DESCRIPTION OF THE SECURITIES
Terms not defined herein have the meanings given to such terms
in the accompanying prospectus supplement. The term “Security” refers to each $1,000 Stated Principal Amount of our
Buffered Equity Notes Based on the Value of the S&P 500
®
Index due May 28, 2019.
Aggregate Principal Amount
|
|
$2,250,000
|
|
|
|
Pricing Date
|
|
May 23, 2017
|
|
|
|
Original Issue Date (Settlement Date)
|
|
May 26, 2017 (3 Business Days after the Pricing Date)
|
|
|
|
Maturity Date
|
|
May 28, 2019, subject to extension as described in the following paragraph.
|
If, due to a Market Disruption
Event or otherwise, the final Averaging Date is postponed so that it falls less than two Business Days prior to the scheduled Maturity
Date, the Maturity Date will be postponed to the second Business Day following the final Averaging Date as postponed. See “Averaging
Dates” below.
Issue Price
|
|
100% ($1,000 per Security)
|
|
|
|
Stated Principal Amount
|
|
$1,000 per Security
|
|
|
|
Denominations
|
|
$1,000 and integral multiples thereof
|
|
|
|
CUSIP
|
|
61768CJZ1
|
|
|
|
ISIN
|
|
US61768CJZ14
|
|
|
|
Interest Rate
|
|
None
|
|
|
|
Specified Currency
|
|
U.S. dollars
|
|
|
|
Payment at Maturity
|
|
At maturity, upon delivery of the Securities to the Trustee, we will pay with respect to the $1,000 Stated Principal Amount of each Security an amount in cash, as determined by the Calculation Agent, equal to:
|
(i) if the
Final Index Value is greater than the Initial Index Value, meaning the value of the Index, as measured on the five Averaging Dates,
has increased from the Initial Index Value, $1,000
plus
the product of $1,000 and the Index Return, subject to the Maximum
Payment at Maturity,
(ii) if the
Final Index Value is less than or equal to the Initial Index Value but greater than or equal to 2,034.917 (subject to potential
adjustment upon the selection of a Successor Index), which is 85% of the Initial Index Value, meaning the value of the Index, as
measured on the five Averaging Dates, has remained unchanged or has declined by no more than the Buffer Amount of 15% from the
Initial Index Value, the Stated Principal Amount of $1,000, or
(iii) if the
Final Index Value is less than 2,034.917 (subject to potential adjustment upon the selection of a Successor Index), which is 85%
of the Initial Index Value, meaning the value of the
Index, as measured
on the five Averaging Dates, has declined by more than the Buffer Amount of 15% from the Initial Index Value,
$1,000 + [$1,000
x (Index Return + Buffer Amount) x Downside Factor]
We shall, or shall cause the
Calculation Agent to, (i) provide written notice to the Trustee and to The Depository Trust Company, which we refer to as DTC,
of the amount of cash to be delivered with respect to the $1,000 Stated Principal Amount of each Security, on or prior to 10:30
a.m. (New York City time) on the Business Day preceding the Maturity Date, and (ii) deliver the aggregate cash amount due with
respect to the Securities to the Trustee for delivery to DTC, as holder of the Securities, on or prior to the Maturity Date. We
expect such amount of cash will be distributed to investors on the Maturity Date in accordance with the standard rules and procedures
of DTC and its direct and indirect participants. See “—Book Entry Security or Certificated Security” below, and
see “Forms of Securities—The Depositary” in the accompanying prospectus.
Maximum Payment at Maturity
|
|
$1,208.40 per Security (120.84% of the Stated Principal Amount)
|
|
|
|
Buffer Amount
|
|
15%
|
|
|
|
Downside Factor
|
|
1.1765
|
|
|
|
Index Return
|
|
A fraction, as determined by the Calculation Agent, the numerator of which is the Final Index Value minus the Initial Index Value and the denominator of which is the Initial Index Value, as described by the following formula:
|
Index Return
|
=
|
Final
Index Value – Initial Index Value
|
Initial Index Value
|
Initial Index Value
|
|
2,394.02, which is the Index Closing Value on May 22, 2017. See “Discontinuance of the Index; Alteration of Method of Calculation” below.
|
|
|
|
Final Index Value
|
|
The arithmetic average of the Index Closing Value on each of the Averaging Dates, as determined by the Calculation Agent.
|
|
|
|
Index Closing Value
|
|
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.”
Index Publisher
|
|
S&P Dow Jones Indices LLC or any successor publisher of the Index.
|
|
|
|
Averaging Dates
|
|
May 16, 2019, May 17, 2019, May 20, 2019, May 21, 2019 and May 22, 2019.
|
The Final Index
Value shall be determined on the last Averaging Date to occur, which shall be referred to as the “final Averaging Date.”
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 Value 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 final Averaging 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
|
|
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.
|
|
|
|
Index Business Day
|
|
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.
|
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.
|
Book Entry Security or
|
|
|
Certificated Security
|
|
Book Entry. The Securities will be issued in the form of one or more fully registered global securities which will be deposited with, or on behalf of, DTC and will be registered in the name of a nominee of DTC. DTC’s nominee will be the only registered holder of the Securities. Your beneficial interest in the Securities will be evidenced solely by entries on the books of the Securities intermediary acting on your behalf as a direct or indirect participant in DTC. In this pricing supplement, all references to actions taken by “you” or to be taken by “you” refer to actions taken or to be taken by DTC and its participants acting on your behalf, and all references to payments or notices to you will mean payments or notices to DTC, as the registered holder of the Securities, for distribution to participants in accordance with DTC’s procedures. For more information regarding DTC and book-entry securities, please read “Forms of Securities—The Depositary” and “Forms of Securities—Global Securities—Registered Global Securities” in the accompanying prospectus.
|
|
|
|
Senior Security or Subordinated Security
|
|
Senior
|
|
|
|
Trustee
|
|
The Bank of New York Mellon, a New York banking corporation
|
|
|
|
Agent
|
|
Morgan Stanley & Co. LLC (“MS & Co.”)
|
|
|
|
Calculation Agent
|
|
MS & Co. and its successors
|
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 and us.
All calculations with respect
to the Payment at Maturity 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, if any, on the aggregate number of Securities
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 Index Value, the Final Index Value or whether a Market Disruption Event has occurred. See “—Discontinuance
of the Index; Alteration of Method of Calculation” and “—Market Disruption
Event” 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:
|
(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) 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 these Securities.
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.
Alternate Exchange
Calculation
in Case of an Event of Default
|
|
If an Event of Default with respect to the Securities shall have occurred and be continuing, the amount declared due and payable upon any acceleration of the Securities (the “Acceleration Amount”) will be an amount, determined by the Calculation Agent in its sole discretion, that is equal to the cost of having a Qualified Financial Institution, of the kind and selected as described below, expressly assume all our payment and other obligations with respect to the Securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations providing substantially equivalent economic value to you with respect to the Securities. That cost will equal:
|
|
•
|
the lowest amount that a Qualified Financial Institution would charge to effect this assumption
or undertaking, plus
|
|
•
|
the reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of
the Securities in preparing any documentation necessary for this assumption or undertaking.
|
During the
Default Quotation Period for the Securities, which we describe below, the holders of the Securities and/or we may request a Qualified
Financial Institution to provide a quotation of the amount it would charge to effect this assumption or undertaking. If either
party obtains a quotation, it must notify the other party in writing of the quotation. The amount referred to in the first bullet
point above will equal the lowest—or, if there is only one, the only—quotation obtained, and as to which notice is
so given, during the Default Quotation Period. With respect to any quotation, however, the party not obtaining the quotation may
object, on reasonable and significant grounds, to the assumption or undertaking by the Qualified Financial Institution providing
the quotation and notify the other party in writing of those grounds within two Business Days after the last day of the Default
Quotation Period, in which case that quotation will be disregarded in determining the Acceleration Amount.
Notwithstanding
the foregoing, if a voluntary or involuntary liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with
respect to MSFL or Morgan Stanley, then depending on applicable bankruptcy law, your claim may be
limited to
an amount that could be less than the Acceleration Amount.
If the maturity
of the Securities is accelerated because of an Event of Default as described above, we shall, or shall cause the Calculation Agent
to, provide written notice to the Trustee at its New York office, on which notice the Trustee may conclusively rely, and to DTC
of the Acceleration Amount and the aggregate cash amount due, if any, with respect to the Securities as promptly as possible and
in no event later than two Business Days after the date of such acceleration.
Default
Quotation Period
The Default
Quotation Period is the period beginning on the day the Acceleration Amount first becomes due and ending on the third Business
Day after that day, unless:
|
•
|
no quotation of the kind referred to above is obtained, or
|
|
•
|
every quotation of that kind obtained is objected to within five Business Days after the due date
as described above.
|
If either
of these two events occurs, the Default Quotation Period will continue until the third Business Day after the first Business Day
on which prompt notice of a quotation is given as described above. If that quotation is objected to as described above within five
Business Days after that first Business Day, however, the Default Quotation Period will continue as described in the prior sentence
and this sentence.
In any event,
if the Default Quotation Period and the subsequent two Business Day objection period have not ended before the final Averaging
Date, then the Acceleration Amount will equal the principal amount of the Securities.
Qualified
Financial Institutions
For the purpose
of determining the Acceleration Amount at any time, a Qualified Financial Institution must be a financial institution organized
under the laws of any jurisdiction in the United States or Europe, which at that time has outstanding debt obligations with a stated
maturity of one year or less from the date of issue and rated either:
|
•
|
A-2 or higher by Standard & Poor’s Ratings Services or any successor, or any other comparable
rating then used by that rating agency, or
|
|
•
|
P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating
then used by that rating agency.
|
Discontinuance of the
Index;
Alteration of Method of Calculation
|
|
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 such 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 Value.
|
Upon any selection by the Calculation
Agent of a Successor Index, the Calculation Agent will cause written notice thereof to be furnished to the Trustee, to Morgan Stanley
and to DTC, as holder of the Securities, within three Business Days of such selection. We expect that such notice will be made
available to you, as a beneficial owner of the Securities, 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 Securities.
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 Final Index 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 S&P 500
(R)
Index, which is calculated, maintained and published by S&P Dow Jones Indices LLC (“S&P”), consists of stocks of 500 component companies selected to provide a performance benchmark for the U.S. equity markets. The calculation of the S&P 500
(R)
Index is based on the relative value of the float adjusted aggregate market capitalization of the 500 component companies as of a particular time as compared to the aggregate average market capitalization of 500 similar companies during the base period of the years 1941 through 1943. For additional information about the S&P 500
(R)
Index, see the information set forth under “S&P 500
(R)
Index” in the accompanying index supplement.
|
|
|
|
Historical Information
|
|
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 May 23, 2017. The Index Closing Value on May 23, 2017 was 2,398.42. The graph following the table sets forth the historical performance of the Index for the period from January 1, 2012 through May 23, 2017. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification.
|
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 the Averaging Dates.
The Final Index Value may decline below the Initial Index Value by an amount greater than the Buffer Amount so that the Payment
at Maturity will be less, and possibly significantly less, than the Stated Principal Amount of the Securities.
S&P 500
(R)
Index
|
High
|
Low
|
Period
End
|
2012
|
|
|
|
First Quarter
|
1,416.51
|
1,277.06
|
1,408.47
|
Second Quarter
|
1,419.04
|
1,278.04
|
1,362.16
|
Third Quarter
|
1,465.77
|
1,334.76
|
1,440.67
|
Fourth Quarter
|
1,461.40
|
1,353.33
|
1,426.19
|
2013
|
|
|
|
First Quarter
|
1,569.19
|
1,457.15
|
1,569.19
|
Second Quarter
|
1,669.16
|
1,541.61
|
1,606.28
|
Third Quarter
|
1,725.52
|
1,614.08
|
1,681.55
|
Fourth Quarter
|
1,848.36
|
1,655.45
|
1,848.36
|
2014
|
|
|
|
First Quarter
|
1,878.04
|
1,741.89
|
1,872.34
|
Second Quarter
|
1,962.87
|
1,815.69
|
1,960.23
|
Third Quarter
|
2,011.36
|
1,909.57
|
1,972.29
|
S&P 500
(R)
Index
|
High
|
Low
|
Period
End
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
2,058.90
|
2015
|
|
|
|
First Quarter
|
2,117.39
|
1,992.67
|
2,067.89
|
Second Quarter
|
2,130.82
|
2,057.64
|
2,063.11
|
Third Quarter
|
2,128.28
|
1,867.61
|
1,920.03
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
2,043.94
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
2,059.74
|
Second Quarter
|
2,119.12
|
2,000.54
|
2,070.77
|
Third Quarter
|
2,190.15
|
2,088.55
|
2,168.27
|
Fourth Quarter
|
2,271.72
|
2,085.18
|
2,238.83
|
2017
|
|
|
|
First Quarter
|
2,395.96
|
2,257.83
|
2,362.72
|
Second Quarter (through May 23, 2017)
|
2,402.32
|
2,328.95
|
2,398.42
|
Historical Daily Index Closing
Values of the S&P 500
(R)
Index
January 1, 2012 through
May 23, 2017
“Standard
& Poor’s
(R)
,” “S&P
(R)
,” “S&P 500
(R)
,” “Standard
& Poor’s 500” and “500” are trademarks of S&P. For more information, see “S&P 500
(R)
Index” in the accompanying index supplement.
Use of Proceeds and Hedging
|
|
The proceeds from the sale of the Securities will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per Security issued, because, when we enter into hedging transactions in order to meet our obligations under the Securities, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Securities borne by you and described beginning on PS-3 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying prospectus.
|
On or prior to the May 22, 2017,
we hedged our anticipated exposure in connection with the Securities by entering into hedging transactions with our affiliates
and/or third party dealers. We expect our hedging counterparties to have taken positions in the stocks constituting the Index and
in futures and/or options contracts on the Index and its component stocks listed on major securities markets. Such purchase activity
could have increased
the Initial Index Value, and
therefore could have increased the value at or above which the Index must close on the Averaging Dates so that you do not suffer
a loss on your initial investment in the Securities. In addition, through our affiliates, we are likely to modify our hedge position
throughout the term of the Securities, including on the Averaging Dates, by purchasing and selling the stocks underlying the Index,
futures and/or options contracts on the Index or its component stocks listed on major securities markets or positions in any other
available securities or instruments that we may wish to use in connection with such hedging activities. As a result, these entities
may be unwinding or adjusting hedge positions during the term of the Securities, and the hedging strategy may involve greater and
more frequent dynamic adjustments to the hedge as the 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 Securities or the payment you will receive
at maturity, if any.
Supplemental Information
Concerning
Plan of Distribution; Conflicts of Interest
|
|
JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and their affiliates will act as placement agents for the Securities and will receive a fee from us or one of our affiliates that will not exceed $15 per $1,000 stated principal amount of Securities, but will forgo any fees for sales to certain fiduciary accounts.
|
Selected
dealers, which may include our affiliates, and their financial advisors will collectively receive from the Agent a fixed sales
commission of $15 for each Security they sell.
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
or the level of the Index. 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 in the open market
to stabilize the price of the Securities. Any of these activities may raise or maintain the market price of the Securities above
independent market prices or prevent or retard a decline in the market price of the Securities. The Agent is not required to engage
in these activities, and may end any of these activities at any time. An affiliate of the Agent has entered into a hedging transaction
in connection with this offering of the Securities. See “—Use of Proceeds and Hedging” above.
General
No action has been or will be
taken by us, the Agent or any dealer that would permit a public offering of the Securities or possession or distribution of this
pricing supplement or the accompanying prospectus supplement, index supplement or prospectus in any jurisdiction, other than the
United States, where action for that purpose is required. No offers, sales or deliveries of the Securities, or distribution of
this pricing supplement or the accompanying prospectus supplement, index supplement or prospectus or any other offering material
relating to the Securities, may be made in or from any jurisdiction except in circumstances which will result in compliance with
any applicable laws and regulations and will not impose any obligations on us, the Agent or any dealer.
The Agent has represented and
agreed, and each dealer through which we may offer the Securities has represented and agreed, that it (i) will comply with all
applicable laws and regulations in force in each non-U.S. jurisdiction in which it purchases, offers, sells or delivers the Securities
or possesses or distributes this pricing supplement and the accompanying prospectus supplement, index supplement and prospectus
and (ii) will obtain any consent, approval or permission required by it for the purchase, offer or sale by it of the Securities
under the laws and regulations in force in each non-U.S. jurisdiction to which it is subject or in which it makes purchases, offers
or sales of the Securities. We 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 Securities:
Brazil
The Securities have not been
and will not be registered with the Comissão de Valores Mobiliários (The Brazilian Securities Commission). The Securities
may not be offered or sold in the Federative Republic of Brazil except in circumstances which do not constitute a public offering
or distribution under Brazilian laws and regulations.
Chile
The Securities have not been
registered with the Superintendencia de Valores y Seguros in Chile and may not be offered or sold publicly in Chile. No offer,
sales or deliveries of the Securities or distribution of this pricing supplement or the accompanying prospectus supplement, index
supplement or prospectus, may be made in or from Chile except in circumstances which will result in compliance with any applicable
Chilean laws and regulations.
Mexico
The Securities have not been
registered with the National Registry of Securities maintained by the Mexican National Banking and Securities Commission and may
not be offered or sold publicly in Mexico. This pricing supplement, the accompanying prospectus supplement, the accompanying index
supplement and the accompanying prospectus may not be publicly distributed in Mexico.
Validity of the Securities
|
|
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the Securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such Securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General 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 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 Securities. Accordingly, among other factors, the fiduciary should consider whether the investment would
satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing
the plan.
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 Securities are acquired by or with the assets of a plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the Securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor
has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect
prohibited transactions resulting from the purchase or holding of these Securities. Those class exemptions are PTCE 96-23 (for
certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general
accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions
involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified asset
managers). In addition, ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code provide an exemption for the purchase and
sale of Securities and the related lending transactions, provided that neither the issuer of the Securities nor any of its affiliates
has or exercises any discretionary authority or control or renders any investment advice with respect to the assets of 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 Securities.
Because we may be considered
a party in interest with respect to many plans, unless otherwise specified in the applicable prospectus supplement, these Securities
may not be purchased, held or disposed of by any plan, any entity whose underlying assets include “plan assets” by
reason of any plan’s investment in
the entity (a “plan asset
entity”) or any person investing “plan assets” of any plan, unless such purchase, holding or disposition is eligible
for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption
or such purchase, holding or disposition is otherwise not prohibited. Unless otherwise specified in the applicable prospectus supplement,
any purchaser, including any fiduciary purchasing on behalf of a plan, transferee or holder of these Securities will be deemed
to have represented, in its corporate and its fiduciary capacity, by its purchase and holding thereof that either (a) it is not
a plan or a plan asset entity, is not purchasing such Securities 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 Securities on behalf of or with “plan assets” of any
plan consult with their counsel regarding the availability of exemptive relief.
The Securities are contractual
financial instruments. The financial exposure provided by the Securities is not a substitute or proxy for, and is not intended
as a substitute or proxy for, individualized investment management or advice for the benefit of any purchaser or holder of the
Securities. The Securities have not been designed and will not be administered in a manner intended to reflect the individualized
needs and objectives of any purchaser or holder of the Securities.
Each purchaser or holder of any
Securities acknowledges and agrees that:
(i) the
purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser
or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser
or holder with respect to (A) the design and terms of the Securities, (B) the purchaser or holder’s investment in the Securities,
or (C) the exercise of or failure to exercise any rights we have under or with respect to the Securities;
(ii) we
and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the Securities
and (B) all hedging transactions in connection with our obligations under the Securities;
(iii) any
and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those
entities and are not assets and
positions held for the benefit of the purchaser or holder;
(iv) our
interests are adverse to the interests of the purchaser or holder; and
(v) neither
we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions
or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
Each purchaser and holder of
these Securities has exclusive responsibility for ensuring that its purchase, holding and disposition of the Securities do not
violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any of these Securities to any plan
or plan subject to Similar Law is in no respect a representation by us or any of our affiliates or representatives that such an
investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that
such an investment is appropriate for plans generally or any particular plan.
However, individual retirement
accounts, individual retirement annuities and Keogh plans, as well as employee benefit plans that permit participants to direct
the investment of their accounts, will not be permitted to purchase or hold the Securities if the account, plan or annuity is for
the benefit of an employee of Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such
as, for example, an addition to bonus) based on the purchase of the Securities by the account, plan or annuity.
Client accounts over which Morgan
Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted
to purchase the Securities, either directly or indirectly.
United States Federal Taxation
|
|
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.
|
The following is a general discussion
of the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the
Securities. This discussion applies only to investors in the Securities who:
|
·
|
purchase the Securities in the original offering; and
|
|
·
|
hold the Securities as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
“Code”).
|
This discussion does not describe
all of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders
subject to special rules, such as:
|
·
|
certain financial institutions;
|
|
·
|
certain dealers and traders in securities or commodities;
|
|
·
|
investors holding the Securities as part of a “straddle,” wash sale, conversion transaction, integrated transaction
or constructive sale transaction;
|
|
·
|
U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
|
|
·
|
partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
|
|
·
|
regulated investment companies;
|
|
·
|
real estate investment trusts; or
|
|
·
|
tax-exempt entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section
408 or 408A of the Code, respectively.
|
If an entity that is classified
as a partnership for U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment of a partner
will generally depend on the status of the partner and the activities of the partnership. If you are a partnership holding the
Securities or a partner in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences
of holding and disposing of the Securities to you.
In addition, we will not attempt
to ascertain whether any issuer of any shares to which a Security relates (such shares hereafter referred to as “Underlying
Shares”) is treated as a “passive foreign investment company” (“PFIC”) within the meaning of Section
1297 of the Code or as a “U.S. real property holding corporation” (“USRPHC”) within the meaning of Section
897 of the Code. If any issuer of Underlying Shares were so treated, certain adverse U.S. federal income tax consequences might
apply, to a U.S. Holder in the case of a PFIC and to a Non-U.S. Holder (as defined below) in the case of a USRPHC, upon the sale,
exchange or settlement of the Securities. You should refer to information filed with the Securities and Exchange Commission or
other governmental authorities by the issuers of the Underlying Shares and consult your tax adviser regarding the possible consequences
to you if any issuer is or becomes a PFIC or USRPHC.
As the law applicable to the U.S.
federal income taxation of instruments such as the Securities is technical and complex, the
discussion below necessarily represents
only a general summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any
alternative minimum tax consequences or consequences resulting from the Medicare tax on investment income.
This discussion is based on the
Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date
of this pricing supplement, changes to any of which subsequent to the date hereof may affect the tax consequences described herein.
Persons considering the purchase of the Securities should consult their tax advisers with regard to the application of the U.S.
federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local
or non-U.S. taxing jurisdiction.
General
Although there is uncertainty
regarding the U.S. federal income tax consequences of an investment in the Securities due to the lack of governing authority, in
the opinion of our counsel, under current law, and based on current market conditions, a Security should be treated as a single
financial contract that is an “open transaction” for U.S. federal income tax purposes.
Due to the absence of statutory,
judicial or administrative authorities that directly address the treatment of the Securities or instruments that are similar to
the Securities for U.S. federal income tax purposes, no assurance can be given that the Internal Revenue Service (the “IRS”)
or a court will agree with the tax treatment described herein. Accordingly, you should consult your tax adviser regarding all aspects
of the U.S. federal tax consequences of an investment in the Securities (including possible alternative treatments of the Securities).
Unless otherwise stated, the following discussion is based on the treatment of the Securities as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only
if you are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Security that is, for
U.S. federal income tax purposes:
|
·
|
a citizen or individual resident of the United States;
|
|
·
|
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
|
|
·
|
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
|
Tax Treatment of the Securities
Assuming the treatment of the
Securities as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Treatment Prior to Settlement.
A U.S. Holder should not be required to recognize taxable income over the term of the Securities prior to settlement, other
than pursuant to a sale or exchange as described below.
Tax Basis
. A U.S. Holder’s
tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Sale, Exchange or Settlement
of the Securities
. Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain or loss equal
to the difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the
Securities sold, exchanged or settled. Any gain or loss recognized upon the sale, exchange or settlement of the Securities should
be long-term capital gain or loss if the U.S. Holder has held the Securities for more than one year at such time, and short-term
capital gain or loss otherwise.
Possible Alternative Tax
Treatments of an Investment in the Securities
Due to the absence of authorities
that directly address the proper tax treatment of the Securities, no assurance can be given that the IRS will accept, or that a
court will uphold, the treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences
of owning the Securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the Securities, the timing and character
of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the Securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of the contingent payment on
the Securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
Securities would generally be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent
of the U.S. Holder’s prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments
providing for buffers, triggers or similar downside protection features, such as the Securities, would be recharacterized as debt
is greater than the risk of recharacterization for comparable financial instruments that do not have such features.
Other alternative federal income
tax treatments of the Securities are also possible, which, if applied, could significantly affect the
timing and character of the income
or loss with respect to the Securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments
on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses
in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks
for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status
of the instruments and the nature of the underlying property to which the instruments are linked; and whether these instruments
are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain
long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition
rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially
and adversely affect the tax consequences of an investment in the Securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities, including possible
alternative treatments and the issues presented by this notice.
Backup Withholding and Information
Reporting
Backup withholding may apply in
respect of the payment on the Securities at maturity and the payment of proceeds from a sale, exchange or other disposition of
the Securities, unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number and
otherwise complies with applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding
rules are not an additional tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability,
provided that the required information is timely furnished to the IRS. In addition, information returns may be filed with the IRS
in connection with the payment on the Securities and the payment of proceeds from a sale, exchange or other disposition of the
Securities, unless the U.S. Holder provides proof of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S.
Holders
This section applies to you only
if you are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that
is, for U.S. federal income tax purposes:
|
·
|
an individual who is classified as a nonresident alien;
|
|
·
|
a foreign corporation; or
|
|
·
|
a foreign estate or trust.
|
The term “Non-U.S. Holder”
does not include any of the following holders:
|
·
|
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;
|
|
·
|
certain former citizens or residents of the United States; or
|
|
·
|
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 discussions below concerning
backup withholding
and the possible application of Section 871(m) of the Code and the discussion above concerning the possible
application of Section 897 of the Code
, a Non-U.S. Holder of the Securities generally will
not be subject to U.S. federal income or withholding tax in respect of amounts paid to the Non-U.S. Holder.
Subject to the discussions regarding
the possible application of Sections 871(m) and 897 of the Code and FATCA, if all or any portion of a Security were recharacterized
as a debt instrument, any payment made to a Non-U.S. Holder with respect to the Securities would not be subject to U.S. federal
withholding tax, provided that:
|
·
|
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;
|
|
·
|
the Non-U.S. Holder is not a controlled foreign corporation related, directly or indirectly, to Morgan Stanley through stock
ownership;
|
|
·
|
the Non-U.S. Holder is not a bank receiving interest under Section 881(c)(3)(A) of the Code, and
|
|
·
|
the certification requirement described below has been fulfilled with respect to the beneficial owner.
|
Certification Requirement.
The certification requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Security
(or a financial institution holding a Security on behalf of the beneficial owner) furnishes to the applicable
withholding agent an IRS Form
W-8BEN (or other appropriate form) on which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. Among the issues addressed in the notice is the degree, if any, to which any income with respect to instruments
such as the Securities should be subject to U.S. withholding tax. It is possible that any Treasury regulations or other guidance
promulgated after consideration of this issue could materially and adversely affect the withholding tax consequences of ownership
and disposition of the Securities, possibly on a retroactive basis. Non-U.S. Holders should note that we currently do not intend
to withhold on any payment made with respect to the Securities to Non-U.S. Holders (subject to compliance by such holders with
the certification requirement described above and to the discussions below regarding Section 871(m) and FATCA). However, in the
event of a change of law or any formal or informal guidance by the IRS, the U.S. Treasury Department or Congress, we may decide
to withhold on payments made with respect to the Securities to Non-U.S. Holders, and we will not be required to pay any additional
amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult their tax advisers regarding all aspects
of the U.S. federal income tax consequences of an investment in the Securities, including the possible implications of the notice
referred to above.
Section 871(m) Withholding
Tax on Dividend Equivalents
Section 871(m) of the Code and
Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty
rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments
linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain
exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of one or more
Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”).
However, 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 Securities do not have a delta of one with respect to any Underlying Security, our
counsel is of the opinion that the Securities should not be Specified Securities and, therefore, should not be subject to Section
871(m).
Our determination is not binding
on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your
particular circumstances, including whether you enter into other transactions with respect to an Underlying Security. If Section
871(m) withholding is required, we will not be required to pay any additional amounts
with respect to the amounts so
withheld. You should consult your tax adviser regarding the potential application of Section 871(m) to the Securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and
entities the property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax
purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests
or powers), should note that, absent an applicable treaty exemption, the Securities may be treated as U.S. situs property subject
to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of the type described above, should
consult their tax advisers regarding the U.S. federal estate tax consequences of an investment in the Securities.
Backup Withholding and Information
Reporting
Information returns may be filed
with the IRS in connection with the payment on the Securities at maturity as well as in connection with the payment of proceeds
from a sale, exchange or other disposition of the Securities. A Non-U.S. Holder may be subject to backup withholding in respect
of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it
is not a U.S. person for U.S. federal income tax purposes or otherwise establishes an exemption. Compliance with the certification
procedures described above under “―Tax Treatment upon Sale, Exchange or Settlement of the Securities – Certification
Requirement” will satisfy the certification requirements necessary to avoid backup withholding as well. The amount of any
backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal
income tax liability and may entitle the Non-U.S. Holder to a refund, provided that the required information is timely furnished
to the IRS.
FATCA Legislation
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. This legislation generally applies to certain financial instruments that are treated as paying U.S.-source
interest or other U.S.-source “fixed or determinable annual or periodical” income. If the Securities were recharacterized
as debt instruments, this legislation would apply to any payment of amounts treated as interest and, for dispositions after December
31, 2018, to payments of gross proceeds of the disposition (including upon retirement) of the Securities. If withholding applies
to the Securities, we will not be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S.
Holders should consult their tax
advisers regarding the potential application of FATCA to the Securities.
The discussion
in the preceding paragraphs, insofar as it purports to describe provisions of U.S. federal income tax laws or legal conclusions
with respect thereto, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal income
tax consequences of an investment in the Securities.