Securities are
not automatically called prior to maturity and if the Final Commodity Price has declined below the Downside Threshold Level, you will
lose a significant portion or all of your initial investment at maturity. We cannot give you any assurance that the Securities will
be called prior to maturity or that, if the Securities are not called, the Final Commodity Price will be at or above the Initial Commodity
Price so that at maturity you will receive a payment that is greater than the Stated Principal Amount of the Securities, or that you will
not lose a significant portion or all of your investment. The price of the Underlying Commodity may be, and has recently been, volatile,
and we can give you no assurance that the volatility will lessen.
Copper
|
High
($)
|
Low
($)
|
Period
End ($)
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2021
|
|
|
|
First Quarter
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9,614.50
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7,755.50
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8,850.50
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Second Quarter (through April 20, 2021)
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9,415.00
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8,768.00
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9,396.50
|
Copper
Daily Commodity
Prices
January
1, 2016 to April 20, 2021
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-2 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying prospectus.
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On or prior to the Pricing Date, we
expect to hedge our anticipated exposure in connection with the Securities by entering into hedging transactions with our affiliates and/or
third party dealers. We expect our hedging counterparties to take positions in futures contracts on the Underlying Commodity or positions
in any other available securities or instruments that they may wish to use in connection with such hedging. Such purchase activity could
potentially increase the Initial Commodity Price, and, as a result, increase (i) the price at or above which the Underlying Commodity
must close on either of the two Review Dates so that the Securities are automatically called prior to maturity for the applicable Call
Price or, if the Securities are not called prior to maturity, (ii) the price at or above which the Underlying Commodity must close on
the Final Determination Date so that investors do not suffer a significant loss on their initial investment
in the Securities. These entities may
be unwinding or adjusting hedge positions during the term of the Securities, and the hedging strategy may involve greater and more frequent
dynamic adjustments to the hedge as the Final Determination Date approaches. Additionally, our hedging activities, as well as our other
trading activities, during the term of the Securities could potentially affect the price of the Underlying Commodity, including on the
Review Dates or the Final Determination Date, and, accordingly, whether the Securities are automatically called prior to maturity, or
the payment you will receive at maturity, if any.
Supplemental Information Concerning
Plan of Distribution; Conflicts of Interest
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Selected dealers, which may include our affiliates, and their financial advisors will collectively receive from the agent a fixed sales commission of $22.50 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.
MS & Co. will conduct this offering
in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred
to as FINRA, regarding a FINRA member firm’s distribution of the Securities of an affiliate and related conflicts of interest. MS
& Co. or any of our other affiliates may not make sales in this offering to any discretionary account.
In order to facilitate the offering
of the Securities, the Agent may engage in transactions that stabilize, maintain or otherwise affect the price of the Securities. Specifically,
the Agent may sell more Securities than it is obligated to purchase in connection with the offering, creating a naked short position in
the Securities for its own account. The Agent must close out any naked short position by purchasing the Securities in the open market
after the offering. A naked short position in the Securities is more likely to be created if the Agent is concerned that there may be
downward pressure on the price of the Securities in the open market after pricing that could adversely affect investors who purchase in
the offering. As an additional means of facilitating the offering, the Agent may bid for, and purchase, the Securities or futures contracts
or other instruments on the Underlying Commodity in the open market to stabilize the price of the Securities. Any of these activities
may raise or maintain the market price of the Securities above independent market prices or prevent or retard a decline in the market
price of the Securities. The Agent is not required to engage in these activities, and may end any of these activities at any time. An
affiliate of the Agent has entered into a hedging transaction in connection with this offering of the Securities. See “—Use
of Proceeds and Hedging” above.
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,
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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 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, 2020, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 16, 2020.
United States Federal Taxation
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Prospective investors should note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus supplement does not apply to the Securities issued under this pricing supplement and is superseded by the following discussion.
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The following summary is a general discussion
of the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the Securities.
This discussion applies only to initial investors in the Securities who:
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·
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purchase the Securities in the original offering; and
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·
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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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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 hereof, changes
to any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of the
Securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular situations
as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Although there is uncertainty regarding
the U.S. federal income tax consequences of an investment in the Securities due to the lack of governing authority, in the opinion of
our counsel, under current law, and based on current market conditions, each Security should be treated as a single financial contract
that is an “open transaction” for U.S. federal income tax purposes.
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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·
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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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·
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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. There is a risk that the IRS may seek to treat all or a portion of the gain on the Securities as
ordinary income. For example, there is a risk that 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 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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·
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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.
|
Such holders should consult their tax
advisers regarding the U.S. federal income tax consequences of an investment in the Securities.
Tax Treatment upon Sale, Exchange
or Settlement of the Securities
In general. Assuming the treatment
of the Securities as set forth above is respected, and subject to the discussion below concerning backup withholding, a Non-U.S. Holder
of the Securities generally will not be subject to U.S. federal income or withholding tax in respect of amounts paid to the Non-U.S. Holder.
Subject to the discussion below regarding
FATCA, if all or any portion of a Security were recharacterized as a debt instrument, any payment made to a Non-U.S. Holder with respect
to the Securities would not be subject to U.S. federal withholding tax, provided that:
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·
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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 discussion below regarding FATCA). However, in the event of a change of law or any formal or informal guidance by the
IRS, the U.S. Treasury Department or Congress, we may decide to withhold on payments made with respect to the Securities to Non-U.S. Holders,
and we will not be required to pay any additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult
their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the Securities, including the
possible implications of the notice referred to above.
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”). Because the Securities reference a commodity that
is not treated for U.S. federal income tax purposes as an Underlying Security, payment on the Securities to Non-U.S. Holders should not
be subject to Section 871(m).
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,
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.