CALCULATION
OF REGISTRATION FEE
|
|
Maximum
Aggregate
|
|
Amount
of Registration
|
Title
of Each Class of Securities Offered
|
|
Offering
Price
|
|
Fee
|
Call
Warrants due 2018
|
|
$129,467
|
|
$16.12
|
October 2017
Pricing Supplement No. W-8
Registration Statement Nos. 333-200365;
333-200365-12
Dated October 18, 2017
Filed pursuant to Rule 424(b)(2)
M
organ
S
tanley
F
inance
LLC
Structured Investments
Opportunities in International Equities
2,300 Call Warrants Due November 5, 2018 Based
on the Value of the EURO STOXX 50
®
Index
Fully and Unconditionally Guaranteed by Morgan
Stanley
Principal at Risk Warrants
The call warrants (the “warrants”) are European-style
cash-settled call warrants issued by Morgan Stanley Finance LLC (“MSFL”) and fully and unconditionally guaranteed
by Morgan Stanley. The warrants provide the opportunity to gain exposure to positive performance of the EURO STOXX 50
®
Index (the “index”), as follows: if the arithmetic average of the index closing values on each of the five averaging
dates (the “final index level”) is greater than the initial index level, the warrants will be automatically exercised
on the expiration date (which will be the last averaging date), and we will pay a cash settlement amount on the cash settlement
date equal to the product of (i) the notional amount and (ii) the index percent change. If the final index level, as measured
on the five averaging dates, is less than or equal to the initial index level, the warrants will not be exercised and will expire
worthless on the expiration date. The warrants may not be exercised by either you or us prior to the expiration date.
The warrants
are highly risky and involve risks not associated with an investment in conventional securities. If the level of the index does
not increase, you will lose your entire investment in the warrants. In addition, even if the level of the index has increased,
if the final index level is not sufficiently greater than the initial index level to offset the premium amount, you will lose
a portion of your initial investment. In order to receive a positive return on your investment, the final index level must be
greater than the initial index level by a percentage greater than the warrant premium percentage
.
There is no minimum payment
on the warrants. Accordingly, you may lose some or all of your initial investment in the warrants.
The warrants are for investors
who are willing to risk their invested premium in exchange for the opportunity to gain leveraged returns when the warrants are
automatically exercised on the expiration date. You will not be able to purchase the warrants unless you have an options-approved
brokerage account. The warrants are issued as part of MSFL’s Series A Global Warrants program.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These warrants are not secured obligations and you will not
have any security interest in, or otherwise have any access to, any underlying reference asset or assets.
FINAL TERMS
|
|
Issuer:
|
Morgan Stanley Finance LLC
|
Guarantor:
|
Morgan Stanley
|
Index:
|
EURO STOXX 50
®
Index
|
Aggregate premium amount:
|
$129,467
|
Premium amount and original issue price:
|
$56.29 per warrant
|
Notional amount:
|
$1,000 per warrant
|
Minimum initial investment:
|
$10,000, resulting in a minimum initial purchase of 178 warrants (after rounding)
|
Pricing date:
|
October 18, 2017
|
Original issue date:
|
October 23, 2017 (3 business days after the pricing date)
|
Averaging dates:
|
October 25, 2018, October 26, 2018, October 29, 2018, October 30, 2018 and October 31, 2018, subject to adjustment for non-index business days and certain market disruption events. We also refer to October 31, 2018 as the expiration date.
|
Cash settlement date:
|
November 5, 2018
|
Exercise of warrants; cash settlement amount:
|
The warrants will either be automatically exercised or will expire
worthless on the expiration date, as follows:
·
if
the final index level, as measured on the five averaging dates, is
greater than
the initial index level, the warrants will
be automatically exercised on the expiration date. On the cash settlement date, we will pay with respect to the $56.29 premium
amount of each warrant an amount in cash equal to the product of (x) the notional amount and (y) the index percent change.
Even if the index percent change is positive,
if the index percent change is less than the warrant premium percentage, you will receive a cash settlement amount that is less
than the premium amount and, therefore, you will lose a portion of your initial investment in the warrants.
·
if
the final index level, as measured on the five averaging dates, is
less than or equal to
the initial index level, the warrants
will expire worthless and the cash settlement amount will be $0.
The warrants are highly risky, and there
is no minimum payment on the warrants. Accordingly, you will lose all of your initial investment in the warrants if the final
index level, as measured on the five averaging dates, is less than or equal to the initial index level on the expiration date.
|
Index percent change:
|
(final index level – initial index level) / initial index level
|
Initial index level:
|
3,619.65, which is the index closing value on the pricing date
|
Final index level:
|
The arithmetic average of the index closing values on each of the five averaging dates
|
Warrant premium percentage:
|
5.629%
|
CUSIP / ISIN:
|
61768CSG3 / US61768CSG32
|
Listing:
|
The warrants will not be listed on any securities exchange.
|
Agents:
|
J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. See “Supplemental information regarding plan of distribution; conflicts of interest.”
|
Estimated value on the pricing date:
|
$46.40 per $56.29 premium amount of warrants. See “Summary of Pricing Supplement” beginning on PS-3.
|
Commissions and issue price:
|
|
Price to public
|
Agent’s commissions and fees
(1)
|
Proceeds to us
(2)
|
Per warrant
|
|
$56.29
|
$3.19
|
$53.10
|
|
|
$129,467
|
$7,337
|
$122,130
|
|
(1)
|
J.P. Morgan Securities LLC, which we refer to as JPMS LLC, and JPMorgan Chase Bank, N.A. will act as placement agents for
the warrants. The placement agents will forego fees for sales to fiduciary accounts. The total fees represent the amount that the
placement agents receive from sales to accounts other than such fiduciary accounts. The placement agents will receive a fee from
us that will not exceed $3.19 per warrant. See “Description of the Warrants—Supplemental Information Concerning Plan
of Distribution” in this pricing supplement. For additional information, see “Plan of Distribution (Conflicts of Interest)”
in the accompanying prospectus supplement.
|
|
(2)
|
See “Description of the Warrants—Use of Proceeds and Hedging” beginning on PS-21.
|
You must have an options-approved brokerage account in order
to purchase the warrants and you must be experienced with respect to options and option transactions.
The warrants are highly risky and involve risks not associated
with an investment in conventional securities. If the index percent change is zero or negative, you will lose all of your investment
in the warrants. See “Risk Factors” beginning on PS-9.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these warrants, or determined if this pricing supplement is truthful or complete. Any
representation to the contrary is a criminal offense.
The warrants are not deposits or savings accounts and are
not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations
of, or guaranteed by, a bank.
You should read this document together with the related prospectus
supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. You should read the more detailed
description of the warrants in this pricing supplement. In particular, you should review and understand the descriptions in “Summary
of Pricing Supplement” and “Description of the Warrants.”
As used in this document, “we,” “us”
and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Prospectus Supplement dated February 16, 2016
Index
Supplement dated January 30, 2017
Prospectus
dated February 16, 2016
JPMorgan
Placement Agent
For a description of certain restrictions
on offers, sales and deliveries of the warrants and on the distribution of this pricing supplement and the accompanying prospectus
supplement, index supplement and prospectus relating to the warrants, see the section of this pricing supplement called “Description
of the Warrants—Supplemental Information Concerning Plan of Distribution; Conflicts of Interest.”
No action has been or will be taken
by us, the agent or any dealer that would permit a public offering of the warrants 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. Neither this pricing supplement nor the accompanying prospectus supplement,
index supplement and prospectus may be used for the purpose of an offer or solicitation by anyone in any jurisdiction in which
such offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
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 warrants:
The warrants have not been and will
not be registered with the Comissão de Valores Mobiliários (The Brazilian Securities Commission). The warrants 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.
The warrants 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 warrants 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.
The warrants 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 and the accompanying prospectus supplement, index supplement and prospectus
may not be publicly distributed in Mexico.
SUMMARY OF PRICING SUPPLEMENT
The following summary describes the
warrants in general terms only. You should read the summary together with the more-detailed information that is contained in the
rest of this pricing supplement and in the accompanying index supplement, prospectus supplement and prospectus. You should carefully
consider, among other things, the matters set forth in “Risk Factors” below.
The 2,300 Call Warrants Due November
5, 2018 Based on the Value of the EURO STOXX 50
®
Index, which we refer to as the warrants, are European-style cash-settled
call warrants. The warrants provide the opportunity to gain exposure to positive performance of the EURO STOXX 50
®
Index, which we refer to as the index, as follows: if the final index level, as measured on the five averaging dates, is greater
than the initial index level, the warrants will be automatically exercised on the expiration date (which will be the last averaging
date), and we will pay a cash settlement amount on the cash settlement date equal to the product of (i) the notional amount and
(ii) the index percent change. If the final index level, as measured on the five averaging dates, is less than or equal to the
initial index level, the warrants will not be exercised and will expire worthless on the expiration date. The warrants may not
be exercised by either you or us prior to the expiration date.
The warrants are highly risky and involve risks not associated
with an investment in conventional securities. If the level of the index does not increase, you will lose your entire investment
in the warrants. In addition, even if the level of the index has increased, if the final index level is not sufficiently greater
than the initial index level to offset the premium amount, you will lose a portion of your initial investment. In order to receive
a positive return on your investment, the final index level must be greater than the initial index level by a percentage greater
than the warrant premium percentage of 5.629%. There is no minimum payment on the warrants. Accordingly, you may lose some or all
of your initial investment in the warrants.
The warrants are for investors who are willing to risk their invested premium in
exchange for the opportunity to gain leveraged returns when the warrants are automatically exercised on the expiration date.
You
will not be able to purchase the warrants unless you have an options-approved brokerage account. All payments are subject to our
credit risk.
Each warrant costs $56.29
|
We are offering the 2,300 Call Warrants Due November 5, 2018 Based on the Value of the EURO STOXX 50
®
Index, which we refer to as the warrants. The premium amount and original issue price of each warrant is $56.29.
|
|
|
|
The original issue price includes costs associated with issuing,
selling, structuring and hedging the warrants, which are borne by you, and, consequently, the estimated value of the warrants on
the pricing date is less than $56.29. We estimate that the value of each warrant on the pricing date is $46.40.
Our estimate of the value of the warrants as determined on the
pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
The estimated value of the warrants is determined using our
own pricing and valuation models, market inputs and assumptions relating to the index, instruments based on the index, volatility
and other factors including current and expected interest rates as well as our creditworthiness.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the warrants?
The price at which market participants may purchase the warrants
in the secondary market, absent changes in market conditions, including those related to the index, may vary from, and be lower
than, the estimated value on the pricing date, because the secondary market price takes into account the bid-offer spread that
such market participants would charge in a secondary market transaction of this type and other factors. However, because the costs
associated with issuing, selling, structuring and hedging the warrants are not fully deducted upon issuance, for a period of up
to 6 months following the issue date, to the extent that market participants may buy or sell the warrants in the secondary market,
absent changes in market conditions, including those related to the index, and to our secondary market credit spreads, they would
generally do so based on values higher than the estimated value. We expect that those higher values will also be reflected in your
brokerage account statements.
|
|
There may not be a secondary market for the warrants, and, if a secondary market once develops, it may cease to exist at any time.
|
|
|
Exercise of the warrants; cash settlement amount
|
The warrants are European-style cash-settled call warrants.
The warrants will be automatically exercised or will expire worthless on the expiration date, as follows:
|
|
•
if the final index level, as measured on the five averaging dates, is greater than the initial index level
, the warrants will be automatically exercised on the expiration date. On the cash settlement date, we will pay for each warrant a cash settlement amount equal to:
|
|
|
|
notional amount × index percent change
|
|
|
|
where,
|
|
notional amount
|
=
|
$1,000 per warrant
|
|
|
index percent change
|
=
|
final
index level – initial index level
|
initial index level
|
|
|
final index level
|
=
|
The arithmetic average of the index closing values on each of the five averaging dates, subject to postponement for non-index business days or market disruption events
|
|
|
|
|
|
initial index level
|
=
|
3,619.65, which is the closing value of the index on October 18, 2017, which we refer to as the pricing date.
|
|
|
|
|
|
|
|
•
if the final index level, as measured on the five averaging dates, is less than or equal to the initial index level
, the warrants will expire worthless and the cash settlement amount will be $0.
|
|
|
|
The warrants may not be exercised by either you
or us prior to the expiration date. The warrants are highly risky. If the level of the index does not increase, you will lose your
entire investment in the warrants. In addition, if the final index level is not sufficiently greater than the initial index level
to offset the premium amount, you will lose a portion of your initial investment.
In order to receive a positive return on
your investment, the final index level must be greater than the initial index level by a percentage greater than the warrant premium
percentage. The warrant premium percentage is 5.629%.
There is no minimum payment on the warrants. Accordingly, you could lose
your entire initial investment in the warrants.
|
|
All payments on the warrants are subject to our credit risk.
|
|
Beginning on PS-6, in the section titled “Hypothetical
Payouts on the Warrants,” we have provided a table and corresponding examples illustrating the calculation of the cash settlement
amount on the warrants at maturity over a range of hypothetical index percent changes, as determined on the five averaging dates.
The examples do not show every situation that can occur.
|
|
You can review the historical values of the index in the section of this pricing supplement called “Description of the Warrants—Historical Information” starting on PS-20.
You cannot predict the future performance of the index based on its historical performance.
|
|
|
|
Investing in the warrants is not equivalent to investing in the index or its component stocks.
|
|
|
Morgan Stanley & Co. LLC will be the
|
We have appointed our affiliate, Morgan Stanley & Co. LLC, to act as calculation agent for The Bank of New York Mellon, a New York banking corporation, the warrant agent for the warrants. As calculation agent, MS & Co. will determine the
|
calculation agent
|
initial index level, the index closing value on each averaging date, the final index level and the index percent change and will calculate the payment that you will receive on the cash settlement date, if any.
|
|
|
Where you can find more information on the warrants
|
The warrants are unsecured warrants issued as part of our Series A global warrants program. You can find a general description of our Series A global warrants program in the accompanying prospectus supplement dated February 16, 2016, the index supplement dated January 30, 2017 and the prospectus dated February 16, 2016.
|
|
|
|
Because this is a summary, it does not contain all of the information that may be important to you. For a detailed description of the terms of the warrants, you should read the “Description of the Warrants” section in this pricing supplement. You should also read about some of the risks involved in investing in the warrants in the section called “Risk Factors.” The tax and accounting treatment of investments in index-linked warrants such as these may differ from that of investments in ordinary debt securities or common stock. See the section of this pricing supplement called “Description of the Warrants—United States Federal Taxation.” We urge you to consult with your investment, legal, tax, accounting and other advisers with regard to any proposed or actual investment in the warrants.
|
HYPOTHETICAL PAYOUTS ON THE WARRANTS
The following examples and table illustrate
the calculation of the cash settlement amount on the warrants payable at maturity over a range of hypothetical index percent changes,
as determined on the five averaging dates. The hypothetical cash settlement amounts set forth below are for illustrative purposes
only. The actual initial index level is set forth on the cover of this document. The actual cash settlement amount payable on the
cash settlement date will be determined based on the performance of the index, as determined on the five averaging dates. The numbers
appearing in the following tables and examples may have been rounded for ease of analysis.
The examples and table are based on the following
terms:
Term:
|
Approximately 1 year
|
Notional Amount:
|
$1,000 per warrant
|
Premium Amount:
|
$56.29 per warrant
|
Hypothetical Initial Index Level:
|
3,500
|
Warrant Premium Percentage:
|
5.629% per warrant
|
Exercise of Warrants:
|
If the final index level is greater than the initial index level, the warrants will be automatically exercised on the expiration date and you will receive the cash settlement amount. If the final index level is equal to or less than the initial index level, the warrants will expire worthless and the cash settlement amount will be zero.
|
Example 1: The
index percent change is 20%.
The final index level, as measured on the
five averaging dates, is 4,200, which is a 20% increase from the initial index level of 3,500. Since the final index level is greater
than the initial index level, your warrant will be automatically exercised and your payment upon expiration will be calculated
as follows:
|
Cash Settlement Amount
|
= Notional Amount × Index Percent Change
|
|
|
|
= $1,000 × 20%
|
|
|
|
= $200
|
Therefore, on the cash settlement date,
you will receive $200 for each $56.29 warrant (an approximately 255.30% total return).
Example 2: The index percent change
is 5.629%.
The final index level, as measured on the
five averaging dates, is 3,697.02, which is a 5.629% increase from the initial index level of 3,500. Since the final index level
is greater than the initial index level, your warrant will be automatically exercised and your payment upon expiration will be
calculated as follows:
|
Cash Settlement Amount
|
= Notional Amount × Index Percent Change
|
|
|
|
= $1,000 × 5.629%
|
|
|
|
= $56.29
|
However, because the index percent change
is equal to the warrant premium percentage of 5.629%, which results in a cash settlement amount equal to the premium amount paid
per warrant, you will not receive a positive return on your investment. Therefore, on the cash settlement date, you will receive
$56.29 for each $56.29 warrant (a 0.00% total return).
Example 3: The index percent change
is 5%.
The final index level, as measured on the
five averaging dates, is 3,675, which is a 5% increase from the initial index level of 3,500. Since the final index level is greater
than the initial index level, your warrant will be automatically exercised and your payment upon expiration will be calculated
as follows:
|
Cash Settlement Amount
|
= Notional Amount × Index Percent Change
|
|
|
|
= $1,000 × 5%
|
|
|
|
= $50
|
In this example, even though the final
index level is greater than the initial index level, because the index percent change is less than the warrant premium percentage
of 5.629%, the cash settlement amount does not fully offset the premium amount paid on the warrants and you will lose part of your
investment. Therefore, on the cash settlement date, you will receive $50 for each $56.29 warrant (an approximately 11.17% total
loss).
Accordingly, if the index percent change
is positive but less than the warrant premium percentage, you will receive a cash settlement amount that is less than the premium
amount and, therefore, you will lose a portion of your initial investment in the warrants.
Example 4: The index percent change
is 0%.
The final index level, as measured on the
five averaging dates, is 3,500, which is equal to the initial index level of 3,500. Since the final index level is equal to the
initial index level, the warrants will not be exercised and will expire worthless on the expiration date. Therefore, the loss on
your initial investment in the warrants will be 100% (a total loss of your initial investment), and you will receive $0 for each
$56.29 warrant at maturity (a total loss of your initial investment).
Example 5: The index percent change
is -30%.
The final index level, as measured on the
five averaging dates, is 2,450, a 30% decrease from the initial index level of 3,500. Since the final index level is less than
the initial index level, the warrants will not be exercised and will expire worthless on the expiration date. Therefore, the loss
on your initial investment in the warrants will be 100% (a total loss of your initial investment), and you will receive $0 for
each $56.29 warrant at maturity (a total loss of your initial investment).
Accordingly, if the index percent change
is zero or negative, you will lose all of your initial investment in the warrants.
Cash Settlement
Amount at Maturity
Final Index Level
|
Index Percent Change
|
Cash Settlement Amount
|
Cash Settlement Amount
minus
Premium Amount
|
Total Return on the Warrants
|
5,600.00
|
60.000%
|
$600.00
|
$543.71
|
965.91%
|
4,900.00
|
40.000%
|
$400.00
|
$343.71
|
610.62%
|
4,200.00
|
20.000%
|
$200.00
|
$143.71
|
255.30%
|
3,850.00
|
10.000%
|
$100.00
|
$43.71
|
77.65%
|
3,697.02
|
5.629%
|
$56.29
|
$0.00
|
0.00%
|
3,675.00
|
5.000%
|
$50.00
|
-$6.29
|
-11.17%
|
3,500.00
|
0.000%
|
$0.00
|
-$56.29
|
-100.00%
|
3,325.00
|
-5.000%
|
$0.00
|
-$56.29
|
-100.00%
|
3,150.00
|
-10.000%
|
$0.00
|
-$56.29
|
-100.00%
|
2,800.00
|
-20.000%
|
$0.00
|
-$56.29
|
-100.00%
|
2,100.00
|
-40.000%
|
$0.00
|
-$56.29
|
-100.00%
|
1,400.00
|
-60.000%
|
$0.00
|
-$56.29
|
-100.00%
|
700.00
|
-80.000%
|
$0.00
|
-$56.29
|
-100.00%
|
0.00
|
-100.000%
|
$0.00
|
-$56.29
|
-100.00%
|
DESCRIPTION OF THE WARRANTS
Terms used but not defined herein have the meanings given to
such terms in the accompanying prospectus supplement. The term “Warrant” refers to each $56.29 Premium Amount of our
2,300 Call Warrants Due November 5, 2018 Based on the Value of the EURO STOXX 50
®
Index.
Number of Warrants
|
|
2,300
|
|
|
|
Aggregate Premium Amount
|
|
$129,467
|
|
|
|
Aggregate Notional Amount
|
|
$2,300,000
|
|
|
|
Pricing Date
|
|
October 18, 2017
|
|
|
|
Original Issue Date (Settlement Date)
|
|
October 23, 2017 (3 Business Days after the Pricing Date)
|
|
|
|
Cash Settlement Date
|
|
November 5, 2018, subject to extension as described in the following paragraph.
|
|
|
|
If the Expiration Date is postponed
in accordance with the definition thereof so that it falls less than two Business Days prior to the scheduled Cash Settlement Date,
the Cash Settlement Date will be postponed to the second Business Day following the Expiration Date as postponed. See “––Expiration
Date” and “––Averaging Dates” below.
Issue Price
|
|
100% ($56.29 per Warrant)
|
|
|
|
Premium Amount
|
|
$56.29 per Warrant
|
|
|
|
Denominations
|
|
$56.29 and integral multiples thereof
|
|
|
|
Notional Amount
|
|
$1,000 per Warrant
|
|
|
|
Minimum Initial Investment
|
|
$10,000, resulting in a minimum initial purchase of 178 Warrants (after rounding)
|
|
|
|
CUSIP Number
|
|
61768CSG3
|
|
|
|
ISIN
|
|
US61768CSG32
|
|
|
|
Specified Currency
|
|
U.S. dollars
|
|
|
|
Exercise of Warrants;
|
|
|
Cash Settlement Amount
|
|
The Warrants will either be automatically exercised or will expire worthless on the Expiration Date, as follows:
|
|
|
|
(i) if the Final Index Level,
as measured on the five Averaging Dates, is
greater than
the Initial Index Level, the Warrants will be automatically exercised
on the Expiration Date. On the Cash Settlement Date, upon delivery of the Warrants to the Warrant Agent, we will pay with respect
to the $56.29 Premium Amount of each Warrant an amount in cash, as determined by the Calculation Agent, equal to the product of
(x) the Notional Amount and (y) the Index Percent Change, or
(ii) if the
Final Index Level, as measured on the five Averaging Dates, is
less than or equal to
the Initial Index Level, the Warrants
will expire worthless and the Cash Settlement Amount will be $0.
We shall, or shall cause the
Calculation Agent to, (i) provide written notice to the Warrant Agent and to The Depository Trust Company, which we refer to as
DTC, of the amount of cash to be delivered with respect to the $56.29 Premium Amount of each Warrant, on or prior to 10:30 a.m.
(New York City time) on the Business Day preceding the Cash Settlement Date, and (ii) deliver the aggregate cash amount due, if
any, with respect to the Warrants to the Warrant Agent for delivery to DTC, as holder of the Warrants, on or prior to the Cash
Settlement Date. We expect such amount of cash will be distributed to investors on the Cash Settlement Date in accordance with
the standard rules and procedures of DTC and its direct and indirect participants. See “—Book Entry Security or Certificated
Security” below, and see “Forms of Securities—The Depositary” in the accompanying prospectus.
Index Percent Change
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A fraction, as determined by the Calculation Agent, the numerator of which is the Final Index Level minus the Initial Index Level and the denominator of which is the Initial Index Level, as described by the following formula:
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Index Percent Change
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=
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Final
Index Level – Initial Index Level
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Initial Index Level
|
|
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Initial Index Level
|
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3,619.65, which is the Index Closing Value on the Pricing Date. See “Discontinuance of the Index; Alteration of Method of Calculation” below.
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Final Index Level
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The arithmetic average of the Index Closing Values on each of the five Averaging Dates, as determined by the Calculation Agent.
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Index Closing Value
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The Index Closing Value on any Index Business Day will be determined by the Calculation Agent and will equal the official closing value of the Index, or any Successor Index (as defined under “—Discontinuance of the Index; Alteration of Method of Calculation” below), published at the regular official weekday close of trading on that Index Business Day by the Index Publisher. In certain circumstances, the Index Closing Value will be based on the alternate calculation of the Index described under “—Discontinuance of the Index; Alteration of Method of Calculation.”
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Index Publisher
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STOXX Limited or any successor publisher of the Index.
|
|
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Expiration Date
|
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October 31, 2018, subject to postponement for non-Index Business Days or Market Disruption Events as described under “Averaging Dates” below.
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Averaging Dates
|
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October 25, 2018, October 26, 2018, October 29, 2018, October 30, 2018 and the Expiration Date.
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|
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If a Market
Disruption Event occurs on any scheduled Averaging Date or any scheduled Averaging Date is not an Index Business Day, such scheduled
Averaging Date shall be subject to postponement as described below.
If a Market
Disruption Event occurs on any scheduled Averaging Date or if any scheduled Averaging Date is not an Index Business Day with respect
to the Index, the Index Closing Value for such date shall be determined on the immediately succeeding Index Business Day on which
no Market Disruption Event shall have occurred. Each succeeding Averaging Date shall then be the next Index Business Day following
the preceding Averaging Date as postponed. The Final Index Level shall be determined on the date on which the Index Closing Values
for all scheduled Averaging Dates have been determined;
provided
that (i) the Index Closing Value for any Averaging Date
shall not be determined on a date later than the fifth Business Day after the scheduled Expiration Date, (ii) the Index Closing
Value for any remaining Averaging Dates that would otherwise fall after such fifth Business Day shall be the Index Closing Value
on such fifth Business Day and (iii) if such fifth Business Day is not an Index Business Day or if there is a Market Disruption
Event on such date, the Calculation Agent shall determine the Index Closing Value of the Index on such date in accordance with
the formula for and method of calculating the Index last in effect prior to the commencement of the Market Disruption Event (or
prior to the non-Index Business Day), without rebalancing or substitution, using the closing price (or, if trading in the relevant
securities has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed
but for such suspension, limitation or non-Index Business Day) on such date of each security most recently constituting the Index.
Business Day
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Any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York.
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Index Business Day
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A day, as determined by the Calculation Agent, on which trading is generally conducted on each of the Relevant Exchange(s) for the Index, other than a day on which trading on such exchange(s) is scheduled to close prior to the time of the posting of its regular final weekday closing price.
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|
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Relevant Exchange
|
|
The primary exchange(s) or market(s) of trading for (i) any security then included in the Index, or any Successor Index, and (ii) any futures or options contracts related to the Index or to any security then included in the Index.
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Book Entry Security or
|
|
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Certificated Security
|
|
Book Entry. The Warrants will be issued in the form of one or more fully registered global warrants, which will be deposited with, or on behalf of, DTC and will be registered in the name of a nominee of DTC. DTC’s nominee will be the only registered holder of the Warrants. Your beneficial interest in the Warrants will be evidenced solely by entries on the books of the Warrants intermediary acting on your behalf as a direct or indirect participant in DTC. In this pricing supplement, all references to actions taken by “you” or to be taken by “you” refer to actions taken or to be taken by DTC and its participants acting on your behalf, and all references to payments or notices to you will mean payments or notices to DTC, as the registered holder of the Warrants, for distribution to participants in accordance with DTC’s procedures. For more information regarding DTC and
|
book-entry
warrants, please read “Forms of Securities—The Depositary,” “Securities Offered on a Global Basis Through
the Depositary—Book-Entry, Delivery and Form” and “Securities Offered on a Global Basis Through the Depositary—Global
Clearance and Settlement Procedures” in the accompanying prospectus.
Warrant Agent
|
|
The Bank of New York Mellon, a New York banking corporation
|
|
|
|
Agents
|
|
J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A.
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Calculation Agent
|
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MS & Co. and its successors
|
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All determinations made by the
Calculation Agent will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive
for all purposes and binding on you, the Warrant Agent and us.
All calculations with respect
to the Cash Settlement Amount, 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 Warrant, 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, if any, on the aggregate number of Warrants
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 Warrants, including with respect to certain determinations and judgments that the Calculation Agent must make in determining
the Initial Index Level or the Final Index Level. See “—Discontinuance of the Index; Alteration of Method of Calculation”
below. MS & Co. is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable
judgment.
Market Disruption Event
|
|
Market Disruption Event means, with respect to the Index:
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|
|
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(i) the
occurrence or existence of any of:
(a) a
suspension, absence or material limitation of trading of securities then constituting 20 percent or more of the level of the Index
(or the Successor Index (as defined below under “—Discontinuance of the Index; Alteration of Method of Calculation”))
on the Relevant Exchange for such securities for more than two hours of trading or during the one-half hour period preceding the
close of the principal trading session on such Relevant Exchange, or
(b) a
breakdown or failure in the price and trade reporting systems of any Relevant Exchange as a result of which the reported trading
prices for securities then constituting 20 percent or more of the level of the Index (or the Successor Index) during the last one-half
hour preceding the close of the principal trading session on such Relevant Exchange are materially inaccurate, or
(c) the
suspension, material limitation or absence of trading on any major U.S. securities market for trading in futures or options contracts
or exchange-traded funds related to the Index (or the Successor Index) for more than two hours of trading or during the one-half
hour period preceding the close of the principal trading session on such market,
in each case, as determined by
the Calculation Agent in its sole discretion; and
(ii) a
determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with
respect to the Warrants.
For the purpose of determining
whether a Market Disruption Event exists at any time, if trading in a security included in the Index is materially suspended or
materially limited at that time, then the relevant percentage contribution of that security to the level of the Index shall be
based on a comparison of (x) the portion of the value of the Index attributable to that security relative to (y) the overall value
of the Index, in each case immediately before that suspension or limitation.
For the purpose of determining
whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute
a Market Disruption Event if it results from an announced change in the regular business hours of the Relevant Exchange or market,
(2) a decision to permanently discontinue trading in the relevant futures or options contract or exchange-traded fund will not
constitute a Market Disruption Event, (3) a suspension of trading in futures or options contracts or exchange-traded funds on the
Index by the primary securities market trading in such contracts or funds by reason of (a) a price change exceeding limits set
by such securities exchange or market, (b) an imbalance of orders relating to such contracts or funds, or (c) a disparity in bid
and ask quotes relating to such contracts or funds will constitute a suspension, absence or material limitation of trading in futures
or options contracts or exchange-traded funds related to the Index and (4) a “suspension, absence or material limitation
of trading” on any Relevant Exchange or on the primary market on which futures or options contracts or exchange-traded funds
related to the Index are traded will not include any time when such securities market is itself closed for trading under ordinary
circumstances.
Discontinuance of the Index;
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|
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Alteration of Method of Calculation
|
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If the Index Publisher discontinues publication of the Index and the Index Publisher or another entity (including MS & Co.) publishes a successor or substitute index that MS & Co., as the Calculation Agent, determines, in its sole discretion, to be comparable to the discontinued Index (such index being referred to herein as a “Successor Index”), then any subsequent Index Closing Value will be determined by reference to the published value of such Successor Index at the regular weekday close of trading on any Index Business Day that the Index Closing Value is to be determined, and, to the extent the Index Closing Value of
|
the Successor
Index differs from the Index Closing Value of the Index at the time of such substitution, a proportionate adjustment will be made
by the Calculation Agent to the Initial Index Level.
Upon any selection by the Calculation
Agent of a Successor Index, the Calculation Agent will cause written notice thereof to be furnished to the Warrant Agent, to us
and to DTC, as holder of the Warrants, within three Business Days of such selection. We expect that such notice will be made available
to you, as a beneficial owner of the Warrants, in accordance with the standard rules and procedures of DTC and its direct and indirect
participants.
If the Index Publisher discontinues
the publication of the Index prior to, and such discontinuance is continuing on, any Averaging Date and the Calculation Agent determines,
in its sole discretion, that no Successor Index is available at such time, then the Calculation Agent will determine the Index
Closing Value for such date. The Index Closing Value will be computed by the Calculation Agent in accordance with the formula for
calculating the Index last in effect prior to such discontinuance, using the closing price (or, if trading in the relevant securities
has been materially suspended or materially limited, its good faith estimate of the closing price that would have prevailed but
for such suspension or limitation) at the close of the principal trading session of the Relevant Exchange on such date of each
security most recently constituting the Index without any rebalancing or substitution of such securities following such discontinuance.
Notwithstanding these alternative arrangements, discontinuance of the publication of the Index may adversely affect the value of
the Warrants.
If at any time the method of
calculating the Index or a Successor Index, or the value thereof, is changed in a material respect, or if the Index or a Successor
Index is in any other way modified so that such index does not, in the sole opinion of MS & Co., as the Calculation Agent,
fairly represent the value of the Index or such Successor Index had such changes or modifications not been made, then, from and
after such time, the Calculation Agent will, at the close of business in New York City on each date on which the Index Closing
Value is to be determined, make such calculations and adjustments as, in the good faith judgment of the Calculation Agent, may
be necessary in order to arrive at a value of a stock index comparable to the Index or such Successor Index, as the case may be,
as if such changes or modifications had not been made, and the Calculation Agent will calculate the Index Closing Value with reference
to the Index or such Successor Index, as adjusted. Accordingly, if the method of calculating the Index or such Successor Index
is modified so that the value of such index is a fraction of what it would have been if it had not been modified (
e.g.
,
due to a split in the index), then the Calculation Agent will adjust such index in order to arrive at a value of the Index or such
Successor Index as if it had not been modified (
e.g.
, as if such split had not occurred).
The Index
|
|
The EURO STOXX 50
®
Index was created by STOXX Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50
®
Index began on February
|
26, 1998,
based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50
®
Index is composed of 50 component
stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes stocks selected from the Eurozone.
The component stocks have a high degree of liquidity and represent the largest companies across all market sectors. For additional
information about the EURO STOXX 50
®
Index, see the information set forth under “EURO STOXX 50
®
Index” in the accompanying index supplement.
Historical Information
|
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The following table sets forth the published high and low Index Closing Values, as well as end-of-quarter Index Closing Values, of the Index for each quarter in the period from January 1, 2012 through October 18, 2017. The Index Closing Value on October 18, 2017 was 3,619.65. The graph following the table sets forth the historical performance of the Index for each day during the same period. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
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The historical values of the Index should not be
taken as an indication of future performance, and no assurance can be given as to the Index Closing Value on any Averaging Date.
The Final Index Level may decline below the Initial Index Level so that the Warrants expire worthless on the Expiration Date.
We cannot give you any assurance that the Index
Percent Change will be greater than the Warrant Premium Percentage so that you will not lose money on your investment, or that
it will be positive so that you will not lose your entire investment in the Warrants.
EURO STOXX 50
®
Index
|
High
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Low
|
Period
End
|
2012
|
|
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First Quarter
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2,608.42
|
2,286.45
|
2,477.28
|
Second Quarter
|
2,501.18
|
2,068.66
|
2,264.72
|
Third Quarter
|
2,594.56
|
2,151.54
|
2,454.26
|
Fourth Quarter
|
2,659.95
|
2,427.32
|
2,635.93
|
2013
|
|
|
|
First Quarter
|
2,749.27
|
2,570.52
|
2,624.02
|
Second Quarter
|
2,835.87
|
2,511.83
|
2,602.59
|
Third Quarter
|
2,936.20
|
2,570.76
|
2,893.15
|
Fourth Quarter
|
3,111.37
|
2,902.12
|
3,109.00
|
2014
|
|
|
|
First Quarter
|
3,172.43
|
2,962.49
|
3,161.60
|
Second Quarter
|
3,314.80
|
3,091.52
|
3,228.24
|
Third Quarter
|
3,289.75
|
3,006.83
|
3,225.93
|
Fourth Quarter
|
3,277.38
|
2,874.65
|
3,146.43
|
2015
|
|
|
|
First Quarter
|
3,731.35
|
3,007.91
|
3,697.38
|
Second Quarter
|
3,828.78
|
3,424.30
|
3,424.30
|
Third Quarter
|
3,686.58
|
3,019.34
|
3,100.67
|
Fourth Quarter
|
3,506.45
|
3,069.05
|
3,267.52
|
2016
|
|
|
|
First Quarter
|
3,267.52
|
2,680.35
|
3,004.93
|
Second Quarter
|
3,151.69
|
2,697.44
|
2,864.74
|
Third Quarter
|
3,091.66
|
2,761.37
|
3,002.24
|
Fourth Quarter
|
3,290.52
|
2,954.53
|
3,290.52
|
2017
|
|
|
|
First Quarter
|
3,500.93
|
3,230.68
|
3,500.93
|
Second Quarter
|
3,658.79
|
3,409.78
|
3,441.88
|
Third Quarter
|
3,594.85
|
3,388.22
|
3,594.85
|
Fourth Quarter (through October 18, 2017)
|
3,619.65
|
3,594.91
|
3,619.65
|
|
|
|
|
Historical Daily Index Closing
Values of the EURO STOXX 50
®
Index
January 1, 2012 through October
18, 2017
Use of Proceeds and Hedging
|
|
The proceeds from the sale of the Warrants will be used by us for general corporate purposes. We will receive, in aggregate, $56.29 per Warrant issued, because, when we enter into hedging transactions in order to meet our obligations under the Warrants, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Warrants borne by you and described beginning on PS-3 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Warrants. 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 Warrants by entering into hedging transactions with our affiliates and/or
third party dealers. We expect our hedging counterparties to have taken positions in the securities constituting the Index and
in futures and/or options contracts on the Index or its component securities listed on major securities markets. Such purchase
activity could have increased the Initial Index Level, and therefore could have increased the value above which the Index must
close on the Averaging Dates so that you do not lose your entire initial investment in the Warrants. In addition, through our affiliates,
we are likely to modify our hedge position throughout the term of the Warrants, including on the Averaging Dates, by purchasing
and selling the securities underlying the Index, futures and/or options contracts on the Index or its component securities listed
on major securities markets or positions in any other available warrants 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 Warrants,
and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the Averaging Dates approach.
We cannot give any assurance that our hedging activities will not affect the value of the Index, and, therefore, adversely affect
the value of the Warrants or the payment you will receive on the Cash Settlement Date, if any.
Governing Law
|
|
The Warrants are governed by, and construed in accordance with, the laws of the State of New York.
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In the event MSFL or Morgan Stanley becomes subject
to a proceeding under the Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (together, the “
U.S. Special Resolution Regimes
”), the transfer of the Warrants, the Warrant Agreement and
the related Morgan Stanley guarantee (together, the “
Relevant Agreements
”), and any interest and obligation
in or under the Relevant Agreements, from MSFL or Morgan Stanley, respectively, will be effective to the same extent as the transfer
would be effective under such U.S. Special Resolution Regime if the Relevant Agreements, and any interest and obligation in or
under the Relevant Agreements, were governed by the laws of the United States or a state of the United States. In the event MSFL
or Morgan Stanley, or any of their affiliates, becomes subject to a U.S. Special Resolution Regime, default rights against MSFL
or Morgan Stanley with respect to the Relevant Agreements are permitted to be exercised to no greater extent than such default
rights could be exercised under such U.S. Special Resolution Regime if the Relevant Agreements were governed by the laws of the
United States or a state of the United States.
Supplemental Information Concerning
|
|
|
Plan of Distribution
|
|
We expect to deliver the Warrants against payment therefor in New York, New York on October 23, 2017, which will be the third scheduled Business Day following the date of the pricing of the Warrants. Under Rule 15c6-1 of the Exchange Act, trades in the secondary market generally are required to settle in two Business Days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Warrants on the date of pricing or on or prior to the second Business Day prior to the Original Issue Date will be required to specify alternative settlement arrangements to prevent a failed settlement.
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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 premium amount of Warrants set forth on the cover of this pricing supplement. J.P. Morgan
Securities LLC and JPMorgan Chase Bank, N.A. will act as placement agents for the Warrants and will receive a fee from us that
will not exceed $3.19 per $56.29 Premium Amount of each Warrant, but will forgo any fees for sales to certain fiduciary accounts.
General
No action has been or will be
taken by us, the Agent or any dealer that would permit a public offering of the Warrants or possession or distribution of this
pricing supplement or the accompanying index supplement, 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 Warrants, or distribution of this
pricing supplement or the accompanying index supplement, prospectus supplement or prospectus or any
other offering material relating
to the Warrants, 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 Warrants 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 Warrants or possesses
or distributes this pricing supplement and the accompanying index supplement, 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 Warrants 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 Warrants. We shall 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 Warrants:
Brazil
The Warrants have not been and
will not be registered with the Comissão de Valores Mobiliários (The Brazilian Securities Commission). The Warrants
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 Warrants 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 Warrants 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 Warrants 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 Warrants
|
|
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the Warrants offered by this pricing supplement have been executed and issued by MSFL, countersigned by the Warrant Agent pursuant to the Warrant
|
Agreement
(as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such Warrants 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 the (i) effect of fraudulent
conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision
of the MSFL Warrant Agreement 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 Warrant
Agent’s authorization, execution and delivery of the MSFL Warrant Agreement and its countersignature to the Warrants and
the validity, binding nature and enforceability of the MSFL Warrant Agreement with respect to the Warrant Agent, all as stated
in the letter of such counsel dated February 16, 2016, which is Exhibit 5-a to Post-Effective Amendment No. 1 to the Registration
Statement on Form S-3 filed by Morgan Stanley on February 16, 2016.
Benefit Plan Investor Considerations
|
|
Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which we refer to as a “plan,” should consider the fiduciary standards of ERISA in the context of the plan’s particular circumstances before authorizing an investment in these Warrants. 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 “parties in interest” within the meaning of ERISA or
“disqualified persons” within the meaning of the Code with respect to many plans, as well as many individual retirement
accounts and Keogh plans (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 Warrants 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 Warrants 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 Warrants. 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 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 Warrants
and the related lending transactions, provided that neither the issuer of the Warrants nor any of its affiliates has or exercises
any discretionary authority or control or renders any investment advice with respect to the assets of any plan involved in the
transaction and provided further that the plan pays no more 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 Warrants.
Because we may be considered
a party in interest with respect to many plans, unless otherwise specified in the applicable prospectus supplement, these Warrants
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.
Unless otherwise specified in the applicable prospectus supplement, any purchaser, including any fiduciary purchasing on behalf
of a plan, transferee or holder of these Warrants 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, is not purchasing such Warrants on
behalf of or with “plan assets” of any plan, or with any assets of a governmental 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 are eligible for exemptive relief or such
purchase, holding or disposition are not prohibited by ERISA or Section 4975 of the Code or any Similar Law.
Due to the complexity of these
rules and the penalties that may be imposed upon persons involved in nonexempt prohibited transactions, it is particularly important
that fiduciaries or other persons considering purchasing these Warrants on behalf of or with “plan assets” of any plan
consult with their counsel regarding the availability of exemptive relief.
The Warrants are contractual
financial instruments. The financial exposure provided by the Warrants 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 Warrants. The Warrants
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 Warrants.
Each purchaser or holder of any
Warrants 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 Warrants, (B) the purchaser or holder’s investment in the Warrants,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the Warrants;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the Warrants
and (B) all hedging transactions in connection with our obligations under the Warrants;
(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 Warrants has exclusive responsibility for ensuring that its purchase, holding and disposition of the Warrants do not violate
the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any of these Warrants 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.
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 Warrants if the account, plan or annuity is for
the benefit of an employee of Morgan Stanley or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the Warrants by the account, plan or annuity.
Client accounts over which Morgan
Stanley or any of its subsidiaries have investment discretion are not permitted to purchase the Warrants, either directly or indirectly.
United States Federal Taxation
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In the opinion of Davis Polk & Wardwell LLP (“our counsel”), under current law, each Warrant should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
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Assuming this treatment of the Warrants is respected,
a U.S. Holder should not be required to recognize taxable income over the term of the Warrants prior to settlement, other than
pursuant to a sale or exchange. Any gain or loss recognized upon sale, exchange, lapse or settlement of the Warrants should generally
be long-term capital gain or loss if the U.S. Holder has held the Warrants for more than one year at such time, and short-term
capital gain or loss otherwise. For a detailed discussion of the U.S. federal income tax consequences to U.S. Holders of the ownership
and disposition of the Warrants, U.S. Holders should read the sections of the accompanying prospectus supplement entitled “United
States Federal Taxation—Tax Consequences to U.S. Holders—Warrants” and “United States Federal Taxation—Tax
Consequences to U.S. Holders—Backup Withholding and Information Reporting.”
Section 871(m) Withholding Tax on Dividend
Equivalents
Section 871(m) of the Internal Revenue Code of 1986,
as amended, 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, the regulations exempt securities issued before January 1, 2018 that do not have a delta of one with
respect to any Underlying Security. Based on our determination that the Warrants do not have a delta of one with respect to any
Underlying Security, our counsel is of the opinion that the Warrants should not be Specified Securities and, therefore, should
not be subject to Section 871(m).
Our determination is not binding on the Internal
Revenue Service (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 Warrants.
If you are a Non-U.S. Holder, please read the section
of the accompanying prospectus supplement entitled “United States Federal Taxation—Tax Consequences to Non-U.S. Holders.”
Both U.S. and non-U.S. investors considering
an investment in the Warrants should read the section of the accompanying prospectus supplement entitled “United States Federal
Taxation” and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment
in the Warrants, and any tax consequences arising under the laws of any state, local, or non-U.S. taxing jurisdiction.
The discussion in the preceding paragraphs under
“United States Federal Taxation” and the discussion contained in the section entitled “United States Federal
Taxation” in the accompanying prospectus supplement, insofar as they purport to describe provisions of U.S. federal income
tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the
material U.S. federal income tax consequences of an investment in the Warrants.