Additional Information about Morgan Stanley, MSFL and the Securities
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Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by a prospectus supplement) with the SEC for the offering to which this communication relates. In connection
with your investment, you should read the prospectus in that registration statement, the prospectus supplement and any other documents
relating to this offering that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL
and this offering. You may get these documents for free by visiting EDGAR on the SEC website at.www.sec.gov.
Alternatively, Morgan Stanley, MSFL, any underwriter or any dealer participating in this offering will arrange to send you the prospectus
and the prospectus supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access the accompanying prospectus supplement and prospectus
on the SEC website at.www.sec.gov as follows:
References to “MSFL” refer only to MSFL, references to
“Morgan Stanley” refer only to Morgan Stanley and references to “we,” “our” and “us” refer
to MSFL and Morgan Stanley collectively. In this document, the “Securities” refers to the Capped Airbag GEARS that are offered
hereby. Also, references to the accompanying “prospectus” and “prospectus supplement” mean the prospectus filed
by MSFL and Morgan Stanley dated November 16, 2020 and the prospectus supplement filed by MSFL and Morgan Stanley dated November 16, 2020,
respectively.
You should rely only on the information incorporated by reference or
provided in this pricing supplement or the accompanying prospectus supplement and prospectus. We have not authorized anyone to provide
you with different information. We are not making an offer of these Securities in any state where the offer is not permitted. You should
not assume that the information in this pricing supplement or the accompanying prospectus supplement and prospectus is accurate as of
any date other than the date on the front of this document.
The Issue Price of each Security is $10. This price includes costs associated
with issuing, selling, structuring and hedging the Securities, which are borne by you, and, consequently, the estimated value of the Securities
on the Trade Date is less than $10. We estimate that the value of each Security on the Trade Date is $9.731.
What goes into the estimated value on the Trade Date?
In valuing the Securities on the Trade Date, we take into account that
the Securities comprise both a debt component and a performance-based component linked to the Underlying Shares. The estimated value of
the Securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the Underlying Shares,
instruments based on the Underlying Shares, volatility and other factors including current and expected interest rates, as well as an
interest rate related to our secondary market credit spread, which is the implied interest rate at which our conventional fixed rate debt
trades in the secondary market.
What determines the economic terms of the Securities?
In determining the economic terms of the Securities, including the Upside
Gearing, the Downside Threshold, the Threshold Percentage, the Downside Gearing and the Maximum Gain, we use an internal funding rate,
which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring
and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the Securities
would be more favorable to you.
What is the relationship between the estimated value on the Trade
Date and the secondary market price of the Securities?
The price at which MS & Co. purchases the Securities in the secondary
market, absent changes in market conditions, including those related to the Underlying Shares, may vary from, and be lower than, the estimated
value on the Trade Date, because the secondary market price takes into account our secondary market credit spread as well as the bid-offer
spread that MS & Co. 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 Securities are not fully deducted upon issuance, for a period of up to 6 months following
the Settlement Date, to the extent that MS & Co. may buy or sell the Securities in the secondary market, absent changes in market
conditions, including those related to the Underlying Shares, and to our secondary market credit spreads, it would 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.
MS & Co. currently intends, but is not obligated, to make a market
in the Securities, and, if it once chooses to make a market, may cease doing so at any time.
The Securities may be suitable for you if:
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You fully understand the risks inherent in an investment in the Securities,
including the risk of loss of your entire Principal Amount.
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You can tolerate the loss of some or all of your Principal Amount and you
are willing to make an investment that has similar downside market risk as the Underlying Shares.
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You believe the Underlying Shares will appreciate over the term of the Securities
and that the appreciation is unlikely to exceed the Maximum Gain of 22.66%.
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You understand and accept that your potential return is limited by the Maximum
Gain and you are willing to invest in the Securities based on the Maximum Gain of 22.66%.
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You believe the price of the Underlying Shares will not depreciate over the
term of the Securities such that the Final Underlying Price will be less than the Downside Threshold.
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You can tolerate fluctuations in the price of the Securities prior to maturity
that may be similar to or exceed the downside fluctuations in the price of the Underlying Shares.
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You are willing to hold the Securities to maturity, as set forth on the cover
of this pricing supplement, and accept that there may be little or no secondary market for the Securities.
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You understand and are willing to accept the risks associated with the Underlying
Shares.
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You do not seek current income from your investment and are willing to forgo
dividends paid on the constituent stocks of the Underlying Shares.
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You
are willing to assume our credit risk, and understand that if we default on our obligations you may not receive any amounts due to you
including any repayment of principal.
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The Securities may not be suitable for you if:
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You do not fully understand the risks inherent in an investment in the Securities,
including the risk of loss of your entire Principal Amount.
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You cannot tolerate the loss of some or all of your Principal Amount and you
are not willing to make an investment that has similar downside market risk as the Underlying Shares.
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You seek an investment that guarantees a full return of principal at maturity.
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You believe that the price of the Underlying Shares will appreciate over the
term of the Securities by a percentage that exceeds the Maximum Gain.
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You believe that the price of the Underlying Shares will depreciate over the
term of the Securities such that the Final Underlying Price will be less than the Downside Threshold.
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You seek an investment that has unlimited return potential without a cap on
appreciation.
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You are unwilling to invest in the Securities based on the Maximum Gain of
22.66%.
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You prefer the lower risk, and therefore accept the potentially lower returns,
of conventional debt securities with comparable maturities issued by Morgan Stanley or another issuer with a similar credit rating.
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You cannot tolerate fluctuations in the price of the Securities prior to maturity
that may be similar to or exceed the downside fluctuations in the price of the Underlying Shares.
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You seek current income from this investment or prefer to receive the dividends
paid on the constituent stocks of the Underlying Shares.
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You are unable or unwilling to hold the Securities to maturity, as set forth
on the cover of this pricing supplement, or you seek an investment for which there will be an active secondary market.
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You do not understand or are not willing to accept the risks associated with
the Underlying Shares.
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You
are not willing or are unable to assume the credit risk associated with us for any payment on the Securities, including any repayment
of principal.
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The investor suitability considerations identified above are not exhaustive.
Whether or not the Securities are a suitable investment for you will depend on your individual circumstances, and you should reach an
investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully considered the suitability
of an investment in the Securities in light of your particular circumstances. You should also review carefully the sections entitled “Key
Risks” beginning on page 5 of this pricing supplement and “Risk Factors” beginning on page 7 of the accompanying prospectus
for risks related to an investment in the Securities. For more information about the Underlying Shares, see the information set forth
under “iShares® Core MSCI Emerging Markets ETF” on page 17.
Issuer
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Morgan Stanley Finance LLC
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Guarantor
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Morgan Stanley
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Issue Price (per Security)
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$10.00 per Security
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Principal Amount
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$10.00 per Security
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Term
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Approximately 2 years
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Underlying Shares
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iShares® Core MSCI Emerging Markets ETF
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Payment at Maturity
(per Security)
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MSFL will pay you a cash payment at maturity linked to the
performance of the Underlying Shares during the term of the Securities.
If the Underlying Return is greater than zero, MSFL
will pay you an amount equal to the lesser of:
$10 + ($10 × Underlying Return × Upside
Gearing);
and
$10 + ($10 × Maximum Gain).
If the Underlying Return is equal to or less than zero
but the Final Underlying Price is greater than or equal to the Downside Threshold, MSFL will pay you the $10 Principal Amount.
If the Final Underlying Price is less than the Downside
Threshold, MSFL will pay you an amount calculated as follows:
$10 + [$10 × (Underlying Return + 10%) ×
Downside Gearing]
In this case, you will lose some or all of your Principal
Amount.
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Upside Gearing
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1.5
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Maximum Gain
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22.66%, which corresponds to a maximum Payment at Maturity of $12.266 per Security.
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Downside Threshold
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$60.372, which is 90% of the Initial Underlying Price
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Threshold Percentage
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10%
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Downside Gearing
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1.111
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Underlying Return
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Final Underlying Price – Initial Underlying Price
Initial Underlying Price
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Initial Underlying Price
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$67.08, which is the Closing Price on the Trade Date.
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Final Underlying Price
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The Closing Price on the Final Valuation Date times the Adjustment Factor on such day
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Adjustment Factor
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1.0, subject to adjustment in the event of certain corporate events affecting the Underlying Shares.
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Trade Date
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June 11, 2021
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Settlement Date
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June 17, 2021
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Final Valuation Date
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June 12, 2023*
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Maturity Date
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June 15, 2023*
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CUSIP / ISIN
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61772Y186 / US61772Y1863
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Calculation Agent
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Morgan Stanley & Co. LLC (“MS & Co.”)
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*Subject to postponement in the event of a Market Disruption Event or for non-Trading Days. See “Postponement of Final Valuation Date and Maturity Date” under “Additional Terms of the Securities.”
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Trade Date
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The Initial Underlying Price and Downside Threshold are determined.
The Maximum Gain is set.
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Maturity Date
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The Final Underlying Price and Underlying Return are determined as of
the Final Valuation Date.
If the Underlying Return is positive, MSFL will pay you a cash
amount at maturity equal to the lesser of:
$10 + ($10 × Underlying Return × 1.5);
and
$10 + ($10 × Maximum Gain)
per Security.
If the Underlying Return is less than or equal to zero, but the Final
Underlying Price is greater than or equal to the Downside Threshold, MSFL will pay you $10.00 cash per Security.
If the Underlying Return is less than zero and the Final Underlying
Price is less than the Downside Threshold, MSFL will pay you a cash amount at maturity equal to:
$10 + [$10 × (Underlying Return + 10%) ×
Downside Gearing]
per Security. Under these circumstances, you will lose some, and could
lose all, of your Principal Amount.
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Investing in the Securities
involves significant risks. You may lose your ENTIRE PRINCIPAL AMOUNT. Any payment on the Securities is subject TO OUR CREDITWORTHINESS.
IF WE WERE TO DEFAULT ON OUR PAYMENT OBLIGATIONS, YOU may not receive any amounts owed to you under the Securities and you could lose
your entire investment.
An investment in the Securities involves significant risks. The material
risks that apply to the Securities are summarized here, but we urge you to also read the “Risk Factors” section of the accompanying
prospectus. You should also consult your investment, legal, tax, accounting and other advisers in connection with your investment in the
Securities.
Risks Relating to an Investment in the Securities
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Your investment in the Securities may result in a loss of up to your entire
initial investment in the Securities. The terms of the Securities differ from those of ordinary debt securities in that we will not
pay interest or guarantee the payment of any of the Principal Amount at maturity. If the Underlying Return is negative and the Final Underlying
Price is less than the Downside Threshold, the payout owed at maturity will be less than the $10 Principal Amount of each Security, resulting
in a loss on the Principal Amount of 1.111% for each 1% that the Underlying Shares have declined by more than the Threshold Percentage.
Accordingly, you could lose the entire principal amount of the Securities.
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You may incur a loss on your investment if you sell your Securities prior
to maturity. The Downside Threshold, Threshold Percentage and the contingent repayment of principal apply only on the Final Valuation
Date and only impact the Payment at Maturity. If you are able to sell your Securities prior to maturity in the secondary market, you may
have to sell them at a loss relative to your initial investment even if the Closing Price of the Underlying Shares is at or above the
Downside Threshold at that time.
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The Upside Gearing applies only at maturity. You should be willing
to hold your Securities to maturity. If you are able to sell your Securities prior to maturity in the secondary market, the price you
receive will likely not reflect the full economic value of the Upside Gearing or the Securities themselves, and the return you realize
may be less than 1.5 times the return of the Underlying Shares at the time of sale even if such return is positive and does not exceed
the Maximum Gain. You can receive the full benefit of the Upside Gearing and earn the potential Maximum Gain only if you hold your Securities
to maturity.
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Appreciation potential is limited. The appreciation potential of Securities
is limited by the Maximum Gain of 22.66% (which corresponds to a maximum Payment at Maturity of $12.266 per Security). Therefore, although
the Upside Gearing enhances positive Underlying Returns, you will not benefit from any positive Underlying Return that, when multiplied
by the Upside Gearing, exceeds the Maximum Gain. As a result, any increase in the Final Underlying Price over the Initial Underlying Price
by more than approximately 15.107% of the Initial Underlying Price will not further increase the return on the Securities.
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No interest payments. MSFL will not make any interest payments in respect
to the Securities.
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The Securities are subject to our credit risk, and any actual or anticipated
changes to our credit ratings or our credit spreads may adversely affect the market value of the Securities. You are dependent on
our ability to pay all amounts due on the Securities at maturity, if any, and therefore you are subject to our credit risk. If we default
on our obligations under the Securities, your investment would be at risk and you could lose some or all of your investment. As a result,
the market value of the Securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any
actual or anticipated decline in our credit ratings or increase in our credit spreads charged by the market for taking our credit risk
is likely to adversely affect the market value of the Securities.
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As a finance subsidiary, MSFL has no independent operations and will have
no independent assets. As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its securities
and will have no independent assets available for distributions to holders of MSFL securities if they make claims in respect of such securities
in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under
the related guarantee by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations
of Morgan Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders
of securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should be
treated pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan
Stanley-issued securities.
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The market price of the Securities may be influenced by many unpredictable
factors. Several factors, many of which are beyond our control, will influence the value of the Securities in the secondary market
and the price at which MS & Co. may be willing to purchase or sell the Securities in the secondary market (if at all), including:
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the price of the Underlying Shares at any time,
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the volatility (frequency and magnitude of changes in price) of the Underlying Shares,
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dividend rates on the securities included in the Share Underlying Index,
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interest and yield rates in the market,
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the Underlying Shares or the
constituent stocks of the Share Underlying Index or equities markets generally and which may affect the Final Underlying Price,
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the time remaining until the Securities mature, and
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any actual or anticipated changes in our credit ratings or credit spreads.
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Some or all of these factors will influence
the terms of the Securities at the time of issuance and the price that you will receive if you are able to sell your Securities prior
to maturity, as the Securities are comprised of both a debt component and a performance-based component linked to the Underlying Shares,
and these are the types of factors that also generally affect the values of debt securities and
derivatives linked to the Underlying Shares.
For example, you may have to sell your Securities at a substantial discount from the principal amount of $10 per Security if the price
of the Underlying Shares at the time of sale is at, below or moderately above its Initial Underlying Price or if market interest rates
rise. You cannot predict the future performance of the Underlying Shares based on its historical performance. If the Underlying Return
is negative and the Final Underlying Price is below the Downside Threshold, you will receive at maturity an amount that is less (and that
could be significantly less) than the $10 Principal Amount of each Security, and you could lose up to your entire initial investment in
the Securities.
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The amount payable on the Securities is not linked to the price of the
Underlying Shares at any time other than the Final Valuation Date. The Final Underlying Price will be based on the Closing Price of
the Underlying Shares on the Final Valuation Date, subject to postponement for non-Trading Days and certain Market Disruption Events.
Even if the price of the Underlying Shares appreciates prior to the Final Valuation Date but then drops by the Final Valuation Date, the
Payment at Maturity may be significantly less than it would have been had the Payment at Maturity been linked to the price of the Underlying
Shares prior to such drop. Although the actual price of the Underlying Shares on the stated Maturity Date or at other times during the
term of the Securities may be higher than the Final Underlying Price, the Payment at Maturity will be based solely on the Closing Price
of the Underlying Shares on the Final Valuation Date as compared to the Initial Underlying Price.
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Investing in the Securities is not equivalent to investing in the Underlying
Shares. Investing in the Securities is not equivalent to investing in the Underlying Shares, the Share Underlying Index or the stocks
that constitute the Share Underlying Index. Investors in the Securities will not have voting rights or rights to receive dividends or
other distributions or any other rights with respect to the Underlying Shares or the stocks that constitute the Share Underlying Index.
Investors in the Securities also will not participate in any appreciation of the Underlying that, when multiplied by the Upside Gearing,
exceeds the Maximum Gain, which could be significant.
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The rate we are willing to pay for securities of this type, maturity and
issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both the lower
rate and the inclusion of costs associated with issuing, selling, structuring and hedging the Securities in the Issue Price reduce the
economic terms of the Securities, cause the estimated value of the Securities to be less than the Issue Price and will adversely affect
secondary market prices. Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers,
including MS & Co., may be willing to purchase the Securities in secondary market transactions will likely be significantly lower
than the Issue Price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are
included in the Issue Price and borne by you and because the secondary market prices will reflect our secondary market credit spreads
and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as other factors.
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The inclusion of the costs of issuing, selling,
structuring and hedging the Securities in the Issue Price and the lower rate we are willing to pay as issuer make the economic terms of
the Securities less favorable to you than they otherwise would be.
However, because the costs associated with
issuing, selling, structuring and hedging the Securities are not fully deducted upon issuance, for a period of up to 6 months following
the Settlement Date, to the extent that MS & Co. may buy or sell the Securities in the secondary market, absent changes in market
conditions, including those related to the Underlying Shares, and to our secondary market credit spreads, it would do so based on values
higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account statements.
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The estimated value of the Securities is determined by reference to our
pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum secondary market price. These
pricing and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about
future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities,
our models may yield a higher estimated value of the Securities than those generated by others, including other dealers in the market,
if they attempted to value the Securities. In addition, the estimated value on the Trade Date does not represent a minimum or maximum
price at which dealers, including MS & Co., would be willing to purchase your Securities in the secondary market (if any exists) at
any time. The value of your Securities at any time after the date of this pricing supplement will vary based on many factors that cannot
be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “The market price of the Securities
may be influenced by many unpredictable factors” above.
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The Securities will not be listed on any securities exchange and secondary
trading may be limited. The Securities will not be listed on any securities exchange. Therefore, there may be little or no secondary
market for the Securities. MS & Co. currently intends, but is not obligated, to make a market in the Securities and, if it once chooses
to make a market, may cease doing so at any time. When it does make a market, it will generally do so for transactions of routine secondary
market size at prices based on its estimate of the current value of the Securities, taking into account its bid/offer spread, our credit
spreads, market volatility, the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining
to maturity and the likelihood that it will be able to resell the Securities. Even if there is a secondary market, it may not provide
enough liquidity to allow you to trade or sell the Securities easily. Since other broker-dealers may not participate significantly in
the secondary market for the Securities, the price at which you may be able to trade your Securities is likely to depend on the price,
if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the Securities, it
is likely that there would be no secondary market for the Securities. Accordingly, you should be willing to hold your Securities to maturity.
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Hedging and trading activity by our affiliates could potentially adversely
affect the value of the Securities. One or more of our affiliates and/or third-party dealers expect to carry out hedging activities
related to the Securities, including trading in the Underlying Shares or the constituent stocks of the Share Underlying Index, in futures
or options contracts on the Underlying Shares, the Share Underlying Index or the constituent stocks of the Share Underlying Index, as
well as other instruments related to the Underlying Shares. 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 Final Valuation Date approaches. MS & Co. and some of our other
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affiliates also trade the Underlying
Shares or the constituent stocks of the Underlying Shares, in futures or options contracts on the Underlying Shares, the Share Underlying
Index or the constituent stocks of the Share Underlying Index, as well as in other instruments related to the Underlying Shares, on a
regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the
Trade Date could potentially increase the Initial Underlying Price of the Underlying Shares, and therefore, could increase the Downside
Threshold, which is the price at or above which the Underlying Shares must close on the Final Valuation Date so that investors do not
suffer a loss on their initial investment in the Securities. Additionally, such hedging or trading activities during the term of the Securities,
including on the Final Valuation Date, could adversely affect the Closing Price of the Underlying Shares on the Final Valuation Date and,
accordingly, the amount of cash payable to an investor at maturity, if any.
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Potential conflict of interest. As Calculation Agent, MS & Co.
will determine the Initial Underlying Price, the Downside Threshold, the Final Underlying Price and whether any Market Disruption Event
has occurred, and will calculate the amount payable at maturity, if any. Moreover, certain determinations made by MS & Co., in its
capacity as Calculation Agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence
or non-occurrence of Market Disruption Events and the selection of a Successor Index or calculation of the Final Underlying Price in the
event of a discontinuance of the Share Underlying Index or a Market Disruption Event. These potentially subjective determinations may
adversely affect the payout to you at maturity, if any. For further information regarding these types of determinations, see “Additional
Terms of the Securities—Postponement of Final Valuation Date and Maturity Date,” “—Discontinuance of the Underlying
Shares and/or Share Underlying Index; Alteration of Method of Calculation” and “—Calculation Agent and Calculations”
below. In addition, MS & Co. has determined the estimated value of the Securities on the Trade Date.
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Potentially inconsistent research, opinions or recommendations by Morgan
Stanley, UBS or our or their respective affiliates. Morgan Stanley, UBS and our or their respective affiliates publish research from
time to time on financial markets and other matters that may influence the value of the Securities, or express opinions or provide recommendations
that are inconsistent with purchasing or holding the Securities. Any research, opinions or recommendations expressed by Morgan Stanley,
UBS or our or their respective affiliates may not be consistent with each other and may be modified from time to time without notice.
Investors should make their own independent investigation of the merits of investing in the Securities and the Underlying Shares to which
the Securities are linked.
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The U.S. federal income tax consequences of an investment in the Securities
are uncertain. Please note that the discussions in this pricing supplement concerning the U.S. federal income tax consequences of
an investment in the Securities supersede the discussions contained in the accompanying prospectus supplement.
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Subject to the discussion under “What
Are the Tax Consequences of the Securities” in this pricing supplement, 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, Davis
Polk & Wardwell LLP (“our counsel”), under current law, and based on current market conditions, each Security should be
treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
Because the Securities are linked to shares
of an exchange-traded fund, although the matter is not clear, there is a substantial risk that an investment in the Securities will be
treated as a “constructive ownership transaction.” If this treatment applies, all or a portion of any long-term capital gain
of a U.S. Holder (as defined below) in respect of the Securities could be recharacterized as ordinary income (in which case an interest
charge would be imposed). U.S. Holders should read the section entitled “What Are the Tax Consequences of the Securities? —
Tax Consequences to U.S. Holders — Tax Treatment of the Securities — Potential Application of the Constructive Ownership Rule”
in this pricing supplement.
If the Internal Revenue Service (the “IRS”)
were successful in asserting an alternative treatment for the Securities, the timing and character of income on the Securities might differ
significantly from the tax treatment described herein. For example, under one possible treatment, the IRS could seek to recharacterize
the Securities as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the
Securities every year at a “comparable yield” determined at the time of issuance and recognize all income and gain in respect
of the Securities as ordinary income. 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. We do not plan to request a ruling from the IRS regarding the tax treatment of the Securities,
and the IRS or a court may not agree with the tax treatment described in this pricing supplement.
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; the degree, if any, to which
income (including any mandated accruals) realized by Non-U.S. Holders (as defined below) should be subject to withholding tax; and whether
these instruments are or should be subject to the “constructive ownership” rule, as discussed above. 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.
Both U.S. and Non-U.S. Holders should
read carefully the discussion under “What Are the Tax Consequences of the Securities” in this pricing supplement and consult
their tax advisers regarding all aspects of the U.S. federal tax consequences of an investment in the Securities as well as any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Risks Relating to the Underlying Shares
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The probability that the Final Underlying Price will be less than the Downside
Threshold will depend on the volatility of the Underlying Shares. “Volatility” refers to the frequency and magnitude of
changes in the price of the Underlying Shares. Higher expected
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volatility with respect to the Underlying
Shares as of the Trade Date generally indicates a greater chance as of that date that the Final Underlying Price will be less than the
Downside Threshold, which would result in a loss of some or all of your investment at maturity. However, the volatility of the Underlying
Shares can change significantly over the term of the Securities. The price of the Underlying Shares could fall sharply, resulting in a
significant loss of principal. You should be willing to accept the downside market risk of the Underlying Shares and the potential loss
of some or all of your investment at maturity.
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There are risks associated with investments in securities linked to the
value of foreign (and especially emerging markets) equity securities. The iShares® Core MSCI Emerging Markets ETF tracks
the performance of the MSCI Emerging Markets Investable Market Index, which is linked to the value of foreign (and especially emerging
markets) equity securities. Investments in securities linked to the value of foreign equity securities involve risks associated with the
securities markets in those countries, including risks of volatility in those markets, governmental intervention in those markets and
cross-shareholdings in companies in certain countries. Also, there is generally less publicly available information about foreign companies
than about U.S. companies that are subject to the reporting requirements of the Securities and Exchange Commission, and foreign companies
are subject to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting
companies. The prices of securities issued in foreign markets may be affected by political, economic, financial and social factors in
those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws. In addition,
the stocks included in the MSCI Emerging Markets Investable Market Index and that are generally tracked by the Underlying Shares have
been issued by companies in various emerging markets countries, which pose further risks in addition to the risks associated with investing
in foreign equity markets generally. Countries with emerging markets may have relatively unstable governments, may present the risks of
nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have less protection
of property rights than more developed countries. The economies of countries with emerging markets may be based on only a few industries,
may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries
may differ unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payment positions.
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The price of the iShares® Core MSCI Emerging Markets ETF
is subject to currency exchange rate risk. Because the price of the iShares® Core MSCI Emerging Markets ETF is related
to the U.S. dollar value of stocks underlying the iShares® Core MSCI Emerging Markets ETF and the MSCI Emerging Markets
Investable Market Index, holders of the Securities will be exposed to currency exchange rate risk with respect the currencies in which
the component securities trade. Exchange rate movements for a particular currency are volatile and are the result of numerous factors
specific to that country including the supply of, and the demand for, those currencies, as well as government policy, intervention or
actions, but are also influenced significantly from time to time by political or economic developments, and by macroeconomic factors and
speculative actions related to each region. Further, currencies of emerging economies are often subject to more frequent and larger central
bank interventions than the currencies of developed countries and are also more likely to be affected by drastic changes in monetary or
exchange rate policies of the relevant country. The net exposure will depend on the extent to which the currencies of the component countries
strengthen or weaken against the U.S. dollar and the relative weight of each currency. If, taking into account such weighting, the dollar
strengthens against the currencies of the component securities represented in the iShares® Core MSCI Emerging Markets ETF,
the price of the Underlying Shares will be adversely affected and the Payment at Maturity on the Securities may be reduced.
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Of particular importance to potential currency
exchange risk are:
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existing and expected rates of inflation;
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o
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existing and expected interest rate levels;
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o
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the balance of payments; and
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o
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the extent of governmental surpluses or deficits in the countries represented in the MSCI Emerging Markets Investable Market Index
and the United States.
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All of these factors are, in turn, sensitive to the monetary,
fiscal and trade policies pursued by the governments of the countries represented in the MSCI Emerging Markets Investable Market
Index, the United States and other countries important to international trade and finance.
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Governmental regulatory actions could result in material changes to the
composition of the Underlying Shares and could negatively affect your return on the Securities. Governmental regulatory actions, including
but not limited to sanctions-related actions by the U.S. or foreign governments, could make it necessary or advisable for there to be
material changes to the composition of the Underlying Shares, depending on the nature of such governmental regulatory actions and the
Underlying Shares constituent stocks that are affected. If any governmental regulatory action results in the removal of Underlying Shares
constituent stocks that have (or historically have had) significant weights within the Underlying Shares, such removal, or even any uncertainty
relating to a possible removal, could have a material and negative effect on the level of the Underlying Shares and, therefore, your return
on the Securities.
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Adjustments to the Underlying Shares could adversely affect the value of
the Securities. The investment adviser to the iShares® Core MSCI Emerging Markets ETF (BlackRock Fund Advisors) seeks
investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets
Investable Market Index. Pursuant to its investment strategy or otherwise, the investment adviser may add, delete or substitute the components
of the Underlying Shares. Pursuant to its investment strategy or otherwise, the investment adviser may add, delete or substitute the components
of the Underlying Shares. Any of these actions could adversely affect the price of the Underlying Shares and, consequently, the value
of the Securities. In addition, the publisher of the Share Underlying Index is responsible for calculating and maintaining the Share Underlying
Index. The Share Underlying Index Publisher may add, delete or substitute the stocks constituting the Share Underlying Index or make other
methodological changes required by certain corporate events relating to the component stocks, such as stock dividends, stock splits, spin-offs,
rights offerings and extraordinary dividends that could change the value of the Share Underlying Index. The Share Underlying Index Publisher
may also discontinue or suspend
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calculation or publication of the Share
Underlying Index at any time. If this discontinuance or suspension occurs following the termination of the Underlying Shares, the Calculation
Agent will have the sole discretion to substitute a successor index that is comparable to the discontinued index, and is permitted to
consider indices that are calculated and published by the Calculation Agent or any of its affiliates. Any of these actions could adversely
affect the value of the Underlying Shares and, consequently, the value of the Securities.
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The adjustments to the Adjustment Factor the Calculation Agent is required
to make do not cover every corporate event that can affect the shares of the Underlying Shares. MS & Co., as Calculation Agent,
will adjust the Adjustment Factor for certain events affecting the Underlying Shares, including stock splits and reverse stock splits.
However, the Calculation Agent will not make an adjustment for every event that can affect the Underlying Shares. If an event occurs that
does not require the Calculation Agent to adjust the Adjustment Factor, the market price of the Securities may be materially and adversely
affected. The determination by the Calculation Agent to adjust, or not to adjust, the Adjustment Factor may materially and adversely affect
the market price of the Securities.
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The performance and market price of the Underlying Shares, particularly
during periods of market volatility, may not correlate with the performance of the Share Underlying Index, the performance of the component
securities of the Share Underlying Index or the net asset value per share of the Underlying Shares. The Underlying Shares do not fully
replicate the Share Underlying Index and may hold securities that are different than those included in the Share Underlying Index. In
addition, the performance of the Underlying Shares will reflect additional transaction costs and fees that are not included in the calculation
of the Share Underlying Index. All of these factors may lead to a lack of correlation between the performance of the Underlying Shares
and the Share Underlying Index. In addition, corporate actions (such as mergers and spin-offs) with respect to the equity securities underlying
the Underlying Shares may impact the variance between the performances of the Underlying Shares and the Share Underlying Index. Finally,
because the Underlying Shares are traded on an exchange and are subject to market supply and investor demand, the market price of one
share of the Underlying Shares may differ from the net asset value per share of the Underlying Shares.
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In particular, during periods of market
volatility, or unusual trading activity, trading in the securities underlying the Underlying Shares may be disrupted or limited, or such
securities may be unavailable in the secondary market. Under these circumstances, the liquidity of the Underlying Shares may be adversely
affected, market participants may be unable to calculate accurately the net asset value per share of the Underlying Shares, and their
ability to create and redeem shares of the Underlying Shares may be disrupted. Under these circumstances, the market price of the Underlying
Shares may vary substantially from the net asset value per share of the Underlying Shares or the level of the Share Underlying Index would
affect the Payment at Maturity of the Securities. If the Calculation Agent determines that no Market Disruption Event has taken place,
the Payment at Maturity would be based solely on the published closing price per share of the Underlying Shares on the Final Observation
Date, even if the Underlying Shares are underperforming the Share Underlying Index or the component securities of the Share Underlying
Index and/or trading below the net asset value per share of the Underlying Shares.
For all of the foregoing reasons, the performance
of the Underlying Shares may not correlate with the performance of the Share Underlying Index, the performance of the component securities
of the Share Underlying Index or the net asset value per share of the Underlying Shares. Any of these events could materially and adversely
affect the price of the Underlying Shares and, therefore, the value of the Securities. Additionally, if market volatility or these events
were to occur on the Final Observation Date, the Calculation Agent would maintain discretion to determine whether such market volatility
or events have caused a Market Disruption Event to occur, and such determination would affect the Payment at Maturity of the Securities.
If the Calculation Agent determines that no Market Disruption Event has taken place, the Payment at Maturity would be based solely on
the published closing price per share of the Underlying Shares on the Final Observation Date, even if the Underlying Shares are underperforming
the Share Underlying Index or the component securities of the Share Underlying Index and/or trading below the net asset value per share
of the Underlying Shares.
Hypothetical Payments on the Securities at Maturity
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These examples are based on hypothetical terms.
The actual terms are set forth on the cover of this pricing supplement.
The below scenario analysis and examples are provided for illustrative
purposes only and are purely hypothetical. They do not purport to be representative of every possible scenario concerning increases or
decreases in the value of the Underlying relative to the Initial Underlying Price. We cannot predict the Final Underlying Price or the
Closing Price of the Underlying on any other day. You should not take the scenario analysis and these examples as an indication or assurance
of the expected performance of the Underlying. The numbers set forth in the examples below have been rounded for ease of analysis. The
following scenario analysis and examples illustrate the Payment at Maturity for a $10.00 Principal Amount of Securities on a hypothetical
offering of the Securities.
The following scenario analysis and examples assume a hypothetical Initial
Underlying Price of $65.00, a hypothetical Downside Threshold of $58.50 (90% of the hypothetical Initial Underlying Price) and reflect
the Maximum Gain of 22.66%, the Upside Gearing of 1.5 and the Threshold Percentage of 10%. The actual Initial Underlying Price
and Downside Threshold are set forth on the cover of this pricing supplement.
Example 1 — The price of the Underlying
increases from an Initial Underlying Price of $65.00 to a Final Underlying Price of $68.25. The Underlying Return is calculated as
follows:
($68.25 – $65.00) / $65.00
= 5%
Because the Underlying Return is greater than zero, the
Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser of:
(A) $10.00
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+ ($10.00 × Underlying Return × Upside Gearing), and
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(B) $10.00
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+ ($10.00 × Maximum Gain)
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= the lesser of (A) $10.00 + ($10.00 × 5% × 1.5) and (B) $10.00 + ($10.00 × 22.66%)
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= the lesser of (A) $10.00 + ($10.00 × 7.50%) and (B) $10.00 + ($10.00 × 22.66%)
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= $10.00 + ($10.00 × 7.50%)
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= $10.00 + $0.75
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= $10.75
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Because the Underlying Return of 5% multiplied by the
Upside Gearing is less than the Maximum Gain of 22.66%, for each $10.00 Principal Amount of Securities, MSFL will pay you $10.75 at maturity.
Example 2 — The price of the Underlying
increases from an Initial Underlying Price of $65.00 to a Final Underlying Price of $97.50. The Underlying Return is calculated as
follows:
($97.50 – $65.00) / $65.00
= 50%
Because the Underlying Return is greater than zero, the
Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as the lesser of:
(A) $10.00
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+ ($10.00 × Underlying Return × Upside Gearing), and
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(B) $10.00
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+ ($10.00 × Maximum Gain)
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= the lesser of (A) $10.00 + ($10.00 × 50% × 1.5) and (B) $10.00 + ($10.00 × 22.66%)
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= the lesser of (A) $10.00 + ($10.00 × 75%) and (B) $10.00 + ($10.00 × 22.66%)
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= $10.00 + ($10.00 × 22.66%)
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= $10.00 + $2.266
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= $12.266
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Because the Underlying Return of 50% multiplied by the
Upside Gearing is greater than the Maximum Gain of 22.66%, for each $10.00 Principal Amount of Securities, MSFL will pay you $12.266 at
maturity, the maximum Payment at Maturity on the Securities. This represents the maximum amount payable over the 2-year term of the Securities.
Example 3 — The price of the Underlying
decreases from an Initial Underlying Price of $65.00 to a Final Underlying Price of $61.75. The Underlying Return is calculated as
follows:
($61.75 – $65.00) / $65.00
= -5%
Because the Underlying Return is negative, but the Final
Underlying Price is greater than or equal to the hypothetical Downside Threshold, at maturity, for each $10.00 Principal Amount of Securities,
MSFL will pay you the $10.00 Principal Amount (a zero percent return on the Principal Amount) at maturity.
Example 4 — The price of the Underlying
decreases from an Initial Underlying Price of $65.00 to a Final Underlying Price of $52.00. The Underlying Return is calculated as
follows:
($52.00 – $65.00) / $65.00
= -20%
Because the price of the Underlying has declined by more
than the Threshold Percentage, the Payment at Maturity for each $10.00 Principal Amount of Securities is calculated as follows:
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$10.00 + [$10.00 × (Underlying Return + 10%) × 1.111]
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= $10.00 + [$10.00 × (-20% + 10%) × 1.111]
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= $10.00 + [$10.00 × -10% × 1.111]
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Because the Underlying Return is negative and the Final
Underlying Price is less than the hypothetical Downside Threshold, MSFL will pay you less than the full Principal Amount, resulting in
a loss of 1.111% of the Principal Amount for every 1% that the price of the Underlying has declined by more than the Threshold Percentage.
The Payment at Maturity is equal to $8.89 per $10.00 Principal Amount of the Securities.
If the Final Underlying Price is less than the Downside
Threshold on the Final Valuation Date, you will suffer a loss on the Principal Amount of 1.111% for each 1% that the Underlying has declined
in excess of the Threshold Percentage. Under these circumstances, you will lose some or all of the Principal Amount at maturity.
Scenario Analysis – Hypothetical Payment
at Maturity for each $10.00 Principal Amount of Securities.
Hypothetical Final Underlying Price
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Hypothetical Underlying Return
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Upside Gearing
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Hypothetical Payment at Maturity
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Hypothetical Return on Securities (1)
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$130.00
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100.000%
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1.5
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$12.266
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22.66%
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$123.50
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90.000%
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1.5
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$12.266
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22.66%
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$117.00
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80.000%
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1.5
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$12.266
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22.66%
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$110.50
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70.000%
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1.5
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$12.266
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22.66%
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$104.00
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60.000%
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1.5
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$12.266
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22.66%
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$97.50
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50.000%
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1.5
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$12.266
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22.66%
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$91.00
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40.000%
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1.5
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$12.266
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22.66%
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$84.50
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30.000%
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1.5
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$12.266
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22.66%
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$78.00
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20.000%
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1.5
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$12.266
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22.66%
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$74.82
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15.107%
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1.5
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$12.266
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22.66%
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$74.75
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15.000%
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1.5
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$12.250
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22.50%
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$71.50
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10.000%
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1.5
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$11.500
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15.00%
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$68.25
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5.000%
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1.5
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$10.750
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7.50%
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$66.63
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2.500%
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1.5
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$10.375
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3.75%
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$65.00
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0.000%
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N/A
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$10.000
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0.00%
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$63.38
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-2.500%
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N/A
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$10.000
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0.00%
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$61.75
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-5.000%
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N/A
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$10.000
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0.00%
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$58.50
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-10.000%
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N/A
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$10.000
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0.00%
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$57.85
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-11.000%
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N/A
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$9.889
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-1.11%
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$52.00
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-20.000%
|
N/A
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$8.889
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-11.11%
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$45.50
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-30.000%
|
N/A
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$7.778
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-22.22%
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$39.00
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-40.000%
|
N/A
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$6.667
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-33.33%
|
$32.50
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-50.000%
|
N/A
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$5.556
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-44.44%
|
$26.00
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-60.000%
|
N/A
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$4.444
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-55.56%
|
$19.50
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-70.000%
|
N/A
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$3.333
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-66.67%
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$13.00
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-80.000%
|
N/A
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$2.222
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-77.78%
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$6.50
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-90.000%
|
N/A
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$1.111
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-88.89%
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$0.00
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-100.000%
|
N/A
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$0.000
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-100.00%
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(1) The “Return on Securities” is the
number, expressed as a percentage, that results from comparing the Payment at Maturity per $10 Principal Amount per Security to the purchase
price of $10 per Security.
What Are the Tax Consequences of the Securities?
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Prospective investors should
note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus supplement
does not apply to the Securities issued under this pricing supplement and is superseded by the following discussion.
The following summary is a general discussion of the
principal U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the Securities.
This discussion applies only to investors in the Securities who:
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purchase the Securities in the original offering; and
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hold the Securities as capital assets within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the “Code”).
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This discussion does not describe all of the tax consequences
that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject to special rules, such
as:
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certain financial institutions;
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certain dealers and traders in securities or commodities;
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investors holding the Securities as part of a “straddle,” wash
sale, conversion transaction, integrated transaction or constructive sale transaction;
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U.S. Holders (as defined below) whose functional currency is not the U.S.
dollar;
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partnerships or other entities classified as partnerships for U.S. federal
income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
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If an entity that is classified as a partnership for
U.S. federal income tax purposes holds the Securities, the U.S. federal income tax treatment of a partner will generally depend on the
status of the partner and the activities of the partnership. If you are a partnership holding the Securities or a partner in such a partnership,
you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing of the Securities to you.
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, each Security should be treated as a single financial contract that is an “open
transaction” for U.S. federal income tax purposes.
Due to the absence of statutory, judicial or administrative
authorities that directly address the treatment of the Securities or instruments that are similar to the Securities for U.S. federal income
tax purposes, no assurance can be given that the Internal Revenue Service (the “IRS”) or a court will agree with the tax treatment
described herein. Accordingly, you should consult your tax adviser regarding all aspects of the U.S. federal tax consequences of an investment
in the Securities (including possible alternative treatments of the Securities). Unless otherwise stated, the following discussion is
based on the treatment of the Securities as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you are a U.S.
Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Security that is, for U.S. federal income tax
purposes:
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a citizen or individual resident of the United States;
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a corporation, or other entity taxable as a corporation, created or organized
in or under the laws of the United States, any state thereof or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income taxation
regardless of its source.
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Tax Treatment of the Securities
Assuming the treatment of the Securities as set forth
above is respected, the following U.S. federal income tax consequences should result.
Tax Treatment Prior to Settlement. A U.S.
Holder should not be required to recognize taxable income over the term of the Securities prior to settlement, other than pursuant to
a sale or exchange as described below.
Tax Basis. A U.S. Holder’s tax basis
in the Securities should equal the amount paid by the U.S. Holder to acquire the Securities.
Sale, Exchange or Settlement of the Securities.
Upon a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain or loss equal to the difference between the
amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Securities sold, exchanged or settled.
Subject to the discussion below concerning the potential application of the “constructive ownership” rule under Section 1260
of the Code, any gain or loss recognized upon the sale, exchange or settlement of the Securities should be long-term capital gain or loss
if the U.S. Holder has held the Securities for more than one year at such time, and short-term capital gain or loss otherwise.
Potential Application of the Constructive Ownership
Rule. Because the Securities are linked to shares of an exchange-traded fund, although the matter is not clear, there is a substantial
risk that an investment in the Securities will be treated as a “constructive ownership transaction” under Section 1260 of
the Code. If this treatment applies, all or a portion of any long-term capital gain of the U.S. Holder in respect of the Securities could
be recharacterized as ordinary income (the “Recharacterized Gain”), in which case an interest charge will be imposed. The
amount of Recharacterized Gain (if any) that would be treated as ordinary income in respect of a Security will equal the excess of (i)
any long-term capital gain recognized by the U.S. Holder in respect of a Security over (ii) the “net underlying long-term capital
gain” (as defined in Section 1260 of the Code). Under Section 1260 of the Code, the amount of net underlying long-term capital gain
will be treated as zero unless otherwise “established by clear and convincing evidence.” As a result of the terms of the Securities,
such as the leveraged upside payment, it is unclear how to calculate the amount of Recharacterized Gain if an investment in the Securities
were treated as a constructive ownership transaction. Due to the lack of governing authority, our counsel is unable to opine as to whether
or how Section 1260 of the Code applies to the Securities. U.S. Holders should consult their tax advisers regarding the potential application
of the “constructive ownership” rule.
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, as discussed above. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations
or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment
in the Securities, possibly with retroactive effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income
tax consequences of an investment in the Securities, including possible alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of the payment
on the Securities at maturity and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless a U.S.
Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements
of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded,
or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely furnished
to the IRS. In addition, information returns may be filed with the IRS in connection with the payment on the Securities and the payment
of proceeds from a sale, exchange or other disposition of the Securities, unless the U.S. Holder provides proof of an applicable exemption
from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S.
Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that is, for U.S. federal income
tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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The term “Non-U.S. Holder” does not include
any of the following holders:
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a holder who is an individual present in the United States for 183 days or
more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income tax purposes;
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certain former citizens or residents of the United States; or
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a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
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Such holders should consult their tax advisers regarding
the U.S. federal income tax consequences of an investment in the Securities.
Tax Treatment upon Sale, Exchange or Settlement
of the Securities
In general.
Assuming the treatment of the Securities as set forth above is respected, and subject to the discussions below concerning backup withholding
and the possible application of Section 871(m) of the Code, 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 Section 871(m) and FATCA, if all or any portion of a Security were recharacterized as a debt instrument, any payment made to a Non-U.S.
Holder with respect to the Securities would not be subject to U.S. federal withholding tax, provided that:
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the Non-U.S. Holder does not own, directly or by attribution, ten percent
or more of the total combined voting power of all classes of Morgan Stanley stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation related, directly
or indirectly, to Morgan Stanley through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest under Section 881(c)(3)(A)
of the Code, and
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the certification requirement described below has been fulfilled with respect
to the beneficial owner.
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Certification Requirement. The certification
requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Security (or a financial institution
holding a Security on behalf of the beneficial owner) furnishes to the applicable withholding agent an IRS Form W-8BEN (or other appropriate
form) on which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
In 2007, the U.S. Treasury Department and the IRS released
a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments.
Among the issues addressed in the notice is the degree, if any, to which any income with respect to instruments such as the Securities
should be subject to U.S. withholding tax. It is possible that any Treasury regulations or other guidance promulgated after consideration
of this issue could materially and adversely affect the withholding tax consequences of ownership and disposition of the Securities, possibly
on a retroactive basis. Non-U.S. Holders should note that we currently do not intend to withhold on any payment made with respect to the
Securities to Non-U.S. Holders (subject to compliance by such holders with the certification requirement described above and to the discussions
below regarding Section 871(m) and FATCA). However, in the event of a change of law or any formal or informal guidance by the IRS, the
U.S. Treasury Department or Congress, we may decide to withhold on payments made with respect to the Securities to Non-U.S. Holders, and
we will not be required to pay any additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult their
tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the Securities, including the possible
implications of the notice referred to above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section 871(m) of the Code and Treasury regulations
promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend
equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices that
include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m) generally applies to
securities that substantially replicate the economic performance of one or more Underlying Securities, as determined based on tests set
forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant to an IRS notice, Section 871(m)
will not apply to securities issued before January 1, 2023 that do not have a delta of one with respect to any Underlying Security. Based
on our determination that the Securities do not have a delta of one with respect to any Underlying Security, our counsel is of the opinion
that the Securities should not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our determination is not binding on the IRS, and the
IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including
whether you enter into other transactions with respect to an Underlying Security. If withholding is required, we will not be required
to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser regarding the potential application
of Section 871(m) to the Securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property
of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the individual has retained certain interests or powers), should note that, absent
an applicable treaty exemption, the Securities may be treated as U.S. situs property subject to U.S. federal estate tax. Prospective investors
that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers regarding the U.S. federal
estate tax consequences of an investment in the Securities.
Backup Withholding and Information Reporting
Information returns may be filed with the IRS in connection
with the payment on the Securities at maturity as well as in connection with the payment of proceeds from a sale, exchange or other disposition
of the Securities. A Non-U.S. Holder may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such
Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes
or otherwise establishes an exemption. Compliance with the certification procedures described above under “―Tax Treatment
upon Sale, Exchange or Settlement of the Securities – Certification Requirement” will satisfy the certification requirements
necessary to avoid backup withholding as well. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed
as a credit against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided
that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA”
generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect
to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An intergovernmental
agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements. FATCA generally applies
to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed or determinable annual
or periodical” income (“FDAP income”). If the Securities were recharacterized as debt instruments, FATCA would apply
to any payment of amounts treated as interest and to payments of gross proceeds of the disposition (including upon retirement) of the
Securities. However, under recently proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on them
pending finalization), no withholding will apply on payments of gross proceeds (other than amounts treated as FDAP income). If withholding
were to apply to the Securities, we would not be required to pay any additional amounts with respect to amounts withheld. Both U.S. and
Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the Securities.
The discussion in the preceding paragraphs under
“What Are the Tax Consequences of the Securities,” 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.
The iShares® Core MSCI Emerging Markets ETF
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The iShares® Core MSCI Emerging Markets
ETF, or IEMG, is an exchange-traded fund that seeks investment results that correspond generally to the price and yield performance, before
fees and expenses, of the MSCI Emerging Markets Investable Market Index. The iShares® Core MSCI Emerging Markets ETF is
managed by iShares Trust (“iShares”), a registered investment company that consists of numerous separate investment portfolios,
including the iShares® Core MSCI Emerging Markets ETF. Information provided to or filed with the Securities and Exchange
Commission (the “Commission”) by iShares pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can
be located by reference to Commission file numbers 033-97598 and 811-09102, respectively, through the Commission’s website at.www.sec.gov.
In addition, information may be obtained from other publicly available sources. Neither the issuer nor the agent makes any representation
or warranty that any such publicly available information regarding the iShares® Core MSCI Emerging Markets ETF is accurate
or complete. The Underlying Shares are listed on The NYSE Arca Exchange under the ticker symbol “IEMG UP.”
We and/or our affiliates may presently or from time
to time engage in business with iShares. In the course of such business, we and/or our affiliates may acquire non-public information with
respect to iShares, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more
of our affiliates may publish research reports with respect to the iShares® Core MSCI Emerging Markets ETF. The statements
in the preceding two sentences are not intended to affect the rights of investors in the Securities under the securities laws. As a prospective
purchaser of the Securities, you should undertake an independent investigation of iShares as in your judgment is appropriate to make an
informed decision with respect to an investment linked to the Underlying Shares.
iShares® is a registered trademark of BlackRock Fund Advisors
or its affiliates (“BFA”). The Securities are not sponsored, endorsed, sold, or promoted by BFA. BFA makes no representations
or warranties to the owners of the Securities or any member of the public regarding the advisability of investing in the Securities. BFA
has no obligation or liability in connection with the operation, marketing, trading or sale of the Securities.
The following table sets forth the published high and low Closing Prices,
as well as the end-of-quarter Closing Prices, of the iShares® Core MSCI Emerging Markets ETF for each quarter in the period
from January 1, 2016 through June 11, 2021. The Closing Price of the iShares® Core MSCI Emerging Markets ETF on June 11,
2021 was $67.08. We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The
historical Closing Prices of the iShares® Core MSCI Emerging Markets ETF should not be taken as an indication of future
performance, and no assurance can be given as to the Closing Price of the iShares® Core MSCI Emerging Markets ETF on the
Final Valuation Date.
Quarter Begin
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Quarter End
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Quarterly High ($)
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Quarterly Low ($)
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Quarterly Close ($)
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1/1/2016
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3/31/2016
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41.68
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34.69
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41.62
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4/1/2016
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6/30/2016
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42.97
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39.16
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41.83
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7/1/2016
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9/30/2016
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46.30
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41.13
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45.61
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10/1/2016
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12/31/2016
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46.26
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41.42
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42.45
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1/1/2017
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3/31/2017
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48.50
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42.91
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47.79
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4/1/2017
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6/30/2017
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50.78
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47.23
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50.04
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7/1/2017
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9/30/2017
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55.25
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49.56
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54.02
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10/1/2017
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12/31/2017
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57.63
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54.04
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56.90
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1/1/2018
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3/31/2018
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62.69
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55.19
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58.40
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4/1/2018
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6/30/2018
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58.27
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51.25
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52.51
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7/1/2018
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9/30/2018
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54.37
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49.80
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51.78
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10/1/2018
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12/31/2018
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51.77
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45.85
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47.15
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1/1/2019
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3/31/2019
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52.64
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46.41
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51.71
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4/1/2019
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6/30/2019
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53.71
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48.09
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51.44
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7/1/2019
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9/30/2019
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52.12
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46.63
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49.02
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10/1/2019
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12/31/2019
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53.99
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48.38
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53.76
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1/1/2020
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3/31/2020
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55.44
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36.22
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40.47
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4/1/2020
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6/30/2020
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49.26
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38.83
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47.60
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7/1/2020
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9/30/2020
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54.44
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48.22
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52.80
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10/1/2020
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12/31/2020
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62.10
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52.65
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62.04
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1/1/2021
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3/31/2021
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69.46
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62.41
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64.36
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4/1/2021
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6/11/2021*
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68.14
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63.17
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67.08
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*Available information for the indicated period includes data for less
than the entire calendar quarter and accordingly, the “Quarterly High,” “Quarterly Low” and “Quarterly Close”
data indicated are for this shortened period only.
The graph below illustrates the performance of the iShares®
Core MSCI Emerging Markets ETF from October 22, 2012 through June 11, 2021, based on information from Bloomberg. Past performance
of the iShares® Core MSCI Emerging Markets ETF is not indicative of the future performance of the iShares®
Core MSCI Emerging Markets ETF.
Additional Terms of the Securities
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If the terms discussed in this pricing supplement differ from those discussed
in the prospectus supplement or prospectus, the terms contained in this pricing supplement will control.
Some Definitions
We have defined some of the terms that we use frequently in this pricing
supplement below:
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“Share Underlying Index” means the MSCI Emerging Markets Investable
Market Index.
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“Share Underlying Index Publisher” means MSCI Inc. or any successor
thereto.
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“Closing Price” means, subject to the provisions set out under
“Discontinuance of the Underlying Shares and/or Share Underlying Index; Alteration of Method of Calculation” below, for one
Underlying Share (or one unit of any other security for which a Closing Price must be determined) on any Trading Day means:
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if the Underlying Shares (or any such other security) are listed on a national securities exchange (other than The Nasdaq Stock Market
LLC (“Nasdaq”)), the last reported sale price, regular way, of the principal trading session on such day on the principal
national securities exchange registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on which
the Underlying Shares (or any such other security) are listed,
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if the Underlying Shares (or any such other security) are securities of Nasdaq, the official closing price published by Nasdaq on
such day, or
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if the Underlying Shares (or any such other security) are not listed on any national securities exchange but are included in the OTC
Bulletin Board Service (the “OTC Bulletin Board”) operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”),
the last reported sale price of the principal trading session on the OTC Bulletin Board on such day.
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If the Underlying Shares (or any such other
security) are listed on any national securities exchange but the last reported sale price or the official closing price published by such
exchange, or by Nasdaq, as applicable, is not available pursuant to the preceding sentence, then the Closing Price for one Underlying
Share (or one unit of any such other security) on any Trading Day will mean the last reported sale price of the principal trading session
on the over-the-counter market as reported on Nasdaq or the OTC Bulletin Board on such day. If a Market Disruption Event (as defined below)
occurs with respect to the Underlying Shares (or any such other security) or the last reported sale price or the official closing price
published by Nasdaq, as applicable, for the Underlying Shares (or any such other security) is not available pursuant to either of the
two preceding sentences, then the Closing Price for any Trading Day will be the mean, as determined by the Calculation Agent, of the bid
prices for the Underlying Shares (or any such other security) for such Trading Day obtained from as many recognized dealers in such security,
but not exceeding three, as will make such bid prices available to the Calculation Agent. Bids of Morgan Stanley & Co. LLC (“MS
& Co.”) and its successors or any of its affiliates may be included in the calculation of such mean, but only to the extent
that any such bid is the highest of the bids obtained. If no bid prices are provided from any third party dealers, the Closing Price will
be determined by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account any information
that it deems relevant. The term “OTC Bulletin Board Service” will include any successor service thereto, or, if applicable,
the OTC Reporting Facility operated by FINRA. This definition of “Closing Price” is subject to the provisions under “—Discontinuance
of the Underlying Shares and/or Share Underlying Index; Alteration of Method of Calculation” below.
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“Trading Day” means a day, as determined by the Calculation Agent,
on which trading is generally conducted on the New York Stock Exchange LLC, Nasdaq, the Chicago Mercantile Exchange and the Chicago Board
of Options Exchange and in the over-the-counter market for equity securities in the United States.
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“Market Disruption Event” means:
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(i)
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the occurrence or existence of any of:
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(a) a suspension, absence or material limitation
of trading of the Underlying Shares on the primary market for the Underlying Shares for more than two hours of trading or during the one-half
hour period preceding the close of the principal trading session in such market; or a breakdown or failure in the price and trade reporting
systems of the primary market for the Underlying Shares as a result of which the reported trading prices for the Underlying Shares during
the last one-half hour preceding the close of the principal trading session in such market are materially inaccurate; or the suspension,
absence or material limitation of trading on the primary market for trading in futures or options contracts related to the Underlying
Shares, if available, during the one-half hour period preceding the close of the principal trading session in the applicable market, or
(b) the occurrence or existence of a suspension,
absence or material limitation of trading of securities then constituting 20 percent or more of the value of the Share Underlying Index
on the Relevant Exchanges 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 Exchanges, or
(c) the suspension, material limitation
or absence of trading on any major U.S. securities market for trading in futures or options contracts related to the Share Underlying
Index or the Underlying Shares 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
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(ii)
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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 Securities.
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For the purpose of determining whether a Market Disruption
Event exists at any time, if trading in a security included in the Share Underlying Index is materially suspended or materially limited
at that time, then the relevant percentage contribution of that security to the level of the Share Underlying Index shall be based on
a comparison of (x) the portion of the level of the Share Underlying Index attributable to that security relative to (y) the overall level
of the Share Underlying 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 Underlying Shares or in the futures or options contract related to the Share Underlying Index or the Underlying
Shares will not constitute a Market Disruption Event, (3) a suspension of trading in futures or options contracts on the Share Underlying
Index or the Underlying Shares by the primary securities market trading in such contracts 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 (c) a disparity in bid and ask quotes
relating to such contracts will constitute a suspension, absence or material limitation of trading in futures or options contracts related
to the Share Underlying Index or the Underlying Shares 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 related to the Share Underlying Index or the Underlying
Shares are traded will not include any time when such securities market is itself closed for trading under ordinary circumstances.
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“Relevant Exchange” means the primary exchange(s) or market(s)
of trading for any security (or any combination thereof) then included in the Share Underlying Index or any Successor Index.
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Postponement of Final Valuation Date and Maturity Date
If the scheduled Final Valuation Date is not a Trading Day or if a Market
Disruption Event with respect to the Underlying Shares occurs on the scheduled Final Valuation Date, the Final Underlying Price will be
determined on the immediately succeeding Trading Day on which no Market Disruption Event shall have occurred; provided that the
Final Underlying Price will not be determined on a date later than the fifth scheduled Trading Day after the scheduled Final Valuation
Date, and if such date is not a Trading Day or if there is a Market Disruption Event on such date, the Calculation Agent will determine
the Closing Price of an Underlying Share on such date as the mean of the bid prices for an Underlying Share for such date obtained from
as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the Calculation Agent.
Bids of MS & Co. or any of its affiliates may be included in the calculation of such mean, but only to the extent that any such bid
is the highest of the bids obtained. If no bid prices are provided from any third party dealers, the Closing Price will be determined
by the Calculation Agent in its sole and absolute discretion (acting in good faith) taking into account any information that it deems
relevant.
If the Final Valuation Date is postponed so that it falls less than two
business days prior to the scheduled Maturity Date, the Maturity Date will be the second business day following the Final Valuation Date,
as postponed.
Antidilution Adjustments for Securities linked to Exchange-Traded
Funds
If the Underlying Shares are subject to a stock split or reverse stock
split, then once such split has become effective, the Adjustment Factor will be adjusted to equal the product of the prior Adjustment
Factor and the number of shares issued in such stock split or reverse stock split with respect to one Underlying Share. No such adjustment
to the Adjustment Factor will be required unless such adjustment would require a change of at least 0.1% in the amount being adjusted
as then in effect. Any number so adjusted will be rounded to the nearest one hundred-thousandth with five one-millionths being rounded
upward.
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:
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the lowest amount that a Qualified Financial Institution would charge to effect this assumption or undertaking, plus
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the reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the Securities in preparing any documentation
necessary for this assumption or undertaking.
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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 the Depositary 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:
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no quotation of the kind referred to above is obtained, or
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every quotation of that kind obtained is objected to within five business days after the due date as described above.
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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 Valuation 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:
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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
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P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating agency.
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Discontinuance of the Underlying Shares; Alteration of Method of Calculation
If trading in the Underlying Shares on every applicable national securities
exchange, on the OTC Bulletin Board and in the over-the-counter market is permanently discontinued or the Underlying Shares are liquidated
or otherwise terminated (a “Discontinuance or Liquidation Event”), the Closing Price of the Underlying Shares on the Final
Valuation Date or the date of acceleration following the Discontinuance or Liquidation Event will be determined by the Calculation Agent
and will be deemed to equal the product of (i) the closing value of the Share Underlying Index (or any Successor Index, as described below)
on such date (taking into account any material changes in the method of calculating the Share Underlying Index following such Discontinuance
or Liquidation Event) and (ii) a fraction, the numerator of which is the Closing Price of the Underlying Shares and the denominator of
which is the closing value of the Share Underlying Index (or any Successor Index, as described below), each determined as of the last
day prior to the occurrence of the Discontinuance or Liquidation Event on which a Closing Price of the Underlying Shares was available.
If, subsequent to a Discontinuance or Liquidation Event, the Share Underlying
Index Publisher discontinues publication of the Share Underlying Index and the Share Underlying Index Publisher or another entity (including
MS & Co.) publishes a successor or substitute index that the Calculation Agent determines, in its sole discretion, to be comparable
to the discontinued Share Underlying Index (such index being referred to herein as a “Successor Index”), then any subsequent
Closing Price of the Underlying Shares on any Trading Day following a Discontinuance or Liquidation Event will be determined by reference
to the published value of such Successor Index at the regular weekday close of trading on such Trading Day that the Closing Price is to
be determined, and, to the extent the value of the Successor Index differs from the value of the Share Underlying Index at the time of
such substitution, proportionate adjustments will be made by the Calculation Agent for purposes of calculating payments on the Securities.
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 us and to the Depositary, 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 such
Securities, in accordance with the standard rules and procedures of the Depositary and its direct and indirect participants.
If, subsequent to a Discontinuance or Liquidation Event, the Share Underlying
Index Publisher discontinues publication of the Share Underlying Index prior to, and such discontinuance is continuing on the Final Valuation
Date and MS & Co., as the Calculation Agent, determines, in its sole discretion, that no Successor Index is available at such time,
then the Calculation Agent will determine the Closing Price of the Underlying Shares for such date. The Closing Price of the Underlying
Shares will be computed by the Calculation Agent in accordance with the formula for calculating the Share Underlying 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 composing the Share Underlying Index
without any rebalancing or substitution of such securities following such discontinuance. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Share Underlying Index may adversely affect the value of the Securities.
Trustee
The “Trustee” for each offering of notes issued under our
Senior Debt Indenture, including the Securities, will be The Bank of New York Mellon, a New York banking corporation.
Agent
The “agent” is MS & Co.
Calculation Agent and Calculations
The “Calculation Agent” for the Securities will be MS &
Co. As Calculation Agent, MS & Co. will determine, among other things, the Initial Underlying Price, the Downside Threshold, the Final
Underlying Price, the Underlying Return and the Payment at Maturity.
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, if any, 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 will be rounded to the nearest ten-thousandth,
with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to .7655); and all dollar amounts paid on the aggregate
number of Securities 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 owner of the Securities, including with respect to
certain determinations and judgments that the Calculation Agent must make in determining the Final Underlying Price or whether a Market
Disruption Event has occurred. See “—Discontinuance of the Underlying Shares and/or Share Underlying Index; Alteration of
Method of Calculation,” and the definition of Market Disruption Event. MS & Co. is obligated to carry out its duties and functions
as Calculation Agent in good faith and using its reasonable judgment.
Issuer Notice to Registered Security Holders, the Trustee and the
Depositary
In the event that the Maturity Date of the Securities is postponed due
to a postponement of the Final Valuation Date, the Issuer shall give notice of such postponement and, once it has been determined, of
the date to which the Maturity Date has been rescheduled (i) to each registered holder of the Securities by mailing notice of such postponement
by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books, (ii)
to the Trustee by facsimile confirmed by mailing such notice to the Trustee by first class mail, postage prepaid, at its New York office
and (iii) to The Depository Trust Company (the “Depositary”) by telephone or facsimile confirmed by mailing such notice to
the Depositary by first class mail, postage prepaid. Any notice that is mailed to a registered holder of the Securities in the manner
herein provided shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder
receives the notice. The Issuer shall give such notice as promptly as possible, and in no case later than (i) with respect to notice of
postponement of the Maturity Date, the Business Day immediately preceding the scheduled Maturity Date and (ii) with respect to notice
of the date to which the Maturity Date has been rescheduled, the Business Day immediately following the Final Valuation Date as postponed.
The Issuer shall, or shall cause the Calculation Agent to, (i) provide
written notice to the Trustee and to the Depositary of the amount of cash, if any, to be delivered with respect to each stated principal
amount of the Securities, 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, if any, to the Trustee for delivery to the Depositary, as holder of the
Securities, on the Maturity Date.
Additional Information About the Securities
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