PROSPECTUS SUPPLEMENT	Filed Pursuant to Rule 424(b)(2)
For Currency-Linked Performance Leveraged Upside Securities	Registration Statement Nos. 333-250103
(To Prospectus dated November 16, 2020)	333-250103-01

GLOBAL MEDIUM-TERM NOTES, SERIES I

Senior Notes

Morgan Stanley Finance LLC

GLOBAL MEDIUM-TERM NOTES, SERIES A

Senior Notes

Fully and Unconditionally Guaranteed by Morgan Stanley

Currency-Linked Performance Leveraged Upside Securities^SM (“PLUS^SM”)

We, Morgan Stanley and Morgan Stanley Finance LLC (“MSFL”), a wholly owned finance subsidiary of Morgan Stanley, may offer from time to time performance leveraged upside securities, which we refer to as PLUS, that may be linked to a single currency or a basket of currencies. The specific terms of any such PLUS that we offer, including the name of the underlying currency or currencies, will be included in a pricing supplement. If the terms described in the applicable pricing supplement are inconsistent with those described in this prospectus supplement for PLUS or the accompanying prospectus, the terms described in the applicable pricing supplement will prevail. The PLUS will have the following general terms:

 

The applicable pricing supplement will describe the specific terms of the PLUS, including any changes to the terms specified in this prospectus supplement. See “Description of the PLUS––General Terms of the PLUS––Terms Specified in Pricing Supplements” on page S-39.

 

MSFL’s payment obligations on PLUS issued by it will be fully and unconditionally guaranteed by Morgan Stanley.

 

 

Investing in the PLUS involves risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page S-31.

 

 

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Morgan Stanley & Co. LLC, a wholly owned subsidiary of Morgan Stanley and an affiliate of MSFL, has agreed to use reasonable efforts to solicit offers to purchase these securities as our agent. The agent may also purchase these securities as principal at prices to be agreed upon at the time of sale. The agent may resell any securities it purchases as principal at prevailing market prices, or at other prices, as the agent determines.

 

Morgan Stanley & Co. LLC may use this prospectus supplement, the applicable pricing supplement and the accompanying prospectus in connection with offers and sales of the securities in market-making transactions.

 

These securities are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations of, or guaranteed by, a bank.

 

 

MORGAN STANLEY

 

November 16, 2020

 

For a description of certain restrictions on offers, sales and deliveries of the PLUS and on the distribution of this prospectus supplement and the accompanying prospectus relating to the PLUS, see the section of this prospectus supplement called “Plan of Distribution (Conflicts of Interest).”

 

No action has been or will be taken by us, the agent or any dealer that would permit a public offering of the PLUS or possession or distribution of this prospectus supplement or the accompanying prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Neither this prospectus supplement nor the accompanying prospectus may be used for the purpose of an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

 

With respect to sales of the PLUS in Canada, the PLUS may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are both accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the PLUS must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

 

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this document (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

 

Unless otherwise noted in the applicable pricing supplement, pursuant to section 3A.3 (or, in the case of PLUS issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (“NI 33-105”), the dealers, underwriters or agents, if any, involved in the sale of the PLUS are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

 

IMPORTANT – EEA AND UNITED KINGDOM RETAIL INVESTORS – The PLUS are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (the “EEA”) or in the United Kingdom. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU, as amended (“MiFID II”); (ii) a customer within the meaning of Directive (EU) 2016/97 (the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in the European Union’s Regulation (EU) 2017/1129 (the “Prospectus Regulation”). Consequently no key information document required by Regulation (EU) No 1286/2014, as amended (the “PRIIPs Regulation”) for offering or selling the PLUS or otherwise making them available to retail investors in the EEA or in the United Kingdom has been prepared and therefore offering or selling the PLUS or otherwise making them available to any retail investor in the EEA or in the United Kingdom may be unlawful under the PRIIPs Regulation.

 

Neither this prospectus supplement nor the accompanying prospectus is a prospectus for the purposes of the Prospectus Regulation. This prospectus supplement and the accompanying prospectus have been prepared on the basis that all offers of the PLUS made to persons in the EEA or in the United Kingdom will be made pursuant to an exemption under the Prospectus Regulation from the requirement to produce a prospectus in connection with offers of the PLUS.

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed under this program will be required to represent and agree, that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any PLUS to any retail investor in the EEA or in the United Kingdom. For the purposes of this provision:

 

(a)  the expression “retail investor” means a person who is one (or more) of the following:

 

(i)  a retail client as defined in point (11) of Article 4(1) of MiFID II; or

 

(ii)  a customer within the meaning of the Insurance Distribution Directive, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or

 

(iii)  not a qualified investor as defined in the Prospectus Regulation; and

 

(b)  the expression an “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the PLUS to be offered so as to enable an investor to decide to purchase or subscribe for the PLUS.

 

With respect to PLUS to be offered or sold in the United Kingdom, the agent has represented and agreed, and each underwriter, dealer, other agent and remarketing firm participating in the distribution of the PLUS will be required to represent and agree, that (1) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, as amended (the “FSMA”)) received by it in connection with the issue or sale of any PLUS in circumstances in which Section 21(1) of the FSMA does not apply to us, and (2) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any PLUS in, from or otherwise involving the United Kingdom.

 

The communication of this prospectus supplement, the accompanying prospectus and any other documents or materials relating to the issue of PLUS is not being made, and such documents and/or materials have not been approved, by an authorised person for the purposes of Section 21 of the FSMA. Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The communication of such documents and/or materials as a financial promotion is only being made to those persons in the United Kingdom falling within the definition of investment professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Financial Promotion Order”) or within Article 49(2)(A) to (D) of the Financial Promotion Order, or to any other persons to whom it may otherwise lawfully be made under the Financial Promotion Order (all such persons together being referred to as “relevant persons”). In the United Kingdom the PLUS are only available to, and any investment or investment activity to which this prospectus supplement or the accompanying prospectus relates will be engaged in only with, relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus supplement or the accompanying prospectus or any of its or their contents.

 

Where PLUS have a maturity of less than one year from their date of issue and either (a) the issue proceeds are received by us in the United Kingdom or (b) the activity of issuing the PLUS is carried on from an establishment maintained by us in the United Kingdom, each such PLUS must: (i)(A) have a minimum redemption value of £100,000 (or its equivalent in other currencies) (B) no part of any such PLUS may be transferred unless the redemption value of that part is not less than £100,000 (or its equivalent in other currencies) and (C) be issued only to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses; or (ii) be issued in other circumstances which do not constitute a contravention of Section 19 of the FSMA by us.

 

With respect to such PLUS that have a maturity of less than one year, the agent has represented and agreed, and each underwriter, dealer, other agent and remarketing firm participating in the distribution of the PLUS will be required to represent and agree, that (1) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business, and (2) it has not offered or sold and will not offer or sell any such PLUS other than to persons:

 

(i)   whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses; or

 

(ii)  who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses,

 

where the issue of the PLUS would otherwise constitute a contravention of Section 19 of the FSMA by us.

 

The PLUS have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Law No.25 of 1948, as amended, the “FIEA”). The agent has agreed, and each further agent, dealer and underwriter appointed with respect to any PLUS will be required to agree, that the PLUS may not be offered or sold, directly or indirectly, in Japan or to or for the account or benefit of any resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Law No. 228 of 1949, as amended)) or to others for re-offering or resale, directly or indirectly, in Japan or to or for the account or benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of and otherwise in compliance with the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan.

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed with respect to any PLUS will be required to represent and agree, that it will not offer or sell, directly or indirectly, any PLUS in the Republic of France and will not distribute or cause to be distributed in the Republic of France this prospectus supplement or the accompanying prospectus or any other offering material relating to the PLUS, except to qualified investors (investisseurs qualifiés) as defined in and in accordance with Articles L.411-2 and D.411-1 of the French Code Monétaire et Financier.

 

The contents of this prospectus supplement and the accompanying prospectus have not been reviewed or approved by any regulatory authority in Hong Kong. This prospectus supplement or the accompanying prospectus does not constitute an offer or invitation to the public in Hong Kong to acquire PLUS. No PLUS have been offered or sold or will be offered or sold, in Hong Kong, by means of any document, other than to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (“SFO”) and any rules made under that Ordinance; or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (“CO”) or which do not constitute an offer to the public within the meaning of the CO. No document, invitation or advertisement relating to the PLUS has been issued or will be issued or has been or will be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted under the securities laws of Hong Kong) other than with respect to PLUS which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under that Ordinance. The offer of the PLUS is personal to the person to whom this prospectus supplement or the accompanying prospectus has been delivered by or on behalf of us, and a subscription for PLUS will only be accepted from such person. No person to whom a copy of this prospectus supplement or the accompanying prospectus is issued may copy, issue or distribute this prospectus supplement or the accompanying prospectus to any other person. You are advised to exercise caution in relation to the offer. If you are in any doubt about the contents of this prospectus supplement or the accompanying prospectus, you should obtain independent professional advice.

 

Neither this prospectus supplement nor the accompanying prospectus has been registered as a prospectus under the Securities and Futures Act, Chapter 289 of Singapore, as amended (the “SFA”) by the Monetary Authority of Singapore and the PLUS will be offered pursuant to exemptions under the SFA.  Accordingly, none of this prospectus supplement, the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of any PLUS may be circulated or distributed, nor may any PLUS be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined in Section 4A of the SFA (an “Institutional Investor”)) pursuant to Section 274 of the SFA, (ii) to an accredited investor (as defined in Section 4A of the SFA (an “Accredited Investor”)) or other relevant person (as defined in Section 275(2) of the SFA (a “Relevant Person”)) and pursuant to Section 275(1) of the SFA, or to any person pursuant to an offer referred to in Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA and (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018, or (iii) otherwise pursuant to, and in accordance with, the conditions of any other applicable exemption or provision of the SFA.  Where PLUS are subscribed for or acquired pursuant to an offer made in reliance on Section 275 of the SFA by a Relevant Person which is:

 

(i)  a corporation (which is not an Accredited Investor), the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an Accredited Investor; or

 

(ii)  a trust (where the trustee is not an Accredited Investor), the sole purpose of which is to hold investments and each beneficiary of the trust is an individual who is an Accredited Investor,

 

securities or securities-based derivatives contracts (each as defined in Section 2(1) of the SFA) of that corporation and the beneficiaries’ rights and interests (howsoever described) in that trust shall not be transferred for six months after that corporation or that trust has subscribed for or acquired the PLUS except:

 

(A) to an Institutional Investor, or an Accredited Investor or other Relevant Person, or which arises from an offer referred to in Section 275(1A) of the SFA (in the case of that corporation) or Section 276(4)(i)(B) of the SFA (in the case of that trust);

 

(B) where no consideration is or will be given for the transfer;

 

(C) where the transfer is by operation of law;

 

(D) as specified in Section 276(7) of the SFA; or

 

(E) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore.

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed under this program will be required to represent and agree, that, subject to the paragraph immediately below:

 

(i)  the PLUS may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act (the “FinSA”) and will not be admitted to trading on a trading venue (exchange or multilateral trading facility) in Switzerland;

 

(ii)  none of this prospectus supplement, the accompanying prospectus or any other offering or marketing material relating to any PLUS (x) constitutes a prospectus compliant with the requirements of articles 652a and 1156 of the Swiss Code of Obligations (as such articles were in effect immediately prior to the entry into effect of the FinSA) in accordance with article 109 of the Swiss Financial Services Ordinance (“FinSO”) or pursuant to articles 35 and 45 of the FinSA for a public offering of the PLUS in Switzerland and no such prospectus has been or will be prepared for or in connection with the offering of the PLUS in Switzerland or (y) has been or will be filed with or approved by a Swiss review body (Prüfstelle) pursuant to article 52 of the FinSA; and

 

(iii)  none of this prospectus supplement, the accompanying prospectus or other offering or marketing material relating to any PLUS may be publicly distributed or otherwise made publicly available in Switzerland.

 

Notwithstanding the paragraph immediately above, in respect of any issuance of PLUS, the issuer of PLUS, the agent and the relevant dealer(s) and underwriter(s) may agree that (x) such PLUS may be publicly offered in Switzerland within the meaning of the FinSA and/or (y) an application will be made by (or on behalf of) the issuer to admit such PLUS to trading on a trading venue (exchange or multilateral trading facility) in Switzerland, provided that:

 

(i)  the issuer is able to rely, and is relying, on an exemption from the requirement to prepare and publish a prospectus under the FinSA in connection with such public offer and/or application for admission to trading;

 

(ii)  in the case of any such public offer, the relevant agent, dealer(s) and underwriter(s) have agreed to comply with any restrictions applicable to the offer and sale of such PLUS that must be complied with in order for the issuer to rely on such exemption; and

 

(iii)  the applicable pricing supplement will specify that such PLUS may be publicly offered in Switzerland within the meaning of the FinSA and/or the trading venue in Switzerland to which an application will be made by (or on behalf of) the issuer to admit such PLUS to trading thereon.

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed under this program will be required to represent and agree, that,

 

(i)  no key information document (Basisinformationsblatt) pursuant to article 58 (1) of the FinSA (or any equivalent document under the FinSA) has been or will be prepared in relation to any PLUS; and

 

(ii)  therefore, any PLUS with a derivative character within the meaning of article 86 (2) of the FinSO may not be offered or recommended to private clients within the meaning of the FinSA in Switzerland.

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed with respect to any PLUS will be required to represent and agree, that it will not offer or sell, directly or indirectly, any PLUS in the Republic of Chile and will not distribute or cause to be distributed in the Republic of Chile this prospectus supplement, the accompanying prospectus or any other offering material relating to the PLUS, except to “qualified investors” and subject to Norma de Carácter General No. 336 (“NCG 336”) of June 27, 2012 issued by the Financial Market Commission of Chile (“CMF”).

 

The CMF nor any other regulatory authority in the Republic of Chile has reviewed or approved the contents of this prospectus supplement or the accompanying prospectus. This prospectus supplement or the accompanying prospectus does not constitute an offer or invitation to the public in Chile to acquire PLUS.

 

According to NCG 336, on or before making any offer of the PLUS in Chile, the person making the offer shall include in all offering materials the following cautionary language in English and in Spanish:

 

“IMPORTANT INFORMATION FOR INVESTORS RESIDENT IN CHILE: (1) The offering of the PLUS will commence in Chile on [dd/mm/yyyy]; (2) the offering will be subject to Norma de Carácter General N° 336 of the CMF; (3) the offered PLUS are not and will not be registered in the Securities Registry (Registro de Valores) or in the Foreign Securities Registry (Registro de Valores Extranjeros) of the CMF and will therefore not be subject to the supervision of the CMF; (4) the offered PLUS are not registered in Chile and the issuer thereof is not required to disclose information to the public in Chile about its PLUS; and (5) the offered PLUS cannot and will not be publicly offered in Chile unless and until the offered PLUS are registered in the corresponding securities registry of the CMF.

 

INFORMACIÓN IMPORTANTE PARA INVERSIONISTAS RESIDENTES EN CHILE: (1) La oferta de los valores comenzará en Chile el día [dd/mm/aaaa]; (2) la oferta se acogerá a la Norma de Carácter General N° 336 de la CMF; (3) los valores no están ni estarán inscritos en el Registro de Valores o en el Registro de Valores Extranjeros que lleva la CMF, por lo que tales valores no están sujetos a la fiscalización de ésta; (4) Por tratarse de valores no inscritos, no existe obligación por parte del emisor de entregar en Chile información pública respecto de estos valores, y (5) Los valores no podrán ser objeto de oferta pública en Chile mientras no sean inscritos en el Registro de Valores correspondiente.”

 

Pursuant to NCG 336, the PLUS may be privately offered to certain “qualified investors” as such are defined in NCG 336 and further described in Rules No. 216 of June 12, 2008 and 410 of July 27, 2016 of the CMF. The person making the offer in Chile should consult with local counsel about these definitions.

 

The PLUS have not been, and will not be, issued, placed, distributed, offered or negotiated in the Brazilian capital markets. The issuance of the PLUS has not been nor will the PLUS be registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the CVM. Any public offering or distribution, as defined under Brazilian laws and regulations, of the PLUS in Brazil is not permitted without such registration or an express exemption or registration with the CVM pursuant to Brazilian laws and regulations. Documents relating to the offering of the PLUS, as well as information contained therein, may not be supplied to the public in Brazil (as the offering of the PLUS is not a public offering of securities in Brazil), nor be used in connection with any offer for subscription or sale of the PLUS to the public in Brazil. This prospectus supplement or the accompanying prospectus is not addressed to Brazilian residents and it should not be forwarded or distributed to, nor read or consulted by, acted on or relied upon by Brazilian residents. Any investment to which this prospectus supplement or the accompanying prospectus relates is available only to non-Brazilian residents and will only be made by non- Brazilian residents. If you are a Brazilian resident and received this prospectus supplement or the accompanying prospectus, please destroy it along with any copies.

 

The PLUS have not been and will not be registered with the National Securities Registry (Registro Nacional de Valores) maintained by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores; the “CNBV”) and, therefore, may not be offered or sold publicly in Mexico,

 

except that the PLUS may be sold to Mexican institutional and accredited investors solely pursuant to the private placement exemption set forth in the Mexican Securities Market Law (Ley del Mercado de Valores). Each of this prospectus supplement and the accompanying prospectus is solely our responsibility and has not been reviewed or authorized by the CNBV. The acquisition of the PLUS by an investor who is a resident of Mexico will be made under its own responsibility.

 

TABLE OF CONTENTS

 

  

ESTIMATED VALUE AND SECONDARY MARKET PRICES OF THE PLUS

 

Our Estimated Value of the PLUS

 

Unless otherwise specified in the applicable pricing supplement, the original issue price for each offering of notes will include costs associated with issuing, selling, structuring and hedging the PLUS, which will be borne by you, and, consequently, the estimated value of the PLUS on the pricing date will be less than the original issue price. Our estimate of the value of the PLUS as determined on the pricing date will be set forth on the cover of the applicable pricing supplement.

 

Determining the Estimated Value of the PLUS

 

Unless otherwise specified in the applicable pricing supplement, in valuing the PLUS on the pricing date, we will take into account that the PLUS comprise both a debt component and a performance-based component linked to the underlying currency or basket of currencies. The estimated value of the PLUS will be determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying currency or basket of currencies, instruments based on the underlying currency or basket of currencies (or the component securities), 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.

 

Determining the Economic Terms of the PLUS

 

Unless otherwise specified in the applicable pricing supplement, in determining the economic terms for each offering of notes, such as the participation rate or any other economic terms, we will 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 for such offering of notes would be more favorable to you.

 

The Relationship Between the Estimated Value on the Pricing Date and the Secondary Market Price of the PLUS

 

The price at which MS & Co. purchases the PLUS in the secondary market, absent changes in market conditions, including those related to the underlying currency or basket of currencies, may vary from, and be lower than, the estimated value on the pricing 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, unless otherwise specified in the applicable pricing supplement, because the costs associated with issuing, selling, structuring and hedging the PLUS will not be fully deducted upon issuance, for a predetermined period of time following the original issue date (to be specified in the applicable pricing supplement), to the extent that MS & Co. may buy or sell the PLUS in the secondary market, absent changes in market conditions, including those related to the underlying currency or basket of currencies, 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. may, but is not obligated to, make a market in the PLUS, and, if it once chooses to make a market, may cease doing so at any time.

 

For additional information on the estimated value and the secondary market prices of the PLUS, see “Risk Factors—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 PLUS in the original issue price reduce the economic terms of the PLUS, cause the estimated value of the PLUS to be less than the original issue price and will adversely affect secondary market prices” and “—The estimated value of the PLUS, as set forth in the applicable pricing supplement, will be determined by reference to our pricing and valuation models, which may differ from those of other dealers, and will not represent a maximum or minimum secondary market price” below.

 

How Do Currency Exchange Rates Work?

 

·

Exchange rates reflect the amount of one currency that can be exchanged for a unit of another currency.

 

·

Exchange rates for certain currencies (such as the Australian dollar, the British pound, the Eurozone euro and the New Zealand dollar) are expressed as the number of U.S. dollars per unit of the relevant foreign currency. As a result, an increase in the exchange rate means that the relevant foreign currency has appreciated / strengthened relative to the U.S. dollar. This means that one (1) unit of the relevant foreign currency can purchase more U.S. dollars on the valuation date than it did on the pricing date.

 

In calculating the payout on the PLUS, the currency performance or basket performance, as applicable, is the percentage currency gain or loss (in U.S. dollar terms) as measured from the perspective of a U.S. dollar investor, unless otherwise specified in the applicable pricing supplement. In the example below, an investor holding U.S. dollars could purchase one Eurozone euro with $1.50 on the pricing date and if that euro was converted back into U.S. dollars on the valuation date, the investor would receive $1.65 (110% of the original $1.50). Accordingly, from the point of view of a U.S. dollar investor, the Eurozone euro has strengthened relative to the U.S. dollar by 10%:

 

Pricing Date (# USD / 1 EUR)	Valuation Date (#USD / 1 EUR)
1.50	1.65

Conversely, a decrease in the exchange rate means that the relevant foreign currency has depreciated / weakened relative to the U.S. dollar. This means that one (1) unit of the relevant foreign currency can purchase fewer U.S. dollars on the valuation date than it did on the pricing date.

 

In the example below, an investor holding U.S. dollars could purchase one Eurozone euro with $1.50 on the pricing date and if that euro was converted back into U.S. dollars on the valuation date, the investor would receive $1.35 (90% of the original $1.50). Accordingly, from the point of view of a U.S. dollar investor, the Eurozone euro has weakened relative to the U.S. dollar by 10%:

 

Pricing Date (# USD / 1 EUR)	Valuation Date (#USD / 1 EUR)
1.50	1.35

·

Exchange rates can also be expressed as the number of units of the relevant foreign currency per one U.S. dollar, as in the case of the Canadian dollar, the Chinese renminbi, the Japanese yen, the Mexican peso and the Swiss franc, to name a few. As a result, a decrease in the exchange rate means that the relevant foreign currency has appreciated / strengthened relative to the U.S. dollar. This means that it takes fewer of the relevant foreign currency to purchase one (1) U.S. dollar on the valuation date than it did on the pricing date.

 

In the example below, an investor holding U.S. dollars could purchase one hundred Japanese yen with $1.00 on the pricing date and if those Japanese yen were converted back into U.S. dollars on the valuation date, the investor would receive $1.10 (i.e., 110% of the original $1.00) as 90.9090 yen would be exchanged for $1.00 and the remaining 9.0909 yen would be exchanged for an additional $0.10 at an exchange rate of 90.9090 yen per dollar on the valuation date. Accordingly, from the point of view of a U.S. dollar investor, the Japanese yen has strengthened relative to the U.S. dollar by 10%:

 

Pricing Date (# JPY / 1 USD)	Valuation Date (# JPY / 1 USD)
100	90.9090

Conversely, an increase in the exchange rate means that the relevant foreign currency has depreciated / weakened relative to the U.S. dollar. This means that it takes more of the relevant foreign currency to purchase one (1) U.S. dollar on the valuation date than it did on the pricing date.

 

In the example below, an investor holding U.S. dollars could purchase one hundred Japanese yen with $1.00 on the pricing date and if those Japanese yen were converted back into U.S. dollars on the valuation date, the investor would receive $0.90 (i.e., 90% of the original $1.00) as the 100 yen held by the investor would be exchanged for only $0.90 at an exchange rate of 111.1111 yen per dollar on the valuation date. Accordingly, from the point of view of a U.S. dollar investor, the Japanese yen has weakened relative to the U.S. dollar by 10%:

 

Pricing Date (# JPY / 1 USD)	Valuation Date (# JPY / 1 USD)
100	111.1111

Actual exchange rates on the pricing date and the valuation date will vary from those used in the examples above.

 

The PLUS can be designed to provide a bullish exposure to a foreign currency (or a basket of foreign currencies) from the point of view of a U.S. dollar investor, as in these examples, or a bearish exposure to a foreign currency (or a basket of foreign currencies). Whether the PLUS are bullish or bearish on the foreign currency is a fundamental difference and the payment at maturity is calculated differently for the two types of PLUS. See “Hypothetical Payments on the PLUS” for examples of both types of currency exposure.

 

Hypothetical Payments on the PLUS

 

Example 1: PLUS without a buffer

 

The following graph illustrates the payment at maturity for a range of hypothetical currency performances on the two hypothetical issuances of PLUS described below that are based on the performance of the Japanese yen relative to the U.S. dollar. The PLUS Zone illustrates the leveraging effect of the leverage factor, taking into account the maximum payment at maturity. The graph is based on the following hypothetical terms for the two hypothetical issuances of PLUS described below:

 

•	initial exchange rate:	100 Japanese yen / 1 U.S. dollar
•	stated principal amount:	$1,000
•	leverage factor:	200%
•	maximum payment at maturity:	$1,400 (140% of the stated principal amount)

 

The exchange rate between the Japanese yen and the U.S. dollar is typically expressed as the number of Japanese yen per one U.S. dollar. Consequently, strengthening of the Japanese yen relative to the U.S. dollar is indicated by a decrease in the quoted exchange rate, while weakening of the Japanese yen relative to the U.S. dollar is indicated by an increase in the quoted exchange rate. See “How Do Currency Exchange Rates Work?” on page S-19.

 

Whether the PLUS are bullish or bearish on the foreign currency is a fundamental difference and the payment at maturity is calculated differently for the two types of PLUS, as set forth in the following examples.

 

(i) PLUS that are bullish on the Japanese yen and accordingly bearish on the U.S. dollar

 

These PLUS pay a positive return if the Japanese yen strengthens relative to the U.S. dollar, and investors are fully exposed to the currency performance downside if the Japanese yen instead weakens relative to the U.S. dollar. Under the terms of these PLUS, a positive currency performance will indicate that the Japanese yen has strengthened relative to the U.S. dollar, while a negative currency performance will indicate that the Japanese yen has weakened relative to the U.S. dollar. The currency performance, which will measure how much the Japanese yen has strengthened or weakened relative to the U.S. dollar, will be calculated using the following formula:

 

 

 

Based on the above formula, a currency performance of 10% will indicate that the Japanese yen has strengthened relative to the U.S. dollar by 10%, while a currency performance of –10% will indicate that the Japanese yen has weakened relative to the U.S. dollar by 10%.

 

Where the currency performance is positive, the payment at maturity on the PLUS reflected in the graph above is greater than the $1,000 stated principal amount per PLUS, but in all cases is subject to the maximum payment at maturity. Where the currency performance is zero or negative, the payment at maturity is less than or equal to the $1,000 stated principal amount per PLUS. For example, with an initial exchange rate of 100 yen per dollar, a final exchange rate of 200 yen per dollar would result in a currency performance of –50% ((100/200) – 1) and a payment at maturity of $1,000 × [1 + (–50%)], or only $500.

 

In this hypothetical issuance of PLUS, you will realize the maximum payment at maturity with a currency performance of 20% (i.e., with a final exchange rate of 83.3333 yen per dollar ((100/83.3333) – 1)). Although the leverage factor provides 200% exposure to any strengthening in the Japanese yen relative to the U.S. dollar, because the payment at maturity will be limited to 140% of the stated principal amount, any strengthening of the Japanese yen relative to the U.S. dollar by more than 20% (i.e., any decrease in the final exchange rate below 83.3333 yen per dollar) will not further increase the return on the PLUS.

 

(ii) PLUS that are bearish on the Japanese yen and accordingly bullish on the U.S. dollar

 

These PLUS pay a positive return if the Japanese yen weakens relative to the U.S. dollar, and investors are fully exposed to the currency performance downside if the Japanese yen instead strengthens relative to the U.S. dollar. These PLUS are designed to provide investors with a short exposure to the Japanese yen and a long exposure to the U.S. dollar. Accordingly, these PLUS replicate a currency shorting strategy of a dollar investor borrowing the Japanese yen and selling it for U.S. dollars on the pricing date and repaying that borrowing by purchasing the Japanese yen on the valuation date, subject to the maximum payment at maturity and the leverage factor. Under the terms of these PLUS, a positive currency performance will indicate that the Japanese yen has weakened relative to the U.S. dollar, while a negative currency performance will indicate that the Japanese yen has strengthened relative to the U.S. dollar. The currency performance, which will measure how much the Japanese yen has weakened or strengthened relative to the U.S. dollar, will be calculated using the following formula:

 

 

 

Based on the above formula, a currency performance of 10% will indicate that the Japanese yen has weakened relative to the U.S. dollar by 10%, while a currency performance of –10% will indicate that the Japanese yen has strengthened relative to the U.S. dollar by 10%.

 

Where the currency performance is positive, the payment at maturity on the PLUS reflected in the graph above is greater than the $1,000 stated principal amount per PLUS, but in all cases is subject to the maximum payment at maturity. For example, with an initial exchange rate of 100 yen per dollar, a final exchange rate of 110 yen per dollar will result in a positive currency performance of 9.0909% (1 – (100/110)). However, where the currency performance is zero or negative, the payment at maturity is less than or equal to the $1,000 stated principal amount

 

per PLUS. For example, with an initial exchange rate of 100 yen per dollar, a final exchange rate of 50 yen per dollar will result in a currency performance of –100% (1 – (100/50)) and a payment at maturity of $1,000 × [1 + (–100%)], or $0. As these PLUS replicate a currency shorting strategy as described above, if the Japanese yen doubles in value relative to the U.S. dollar (as represented by the change in the exchange rate from 100 to 50), you will lose your entire investment.

 

In this hypothetical issuance of PLUS, you will realize the maximum payment at maturity with a currency performance of 20% (i.e., with a final exchange rate of 125 yen per dollar (1 – (100/125))). Although the leverage factor provides 200% exposure to any weakening in the Japanese yen relative to the U.S. dollar, because the payment at maturity will be limited to 140% of the stated principal amount, any weakening of the Japanese yen relative to the U.S. dollar by more than 20% (i.e., any increase in the final exchange rate above 125 yen per dollar) will not further increase the return on the PLUS.

 

PLUS with multiple valuation dates:

 

Presented below are hypothetical examples showing how the currency performance would be calculated for PLUS with multiple valuation dates. These examples assume an initial exchange rate of 100 yen per dollar. A decrease in the exchange rate means the Japanese yen has strengthened relative to the U.S. dollar and an increase in the exchange rate means the Japanese yen has weakened relative to the U.S. dollar. See “How Do Currency Exchange Rates Work?”.

 

For PLUS with multiple valuation dates, currency performance and, thus, the payment at maturity are based on the final average exchange rate, which equals the arithmetic average of the exchange rates on the valuation dates (four dates in our examples below) specified in the applicable pricing supplement. The examples of the calculations that follow are intended to illustrate the effect of general trends in the exchange rate on the amount payable to you at maturity and are provided for illustrative purposes only.

 

	Example 1	Example 2	Example 3
	Exchange Rate	Exchange Rate	Exchange Rate
1st Valuation Date	97	96	96
2nd Valuation Date	95	105	94
3rd Valuation Date	94	106	98
Final Valuation Date	90	97	100
Final Average Exchange Rate:	94	101	97
Currency Performance:	6.3830%	–0.9901%	3.0928%

 

•

In Example 1, the Japanese yen strengthens relative to the U.S. dollar on each valuation date and, due to the averaging of the exchange rates over the valuation dates, the final average exchange rate of 94 yen per dollar is higher than the exchange rate of 90 yen per dollar on the final valuation date, resulting in a currency performance of 6.3830% which is less than 11.1111%, which would have been the currency performance if it were to have been based solely on the exchange rate on the final valuation date.

 

•

In Example 2, the Japanese yen strengthens relative to the U.S. dollar initially on the first valuation date, weakens on the second and third valuation dates, and strengthens again on the final valuation date. Due to the averaging of the exchange rates over the valuation dates, the final average exchange rate of 101 yen per dollar is higher than the exchange rate on the final valuation date and also higher than the initial exchange rate, resulting in a currency performance of –0.9901% despite the strengthening of the Japanese yen on the final valuation date.

 

•

In Example 3, the Japanese yen initially strengthens relative to the U.S. dollar but the exchange rate on the final valuation date is the same as the initial exchange rate, resulting in the currency performance of 3.0928% which is higher than 0%, which would have been the currency performance if it were to have been based solely on the exchange rate on the final valuation date.

 

Example 2: Buffered PLUS with a minimum payment at maturity
(minimum payment at maturity = stated principal amount × buffer amount)

 

The following graph illustrates the payment at maturity for a range of hypothetical currency performances on the two hypothetical issuances of Buffered PLUS described below that are based on the performance of the Japanese yen relative to the U.S. dollar and that provide a minimum payment at maturity of 15% of the stated principal amount. The PLUS Zone illustrates the leveraging effect of the leverage factor, taking into account the maximum payment at maturity, while the Buffer Zone illustrates the buffer effect with respect to a certain degree of negative currency performance. The graph is based on the following hypothetical terms for the two hypothetical issuances of Buffered PLUS described below:

 

•	initial exchange rate:	100 Japanese yen / 1 U.S. dollar
•	stated principal amount:	$1,000
•	leverage factor:	200%
•	maximum payment at maturity:	$1,300 (130% of the stated principal amount)
•	buffer amount:	15%
•	minimum payment at maturity:	$150

 

Whether the Buffered PLUS are bullish or bearish on the foreign currency is a fundamental difference and the payment at maturity is calculated differently for the two types of Buffered PLUS, as set forth in the following examples.

 

(i) Buffered PLUS that are bullish on the Japanese yen and accordingly bearish on the U.S. dollar

 

These Buffered PLUS pay a positive return if the Japanese yen strengthens relative to the U.S. dollar, resulting in a positive currency performance. Under the terms of these Buffered PLUS, a positive currency performance will indicate that the Japanese yen has strengthened relative to the U.S. dollar, while a negative currency performance will indicate that the Japanese yen has weakened relative to the U.S. dollar. The currency performance, which will measure how much the Japanese yen has strengthened or weakened relative to the U.S. dollar, will be calculated using the following formula:

 

 

 

Based on the above formula, a currency performance of 10% will indicate that the Japanese yen has strengthened relative to the U.S. dollar by 10%, while a currency performance of –10% will indicate that the Japanese yen has weakened relative to the U.S. dollar by 10%.

 

Where the currency performance is positive, the payment at maturity on the Buffered PLUS reflected in the graph above is greater than the $1,000 stated principal amount per Buffered PLUS, but in all cases is subject to the maximum payment at maturity.

 

Where the currency performance is zero or negative but is greater than or equal to –15%, the payment at maturity on the Buffered PLUS is the $1,000 stated principal amount. Therefore, the Buffered PLUS offer limited protection against a negative currency performance down to –15% (i.e., against an increase in the final exchange rate of up to 117.6471 yen per dollar ((100/117.6471) – 1)).

 

Where the currency performance is less than –15%, the payment at maturity on the Buffered PLUS is less than the $1,000 stated principal amount per Buffered PLUS, but in all cases is subject to the minimum payment at maturity. For example, a final exchange rate of 200 yen per dollar will result in a currency performance of –50% ((100/200) – 1) and a payment at maturity of $1,000 × [1 + (–50%)] + $150, or $650.

 

In this hypothetical issuance of Buffered PLUS, you will realize the maximum payment at maturity with a currency performance of 15% (i.e., with a final exchange rate of 86.9565 yen per dollar ((100/86.9565) – 1)). Although the leverage factor provides 200% exposure to any strengthening in the Japanese yen relative to the U.S. dollar, because the payment at maturity will be limited to 130% of the stated principal amount, any strengthening of the Japanese yen relative to the U.S. dollar by more than 15% (i.e., any decrease in the final exchange rate below 86.9565 yen per dollar) will not further increase the return on the Buffered PLUS.

 

(ii) Buffered PLUS that are bearish on the Japanese yen and accordingly bullish on the U.S. dollar

 

These Buffered PLUS pay a positive return if the Japanese yen weakens relative to the U.S. dollar, resulting in a positive currency performance. These Buffered PLUS are designed to provide investors with a short exposure to the Japanese yen and a long exposure to the U.S. dollar. Accordingly, these Buffered PLUS replicate a currency shorting strategy of a dollar investor borrowing the Japanese yen and selling it for U.S. dollars on the pricing date and repaying that borrowing by purchasing the Japanese yen on the valuation date, subject to the buffer amount, the maximum payment at maturity and the leverage factor. Under the terms of these Buffered PLUS, a positive currency performance will indicate that the Japanese yen has weakened relative to the U.S. dollar while a negative currency performance will indicate that the Japanese yen has strengthened relative to the U.S. dollar. The currency performance, which will measure how much the Japanese yen has weakened or strengthened relative to the U.S. dollar, will be calculated using the following formula:

 

 

 

Based on the above formula, a currency performance of 10% will indicate that the Japanese yen has weakened relative to the U.S. dollar by 10%, while a currency performance of –10% will indicate that the Japanese yen has strengthened relative to the U.S. dollar by 10%.

 

Where the currency performance is positive, the payment at maturity on the Buffered PLUS reflected in the graph above is greater than the $1,000 stated principal amount per Buffered PLUS, but in all cases is subject to the maximum payment at maturity.

 

Where the currency performance is zero or negative but is greater than or equal to –15%, the payment at maturity on the Buffered PLUS is the $1,000 stated principal amount. Therefore, the Buffered PLUS offer limited protection against a negative currency performance down to –15% (i.e., against a decrease in the final exchange rate down to 86.9565 yen per dollar (1 – (100/86.9565))).

 

Where the currency performance is less than –15%, the payment at maturity on the Buffered PLUS is less than the $1,000 stated principal amount per Buffered PLUS, but in all cases is subject to the minimum payment at maturity. For example, a final exchange rate of 50 yen per dollar will result in a currency performance of –100% (1 – (100/50)) and a payment at maturity of $1,000 × [1 + (–100%)] + $150, or $150.

 

In this hypothetical issuance of Buffered PLUS, you will realize the maximum payment at maturity with a currency performance of 15% (i.e., with a final exchange rate of 117.6471 yen per dollar (1 – (100/117.6471))). Although the leverage factor provides 200% exposure to any weakening in the Japanese yen relative to the U.S. dollar, because the payment at maturity will be limited to 130% of the stated principal amount, any weakening of the Japanese yen relative to the U.S. dollar by more than 15% (i.e., any increase in the final exchange rate above 117.6471 yen per dollar) will not further increase the return on the Buffered PLUS.

 

Example 3: Buffered PLUS without a minimum payment at maturity

 

The following graph illustrates the payment at maturity for a range of hypothetical currency performances on the two hypothetical issuances of Buffered PLUS described below that are based on the performance of the Japanese yen relative to the U.S. dollar and that do not provide any minimum payment at maturity. The PLUS Zone illustrates the leveraging effect of the leverage factor, taking into account the maximum payment at maturity, while the Buffer Zone illustrates the buffer effect with respect to a certain degree of negative currency performance. The graph is based on the following hypothetical terms for the two hypothetical issuances of Buffered PLUS described below:

 

•	initial exchange rate:	100 Japanese yen / 1 U.S. dollar
•	stated principal amount:	$1,000
•	leverage factor:	200%
•	maximum payment at maturity:	$1,300 (130% of the stated principal amount)
•	buffer amount:	10%
•	downside factor	1.111

 

Whether the Buffered PLUS are bullish or bearish on the foreign currency is a fundamental difference and the payment at maturity is calculated differently for the two types of Buffered PLUS, as set forth in the following examples.

 

(i) Buffered PLUS that are bullish on the Japanese yen and accordingly bearish on the U.S. dollar

 

These Buffered PLUS pay a positive return if the Japanese yen strengthens relative to the U.S. dollar, resulting in a positive currency performance. Under the terms of these Buffered PLUS, a positive currency performance will indicate that the Japanese yen has strengthened relative to the U.S. dollar while a negative currency performance will indicate that the Japanese yen has weakened relative to the U.S. dollar. The currency performance, which will measure how much the Japanese yen has strengthened or weakened relative to the U.S. dollar, will be calculated using the following formula:

 

 

 

Based on the above formula, a currency performance of 10% will indicate that the Japanese yen has strengthened relative to the U.S. dollar by 10%, while a currency performance of –10% will indicate that the Japanese yen has weakened relative to the U.S. dollar by 10%.

 

Where the currency performance is positive, the payment at maturity on the Buffered PLUS reflected in the graph above is greater than the $1,000 stated principal amount per Buffered PLUS, but in all cases is subject to the maximum payment at maturity.

 

Where the currency performance is zero or negative but is greater than or equal to –10%, the payment at maturity on the Buffered PLUS is the $1,000 stated principal amount. Therefore, the Buffered PLUS offer limited protection against a negative currency performance down to –10% (i.e., against an increase in the final exchange rate of up to 111.1111 yen per dollar ((100/111.1111) – 1)).

 

Where the currency performance is less than –10%, the payment at maturity on the Buffered PLUS is less than the $1,000 stated principal amount per Buffered PLUS and reflects the downside factor of 1.111. For example, a final exchange rate of 200 yen per dollar will result in a currency performance of –50% ((100/200) – 1) and a payment at maturity of $1,000 + [$1,000 × (–50% + 10%) × 1.111], or $555.56, which represents a –44.44% return). As these Buffered PLUS do not have any minimum payment at maturity, you could lose your entire investment.

 

In this hypothetical issuance of Buffered PLUS, you will realize the maximum payment at maturity with a currency performance of 15% (i.e., with a final exchange rate of 86.9565 yen per dollar ((100/86.9565) – 1)). Although the leverage factor provides 200% exposure to any strengthening in the Japanese yen relative to the U.S. dollar, because the payment at maturity will be limited to 130% of the stated principal amount, any strengthening of the Japanese yen relative to the U.S. dollar by more than 15% (i.e., any decrease in the final exchange rate below 86.9565 yen per dollar) will not further increase the return on the Buffered PLUS.

 

(ii) Buffered PLUS that are bearish on the Japanese yen and accordingly bullish on the U.S. dollar

 

These Buffered PLUS pay a positive return if the Japanese yen weakens relative to the U.S. dollar, resulting in a positive currency performance. These Buffered PLUS are designed to provide investors with a short exposure to the Japanese yen and a long exposure to the U.S. dollar. Accordingly, these Buffered PLUS replicate a currency shorting strategy of a dollar investor borrowing the Japanese yen and selling it for U.S. dollars on the pricing date and repaying that borrowing by purchasing the Japanese yen on the valuation date, subject to the buffer amount, the downside factor, the maximum payment at maturity and the leverage factor. Under the terms of these Buffered PLUS, a positive currency performance will indicate that the Japanese yen has weakened relative to the U.S. dollar while a negative currency performance will indicate that the Japanese yen has strengthened relative to the U.S. dollar. The currency performance, which will measure how much the Japanese yen has weakened or strengthened relative to the U.S. dollar, will be calculated using the following formula:

 

 

 

Based on the above formula, a currency performance of 10% will indicate that the Japanese yen has weakened relative to the U.S. dollar by 10%, while a currency performance of –10% will indicate that the Japanese yen has strengthened relative to the U.S. dollar by 10%.

 

Where the currency performance is positive, the payment at maturity on the Buffered PLUS reflected in the graph above is greater than the $1,000 stated principal amount per Buffered PLUS, but in all cases is subject to the maximum payment at maturity.

 

Where the currency performance is zero or negative but is greater than or equal to –10%, the payment at maturity on the Buffered PLUS is the $1,000 stated principal amount. Therefore, the Buffered PLUS offer limited protection against a negative currency performance down to –10% (i.e., against a decrease in the final exchange rate down to 90.9090 yen per dollar (1 – (100/90.9090))).

 

Where the currency performance is less than –10%, the payment at maturity on the Buffered PLUS is less than the $1,000 stated principal amount per Buffered PLUS and reflects the downside factor of 1.111. For example, a final exchange rate of 50 yen per dollar will result in a currency performance of –100% (1 – (100/50)) and a payment

 

at maturity of $1,000 + [$1,000 × (–100% + 10%) × 1.111], or $0. As these Buffered PLUS do not have any minimum payment at maturity, you could lose your entire investment.

 

In this hypothetical issuance of Buffered PLUS, you will realize the maximum payment at maturity with a currency performance of 15% (i.e., with a final exchange rate of 117.6471 yen per dollar (1 – (100/117.6471))). Although the leverage factor provides 200% exposure to any weakening in the Japanese yen relative to the U.S. dollar, because the payment at maturity will be limited to 130% of the stated principal amount, any weakening of the Japanese yen relative to the U.S. dollar by more than 15% (i.e., any increase in the final exchange rate above 117.6471 yen per dollar) will not further increase the return on the Buffered PLUS.

 

Example 4: PLUS linked to a basket of currencies that are bullish on the basket of currencies and accordingly bearish on the U.S. dollar

 

For PLUS linked to a basket of currencies, it is important to note that a positive currency performance of one or more of the basket currencies may be moderated, or wholly offset, by a negative currency performance or a lesser positive currency performance of one or more of the other basket currencies.

 

In the following example, we have assumed that the underlying basket currencies are the Australian dollar, the Canadian dollar, the Eurozone euro and the British pound and that the PLUS will pay a positive return if the basket of currencies appreciates against the U.S. dollar. We have assumed that the stated principal amount of the PLUS is $1,000. The exchange rate for each of the Australian dollar, the Eurozone euro and the British pound is expressed as the number of U.S. dollars per unit of each basket currency, and, consequently, the currency performance, which will measure how much those currencies have strengthened or weakened relative to the U.S. dollar, will be calculated using the following formula:

 

 

 

The exchange rate for the Canadian dollar, on the other hand, is expressed as the number of Canadian dollars per one U.S. dollar, and, consequently, the currency performance, which will measure how much the Canadian dollar has strengthened or weakened relative to the U.S. dollar, will be calculated using the following formula:

 

 

 

Below is an example illustrating the payment at maturity when certain basket currencies have strengthened relative to the U.S. dollar but other basket currencies have weakened to a greater extent relative to the U.S. dollar, resulting in a negative basket performance.

 

Basket Currency	Basket Weighting	Hypothetical Initial Exchange Rate	Hypothetical Final Exchange Rate	Currency Performance
Australian dollar	25%	0.80	0.84	+5%
Canadian dollar	25%	1.00	1.1111	– 10%
Eurozone euro	25%	1.50	1.20	– 20%
British pound	25%	2.00	2.10	+5%

Basket performance = sum of currency performance values

 

Currency performance value = the product of (i) currency performance and (ii) weighting

 

So, using the hypothetical exchange rates above,

 

 

 

equals

 

basket performance = – 5.00%

 

The basket performance is less than zero and the payment at maturity is calculated as follows:

 

Payment at maturity = stated principal amount × (1 + basket performance)

 

= $1,000 × [1 + (–5.00%)] = $950

 

The basket performance may be equal to or less than zero even though one or more basket currencies has strengthened relative to the U.S. dollar over the term of the PLUS, as this strengthening may be moderated, or wholly offset, by the weakening or lesser strengthening relative to the U.S. dollar of one or more of the other basket currencies. In the above example, the strengthening of the Australian dollar and the British pound relative to the U.S. dollar is more than offset by the weakening of the Canadian dollar and the Eurozone euro relative to the U.S. dollar.

 

Risk Factors

 

The PLUS are not secured debt, are riskier than ordinary debt securities and, unlike ordinary debt securities, the PLUS generally do not pay interest or guarantee the return of principal at maturity. The return investors realize on the PLUS is linked to the performance of an underlying currency or basket of currencies and is generally limited by the maximum payment at maturity. Investing in the PLUS is not equivalent to investing directly in the underlying currency or basket of currencies. This section describes the material risks relating to the PLUS. You should carefully consider whether the PLUS are suited to your particular circumstances before you decide to purchase them.

 

Risks Relating to an Investment in the PLUS

 

PLUS do not pay interest or guarantee return of principal

 

The terms of the PLUS differ from those of ordinary debt securities in that we do not guarantee to pay you the principal amount of the PLUS at maturity and generally do not pay you interest on the PLUS. Instead, at maturity you will receive for each PLUS that you hold an amount in cash based on either the positive performance or the negative performance of the underlying currency or basket of currencies. If the currency performance or the basket performance, as measured by the formula specified in the applicable pricing supplement, is negative, you will lose some or all of your investment. Buffered PLUS offer limited protection against a negative currency performance or negative basket performance, as applicable, up to the buffer amount, and, if specified in the applicable pricing supplement, provide for a minimum payment at maturity equal to the stated principal amount times the buffer amount.

 

Your appreciation potential is limited

 

The appreciation potential of the PLUS is generally limited by the maximum payment at maturity. Although the leverage factor provides increased exposure to any positive currency performance or basket performance, as applicable, the payment at maturity will never exceed the maximum payment at maturity, which will be a fixed percentage over the stated principal amount per PLUS. Further, except for certain Buffered PLUS, you will be fully exposed to any negative currency performance or basket performance, as applicable. As a result, you may lose some or all of your investment in the PLUS.

 

The market price of the PLUS will be influenced by many unpredictable factors

 

Several factors, many of which are beyond our control, will influence the value of the PLUS in the secondary market and the price at which MS & Co. may be willing to purchase or sell the PLUS in the secondary market. As noted above, we expect that the exchange rates for the underlying currency or basket currencies on any day will affect the value of the PLUS more than any other single factor. Other factors that may influence the value of the PLUS include:

 

•

the volatility (frequency and magnitude of changes in value) of the underlying currencies relative to the U.S. dollar,

 

•

interest and yield rates in the U.S. market and in the markets for the underlying currency or each of the basket currencies,

 

•

geopolitical conditions and economic, financial, political and regulatory or judicial events that affect the underlying currencies or currency markets generally and that may affect the final exchange rates (or final average exchange rates, for PLUS with multiple valuation dates) for the underlying currencies,

 

•

the time remaining to the maturity of the PLUS, and

 

•

any actual or anticipated changes in our credit ratings or credit spreads.

 

Some or all of these factors will influence the price that you will receive if you sell your PLUS prior to maturity. Generally, the longer the time remaining to maturity, the more the market price of the PLUS will be affected by the other factors described above. For example, you may have to sell your PLUS at a substantial discount from the stated

 

principal amount if at the time of sale the underlying currency or basket of currencies has weakened (or strengthened, in the case of PLUS that are bearish on a foreign currency or a basket of foreign currencies), or if interest rates rise.

 

The PLUS are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the PLUS

 

You are dependent on our ability to pay all amounts due on the PLUS at maturity and therefore you are subject to our credit risk. If we default on our obligations under the PLUS, your investment would be at risk and you could lose some or all of your investment. As a result, the market value of the PLUS 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 the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the PLUS.

 

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 PLUS and will have no independent assets available for distributions to holders of MSFL PLUS if they make claims in respect of the PLUS 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 PLUS 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 PLUS.

 

PLUS issued by MSFL will not have the benefit of any cross-default or cross-acceleration with other indebtedness of MSFL or Morgan Stanley; a Morgan Stanley covenant default or bankruptcy, insolvency or reorganization event does not constitute an event of default with respect to MSFL PLUS

 

The PLUS issued by MSFL will not have the benefit of any cross-default or cross-acceleration with other indebtedness of MSFL or Morgan Stanley. In addition, a covenant default by Morgan Stanley, as guarantor, or an event of bankruptcy, insolvency or reorganization of Morgan Stanley, as guarantor, does not constitute an event of default with respect to any PLUS issued by MSFL. See “Description of Debt Securities—Events of Default” in the accompanying prospectus.

 

In the case of PLUS with multiple valuation dates, the PLUS may pay less than the principal amount at maturity even where the underlying currency or basket of currencies has strengthened (or weakened, in the case of PLUS that are bearish on a foreign currency or a basket of foreign currencies) as of the final valuation date

 

For PLUS with multiple valuation dates, you will receive a payment at maturity that is greater than the stated principal amount of the PLUS only if the arithmetic average of the exchange rates on the valuation dates of the underlying currency or basket currencies results in a positive currency performance or basket performance, as applicable. Consequently, it is possible that you will receive at maturity an amount less than or equal to the stated principal amount for each PLUS you hold, even if the underlying currency or basket of currencies has strengthened (or weakened, in the case of PLUS that are bearish on a foreign currency or a basket of foreign currencies) substantially as of the final valuation date.

 

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 PLUS in the original issue price reduce the economic terms of the PLUS, cause the estimated value of the PLUS to be less than the original 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 PLUS in secondary market transactions will likely be

 

significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the original 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.

 

The inclusion of the costs of issuing, selling, structuring and hedging the PLUS in the original issue price and the lower rate we are willing to pay as issuer make the economic terms of the PLUS less favorable to you than they otherwise would be.

 

However, because the costs associated with issuing, selling, structuring and hedging the PLUS are not fully deducted upon issuance, for a predetermined period of time following the original issue date (to be specified in the applicable pricing supplement), to the extent that MS & Co. may buy or sell the PLUS in the secondary market, absent changes in market conditions, including those related to the underlying currency or basket of currencies, 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.

 

The estimated value of the PLUS, as set forth in the applicable pricing supplement, will be determined by reference to our pricing and valuation models, which may differ from those of other dealers, and will not represent 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 PLUS than those generated by others, including other dealers in the market, if they attempted to value the PLUS. In addition, the estimated value on the pricing date will not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value of your notes at any time after the date of the applicable 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 PLUS will be influenced by many unpredictable factors” above.

 

Secondary trading may be limited

 

There may be little or no secondary market for the PLUS. Although we may decide to apply to list the PLUS on a stock exchange, we may not meet the requirements for listing of that particular stock exchange and do not expect to announce whether or not we will meet such requirements prior to the pricing date. Even if there is a secondary market, it may not provide significant liquidity. Our affiliate, Morgan Stanley & Co. LLC, which we refer to as MS & Co., may, but is not obligated to, make a market in the PLUS 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 PLUS, 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 PLUS. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the PLUS easily. Since other broker-dealers may not participate significantly in the secondary market for the PLUS, the price at which you may be able to trade your PLUS 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 PLUS, it is likely that there would be no secondary market for the PLUS. Accordingly, you should be willing to hold your PLUS to maturity.

 

Investing in the PLUS is not equivalent to investing directly in the underlying currency or basket currencies

 

You may receive a lower payment at maturity than you would have received if you had invested directly in the underlying currency or basket currencies. The currency performances are dependent solely on the formula set forth above and not on any other formula that could be used for calculating currency performances. In the case of PLUS linked to a basket of currencies, the basket performance is based on the currency performance for each basket currency, which is in turn based on the formula set forth above.

 

The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the PLUS

 

As calculation agent, Morgan Stanley Capital Services LLC, which we refer to as MSCS, will determine the initial exchange rate and the final exchange rate for each underlying currency, the currency performance values, the currency performance or the basket performance, as applicable, and calculate the amount you will receive at maturity, if any. Moreover, certain determinations made by MSCS, in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect to the calculation of any exchange rate in the event of a discontinuance of reporting of any underlying currency’s exchange rate. These potentially subjective determinations may affect the payout to you at maturity, if any. See the section of this prospectus supplement called “Description of the PLUS—Exchange Rate.”

 

Hedging and trading activity by our affiliates could potentially adversely affect the value of the PLUS

 

One or more of our affiliates and/or third party dealers expect to carry out hedging activities related to the PLUS (and possibly to other instruments linked to the underlying currencies), including trading in forward and options contracts on the underlying currencies as well as in other instruments related to the underlying currencies. As a result, these entities may be unwinding or adjusting hedge positions during the term of the PLUS, and the hedging strategy may involve greater or more frequent dynamic adjustments to the hedge as the valuation date approaches. Some of our other affiliates also trade the underlying currencies and other financial instruments related to the underlying currencies on a regular basis as part of their general broker-dealer, proprietary trading and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially affect the initial exchange rates for the underlying currencies, and, as a result, could affect the exchange rates at which the underlying currencies must close on the valuation date(s) so that you do not suffer a loss on your initial investment the PLUS. Additionally, such hedging or trading activities during the term of the PLUS could potentially affect the exchange rates of the underlying currencies on the valuation date(s), and, accordingly, the amount of cash you will receive at maturity, if any.

 

The U.S. federal income tax consequences of an investment in the PLUS are uncertain

 

Although we generally intend to treat each PLUS as a single financial contract that is an “open transaction” for U.S. federal income tax purposes, the U.S. federal income tax consequences of an investment in the PLUS are uncertain. Assuming the characterization of a PLUS as an open transaction is respected, and subject to the discussion below regarding possible mark-to-market treatment, a U.S. Holder (as defined below under “United States Federal Taxation”) should not be required to recognize any taxable income over the term of the PLUS prior to settlement, other than pursuant to a sale or exchange. Because the payment on a PLUS is linked to one or more foreign currencies, unless otherwise provided in the applicable pricing supplement, we intend to treat the PLUS as subject to Section 988 of the Internal Revenue Code of 1986, as amended. In that case, any gain or loss recognized by a U.S. Holder with respect to the PLUS generally will be treated as ordinary income or loss, unless an election to treat such gain or loss as capital gain or loss is available and validly made by the U.S. Holder. It is also possible that a U.S. Holder may be required to “mark to market” the PLUS and recognize gain or loss at the close of each taxable year for which it holds the PLUS as if the PLUS were sold for its fair market value on the last day of such taxable year. If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment for a PLUS, the timing and character of income or loss on the PLUS might differ significantly from the tax treatment described in this prospectus supplement. For instance, the IRS could assert that the PLUS should be treated as a debt instrument, whereupon the timing and character of income might differ significantly. Depending on the terms of a particular PLUS, it is also possible that the PLUS could be treated as a number of debt instruments, rather than as a single debt instrument. The risk that buffered securities might be recharacterized, for U.S. federal income tax purposes, as debt instruments giving rise to ordinary income, rather than as open transactions, is higher than with non-buffered currency-linked securities. We do not plan to request a ruling from the IRS regarding the tax treatment of the PLUS, and the IRS or a court may not agree with the tax treatment described in the section entitled “United States Federal Taxation” in this prospectus 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. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the PLUS, possibly with retroactive effect.

 

Please read carefully the section of this prospectus supplement called “United States Federal Taxation” concerning the U.S. federal income tax consequences of an investment in the PLUS. Both U.S. and non-U.S. investors should consult their tax advisers regarding all aspects of the U.S. federal tax consequences of an investment in the PLUS, including possible alternative treatments, the issues presented by the notice, and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.

 

Risks Relating to the Underlying Currency or Currencies

 

The PLUS are subject to currency exchange risk

 

Fluctuations in the exchange rates between an underlying currency and the currency that is used as the base currency will affect the value of the PLUS.

 

Exchange rates between currencies are the result of numerous factors specific to the relevant countries and the United States 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 different regions. Changes in exchange rates result over time from the interaction of many factors directly or indirectly affecting economic and political conditions in the country of each underlying currency, including economic and political developments in other countries.

 

Of particular importance to potential currency exchange risk are:

 

•

existing and expected rates of inflation,

 

•

existing and expected interest rate levels,

 

•

the balance of payments, and

 

•

the extent of governmental surpluses or deficits in the relevant foreign country and the United States.

 

All of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of the countries of each underlying currency and other countries important to international trade and finance.

 

The payment on the PLUS or otherwise could also be adversely affected by delays in, or refusals to grant, any required governmental approval for conversions of a local currency and remittances abroad.

 

We cannot assure you that a currency crisis or significant devaluation will not happen in the future to one or more of the underlying currencies during the term of the PLUS. If one or more of the underlying currencies experiences devaluation, the value of the PLUS will likely be adversely affected.

 

It has been reported that the U.K. Financial Conduct Authority and regulators from other countries, including the United States, are in the process of investigating the potential manipulation of published currency exchange rates. If such manipulation has occurred or is continuing, certain published exchange rates may have been, or may be in the future, artificially lower (or higher) than they would otherwise have been. Any such manipulation could have an adverse impact on any payments on, and the value of, your PLUS and the trading market for your PLUS. In addition, we cannot predict whether any changes or reforms affecting the determination or publication of exchange rates or the supervision of currency trading will be implemented in connection with these investigations. Any such changes or reforms could also adversely impact the value of your PLUS.

 

Specific currency exchange rates are volatile and are affected by factors specific to the relevant sovereign government

 

For special risks related to certain underlying currencies that may be specified in the applicable pricing supplement, please see the relevant descriptions in “Annex I––Certain Additional Currency Exchange Rate Risks.”

 

Intervention in the currency markets by the countries issuing underlying currencies could materially and adversely affect the value of the PLUS

 

Specific currencies’ exchange rates can be highly volatile and are affected by numerous factors specific to each foreign country. Foreign currency exchange rates can be fixed by the sovereign government, allowed to float within a range of exchange rates set by the government, or left to float freely. Governments use a variety of techniques, such as intervention by their central bank or the imposition of regulatory controls or taxes, to affect the exchange rates of their respective currencies. They may also issue a new currency to replace an existing currency, fix the exchange rate or alter the exchange rate or relative exchange characteristics by devaluation or revaluation of a currency. Thus, a special risk in purchasing the PLUS is that their liquidity, trading value and amount payable could be affected by the actions of sovereign governments that could change or interfere with previously freely determined currency valuations or allow a previously fixed or range-limited exchange rate to float freely or in a broader band. The liquidity and trading value of and amount payable on the PLUS could also be affected by fluctuations in response to other market forces and by the movement of currencies across borders. There will be no offsetting adjustment or change made during the term of the PLUS in the event that any floating exchange rate should become fixed, any fixed exchange rate should be allowed to float, or that the band limiting the float of any underlying currency should be altered or removed. Nor will there be any offsetting adjustment or change in the event of any devaluation or revaluation or imposition of exchange or other regulatory controls or taxes or in the event of other developments affecting the underlying currencies, the U.S. dollar or any other currency. Therefore, any significant changes or governmental actions with respect to any underlying currencies, the U.S. dollar or any other currency that result in the weakening of any of the underlying currencies (or the strengthening in the case of PLUS that are bearish on a foreign currency or a basket of foreign currencies) could materially and adversely affect the value of the PLUS.

 

In addition, if any of the underlying currencies is lawfully eliminated, converted, redenominated or exchanged by the relevant sovereign government during the term of the PLUS, the calculation agent, in its sole discretion, will determine the exchange rate for the affected currency (or make such adjustment to the exchange rate, as required) on the valuation date, and this determination may adversely affect the amount payable to you at maturity, if any.

 

Any underlying currency may be replaced by another currency following a succession event

 

If an underlying currency is lawfully eliminated and replaced with, converted into, redenominated as, or exchanged for, another currency; or the relevant sovereign government of an underlying currency divides into two or more countries or economic regions, each with a different lawful currency immediately after that event (each such event, a “succession event”), such underlying currency will be replaced with another currency (a “successor currency”). In the event of a succession event, you will become subject to the performance of the successor currency instead of the underlying currency it replaces. In addition, for notes linked to multiple underlying currencies, if any underlying currency is replaced with a successor currency that is the same as another underlying currency, your exposure to such underlying currency may be effectively increased. The occurrence of a succession event and the consequent adjustments may materially and adversely affect the value of the notes. See the section of this prospectus supplement called “Description of the Notes—General Terms of the Notes—Succession Events.”

 

Even though currencies trade around-the-clock, the PLUS will not

 

The Interbank market in foreign currencies is a global, around-the-clock market. Therefore, the hours of trading for the PLUS, if any trading market develops, will not conform to the hours during which the underlying currencies are traded. Significant price and rate movements may take place in the underlying foreign exchange markets that will not be reflected immediately in the price of the PLUS. The possibility of these movements should be taken into account in relating the value of the PLUS to those in the underlying foreign exchange markets. There is no systematic reporting of last-sale information for foreign currencies. Reasonably current bid and offer information is available in certain brokers’ offices, in bank foreign currency trading offices and to others who wish to subscribe for

 

this information, but this information will not necessarily be reflected in the value of the currencies used to calculate the payment at maturity, if any. There is no regulatory requirement that those quotations be firm or revised on a timely basis. The absence of last-sale information and the limited availability of quotations to individual investors may make it difficult for many investors to obtain timely, accurate data about the state of the underlying foreign exchange markets.

 

Changes in the value of one or more of the basket currencies may offset each other

 

For PLUS where the payment at maturity, if any, is based on a basket of two or more currencies, exchange rate movements in the basket currencies may not correlate with each other. At a time when the value of one or more of the basket currencies increases, the value of one or more of the other basket currencies may not increase as much or may decline. Therefore, in calculating the basket performance on a valuation date, increases in the value of one or more of the basket currencies may be moderated, or wholly offset, by lesser increases or declines in the value of one or more of the other basket currencies. You can review the historical exchange rates of each of the basket currencies in the section called “Historical Information” in the applicable pricing supplement. You cannot predict the future performance of any of the basket currencies or of the basket as a whole, or whether increases in the value of any of the basket currencies will be offset by decreases in the value of other basket currencies, based on their historical performance. In addition, there can be no assurance that the basket performance will be positive so that you will receive at maturity an amount in excess of the stated principal amount of the PLUS.

 

The basket currencies may not be equally weighted

 

If the PLUS are linked to a basket of currencies, the basket currencies may have different weightings in the basket. In such case, the same percentage change in two of the basket currencies could have different effects on the basket performance because of the unequal weightings. For example, if the weighting of one basket currency is greater than the weighting of another basket currency, a currency performance of –5% for the basket currency with the greater weighting will have a greater impact on the basket performance than a currency performance of 5% for the basket currency with the lesser weighting.

 

Suspension or disruptions of market trading in the underlying currencies may adversely affect the value of the PLUS

 

The currency markets are subject to temporary distortions or other disruptions due to various factors, including government regulation and intervention, the lack of liquidity in the markets, and the participation of speculators. These circumstances could adversely affect the exchange rates of the underlying currencies and, therefore, the value of the PLUS.

 

Description of PLUS

 

Investors should carefully read the general terms and provisions of our debt securities in “Description of Debt Securities” in the prospectus. This section supplements that description. The applicable pricing supplement will specify the particular terms of each issuance of PLUS, and may supplement, modify or replace any of the information in this section and in “Description of Debt Securities” in the prospectus. References in this prospectus supplement to a PLUS shall refer to the stated principal amount specified as the denomination for that issuance of PLUS in the applicable pricing supplement.

 

The following terms used in this section are defined in the indicated sections of the accompanying prospectus:

 

•

Senior Debt Indenture (“Description of Debt Securities—Indentures”)

•

senior indebtedness (“Description of Debt Securities—Subordination Provisions”)

•

MSFL Senior Debt Indenture (“Description of Debt Securities—Indentures”)

 

General Terms of the PLUS

 

Morgan Stanley PLUS. Morgan Stanley will issue the PLUS as part of its Series I medium-term notes under the Senior Debt Indenture. The Series I medium-term notes issued under the Senior Debt Indenture, together with Morgan Stanley’s senior Series J and Series K global medium-term notes, referred to below under “Plan of Distribution (Conflicts of Interest),” will constitute a single series under that indenture, together with any other obligations Morgan Stanley issues in the future under the Senior Debt Indenture that it designates as being part of that series. The Senior Debt Indenture does not limit the amount of additional indebtedness that Morgan Stanley may incur. Morgan Stanley may, without your consent, create and issue additional PLUS with the same terms as previous issuances of PLUS, so that the additional PLUS will be considered as part of the same issuance as the earlier PLUS.

 

MSFL PLUS. MSFL will issue the PLUS as part of its Series A medium-term notes under the MSFL Senior Debt Indenture. The Series A medium-term notes issued under the MSFL Senior Debt Indenture will constitute a single series under the MSFL Senior Debt Indenture, together with any other obligations MSFL issues in the future under the MSFL Senior Debt Indenture that it designates as being part of that series. The MSFL Senior Debt Indenture does not limit the amount of additional indebtedness that MSFL may incur. MSFL may, without your consent, create and issue additional PLUS with the same terms as previous issuances of PLUS, so that the additional PLUS will be considered as part of the same issuance as the earlier PLUS.

 

Ranking. Morgan Stanley PLUS. Morgan Stanley PLUS issued under the Senior Debt Indenture will rank on par with all of its other senior indebtedness and with all of its other unsecured and unsubordinated indebtedness, subject to statutory exceptions in the event of liquidation upon insolvency.

 

MSFL PLUS. MSFL PLUS issued under the MSFL Senior Debt Indenture will rank on a parity with all of its other senior indebtedness and with all of its other unsecured and unsubordinated indebtedness, subject to statutory exceptions in the event of liquidation upon insolvency. Such PLUS will be fully and unconditionally guaranteed by Morgan Stanley. As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its PLUS and will have no independent assets available for distributions to holders of MSFL PLUS if they make claims in respect of the PLUS 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. See “Structural Subordination; Morgan Stanley’s Access to Assets Held by Subsidiaries May Be Restricted” and “Status of the MSFL Securities; Relationship with Morgan Stanley Securities” in the accompanying prospectus.

 

Guarantee of MSFL PLUS. The payments due, including any property deliverable, under any PLUS issued by MSFL, will be fully and unconditionally guaranteed by Morgan Stanley. If, for any reason, MSFL does not make any required payment in respect of any of the PLUS, Morgan Stanley will cause the payment to be made at the same address at which MSFL is obligated to make such payment. Morgan Stanley’s guarantee of the payments due on the PLUS issued by MSFL will be unsecured senior obligations of Morgan Stanley. See “Description of Debt Securities—Morgan Stanley Guarantee of Debt Securities Issued by MSFL” in the accompanying prospectus.

 

Terms Specified in Pricing Supplements. A pricing supplement will specify the following terms of any issuance of PLUS to the extent applicable:

 

•

the issuer of the PLUS;

 

•

the issue price (price to public);

 

•

the stated principal amount per PLUS;

 

•

the aggregate principal amount;

 

•

the denominations or minimum denominations;

 

•

the method of quotation for each underlying currency;

 

•

whether the PLUS are bullish or bearish on the underlying currency or basket of currencies;

 

•

whether the PLUS are buffered;

 

•

the original issue date;

 

•

the stated maturity date and any terms related to any extension of the maturity date not otherwise set forth in this prospectus supplement;

 

•

the underlying currency or underlying basket of currencies, and if the latter applies, the applicable weighting for each basket currency;

 

•

the exchange rate for each underlying currency on the pricing date;

 

•

the valuation date(s);

 

•

the leverage factor;

 

•

the buffer amount, if applicable;

 

•

the downside factor, if applicable;

 

•

the maximum and/or minimum payment at maturity, if applicable;

 

•

the rate per year at which the PLUS will bear interest, if any, or the method of calculating that rate and the dates on which interest will be payable;

 

•

the stock exchange, if any, on which the PLUS may be listed;

 

•

whether the PLUS may be redeemed, in whole or in part, at our option or repaid at your option, prior to the stated maturity date, and the terms of any redemption or repayment;

 

•

if any PLUS are not denominated and payable in U.S. dollars, the currency or currencies in which the principal, premium, if any, and interest, if any, will be payable, which we refer to as the “specified currency,” along with any other terms relating to the non-U.S. dollar denomination;

 

•

if the PLUS are in book-entry form, whether the PLUS will be offered on a global basis to investors through Euroclear and Clearstream, Luxembourg as well as through the Depositary (each as defined below); and

 

•

any other terms on which we will issue the PLUS.

 

Some Definitions. We have defined some of the terms that we use frequently in this prospectus supplement below:

 

“basket of currencies” means the underlying basket of currencies specified in the applicable pricing supplement, the performance of which underlies the PLUS. We refer to each currency in the basket as a “basket currency.”

 

“buffer amount” means the percentage specified in the applicable pricing supplement by which the currency performance or the basket performance, as applicable, may be below zero before you will lose any part of the stated principal amount per Buffered PLUS.

 

“business day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York.

 

“Clearstream, Luxembourg” means Clearstream Banking, société anonyme.

 

“currency business day” means any day, other than a Saturday or Sunday, that is (i) neither a legal holiday nor a day on which commercial banks are authorized or required by law, regulation or executive order to close and (ii) a day on which dealings in foreign currency in accordance with the practice of the foreign exchange market occur:

 

(a)

in Buenos Aires, Argentina with respect to the Argentine peso;

 

(b)

in (x) Sao Paulo, Brazil, Rio de Janeiro, Brazil, or Brasilia, Brazil and (y) New York City with respect to the Brazilian real;

 

(c)

in Santiago, Chile with respect to the Chilean peso;

 

(d)

in Beijing, China with respect to the Chinese renminbi;

 

(e)

in Hong Kong with respect to the Hong Kong dollar;

 

(f)

in London, England with respect to the Hungarian forint;

 

(g)

in Mumbai, India with respect to the Indian rupee;

 

(h)

in Jakarta, Indonesia with respect to the Indonesian rupiah;

 

(i)

in Kuala Lumpur, Malaysia and Singapore with respect to the Malaysian ringgit;

 

(j)

in New York City with respect to the Mexican peso;

 

(k)

in Manila, Philippines with respect to the Philippine peso;

 

(l)

in Warsaw, Poland with respect to the Polish zloty;

 

(m)

in Bucharest, Romania with respect to the Romanian leu;

 

(n)

in Moscow, Russia and New York City with respect to the Russian ruble;

 

(o)

in London, England with respect to the Singapore dollar;

 

(p)

in Johannesburg, South Africa with respect to the South African rand;

 

(q)

in Seoul, Republic of Korea with respect to the South Korean won;

 

(r)

in Taipei, Taiwan with respect to the Taiwan dollar;

 

(s)

in Bangkok, Thailand with respect to the Thai baht;

 

(t)

in London, England with respect to the Turkish lira;

 

(u)

in Dubai, United Arab Emirates with respect to the United Arab Emirates dirham; and

 

(v)

in Hanoi, Vietnam with respect to the Vietnamese dong.

 

With respect to the Australian dollar, the British pound, the Canadian dollar, the Danish krone, the Eurozone euro, the Japanese yen, the New Zealand dollar, the Norwegian krone, the Swedish krona and the Swiss franc, “currency business day” means any day, other than a Saturday or Sunday, that is (i) neither a legal holiday nor a day on which commercial banks are authorized or required by law, regulation or executive order to close in New York City and (ii) a day on which dealings in foreign currency in accordance with the practice of the foreign exchange market occur in London, England.

 

“Depositary” or “DTC” means The Depository Trust Company, New York, New York.

 

“downside factor” means the factor specified as such in the applicable pricing supplement.

 

“Euroclear” means Euroclear Bank S.A./N.V., as operator of the Euroclear System.

 

“exchange rate” means on any currency business day, unless otherwise specified in the applicable pricing supplement:

 

(i)

with respect to each of the Australian dollar, the British pound, the Canadian dollar, the Danish krone, the Eurozone euro, the Hong Kong dollar, the Hungarian forint, the Japanese yen, the Mexican peso, the New Zealand dollar, the Norwegian krone, the Polish zloty, the Romanian leu, the Singapore dollar, the South African rand, the Swedish krona, the Swiss franc, the Turkish lira and the United Arab Emirates dirham, the rate for conversion of such underlying currency into U.S. dollars (expressed, in the case of the Australian dollar, the British pound, the Eurozone euro and the New Zealand dollar, as the number of U.S. dollars per unit of such underlying currency and, in the case of the Canadian dollar, the Danish krone, the Hong Kong dollar, the Hungarian forint, the Japanese yen, the Mexican peso, the Norwegian krone, the Polish zloty, the Romanian leu, the Singapore dollar, the South African rand, the Swedish krona, the Swiss franc, the Turkish lira and the United Arab Emirates dirham, as the number of units of such underlying currency per one U.S. dollar) as determined by reference to the rate displayed on the applicable reference source (such as the applicable Reuters page) for such underlying currency on such currency business day, as determined by the Calculation Agent; provided that if (i) no such rate is displayed on the applicable reference source for such day for such underlying currency or (ii) the Calculation Agent determines in good faith that the rate so displayed on the applicable reference source is manifestly incorrect, the exchange rate will equal the arithmetic mean, as determined by the Calculation Agent, of the firm quotes of exchange rates for conversion of such underlying currency into U.S. dollars determined by at least five independent leading dealers, selected by the Calculation Agent (the “reference dealers”), in the underlying market for such underlying currency, taking into consideration the latest available quote for such exchange rate and any other information deemed relevant by such reference dealers; provided further that if (i) the difference between the highest and lowest exchange rates for conversion of such underlying currency into U.S. dollars determined by the reference dealers on such date pursuant to the previous clause of this sentence is greater than 1% or (ii) the Calculation Agent is unable to obtain five such quotes from the reference dealers on such date for any reason, the exchange rate for such underlying currency shall be the exchange rate as determined by the Calculation Agent in good faith on such day, taking into account any information deemed relevant by the Calculation Agent; and

 

(ii)

with respect to each of the Argentine peso, the Brazilian real, the Chilean peso, the Chinese renminbi, the Indian rupee, the Indonesian rupiah, the Malaysian ringgit, the Philippine peso, the South Korean won, the Russian ruble, the Taiwan dollar, the Thai baht and the Vietnamese dong, the rate for conversion of such underlying currency into U.S. dollars (expressed as the number of units of such underlying currency per one U.S. dollar) as determined by reference to the rate displayed on the applicable reference source for such underlying currency on such currency business day, as determined by the Calculation Agent; provided that if (i) no such rate is displayed on the applicable reference source for such day for such underlying currency, (ii) such day is an unscheduled holiday with respect to any such underlying currency, or (iii) the Calculation Agent determines in good faith that the rate so displayed on the applicable reference source is manifestly incorrect, the exchange rate for such underlying currency will equal the arithmetic mean, as determined by the Calculation Agent, of the firm quotes of exchange rates for conversion of such underlying currency into

 

U.S. dollars determined by the reference dealers in the underlying market for such underlying currency, taking into consideration the latest available quote for such exchange rate and any other information deemed relevant by such reference dealers; provided further that if (i) the difference between the highest and lowest exchange rates for conversion of any such underlying currency determined by the reference dealers on such date pursuant to the previous clause of this sentence is greater than 1% or (ii) the Calculation Agent is unable to obtain five such quotes from the reference dealers on such date for any reason, the exchange rate for such underlying currency shall be the exchange rate as determined by the Calculation Agent in good faith on such day, taking into account any information deemed relevant by the Calculation Agent; provided yet further that, with respect to the Brazilian real, if a price materiality event occurs, the exchange rate for Brazilian real shall be the rate as determined in the definition of “price materiality event” below.

 

Quotations of MS & Co. or the Calculation Agent or any of their affiliates may be included in the calculation of any mean described in clauses (i) or (ii) above, but only to the extent that any such bid is the highest of the quotes obtained.

 

See also “Description of PLUS—General Terms of the PLUS—Succession Events” on page S-43.

 

“leverage factor” means the percentage specified as such in the applicable pricing supplement.

 

“maturity date” means the date specified in the applicable pricing supplement.

 

“original issue date” means the date specified in the applicable pricing supplement on which a particular issuance of PLUS will be issued.

 

“payment at maturity” means the payment due at maturity with respect to each PLUS, as described under “—Payment at Maturity” below.

 

“price materiality event” means, with respect to the Brazilian real, that (i) the exchange rate as displayed on the applicable reference source for the Brazilian real has been, in the good faith belief of the Calculation Agent, inflated or deflated by government intervention and (ii) the difference between such rate and the arithmetic mean, as determined by the Calculation Agent, of the exchange rate for conversion of the Brazilian real into U.S. dollars determined by five reference dealers (“Brazilian reference dealers’ rate”), selected by the Calculation Agent in the underlying market for the Brazilian real, taking into consideration the latest available quote for such exchange rate and any other information deemed relevant by the reference dealers, is more than 3%, then, in such case, the exchange rate for the Brazilian real on the valuation date will be the Brazilian reference dealers’ rate. If such difference is less than 3%, then, in such case, the exchange rate for the Brazilian real will be determined as set forth in the definition of “exchange rate” above.

 

“pricing date” means the day on which we price the PLUS for initial sale to the public.

 

“record date” for any interest payment date, if applicable, shall be:

 

(i) for any definitive registered note, the date 15 calendar days prior to that interest payment date, whether or not that date is a business day; provided, however, that any interest payable at maturity shall be payable to the person to whom the payment at maturity shall be payable; and

 

(ii) for any global registered note, the date one business day prior to such interest payment date; provided, however, that any interest payable at maturity shall be payable to the person to whom the payment at maturity shall be payable.

 

“reference source” means the applicable Reuters page or other source for any exchange rate as specified in the applicable pricing supplement.

 

“Reuters page” means the display page so designated by Reuters Monitor Money Rates Service (“Reuters”) or any other display page that may replace that display page on Reuters and any successor service thereto.

 

“stated principal amount” for an issuance of PLUS shall be the principal amount per PLUS, as specified in the applicable pricing supplement.

 

“trading day” means a day, as determined by the Calculation Agent, on which trading is generally conducted on the New York Stock Exchange, The Nasdaq Stock Market LLC, 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.

 

“underlying currency” or “underlying currencies” means the currency or currencies specified in the applicable pricing supplement, the performance of which, as measured by the specified currency exchange rates, underlies the PLUS.

 

“unscheduled holiday” means, with respect to any of the Argentine peso, the Brazilian real, the Chinese renminbi, the Indian rupee, the Indonesian rupiah, the Malaysian ringgit, the Philippine peso, the South Korean won, the Russian ruble, the Taiwan dollar, the Thai baht and the Vietnamese dong, a day that is not a currency business day with respect to any such underlying currency and the market was not made aware of such fact (by means of a public announcement or by reference to other publicly announced information) until a time later than 9:00 a.m. local time in the principal financial center(s) of any such underlying currency on the date that is two business days prior to the valuation date for such underlying currency.

 

“valuation date” or “valuation dates” with respect to an issuance of PLUS will be specified in the applicable pricing supplement. If there is only one valuation date, the final exchange rate(s) will be determined on that valuation date. If there are multiple valuation dates, then the final average exchange rate(s) will be determined on the last valuation date, which we refer to as the “final valuation date.” In the case of PLUS linked to a single currency, if the date specified as the valuation date or any of the multiple valuation dates in the applicable pricing supplement is not a currency business day, that valuation date will be the immediately preceding currency business day with respect to such currency. In the case of PLUS linked to a basket of currencies, if the date specified as the valuation date or any of the multiple valuation dates in the applicable pricing supplement is not a currency business day with respect to any basket currency, that valuation date solely for the affected basket currency will be the immediately preceding currency business day with respect to such basket currency.

 

“weighting” of an underlying currency in a basket of currencies represents the percentage of the whole basket initially assigned to such currency. The weightings for each currency in a basket will be specified in the applicable pricing supplement.

 

References in this prospectus supplement to “U.S. dollars” or “U.S.$” or “$” are to the currency of the United States of America.

 

Other terms of the PLUS are described in the following paragraphs.

 

Succession Events. With respect to an underlying currency, “succession event” means that either (i) such underlying currency is lawfully eliminated and replaced with, converted into, redenominated as, or exchanged for, another currency; or (ii) the relevant sovereign government of such underlying currency divides into two or more countries or economic regions, each with a different lawful currency immediately after that event.

 

We refer to the underlying currency with respect to which a succession event has occurred as the “former currency.” On and after the effective date of a succession event, the former currency will be deemed to be replaced with:

 

·

in the case of clause (i) above, the currency that lawfully replaces the former currency, into which the former currency is converted or redenominated, or for which the former currency is exchanged, as applicable, or

 

·

in the case of clause (ii) above, a currency selected by the calculation agent from among the lawful currencies resulting from the division that the calculation agent determines in good faith and in a commercially reasonable manner is most comparable to the former currency, taking into account the latest available quotation for the exchange rate of the former currency relative to the relevant underlying

 

currency or the relevant underlying currency relative to the former currency, as applicable, and any other information that it deems relevant.

 

We refer to the replacement currency determined as described in the bullets above as the “successor currency.”

 

Upon the occurrence of a succession event, the calculation agent will select in good faith and in a commercially reasonable manner a substitute Reuters or Bloomberg page for purposes of determining the exchange rate of any affected underlying currencies. To the extent the market convention for quoting the exchange rate for the successor currency relative to the underlying currency is different from the market convention for quoting the exchange rate for the reference currency relative to the underlying currency, the calculation agent will apply all calculations in a manner consistent with the original market convention in accounting for any adjustments resulting from a succession event.

 

PAYMENT AT MATURITY

 

PLUS Linked to a Single Currency

 

The payment at maturity for each PLUS will equal:

 

·

If the currency performance is positive,

 

stated principal amount per PLUS    +    leveraged upside payment,

 

subject to a maximum payment at maturity, if any, specified in the applicable pricing supplement,

 

·

If the currency performance is zero or negative,

 

stated principal amount per PLUS    ×    (1 + currency performance),

 

where,

 

“leveraged upside payment” means the product of (i) the stated principal amount, (ii) the leverage factor and (iii) the currency performance.

 

“currency performance” with respect to each issuance of PLUS is described by one of the following formulas as specified in the applicable pricing supplement:

 

 

  

and where,

 

“initial exchange rate” means the exchange rate on the pricing date provided that if the pricing date is not a currency business day for a currency, the initial exchange rate for the affected currency shall be the exchange rate on the immediately preceding currency business day with respect to such currency, in either case as specified in the applicable pricing supplement, and

 

“final exchange rate” means the exchange rate on the valuation date, as specified in the applicable pricing supplement.

 

For PLUS with multiple valuation dates, calculation of the currency performance will be based on the arithmetic average of the exchange rates of the underlying currency on the valuation dates, as calculated by the Calculation Agent on the final valuation date, which we refer to as the “final average exchange rate,” in lieu of the final exchange rate.

 

PLUS Linked to a Basket of Currencies

 

The payment at maturity for each PLUS will equal:

 

·

If the basket performance is positive,

 

stated principal amount per PLUS    +    leveraged upside payment,

 

subject to a maximum payment at maturity, if any, specified in the applicable pricing supplement,

 

·

If the basket performance is zero or negative,

 

stated principal amount per PLUS    ×    (1 + basket performance),

 

where,

 

“leveraged upside payment” means the product of (i) the stated principal amount, (ii) the leverage factor and (iii) the basket performance.

 

“basket performance” means the sum of the currency performance values for each basket currency specified in the applicable pricing supplement.

 

“currency performance value” means, for each basket currency, the product of (i) the currency performance and (ii) the weighting for such basket currency, which may be expressed in the applicable pricing supplement as:

 

 

 

 

depending on how the currency performance for that basket currency is expressed. See “Summary––Payment at Maturity” above.

 

For PLUS linked to a basket of currencies with multiple valuation dates, calculation of the currency performance values of each basket currency will be based on the arithmetic average of the exchange rate of each basket currency on each of the valuation dates, as calculated by the Calculation Agent on the final valuation date, which we refer to as the “final average exchange rate,” in lieu of the final exchange rate.

 

Buffered PLUS

 

The payment at maturity for each Buffered PLUS will equal:

 

·

If the currency performance or the basket performance, as applicable, is positive,

 

stated principal amount per PLUS    +    leveraged upside payment,

 

subject to a maximum payment at maturity, if any, specified in the applicable pricing supplement,

 

·

If the currency performance or the basket performance, as applicable, is zero or negative but has not declined by more than the buffer amount,

 

stated principal amount per PLUS, or

 

·

If the currency performance or the basket performance, as applicable, has declined by more than the buffer amount,

 

o

if there is a minimum payment at maturity:

 

 

  

; depending on whether the Buffered PLUS are linked to a single currency or a basket of currencies.

 

Ø

This payment will be less than the stated principal amount; however, the payment at maturity for each Buffered PLUS will not be less than the minimum payment at maturity, which will be the stated principal amount times the buffer amount.

 

o

if there is no minimum payment at maturity:

 

 

 

; depending on whether the Buffered PLUS are linked to a single currency or a basket of currencies.

 

Ø

Because in this scenario the sum of the currency performance or the basket performance, as applicable, and the buffer amount will be negative, the payment at maturity will be less than the stated principal amount and may be zero.

 

Trustee

 

The “Trustee” for each offering of PLUS issued under each of the Senior Debt Indenture and the MSFL Senior Debt Indenture will be The Bank of New York Mellon, a New York banking corporation (as successor to JPMorgan Chase Bank, N.A.).

 

We shall, or shall cause the Calculation Agent to, (i) provide written notice to the Trustee and to the Depositary of the amount of cash to be delivered with respect to the stated principal amount of each PLUS, 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 PLUS to the Trustee for delivery to the Depositary, as holder of the PLUS, on the maturity date. We expect such amount of cash will be distributed to investors on the maturity date in accordance with the standard rules and procedures of the Depositary and its direct and indirect participants. See “—Forms of Securities—Book-Entry Securities” or “—Forms of Securities—Certificated Securities” below, and see “Forms of Securities—The Depositary” in the accompanying prospectus.

 

Agent

 

Unless otherwise specified in the applicable pricing supplement, the “agent” for each underwritten offering of PLUS will be MS & Co.

 

Calculation Agent and Calculations

 

The “Calculation Agent” for the PLUS will be Morgan Stanley Capital Services LLC, which we refer to as MSCS. As Calculation Agent, MSCS will determine, among other things, the initial exchange rate(s), the final exchange rate(s) (or final average exchange rate(s), for PLUS with multiple valuation dates), the currency performance(s) and the basket performance and will calculate 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, including with respect to the calculation of the currency performance, for any issuance of PLUS linked to a single currency 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 PLUS 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 PLUS will be rounded to the nearest cent, with one-half cent rounded upward.

 

All calculations with respect to the payment at maturity, if any, including with respect to the calculation of the basket performance as well as the currency performance value of each basket currency, for any issuance of PLUS linked to a basket of currencies will be rounded to the nearest one billionth, with five ten-billionths rounded upward (e.g., .9876543215 would be rounded to .987654322); all dollar amounts related to determination of the amount of cash payable per PLUS 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 PLUS 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 PLUS, including with respect to certain determinations and judgments that the Calculation Agent must make. MSCS, or such other entity appointed as Calculation Agent as set forth in the applicable pricing supplement, is obligated to carry out its duties and functions as Calculation Agent in good faith and using its reasonable judgment.

 

Alternate Exchange Calculation in the Case of an Event of Default

 

In case an event of default (as defined in the accompanying prospectus) with respect to any issuance of PLUS shall have occurred and be continuing, the amount declared due and payable per PLUS upon any acceleration of such PLUS shall be an amount in cash equal to the value of such PLUS on the day that is two business days prior to the date of such acceleration, as determined by the Calculation Agent (acting in good faith and in a commercially reasonable manner) by reference to factors that the Calculation Agent considers relevant, including, without limitation: (i) then-current market interest rates; (ii) our credit spreads as of the pricing date, without adjusting for any subsequent changes to our creditworthiness; and (iii) the then-current value of the performance-based component of such PLUS. Because the Calculation Agent will take into account movements in market interest rates, any increase in market interest rates since the pricing date will lower the value of your claim in comparison to if such movements were not taken into account.

 

Notwithstanding the foregoing, if a voluntary or involuntary liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to the relevant issuer, then depending on applicable bankruptcy law, your claim may be limited to an amount that could be less than the default amount.

 

Forms of Securities

 

As noted above, the PLUS are issued as part of Morgan Stanley’s Series I medium-term note program or MSFL’s Series A medium-term note program, as applicable. We will issue PLUS only in fully registered form either as book-entry securities or as certificated securities. References to “holders” mean those who own PLUS registered in their own names, on the books that we or the Trustee maintain for this purpose, and not those who own beneficial interests in PLUS registered in street name or in PLUS issued in book-entry form through one or more depositaries.

 

Book-Entry Securities. For PLUS in book-entry form, we will issue one or more global certificates representing the entire issue of PLUS. Except as set forth in the prospectus under “Forms of Securities—Global Securities,” you may not exchange book-entry securities or interests in book-entry securities for certificated securities.

 

Each global security certificate representing book-entry securities will be deposited with, or on behalf of, the Depositary and registered in the name of the Depositary or a nominee of the Depositary. These certificates name the Depositary or its nominee as the owner of the PLUS. The Depositary maintains a computerized system that will reflect the interests held by its participants in the global securities. An investor’s beneficial interest will be reflected in the records of the Depositary’s direct or indirect participants through an account maintained by the investor with its broker/dealer, bank, trust company or other representative. A further description of the Depositary’s procedures for global securities representing book-entry securities is set forth under “Forms of Securities—The Depositary” in the prospectus. The Depositary has confirmed to us, the agent and the Trustee that it intends to follow these procedures.

 

Certificated Securities. If we issue PLUS in certificated form, the certificate will name the investor or the investor’s nominee as the owner of the PLUS. The person named in the security register will be considered the owner of the PLUS for all purposes under the Senior Debt Indenture. For example, if we need to ask the holders of any issuance of PLUS to vote on a proposed amendment to such PLUS, the person named in the security register will be asked to cast any vote regarding that issuance of PLUS. If you have chosen to have some other entity hold the certificates for you, that entity will be considered the owner of your PLUS in our records and will be entitled to cast the vote regarding your PLUS. You may not exchange certificated securities for book-entry securities or interests in book-entry securities.

 

New York Law to Govern. The PLUS and Morgan Stanley’s guarantee of PLUS issued by MSFL will be governed by, and construed in accordance with, the laws of the State of New York.

 

Interest and Principal Payments

 

You should read the section called “Description of Debt Securities” in the prospectus, where we describe generally how principal and interest payments, if any, on the PLUS are made, how exchanges and transfers of the PLUS are effected and how fixed and floating rates of interest on the PLUS, if any, are calculated.

 

Use of Proceeds and Hedging

 

The net proceeds from the sale of the PLUS will be used by us for general corporate purposes. We will receive, in aggregate, the issue price per security issued, because, when we enter into hedging transactions in order to meet our obligations under the PLUS, our hedging counterparty will reimburse the cost of the agent’s commissions. The costs of the PLUS borne by you and described in the applicable pricing supplement comprise the agent’s commissions and the cost of issuing, structuring and hedging the PLUS. See also “Use of Proceeds” in the accompanying prospectus.

 

On or prior to the pricing date, we hedge our anticipated exposure in connection with the PLUS by entering into hedging transactions with our affiliates and/or third party dealers. We expect our hedging counterparties to take positions in forwards and options contracts on the underlying currencies or positions in any other available currencies or instruments that they may wish to use in connection with such hedging. Such purchase activity on or prior to the pricing date could potentially affect the exchange rate for the underlying currencies, and, therefore, the exchange rate that must prevail with respect to the underlying currencies on the valuation date(s) so that you do not suffer a loss on your initial investment in the PLUS. In addition, through our affiliates, we are likely to modify our hedge position throughout the life of the PLUS, including on the valuation date(s), by purchasing and selling the underlying currencies or forwards or options contracts on the underlying currencies or positions in any other available currencies or instruments that we may wish to use in connection with such hedging activities, including by selling any such currencies or instruments on the valuation date. These entities may be unwinding or adjusting hedge positions during the term of the PLUS, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation date approaches. We cannot give any assurance that our hedging activities will not affect the value of the underlying currencies, and, therefore, adversely affect the currency exchange rate(s) on the valuation date, the currency performance(s) or the basket performance and, consequently, the payment you will receive at maturity, if any.

 

PLUS Offered on a Global Basis

 

If we offer the PLUS on a global basis, we will so specify in the applicable pricing supplement. The additional information contained in the prospectus under “Securities Offered on a Global Basis Through the Depositary—Book-Entry, Delivery and Form” and “—Global Clearance and Settlement Procedures” will apply to every offering on a global basis. The additional provisions described under “Securities Offered on a Global Basis through the Depositary—Tax Redemption” and “—Payment of Additional Amounts” will apply to PLUS offered on a global basis only if we so specify in the applicable pricing supplement.

 

Benefit Plan Investor Considerations

 

General Fiduciary Matters

 

Each fiduciary of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing an investment in the PLUS. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan.

 

Prohibited Transaction Issues

 

In addition, we and certain of our subsidiaries and affiliates, including MS & Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”) with respect to many Plans, as well as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements subject to Section 4975 of the Code, also “Plans”). ERISA Section 406 and Code Section 4975 generally prohibit transactions between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code would likely arise, for example, if the PLUS are acquired by or with the assets of a Plan with respect to which MS & Co. or any of its affiliates is a service provider or other party in interest or disqualified person, unless the PLUS are acquired pursuant to an exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules could result in excise tax and other penalties and liabilities under ERISA and/or Section 4975 of the Code for parties in interest or disqualified persons who engaged in the prohibited transaction, unless exemptive relief is available under an applicable statutory or administrative exemption. In addition, fiduciaries of the Plan that engaged in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code.

 

The U.S. Department of Labor has issued five prohibited transaction class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting from the purchase or holding of the PLUS. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts) and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code may provide an exemption for the purchase and sale of securities and the related lending transactions, provided that neither the issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control or renders any investment advice with respect to the assets of the Plan involved in the transaction, and provided further that the Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called “service provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available with respect to transactions involving the PLUS.

 

Because we may be considered a party in interest or disqualified person with respect to many Plans, the PLUS may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include “plan assets” of any Plan by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief, including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption, or such purchase, holding or disposition is otherwise not prohibited. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other persons considering purchasing the PLUS on behalf of or with “plan assets” of any Plan consult with their counsel regarding the availability of exemptive relief.

 

Non-ERISA Arrangements

 

Certain governmental plans (as defined in Section 3(32) of ERISA), church plans (as defined in Section 3(33) of ERISA) and non-U.S. plans (as described in Section 4(b)(4) of ERISA) (“Non-ERISA Arrangements”) are not

 

subject to these “prohibited transaction” rules of ERISA or Section 4975 of the Code, but may be subject to similar rules under other applicable laws or regulations (“Similar Laws”). Fiduciaries of Non-ERISA Arrangements should consult with their counsel regarding the potential consequences of an investment in the PLUS under any applicable Similar Laws before purchasing the PLUS on behalf of or with assets of any Non-ERISA Arrangement.

 

Representations

 

Any purchaser, including any fiduciary purchasing on behalf of a Plan, Plan Asset Entity or Non-ERISA Arrangement, transferee or holder of the PLUS will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the PLUS that either (a) it is not a Plan, Plan Asset Entity or Non-ERISA Arrangement and is not purchasing such PLUS on behalf of or with the assets of any Plan or Non-ERISA Arrangement or (b) its purchase, holding and disposition of these PLUS will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.

 

The PLUS are contractual financial instruments. The financial exposure provided by the PLUS is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized investment management or advice for the benefit of any purchaser or holder of the PLUS. The PLUS have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder of the PLUS.

 

Each purchaser or holder of any PLUS acknowledges and agrees that:

 

(i)  the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser or holder has not relied and shall not rely in any way upon us or any of our affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to (A) the design and terms of the PLUS, (B) the purchaser or holder’s investment in the PLUS, or (C) the exercise of or failure to exercise any rights we or the purchaser or holder has under or with respect to the PLUS;

 

(ii)  we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the PLUS and (B) all hedging transactions in connection with our obligations under the PLUS;

 

(iii)  any and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets and positions held for the benefit of the purchaser or holder;

 

(iv)  our interests are adverse to the interests of the purchaser or holder; and

 

(v)  neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.

 

Each purchaser and holder of the PLUS has exclusive responsibility for ensuring that its purchase, holding and disposition of the PLUS do not violate the prohibited transaction rules of ERISA or the Code or any Similar Law. The sale of any PLUS to any Plan, Plan Entity or Non-ERISA Arrangement is in no respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to investments by Plans, Plan Entities or Non-ERISA Arrangements generally or any particular Plan, Plan Entity or Non-ERISA Arrangement, or that such an investment is appropriate for Plans, Plan Entities or Non-ERISA Arrangements generally or any particular Plan, Plan Entity or Non-ERISA Arrangement. In this regard, neither this discussion nor anything provided in this prospectus supplement is or is intended to be investment advice directed at any potential Plan, Plan Entity or Non-ERISA Arrangement purchaser or at such purchasers generally and such purchasers of these PLUS should consult and rely on their own counsel and advisers as to whether an investment in these PLUS is suitable.

 

United States Federal Taxation

 

The following is a general discussion of the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the PLUS.

 

The discussion below assumes that the PLUS will not pay any stated interest and that the PLUS will be denominated in U.S. dollars. The U.S. federal tax consequences of an investment in a PLUS that provides for stated interest or a PLUS denominated in a currency other than the U.S. dollar will be set forth in the applicable pricing supplement. In addition, the U.S. federal tax consequences of any offering of PLUS that we intend to treat as debt instruments will be set forth in the applicable pricing supplement.

 

This discussion applies only to initial investors in the PLUS who:

 

·

purchase the PLUS at their “issue price,” which will equal the first price at which a substantial amount of the PLUS is sold to the public (not including bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers); and

·

hold the PLUS as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Subject to any additional discussion in the applicable pricing supplement, it is expected, and the discussion below assumes, that, for U.S. federal income tax purposes, the issue price of a PLUS is equal to its stated issue price indicated in the applicable pricing supplement.

 

This discussion does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject to special rules, such as:

 

·

certain financial institutions;

·

insurance companies;

·

certain dealers and traders in securities or commodities;

·

investors holding the PLUS as part of a “straddle,” wash sale, conversion transaction, integrated transaction or constructive sale transaction;

·

U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;

·

partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

·

regulated investment companies;

·

real estate investment trusts; or

·

tax-exempt entities, “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.

 

If an entity that is classified as a partnership for U.S. federal income tax purposes holds the PLUS, 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 PLUS 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 PLUS to you.

 

As the law applicable to the U.S. federal income taxation of instruments such as the PLUS is technical and complex, the discussion below necessarily represents only a general summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences or consequences resulting from the Medicare tax on investment income.

 

This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of the PLUS 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.

 

This discussion is subject to any additional discussion regarding U.S. federal income taxation contained in the applicable pricing supplement. Accordingly, you should also consult the applicable pricing supplement for any additional discussion of U.S. federal income taxation with respect to the specific PLUS offered thereunder.

 

General

 

Except as otherwise provided in the applicable pricing supplement and based on certain representations that will be confirmed at or prior to the pricing date with respect to each offering, we intend to treat each PLUS 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 PLUS or instruments that are similar to the PLUS 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 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 PLUS (including possible alternative treatments of the PLUS). Unless otherwise stated, the following discussion is based on the treatment of each PLUS as described above.

 

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 PLUS that is for U.S. federal income tax purposes:

 

·

a citizen or individual resident of the United States;

·

a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or

·

an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

 

Tax Treatment of the PLUS

 

Tax Treatment Prior to Settlement. Subject to the discussion below regarding the possible application of Section 1256 of the Code, a U.S. Holder should not be required to recognize taxable income over the term of the PLUS prior to settlement, other than pursuant to a sale or exchange as described below.

 

Tax Basis. Subject to the discussion below regarding the possible application of Section 1256 of the Code, a U.S. Holder’s tax basis in a PLUS should equal the amount paid by the U.S. Holder to acquire the PLUS.

 

Sale, Exchange or Settlement of the PLUS. Upon a sale, exchange or settlement of a PLUS, 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 PLUS sold, exchanged or settled.

 

Character of Gain or Loss. Because the return on the PLUS is “determined by reference to the value” of one or more foreign currencies, unless otherwise provided in the applicable pricing supplement, we intend to treat the PLUS as subject to Section 988 of the Code. In that case, any gain or loss recognized on a PLUS (including any gain or loss resulting from the possible application of Section 1256 of the Code, as discussed below) generally will be ordinary income or loss unless an election under Section 988(a)(1)(B) of the Code to treat such gain or loss as capital gain or loss (the “Section 988 election”) is available and the U.S. Holder makes such election before the close of the day on which the U.S. Holder purchases the PLUS. While a taxpayer may make a Section 988 election to treat gain or loss on certain forward contracts, futures contracts or option contracts linked to one or more foreign currencies as capital gain or loss, it is unclear whether a Section 988 election is available for the PLUS. Unless otherwise provided in the applicable pricing supplement, due to the lack of governing authority, our counsel expects to be unable to opine as to whether the Section 988 election is available for the PLUS. U.S. Holders should consult their tax advisers about the potential application of Section 988 of the Code and the Section 988 election to the PLUS. In addition, a U.S. Holder might be subject to special reporting requirements that apply to foreign currency losses that exceed certain thresholds.

 

Possible Application of Section 1256 of the Code

 

Special rules will apply if a PLUS constitutes, in whole or in part, a “Section 1256 Contract” under Section 1256 of the Code. Section 1256 Contracts include, among others, “foreign currency contracts,” as defined in Section

 

1256(g)(2)(A) of the Code. If Section 1256 of the Code were to apply to a PLUS, U.S. Holders would be required (i) to mark to market all or a portion of the PLUS as if it were sold at its fair market value on the last business day of each year it is held, and (ii) if the Section 988 election described above were available and validly made by a U.S. Holder (or Section 988 of the Code did not apply to the PLUS), to recognize any gain or loss in respect of the portion of the PLUS that is treated as a Section 1256 Contract as 40% short-term capital gain or loss and 60% long-term capital gain or loss. U.S. Holders should consult their tax advisers regarding the potential application of Section 1256 of the Code to the PLUS.

 

Possible Alternative Tax Treatments of an Investment in the PLUS

 

Due to the absence of authorities that directly address the proper tax treatment of the PLUS, no assurance can be given that the IRS will accept, or that a court will uphold, the treatment described above. The IRS could, for instance, seek to treat a PLUS as a debt instrument. Depending on the terms of a particular PLUS, it is also possible that the PLUS could be treated as a number of debt instruments, rather than as a single debt instrument. The risk that buffered securities would be recharacterized, for U.S. federal income tax purposes, as debt instruments giving rise to ordinary income, rather than as open transactions, is higher than with non-buffered currency-linked securities. In 2007, the IRS released a revenue ruling in which it concluded that an instrument that resembled a U.S. dollar-denominated prepaid forward contract on the euro should be treated as euro-denominated indebtedness because the purchaser of the instrument initially invested the U.S. dollar equivalent of a fixed amount of euro (the “euro equivalent amount”) and received at maturity the euro equivalent amount and an interest component based on market rates in respect of the euro. We expect the terms of a PLUS that we intend to treat as an “open transaction” to be distinguishable from the facts underlying the revenue ruling in a number of material aspects. Thus, while the scope of the revenue ruling is not clear, we intend to take the position that the reasoning underlying the revenue ruling is not applicable to those PLUS that we intend to treat as open transactions. However, the IRS could assert that the revenue ruling applies to such a PLUS, in which case the PLUS could be treated as described below.

 

If the IRS were successful in recharacterizing a PLUS that matures (after taking into account the last possible date that the PLUS could be outstanding under its terms) more than one year from its date of issuance as a debt instrument, depending on the terms of the particular PLUS, the PLUS might be subject to the Treasury regulations governing foreign currency contingent payment debt instruments (the “foreign currency contingent debt regulations”). In that event, the tax treatment of the PLUS would be as described below under “—Tax Treatment of Certain PLUS Characterized as Debt—Certain Long-term PLUS.” Alternatively, the PLUS might be subject to Treasury regulations governing U.S. dollar-denominated contingent payment debt instruments (the “contingent debt regulations”). If the contingent debt regulations applied to a PLUS, 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 (“OID”) on the PLUS every year at a “comparable yield” determined at the time of issuance of the PLUS. Furthermore, any gain recognized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the PLUS would generally be treated as ordinary income, and any loss recognized would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of OID and as capital loss thereafter.

 

If a PLUS that matures (after taking into account the last possible date that the PLUS could be outstanding under its terms) one year or less from its date of issuance (a “Short-term PLUS”) were treated as a debt instrument, the timing and character of income thereon would be significantly affected. If the IRS were successful in asserting this treatment, the tax treatment of the Short-term PLUS would be as described below under “─Tax Treatment of Certain PLUS Characterized as Debt─Certain Short-term PLUS.”

 

Even if the foreign currency contingent debt regulations, contingent debt regulations or short-term debt treatment do not apply to the PLUS, other alternative U.S. federal income tax treatments of the PLUS are possible, which, if applied, could significantly affect the timing and character of the income or loss with respect to the PLUS. It is possible, for example, that a PLUS could be treated as a unit consisting of a loan and a forward contract, in which case a U.S. Holder might be required to accrue OID into income on a current basis.

 

In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments;

 

whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; and whether these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the PLUS, possibly with retroactive effect. Accordingly, prospective investors should consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the PLUS, including the possible implications of this notice.

 

Tax Treatment of Certain PLUS Characterized as Debt

 

Certain Long-term PLUS. As discussed above, the IRS may recharacterize a PLUS that matures (after taking into account the last possible date that the PLUS could be outstanding under its terms) more than one year from its date of issuance as a “foreign currency contingent payment debt instrument.” The following discussion describes the treatment of a PLUS that is treated as a single foreign currency contingent payment debt instrument.

 

Pursuant to the foreign currency contingent debt regulations, a U.S. Holder of a PLUS will be required to accrue interest income on the PLUS on a constant yield basis, based on a comparable yield, as described below, regardless of whether the U.S. Holder uses the cash or accrual method of accounting for U.S. federal income tax purposes. Accordingly, a U.S. Holder generally will be required to include interest in income each year even though the U.S. Holder will not receive any coupon payments on the PLUS. All determinations and computations required under the foreign currency contingent debt regulations (including our determination of the “comparable yield” and “projected payment schedule” for the PLUS) will be made in the denomination currency of the PLUS (which, in general, is the currency by reference to which payments on the PLUS are determined).

 

The foreign currency contingent debt regulations provide that a U.S. Holder must accrue into income OID for U.S. federal income tax purposes for each accrual period prior to and including the maturity date of the PLUS. The amount of OID that a U.S. Holder must accrue for each accrual period is determined by applying the “noncontingent bond method” to the PLUS and equals the product of:

 

·

the adjusted issue price (as defined below) of the PLUS as of the beginning of the accrual period;

 

·

the comparable yield (as defined below) of the PLUS, adjusted for the length of the accrual period; and

 

·

a fraction, the numerator of which is the number of days during the accrual period that the U.S. Holder held the PLUS and the denominator of which is the number of days in the accrual period.

 

The “adjusted issue price” of a PLUS is its issue price, increased by any interest income previously accrued.

 

The term “comparable yield” as used in the foreign currency contingent debt regulations is equal to the greater of (i) the annual yield we would pay, as of the issue date, on a fixed-rate debt instrument with no contingent payments, but with terms and conditions otherwise comparable to those of the PLUS, and (ii) a denomination currency rate of interest that is analogous to the applicable federal rate that would be used if the U.S. dollar were the denomination currency.

 

The foreign currency contingent debt regulations require that we provide to U.S. Holders, solely for U.S. federal income tax purposes, a schedule of the projected amounts of payments (the “projected payment schedule”) on the PLUS. This schedule must produce a yield to maturity that equals the comparable yield.

 

The comparable yield and the projected payment schedule will not be provided for any purpose other than to determine a U.S. Holder’s interest accruals and adjustments thereto in respect of the PLUS for U.S. federal income tax purposes. They do not constitute a projection or representation by us regarding the actual amounts that will be paid on the PLUS.

 

The accruals of interest computed with respect to the PLUS in the denomination currency must be translated into U.S. dollars. The U.S. dollar value of the accrued income will be determined by translating the income at an average

 

rate of exchange for the accrual period or, with respect to an accrual period that spans two taxable years, at an average rate for the partial period within the taxable year. A U.S. Holder may elect to translate interest income for an interest accrual period into U.S. dollars at the spot rate on the last day of the interest accrual period (or, in the case of a partial accrual period, the spot rate on the last day of the taxable year). A U.S. Holder that makes this election must apply it consistently to all debt instruments from year to year and cannot change the election without the consent of the IRS.

 

Generally, the sale, exchange or retirement of a PLUS will result in taxable gain or loss to a U.S. Holder. The amount of gain or loss on a sale, exchange or retirement of a PLUS will equal the difference between the amount realized on the sale, exchange or retirement and the U.S. Holder’s adjusted tax basis in the PLUS. A U.S. Holder’s adjusted tax basis in a PLUS will equal the U.S. dollar cost as of the day the U.S. Holder purchased the PLUS, increased by the U.S. dollar value of the U.S. Holder’s total interest accruals with respect to the PLUS, translated as described above. The amount realized on a sale, exchange or unscheduled retirement of a PLUS is generally equal to the U.S. dollar value of cash and the fair market value of any other property received by the U.S. Holder. Any gain, other than currency exchange gain (as discussed below), is treated as interest income. Any loss, other than currency exchange loss (as discussed below), is treated as an ordinary loss to the extent of the U.S. Holder’s total interest accruals on the PLUS and as capital loss thereafter. The deductibility of capital losses is subject to limitations. A U.S. Holder that recognizes a loss that meets certain thresholds may be required to file a disclosure statement with the IRS. U.S. Holders should consult their tax advisers regarding this potential reporting obligation.

 

For purposes of determining the amount realized upon the scheduled retirement of a PLUS, the U.S. Holder will be deemed to receive the projected amount of any contingent payment due at maturity, reduced by the amount of any excess negative adjustment (as defined below). The projected amount is translated into U.S. dollars by translating the portion attributable to principal into U.S. dollars at the spot rate on the issue date and translating the portion attributable to accrued interest into U.S. dollars at the rates at which such amounts of interest were translated when accrued. To the extent that the actual amount a U.S. Holder receives on the scheduled retirement of a PLUS is greater or lesser than the projected amount, a U.S. Holder will incur a net positive adjustment or a net negative adjustment. Any net positive adjustment with respect to a PLUS must be translated into U.S. dollars at the spot rate on the retirement date of the PLUS. The U.S. Holder will treat a net positive adjustment as additional interest income in that taxable year. A net negative adjustment (i) will first reduce interest that otherwise would be accrued in the denomination currency during the taxable year in which the PLUS is retired; (ii) to the extent of any excess, will give rise to an ordinary loss to the extent of the U.S. Holder’s accrued interest on the PLUS in prior taxable years (translated into U.S. dollars at the rate used to translate interest in the relevant taxable year); and (iii) to the extent of any excess after applying (i) and (ii), will reduce the amount realized (translated into U.S. dollars at the spot rate on the issue date of the PLUS) and will give rise to a capital loss (this excess amount is an “excess negative adjustment”). With respect to U.S. Holders who are individuals, a net negative adjustment is not subject to the two percent floor limitation on miscellaneous itemized deductions.

 

In addition to the gain or loss determined above, a U.S. Holder may recognize currency exchange gain or loss upon a sale, exchange or retirement of a PLUS. For purposes of determining the currency exchange gain or loss on the sale, exchange or retirement of a PLUS, the amount received will be translated into the foreign currency by translating any amount attributable to the principal of the PLUS into foreign currency at the spot rate on the issue date of the PLUS and translating any amount attributable to accrued interest on the PLUS into foreign currency at the rates at which such amounts were translated when accrued. To determine the amount of currency exchange gain or loss on the sale, exchange or unscheduled retirement of a PLUS, the amount received is first applied against the principal of the PLUS and then against accrued unpaid interest. The amount of foreign currency gain or loss recognized with respect to receipt of principal is determined by translating the amount received into U.S. dollars at the spot rate on the date of receipt and subtracting from such amount the amount determined by translating the principal into U.S. dollars at the spot rate on the date the PLUS was issued. The amount of foreign currency gain or loss recognized with respect to payments of interest previously accrued on the PLUS is determined by translating the amount of interest received into U.S. dollars at the spot rate on the date of receipt and subtracting from such amount the amount determined by translating the interest received into U.S. dollars at the rate at which such interest was accrued as described above. For purposes of determining the amount of currency exchange gain or loss on the scheduled retirement of a PLUS, the amount received shall be attributed (i) first to any net positive adjustment on the PLUS, (ii) then to accrued interest remaining after reduction by any net negative adjustment and (iii) then to the principal.

 

The total amount of currency exchange gain or loss on a PLUS is equal to the sum of the currency exchange gains or losses on principal and interest, calculated as described above. Any such currency exchange gain or loss will be treated as ordinary income or loss. Prospective purchasers should consult their tax advisers regarding these rules.

 

Certain Short-term PLUS. As discussed above, the IRS may recharacterize a Short-term PLUS as a short-term debt instrument. Under this treatment, and subject to the discussion below regarding Section 988 of the Code, gain realized by a U.S. Holder upon settlement of a Short-term PLUS at maturity would be treated as ordinary income. In addition, such a Short-term PLUS would be treated as issued with OID. Moreover, (i) gain recognized by a U.S. Holder upon the sale, exchange or other disposition of the Short-term PLUS (other than at maturity) would be treated as ordinary income to the extent of any accrued OID, and (ii) accrual-method U.S. Holders (and cash-method U.S. Holders that elect to apply an accrual method to the Short-term PLUS) might be required to accrue into income OID over the term of the Short-term PLUS before maturity. However, the amount of accrued OID would be unclear because the amount payable at maturity of the Short-term PLUS would not be known as of the issue date.

 

Although no current Treasury regulations specifically apply to a Short-term PLUS treated as a short-term debt instrument, all or a portion of the gain or loss recognized on the sale, exchange or retirement of such a Short-term PLUS could be subject to Section 988 of the Code. U.S. Holders should consult their tax advisers regarding the possible application of Section 988 of the Code to a Short-term PLUS.

 

Backup Withholding and Information Reporting

 

Backup withholding may apply in respect of payments on the PLUS and the payment of proceeds from a sale, exchange or other disposition of the PLUS, 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 payments on the PLUS and the payment of proceeds from a sale, exchange or other disposition of the PLUS, 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 PLUS that is for U.S. federal income tax purposes:

 

·

an individual who is classified as a nonresident alien;

·

a foreign corporation; or

·

a foreign estate or trust.

 

The term “Non-U.S. Holder” does not include any of the following holders:

 

·

a holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income tax purposes;

·

certain former citizens or residents of the United States; or

·

a holder for whom income or gain in respect of the PLUS is effectively connected with the conduct of a trade or business in the United States.

 

Such holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the PLUS.

 

Tax Treatment upon Sale, Exchange or Settlement of the PLUS

 

Assuming the treatment of the PLUS as set forth above under “—General” is respected, and subject to the discussion below regarding backup withholding and FATCA, a Non-U.S. Holder of the PLUS will not be subject to U.S. federal income or withholding tax in respect of amounts paid to the Non-U.S. Holder.

 

Subject to the discussion below regarding FATCA, if all or any portion of a PLUS were treated as a debt instrument, any payment made to a Non-U.S. Holder with respect to the PLUS would not be subject to U.S. federal withholding tax, provided that:

 

·

the Non-U.S. Holder does not own, directly or by attribution, ten percent or more of the total combined voting power of all classes of Morgan Stanley stock entitled to vote;

 

·

the Non-U.S. Holder is not a controlled foreign corporation related, directly or indirectly, to Morgan Stanley through stock ownership;

 

·

the Non-U.S. Holder is not a bank receiving interest under Section 881(c)(3)(A) of the Code, and

 

·

the certification requirement described below has been fulfilled with respect to the beneficial owner.

 

If you are a Non-U.S. Holder, you should note that, because the characterization of the PLUS is unclear, payments made to you with respect to the PLUS may be subject to U.S. federal withholding tax unless you fulfill the certification requirement described below.

 

Certification Requirement. The certification requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a PLUS (or a financial institution holding the PLUS on behalf of the beneficial owner) furnishes to the applicable withholding agent an applicable IRS Form W-8, 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 these instruments should be subject to U.S. withholding tax. It is possible that any Treasury regulations or other guidance issued after consideration of this issue could materially and adversely affect the withholding tax consequences of ownership and disposition of the PLUS, possibly on a retroactive basis. Non-U.S. Holders should note that we currently do not intend to withhold on payments made with respect to the PLUS to Non-U.S. Holders (subject to compliance by such holders with the certification requirement described above and to the discussion below regarding FATCA). However, in the event of a change of law or any formal or informal guidance by the IRS, the U.S. Treasury Department or Congress, we may decide to withhold on payments made with respect to the PLUS 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 PLUS, including the possible implications of the notice referred to above.

 

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 PLUS 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 PLUS.

 

Backup Withholding and Information Reporting

 

Information returns may be filed with the IRS in connection with the payment on the PLUS at maturity as well as in connection with the payment of proceeds from a sale, exchange or other disposition of the PLUS. A Non-U.S. Holder may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless the 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 PLUS” 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 dividends or other U.S.-source “fixed or determinable annual or periodical” income. If the PLUS were recharacterized as debt instruments, as described above under “—Tax Consequences to U.S. Holders—Possible Alternative Tax Treatments of an Investment in the PLUS,” this legislation would apply to any payment of amounts treated as interest and any payment of gross proceeds of the disposition (including upon retirement) of the PLUS. However, under proposed Treasury regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending finalization) no withholding will apply to payments of gross proceeds (other than amounts treated as FDAP income). If withholding applies to the PLUS, we will not be required to pay any additional amounts with respect to amounts withheld. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the PLUS.

 

Plan of Distribution (Conflicts of Interest)

 

We are offering the PLUS as part of Morgan Stanley’s Series I medium-term notes or MSFL’s Series A medium-term notes, as applicable, on a continuing basis through MS & Co., which we refer to as the “agent.” We may also use other agents that will be named in the applicable pricing supplement. The agent has, or will have, agreed to use reasonable efforts to solicit offers to purchase the PLUS. We will have the sole right to accept offers to purchase the PLUS and may reject any offer in whole or in part. The agent may reject, in whole or in part, any offer it solicited to purchase PLUS. We will pay the agent, in connection with sales of the PLUS resulting from a solicitation the agent made or an offer to purchase the agent received, a commission that will be specified in the applicable pricing supplement.

 

We may also sell the PLUS to the agent as principal for its own account at discounts to be agreed upon at the time of sale as disclosed in the applicable pricing supplement. The agent may resell the PLUS to investors and other purchasers at a fixed offering price or at prevailing market prices, or prices related thereto at the time of resale or otherwise, as the agent determines and as we will specify in the applicable pricing supplement. The agent may offer the PLUS it has purchased as principal to Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”) as selected dealer, or to other dealers, including Morgan Stanley & Co. International plc (“MSIP”) and Bank Morgan Stanley AG. Morgan Stanley Wealth Management, MSIP and Bank Morgan Stanley AG are affiliates of Morgan Stanley and MSFL. The agent may sell the PLUS to any dealer at a discount and, unless otherwise specified in the applicable pricing supplement, the discount allowed to any dealer will not be in excess of the discount the agent will receive from us. After the initial public offering of PLUS that the agent is to resell on a fixed public offering price basis, the agent may change the public offering price, concession, discount and other selling terms from time to time.

 

The agent may be deemed to be an “underwriter” within the meaning of the Securities Act of 1933, as amended. We and the agent have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments made in respect of those liabilities. We have also agreed to reimburse the agent for specified expenses.

 

Unless otherwise provided in the applicable pricing supplement, we do not intend to apply for the listing of the PLUS on a national securities exchange. The agent may make a market in the PLUS as applicable laws and regulations permit. The agent is not obligated to do so, however, and the agent may discontinue making a market at any time without notice. No assurance can be given as to the liquidity of any trading market for the PLUS.

 

MS & Co. is a wholly owned subsidiary of Morgan Stanley and an affiliate of MSFL, and it and other subsidiaries of Morgan Stanley and affiliates of MSFL expect to make a profit by selling, structuring and, when applicable, hedging the PLUS. When MS & Co. prices an offering of PLUS, it will determine the economic terms for such PLUS such that for each PLUS the estimated value on the pricing date will be no lower than the predetermined minimum level set forth and described in the applicable pricing supplement.

 

The agent will conduct each offering of the PLUS in compliance with the requirements of the FINRA Rule 5121 regarding a FINRA member firm’s distributing the securities of an affiliate and related conflicts of interest. In accordance with FINRA Rule 5121, no agent or dealer that is an affiliate of ours will make sales in this offering to any discretionary account without the prior written approval of the customer. Following the initial distribution of the PLUS, the agent may offer and sell those PLUS in the course of its business as a broker-dealer. The agent may act as principal or agent in those transactions and will make any sales at varying prices related to prevailing market prices at the time of sale or otherwise. The agent may use this prospectus supplement in connection with any of those transactions. The agent is not obligated to make a market in any of the PLUS and may discontinue making a market at any time without notice.

 

In order to facilitate the offering of the PLUS, the agent may engage in transactions that stabilize, maintain or otherwise affect the price of the PLUS or of the underlying currencies. Specifically, the agent may sell more PLUS than it is obligated to purchase in connection with the offering, creating a naked short position for its own account. The agent must close out any naked short position by purchasing PLUS in the open market. A naked short position is more likely to be created if the agent is concerned that there may be downward pressure on the price of the PLUS in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional

 

means of facilitating the offering, the agent may bid for, and purchase, the PLUS or the underlying currencies in the open market to stabilize the price of the PLUS. Finally, in any offering of the PLUS through a syndicate of underwriters or dealer group, the agent acting on behalf of the underwriting syndicate or for itself may also reclaim selling concessions allowed to an underwriter or a dealer for distributing the PLUS in the offering, if the agent repurchases previously distributed PLUS to cover syndicate short positions or to stabilize the price of the PLUS. Any of these activities may raise or maintain the market price of the PLUS above independent market levels or prevent or retard a decline in the market price of the PLUS. The agent is not required to engage in these activities, and may end any of these activities at any time.

 

Concurrently with the offering of the PLUS through the agent, we may issue other debt securities under the applicable indenture referred to in this prospectus supplement similar to those described in this prospectus supplement. In the case of Morgan Stanley, those debt securities may include other Series I medium-term notes and medium-term notes under its Series J and Series K prospectus supplement, which we refer to as “Euro medium-term notes.” The other Series I medium-term notes and the Euro medium-term notes may have terms substantially similar to the terms of the PLUS offered under this prospectus supplement. The Euro medium-term notes may be offered concurrently with the offering of the PLUS, on a continuing basis outside the United States by us, under a distribution agreement with Morgan Stanley & Co. International plc, as agent for us. The terms of that distribution agreement, which we refer to as the Euro Distribution Agreement, are substantially similar to the terms of the distribution agreement for a U.S. offering, except for selling restrictions specified in the Euro Distribution Agreement. In the case of MSFL, those debt securities may include other Series A medium term-notes. The other Series A medium-term notes may have terms substantially similar to the terms of the PLUS offered under this prospectus supplement.

 

The agent or an affiliate of the agent will enter into a hedging transaction with us in connection with each offering of PLUS. See “Use of Proceeds and Hedging” above.

 

With respect to each issuance of PLUS, we expect to deliver the PLUS against payment therefor in New York, New York on the original issue date (settlement date) specified in the applicable pricing supplement. Under Rule 15c6-1 of the Exchange Act, trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, if the original issue date for any issuance of PLUS is more than two business days after the pricing date, purchasers who wish to trade PLUS more than two business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.

 

PLUS Offered on a Global Basis

 

If the applicable pricing supplement indicates that any of our PLUS will be offered on a global basis, those registered global securities will be offered for sale in those jurisdictions outside of the United States where it is legal to make offers for sale of those PLUS.

 

The agent has represented and agreed, and any other agent through which we may offer any PLUS on a global basis will represent and agree, that it will comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers the PLUS or possesses or distributes the applicable pricing supplement, this prospectus supplement or the accompanying prospectus and will obtain any consent, approval or permission required by it for the purchase, offer or sale by it of the PLUS under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes purchases, offers or sales of the PLUS, and we shall not have responsibility for the agent’s compliance with the applicable laws and regulations or obtaining any required consent, approval or permission.

 

With respect to sales in any jurisdictions outside of the United States of such PLUS offered on a global basis, purchasers of any such PLUS may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the issue price set forth on the cover page of the applicable pricing supplement.

 

General

 

No action has been or will be taken by us, the agent or any dealer that would permit a public offering of the PLUS or possession or distribution of any pricing supplement or this prospectus supplement or the accompanying prospectus in any jurisdiction, other than the United States, where action for that purpose is required. No offers, sales

 

or deliveries of the PLUS, or distribution of any pricing supplement or this prospectus supplement and the accompanying prospectus or any other offering material relating to the PLUS, may be made in or from any jurisdiction except in circumstances which will result in compliance with any applicable laws and regulations and will not impose any obligations on us, any agent or any dealer.

 

The agent has represented and agreed, and each dealer through which we may offer the PLUS has represented and agreed, that it (i) will comply with all applicable laws and regulations in force in each non-U.S. jurisdiction in which it purchases, offers, sells or delivers the PLUS or possesses or distributes any pricing supplement, this prospectus supplement and the accompanying prospectus and (ii) will obtain any consent, approval or permission required by it for the purchase, offer or sale by it of the PLUS under the laws and regulations in force in each non-U.S. jurisdiction to which it is subject or in which it makes purchases, offers or sales of the PLUS. We shall not have responsibility for any agent’s or any dealer’s compliance with the applicable laws and regulations or obtaining any required consent, approval or permission.

 

Canada

 

With respect to sales of the PLUS in Canada, the PLUS may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are both accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the PLUS must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

 

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this document (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

 

Unless otherwise noted in the applicable pricing supplement, pursuant to section 3A.3 (or, in the case of PLUS issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (“NI 33-105”), the dealers, underwriters or agents, if any, involved in the sale of the PLUS are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

 

European Economic Area and United Kingdom

 

IMPORTANT – EEA AND UNITED KINGDOM RETAIL INVESTORS – The PLUS are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (the “EEA”) or in the United Kingdom. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU, as amended (“MiFID II”); (ii) a customer within the meaning of Directive (EU) 2016/97 (the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in the European Union’s Regulation (EU) 2017/1129 (the “Prospectus Regulation”). Consequently no key information document required by Regulation (EU) No 1286/2014, as amended (the “PRIIPs Regulation”) for offering or selling the PLUS or otherwise making them available to retail investors in the EEA or in the United Kingdom has been prepared and therefore offering or selling the PLUS or otherwise making them available to any retail investor in the EEA or in the United Kingdom may be unlawful under the PRIIPs Regulation.

 

Neither this prospectus supplement nor the accompanying prospectus is a prospectus for the purposes of the Prospectus Regulation. This prospectus supplement and the accompanying prospectus have been prepared on the basis that all offers of the PLUS made to persons in the EEA or in the United Kingdom will be made pursuant to an exemption under the Prospectus Regulation from the requirement to produce a prospectus in connection with offers of the PLUS.

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed under this program will be required to represent and agree, that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any PLUS to any retail investor in the EEA or in the United Kingdom. For the purposes of this provision:

 

(a)  the expression “retail investor” means a person who is one (or more) of the following:

 

(i)  a retail client as defined in point (11) of Article 4(1) of MiFID II; or

 

(ii)  a customer within the meaning of the Insurance Distribution Directive, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or

 

(iii)  not a qualified investor as defined in the Prospectus Regulation; and

 

(b)  the expression an “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the PLUS to be offered so as to enable an investor to decide to purchase or subscribe for the PLUS.

 

United Kingdom

 

With respect to PLUS to be offered or sold in the United Kingdom, the agent has represented and agreed, and each underwriter, dealer, other agent and remarketing firm participating in the distribution of the PLUS will be required to represent and agree, that (1) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, as amended (the “FSMA”)) received by it in connection with the issue or sale of any PLUS in circumstances in which Section 21(1) of the FSMA does not apply to us, and (2) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any PLUS in, from or otherwise involving the United Kingdom.

 

The communication of this prospectus supplement, the accompanying prospectus and any other documents or materials relating to the issue of PLUS is not being made, and such documents and/or materials have not been approved, by an authorised person for the purposes of Section 21 of the FSMA. Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The communication of such documents and/or materials as a financial promotion is only being made to those persons in the United Kingdom falling within the definition of investment professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Financial Promotion Order”) or within Article 49(2)(A) to (D) of the Financial Promotion Order, or to any other persons to whom it may otherwise lawfully be made under the Financial Promotion Order (all such persons together being referred to as “relevant persons”). In the United Kingdom the PLUS are only available to, and any investment or investment activity to which this prospectus supplement or the accompanying prospectus relates will be engaged in only with, relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus supplement or the accompanying prospectus or any of its or their contents.

 

Where PLUS have a maturity of less than one year from their date of issue and either (a) the issue proceeds are received by us in the United Kingdom or (b) the activity of issuing the PLUS is carried on from an establishment maintained by us in the United Kingdom, each such PLUS must: (i)(A) have a minimum redemption value of £100,000 (or its equivalent in other currencies) (B) no part of any such PLUS may be transferred unless the redemption value of that part is not less than £100,000 (or its equivalent in other currencies) and (C) be issued only to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses; or (ii) be issued in other circumstances which do not constitute a contravention of Section 19 of the FSMA by us.

 

With respect to such PLUS that have a maturity of less than one year, the agent has represented and agreed, and each underwriter, dealer, other agent and remarketing firm participating in the distribution of the PLUS will be required to represent and agree, that (1) it is a person whose ordinary activities involve it in acquiring, holding,

 

managing or disposing of investments (as principal or agent) for the purposes of its business, and (2) it has not offered or sold and will not offer or sell any such PLUS other than to persons:

 

(i)   whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses; or

 

(ii)  who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses,

 

where the issue of the PLUS would otherwise constitute a contravention of Section 19 of the FSMA by us.

 

Japan

 

The PLUS have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Law No.25 of 1948, as amended, the “FIEA”). The agent has agreed, and each further agent, dealer and underwriter appointed with respect to any PLUS will be required to agree, that the PLUS may not be offered or sold, directly or indirectly, in Japan or to or for the account or benefit of any resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Law No. 228 of 1949, as amended)) or to others for re-offering or resale, directly or indirectly, in Japan or to or for the account or benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of and otherwise in compliance with the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan.

 

France

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed with respect to any PLUS will be required to represent and agree, that it will not offer or sell, directly or indirectly, any PLUS in the Republic of France and will not distribute or cause to be distributed in the Republic of France this prospectus supplement or the accompanying prospectus or any other offering material relating to the PLUS, except to qualified investors (investisseurs qualifiés) as defined in and in accordance with Articles L.411-2 and D.411-1 of the French Code Monétaire et Financier.

 

Hong Kong

 

The contents of this prospectus supplement and the accompanying prospectus have not been reviewed or approved by any regulatory authority in Hong Kong. This prospectus supplement or the accompanying prospectus does not constitute an offer or invitation to the public in Hong Kong to acquire PLUS. No PLUS have been offered or sold or will be offered or sold, in Hong Kong, by means of any document, other than to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (“SFO”) and any rules made under that Ordinance; or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (“CO”) or which do not constitute an offer to the public within the meaning of the CO. No document, invitation or advertisement relating to the PLUS has been issued or will be issued or has been or will be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted under the securities laws of Hong Kong) other than with respect to PLUS which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under that Ordinance. The offer of the PLUS is personal to the person to whom this prospectus supplement or the accompanying prospectus has been delivered by or on behalf of us, and a subscription for PLUS will only be accepted from such person. No person to whom a copy of this prospectus supplement or the accompanying prospectus is issued may copy, issue or distribute this prospectus supplement or the accompanying prospectus to any other person. You are advised to exercise caution in relation to the offer. If you are in any doubt about the contents of this prospectus supplement or the accompanying prospectus, you should obtain independent professional advice.

 

Singapore

 

Neither this prospectus supplement nor the accompanying prospectus has been registered as a prospectus under the Securities and Futures Act, Chapter 289 of Singapore, as amended (the “SFA”) by the Monetary Authority of Singapore and the PLUS will be offered pursuant to exemptions under the SFA.  Accordingly, none of this prospectus supplement, the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of any PLUS may be circulated or distributed, nor may any PLUS be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined in Section 4A of the SFA (an “Institutional Investor”)) pursuant to Section 274 of the SFA, (ii) to an accredited investor (as defined in Section 4A of the SFA (an “Accredited Investor”)) or other relevant person (as defined in Section 275(2) of the SFA (a “Relevant Person”)) and pursuant to Section 275(1) of the SFA, or to any person pursuant to an offer referred to in Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA and (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018, or (iii) otherwise pursuant to, and in accordance with, the conditions of any other applicable exemption or provision of the SFA.  Where PLUS are subscribed for or acquired pursuant to an offer made in reliance on Section 275 of the SFA by a Relevant Person which is:

 

(i)  a corporation (which is not an Accredited Investor), the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an Accredited Investor; or

 

(ii)  a trust (where the trustee is not an Accredited Investor), the sole purpose of which is to hold investments and each beneficiary of the trust is an individual who is an Accredited Investor,

 

securities or securities-based derivatives contracts (each as defined in Section 2(1) of the SFA) of that corporation and the beneficiaries’ rights and interests (howsoever described) in that trust shall not be transferred for six months after that corporation or that trust has subscribed for or acquired the PLUS except:

 

(A) to an Institutional Investor, or an Accredited Investor or other Relevant Person, or which arises from an offer referred to in Section 275(1A) of the SFA (in the case of that corporation) or Section 276(4)(i)(B) of the SFA (in the case of that trust);

 

(B) where no consideration is or will be given for the transfer;

 

(C) where the transfer is by operation of law;

 

(D) as specified in Section 276(7) of the SFA; or

 

(E) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore.

 

Switzerland

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed under this program will be required to represent and agree, that, subject to the paragraph immediately below:

 

(i)  the PLUS may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act (the “FinSA”) and will not be admitted to trading on a trading venue (exchange or multilateral trading facility) in Switzerland;

 

(ii)  none of this prospectus supplement, the accompanying prospectus or any other offering or marketing material relating to any PLUS (x) constitutes a prospectus compliant with the requirements of articles 652a and 1156 of the Swiss Code of Obligations (as such articles were in effect immediately prior to the entry into effect of the FinSA) in accordance with article 109 of the Swiss Financial Services Ordinance (“FinSO”) or pursuant to articles 35 and 45 of the FinSA for a public offering of the PLUS in Switzerland and no such prospectus has been or will be prepared for or in connection with the offering of the PLUS in Switzerland or (y) has been or will be filed with or approved by a Swiss review body (Prüfstelle) pursuant to article 52 of the FinSA; and

 

(iii)  none of this prospectus supplement, the accompanying prospectus or other offering or marketing material relating to any PLUS may be publicly distributed or otherwise made publicly available in Switzerland.

 

Notwithstanding the paragraph immediately above, in respect of any issuance of PLUS, the issuer of PLUS, the agent and the relevant dealer(s) and underwriter(s) may agree that (x) such PLUS may be publicly offered in Switzerland within the meaning of the FinSA and/or (y) an application will be made by (or on behalf of) the issuer to admit such PLUS to trading on a trading venue (exchange or multilateral trading facility) in Switzerland, provided that:

 

(i)  the issuer is able to rely, and is relying, on an exemption from the requirement to prepare and publish a prospectus under the FinSA in connection with such public offer and/or application for admission to trading;

 

(ii)  in the case of any such public offer, the relevant agent, dealer(s) and underwriter(s) have agreed to comply with any restrictions applicable to the offer and sale of such PLUS that must be complied with in order for the issuer to rely on such exemption; and

 

(iii)  the applicable pricing supplement will specify that such PLUS may be publicly offered in Switzerland within the meaning of the FinSA and/or the trading venue in Switzerland to which an application will be made by (or on behalf of) the issuer to admit such PLUS to trading thereon.

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed under this program will be required to represent and agree, that,

 

(i)  no key information document (Basisinformationsblatt) pursuant to article 58 (1) of the FinSA (or any equivalent document under the FinSA) has been or will be prepared in relation to any PLUS; and

 

(ii)  therefore, any PLUS with a derivative character within the meaning of article 86 (2) of the FinSO may not be offered or recommended to private clients within the meaning of the FinSA in Switzerland.

 

Chile

 

The agent has represented and agreed, and each further agent, dealer and underwriter appointed with respect to any PLUS will be required to represent and agree, that it will not offer or sell, directly or indirectly, any PLUS in the Republic of Chile and will not distribute or cause to be distributed in the Republic of Chile this prospectus supplement, the accompanying prospectus or any other offering material relating to the PLUS, except to “qualified investors” and subject to Norma de Carácter General No. 336 (“NCG 336”) of June 27, 2012 issued by the Financial Market Commission of Chile (“CMF”).

 

The CMF nor any other regulatory authority in the Republic of Chile has reviewed or approved the contents of this prospectus supplement or the accompanying prospectus. This prospectus supplement or the accompanying prospectus does not constitute an offer or invitation to the public in Chile to acquire PLUS.

 

According to NCG 336, on or before making any offer of the PLUS in Chile, the person making the offer shall include in all offering materials the following cautionary language in English and in Spanish:

 

“IMPORTANT INFORMATION FOR INVESTORS RESIDENT IN CHILE: (1) The offering of the PLUS will commence in Chile on [dd/mm/yyyy]; (2) the offering will be subject to Norma de Carácter General N° 336 of the CMF; (3) the offered PLUS are not and will not be registered in the Securities Registry (Registro de Valores) or in the Foreign Securities Registry (Registro de Valores Extranjeros) of the CMF and will therefore not be subject to the supervision of the CMF; (4) the offered PLUS are not registered in Chile and the issuer thereof is not required to disclose information to the public in Chile about its PLUS; and (5) the offered PLUS cannot and will not be publicly offered in Chile unless and until the offered PLUS are registered in the corresponding securities registry of the CMF.

 

INFORMACIÓN IMPORTANTE PARA INVERSIONISTAS RESIDENTES EN CHILE: (1) La oferta de los valores comenzará en Chile el día [dd/mm/aaaa]; (2) la oferta se acogerá a la Norma de Carácter General N° 336 de la CMF; (3) los valores no están ni estarán inscritos en el Registro de Valores o en el Registro de Valores Extranjeros que lleva la CMF, por lo que tales valores no están sujetos a la fiscalización de ésta; (4) Por tratarse de valores no

 

inscritos, no existe obligación por parte del emisor de entregar en Chile información pública respecto de estos valores, y (5) Los valores no podrán ser objeto de oferta pública en Chile mientras no sean inscritos en el Registro de Valores correspondiente.”

 

Pursuant to NCG 336, the PLUS may be privately offered to certain “qualified investors” as such are defined in NCG 336 and further described in Rules No. 216 of June 12, 2008 and 410 of July 27, 2016 of the CMF. The person making the offer in Chile should consult with local counsel about these definitions.

 

Brazil

 

The PLUS have not been, and will not be, issued, placed, distributed, offered or negotiated in the Brazilian capital markets. The issuance of the PLUS has not been nor will the PLUS be registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the CVM. Any public offering or distribution, as defined under Brazilian laws and regulations, of the PLUS in Brazil is not permitted without such registration or an express exemption or registration with the CVM pursuant to Brazilian laws and regulations. Documents relating to the offering of the PLUS, as well as information contained therein, may not be supplied to the public in Brazil (as the offering of the PLUS is not a public offering of securities in Brazil), nor be used in connection with any offer for subscription or sale of the PLUS to the public in Brazil. This prospectus supplement or the accompanying prospectus is not addressed to Brazilian residents and it should not be forwarded or distributed to, nor read or consulted by, acted on or relied upon by Brazilian residents. Any investment to which this prospectus supplement or the accompanying prospectus relates is available only to non-Brazilian residents and will only be made by non- Brazilian residents. If you are a Brazilian resident and received this prospectus supplement or the accompanying prospectus, please destroy it along with any copies.

 

Mexico

 

The PLUS have not been and will not be registered with the National Securities Registry (Registro Nacional de Valores) maintained by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores; the “CNBV”) and, therefore, may not be offered or sold publicly in Mexico, except that the PLUS may be sold to Mexican institutional and accredited investors solely pursuant to the private placement exemption set forth in the Mexican Securities Market Law (Ley del Mercado de Valores). Each of this prospectus supplement and the accompanying prospectus is solely our responsibility and has not been reviewed or authorized by the CNBV. The acquisition of the PLUS by an investor who is a resident of Mexico will be made under its own responsibility.

 

Annex I

 
Certain Additional Currency Exchange Rate Risks

 

We have derived all information contained in this prospectus supplement and the applicable pricing supplement regarding any specified underlying currencies, including, without limitation, changes in the historical exchange rates, from publicly available information. In connection with the offering of PLUS, neither we nor the agent makes any representation that such publicly available information regarding any underlying currency is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date of any offering of PLUS (including events that would affect the accuracy or completeness of the publicly available information described in this prospectus supplement or in the applicable pricing supplement) that would affect the value of any underlying currency have been publicly disclosed. Subsequent disclosure of any such events could affect the value received at maturity or on any call date with respect to the PLUS, and, therefore the trading prices of the PLUS.

 

Argentina

 

The exchange rate between the Argentine peso and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Argentina or elsewhere, and by macroeconomic factors and speculative actions. In the thirty years prior to December 1989, the Argentine foreign exchange market was subject to exchange controls and, as a result of inflationary pressures, the Argentine currency was devalued repeatedly during that period. A freely floating exchange rate was in place for all foreign currency transactions from December 1989 to 1991. From 1991 to 2001, the Argentine government maintained a one-to-one exchange rate between the Argentine peso and the U.S. dollar and required the Central Bank of Argentina to maintain international reserves at least equal to the monetary base. While the one-to-one exchange rate between the Argentine peso and the U.S. dollar helped restrain inflation, it negatively affected Argentina’s export competitiveness and created chronic deficits in the current account of the balance of payments, which were financed by massive borrowing. Argentina defaulted on $88 billion in debt in December 2001, the largest sovereign debt default in history, and in January 2002, the Argentine Congress enacted the Law of Public Emergency and Reform of the Exchange Rate Regime, which abolished the one-to-one exchange rate between the Argentine peso and the U.S. dollar and granted the executive branch the power to regulate the foreign exchange market. During this time, the Argentine peso suffered a massive devaluation relative to the U.S. dollar.

 

The Argentine peso currently floats against the U.S. dollar, although it is subject to frequent intervention by the Central Bank of Argentina. The Central Bank of Argentina is known to intervene in the foreign exchange market by buying or selling Argentine pesos or U.S. dollars in order to attempt to minimize drastic fluctuations in the exchange rate and maintain the export competitiveness of the exchange rate, among other reasons. The Central Bank of Argentina is known to have a bias toward fighting currency appreciation, as it is a net buyer of foreign exchange. However, during the financial crisis in 2008, it was a net seller of foreign exchange and the Argentine peso has continued to depreciate against the U.S. dollar since 2008. In January 2014, the Argentine government allowed the currency to depreciate significantly against the U.S. dollar. In July 2014, the Argentine government defaulted on certain of its bonds. The Argentine peso declined significantly over the subsequent three years, which prompted the Argentine government to intervene in 2017. Factors that might affect the likelihood of the government’s imposing certain exchange control restrictions include the extent of Argentina’s foreign currency reserves, the balance of payments, the extent of governmental surpluses and deficits, economic or financial developments in other countries, the size of Argentina’s debt service burden relative to the economy as a whole and political constraints to which Argentina may be subject.

 

Brazil

 

The exchange rate between the Brazilian real and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Brazil or elsewhere, and by macroeconomic factors and speculative actions. The exchange rate is freely negotiated, but may be influenced from time to time by intervention by the Central Bank of Brazil. From 1995 to 1999, the Central Bank of Brazil allowed the gradual devaluation of the real relative to the U.S. dollar. In 1999, the Brazilian real suffered a currency crisis with significant devaluation.

 

Subsequently, the Central Bank of Brazil allowed the exchange rate to float freely, although subject to frequent intervention by the Central Bank of Brazil to manipulate the exchange rate of the Brazilian real for U.S. dollars as well as to regulate the flow of the Brazilian real into and out of the country.

 

Since then, the exchange rate has fluctuated considerably. In 2009, the Brazilian real depreciated sharply against the U.S. dollar but has since largely leveled off. The Brazilian real is not freely convertible into foreign currencies. While there have been some initial steps taken in the last few years to move towards a more free convertibility, the Central Bank of Brazil still requires the registration of all trades on its system (Sisbacen) among other restrictions. In addition, the Central Bank of Brazil has been known to conduct regular interventions to smooth volatility, including the imposition of a “financial transactions” tax from 2009-2013 in order to limit capital inflows and a concomitant rise in the currency. Factors that might affect the likelihood of the government’s imposing exchange control restrictions include the extent of Brazil’s foreign currency reserves, the size of Brazil’s debt service burden relative to the economy as a whole, capital flows in and out of the country, economic conditions in Brazil’s major export markets, changes in international prices of commodities, Brazil’s policy towards the International Monetary Fund, and political constraints to which Brazil may be subject.

 

Chile

 

The Chilean peso has been subject to large devaluations and revaluations in the past and could be subject to significant fluctuations in the future.

 

Prior to 1999, transactions by banks were generally conducted within an exchange rate band set by the Chilean Central Bank, and the Chilean Central Bank intervened in the foreign exchange market in order to maintain the exchange rate within such limits. Since 1999, when the Chilean Central Bank eliminated this band, the Chilean Central Bank has allowed the currency to float against the U.S. dollar and other currencies as part of the Formal Exchange Market, discussed below, while retaining the right to intervene in the exchange rate market under exceptional circumstances, as it did in 2008 in response to the global financial crisis.

 

Chile has two currency markets, the Formal Exchange Market and the Informal Exchange Market. The Chilean Central Bank is empowered to determine that certain specified types of purchases and sales of foreign currency must be carried out in the Formal Exchange Market. The Formal Exchange Market is composed of banks and other entities authorized by the Central Bank. Purchases and sales of foreign exchange not required to be conducted in the Formal Exchange Market may be carried out in the Informal Exchange Market. There are no price limits imposed on transactions executed in the Informal Exchange Market. Current Chilean regulations require that the Chilean Central Bank be informed of certain transactions and that these transactions be effected through the Formal Exchange Market. In 2008, the Chilean peso depreciated sharply against the U.S. dollar but then recovered somewhat. The Chilean Central Bank intervened in 2008 and in 2011 in an effort to strengthen the Chilean peso. However, it did not intervene in 2015 despite the Chilean peso’s having fallen to a 12-year low relative to the U.S. dollar. Interventions by the Chilean Central Bank in the foreign exchange market as a response to economic crises, political pressure or otherwise could have a significant adverse effect on the value of the Chilean peso. Factors that could affect the value of the Chilean peso and the likelihood of government intervention or the imposition of certain exchange control restrictions include the extent of Chile’s foreign currency reserves, inflation rates, copper prices (which influence the profitability of Chile’s copper exports, representing approximately 20% of Chile’s gross domestic product), events in Brazil and Argentina, the balance of payments, the extent of governmental surpluses and deficits, the size of Chile’s debt service burden relative to the economy as a whole, and political constraints to which Chile may be subject.

 

The People’s Republic of China

 

The exchange rate between the Chinese renminbi and the U.S. dollar is managed by the Chinese government, and may also be influenced by political or economic developments in the People’s Republic of China or elsewhere and by macroeconomic factors and speculative actions. From 1994 to 2005, the Chinese government used a managed floating exchange rate system, under which the People’s Bank of China (the “People’s Bank”) allowed the renminbi to float against the U.S. dollar within a very narrow band around the central exchange rate published daily by the People’s Bank.

 

In July 2005, the People’s Bank revalued the renminbi by 2% and announced that in the future it would set the value of the renminbi with reference to a basket of currencies rather than solely with reference to the U.S. dollar. In addition, the People’s Bank announced that the reference basket of currencies used to set the value of the renminbi would be based on a daily poll of onshore market dealers and other undisclosed factors. Movements in the exchange rate between the Chinese renminbi and the U.S. dollar within the narrow band established by the People’s Bank result from the supply of, and the demand for, those two currencies and fluctuations in the reference basket of currencies. However, in 2011, China adopted its 12^th Five-Year Plan, which calls for continued economic reform and market-oriented policies. Inasmuch as such policies and/or additional Chinese control measures are implemented, the value of the renminbi could be affected.

 

The inflow and outflow of renminbi in China have historically been tightly controlled by the People’s Bank but there have been signs in recent years of a nascent but fast growing offshore renminbi market, with foreign exchange reforms implemented in 2010 serving as the catalyst. These reforms allow the renminbi to move to Hong Kong from mainland China without restriction if it is for the purpose of international trade settlement (e.g., import payments). Once moved offshore, this renminbi is reclassified from “CNY” renminbi to so-called “CNH” renminbi, which has no mainland restriction as to its end-use if it remains offshore. However, the growth of the CNH market may be impeded as China still tightly regulates the “back flow” of CNH into the onshore mainland market, in part to protect domestic markets. This creates a separate currency market for onshore versus offshore renminbi with different levels of exchange rates driven by capital control measures, supply and demand and arbitrage opportunities. The Chinese renminbi deliverable in Hong Kong (CNH) has historically not been as liquid as the Chinese renminbi deliverable in the People’s Republic of China, including Hong Kong, Macau and Taiwan (CNY). No assurance can be given with respect to any future changes in the policy of the People’s Republic of China dealing with offshore renminbi trading.

 

To the extent that management of the renminbi by the People’s Bank has resulted in and currently results in trading levels that do not fully reflect market forces, any further changes in the government’s management of the Chinese renminbi could result in significant movement in the value of the renminbi. Changes in the exchange rate result over time from the interaction of many factors directly or indirectly affecting economic and political conditions in the People’s Republic of China and the United States, including capital control measures and economic and political developments in other countries.

 

Hong Kong

 

The Hong Kong dollar is freely convertible into other currencies (including the U.S. dollar). From October 1983 to May 2005, Hong Kong maintained a fixed-rate system which fixed the rate of exchange to HK$7.80 per US$1.00. The central element in the arrangements that gave effect to this link was an agreement between the Hong Kong Government (through the Hong Kong Monetary Authority, or HKMA) and the three Hong Kong banks that were authorized to issue Hong Kong currency in the form of banknotes. Pursuant to two convertibility undertakings, the HKMA undertakes to buy U.S. dollars from licensed banks at the rate of HK$7.75 per US$1.00 if the market exchange rate for Hong Kong dollars is higher than such rate and to sell U.S. dollars at HK$7.85 per US$1.00 if the market exchange rate for Hong Kong dollars is lower than such rate. If the market exchange rate is between HK$7.75 and HK$7.85 per US$1.00, the HKMA may choose to conduct market operations with the aim of promoting the smooth functioning of the money market and the foreign exchange market. Although the market exchange rate of the Hong Kong dollar against the U.S. dollar continues to be influenced by the forces of supply and demand in the foreign exchange market, the rate has not deviated significantly from the level of HK$7.80 per US$1.00. No assurance can be given that the Hong Kong government will maintain the link at HK$7.75 to HK$7.85 per US$1.00 or at all. A number of factors could affect the fixed-rate system, including the need to address social unrest. In addition, foreign exchange reforms in the People’s Republic of China and the offshore renminbi market may challenge the Hong Kong dollar’s purpose as a store of value.

 

Hungary

 

The exchange rate between the Hungarian forint and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Hungary or elsewhere, and by macroeconomic factors and speculative actions.

 

In 2001, the Hungarian government and the National Bank of Hungary jointly determined to “peg” the forint to the euro so as to permit the exchange rate to fluctuate against the euro within a band spanning in either direction by up to 15% from a central parity, which was set to HUF 276.1/euro. In June 2003, the National Bank of Hungary shifted the central parity by 2.26%, which caused depreciation in the forint of approximately 10%. In February 2008, the monetary authorities abandoned the forint’s trading band, allowing it to float freely against the euro, in the stated hope that an appreciating currency would help to dampen inflationary pressures. The forint depreciated markedly after being unpegged from the euro, but the exchange rate has since somewhat stabilized.

 

The government and the National Bank of Hungary have from time to time intervened in the foreign exchange market by selling forints and raising or lowering interest rates. The government may impose other restrictions on the foreign exchange market, such as by restricting the ability to convert forints into foreign currencies. Factors that might affect the likelihood of the government’s imposing these or other exchange control restrictions include European Union requirements, the level of Hungary’s foreign debt, the extent of Hungary’s foreign currency reserves, the size of Hungary’s debt service burden relative to the economy as a whole, regional hostilities, terrorist attacks or social unrest, and political constraints to which Hungary may be subject. The forint exchange rate may become more volatile in the event of a sovereign debt default by one or more Eurozone members due to Hungary’s close ties to the Eurozone. Hungary, a member of the European Union, may be able to adopt the euro in the future. However, the timing of any adoption is highly uncertain and may not happen at all. For example, in July 2011, the Hungarian Economy Minister stated Hungary’s euro entry will only be possible in about 2018-2020. Such pronouncements were echoed by the Prime Minister in 2013. In October 2016, the National Bank of Hungary intervened in an attempt to rein in the forint, which had reached a 17-month high, as the surging forint was seen as a risk to Hungary’s export-oriented economy.

 

India

 

The exchange rate between the Indian rupee and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in India or elsewhere, and by macroeconomic factors and speculative actions. During the past decade, the Indian government has pursued policies of economic liberalization and deregulation, but the government’s role in the economy has remained significant. From 1993 to 2003, the Indian rupee depreciated, but an increase in foreign investment in India led to strengthening of the Indian rupee from 2003 to 2007. In 2008, the Indian rupee depreciated rapidly against the U.S. dollar, owing to the global dollar liquidity shortage, heavy withdrawals of portfolio investment from India and purchases of U.S. dollars by Indian banks to fund their overseas operations. In addition, the Indian rupee declined significantly during the summer of 2013, ending 13% lower at the end of that period. Since then, however, the rupee has regained some of its value and the exchange rate has somewhat stabilized.

 

The Indian government allows the exchange rate to float freely, without a fixed target or band, but the Reserve Bank of India will intervene when it deems necessary to preserve stability. It also has the ability to restrict the conversion of rupees into foreign currencies, and under certain circumstances investors that seek to convert rupees into foreign currency must obtain the approval of the Reserve Bank of India. There are currently strict limits on foreign investment in bond markets. Factors that might affect the likelihood of the government’s imposing these or other exchange control restrictions include political pressure related to recent inflation and its effect on exporters, capital flows in and out of the country, the price of oil, the extent of India’s foreign currency reserves, the balance of payments, the extent of governmental surpluses and deficits, the size of India’s debt service burden relative to the economy as a whole, regional hostilities, terrorist attacks or social unrest, and political constraints to which India may be subject.

 

Indonesia

 

The exchange rate between the Indonesian rupiah and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Indonesia or elsewhere and by macroeconomic factors and speculative actions. From 1977 to 1997, the Indonesian government maintained a managed floating exchange rate system under which the Indonesian rupiah was linked to a basket of currencies. In 1997, the Indonesian rupiah depreciated significantly during the Asian currency crisis and the Indonesian government subsequently abandoned

 

its trading band policy and permitted the Indonesian rupiah to float without an announced level at which the government would intervene. In 2008, the Indonesian rupiah depreciated sharply against the U.S. dollar. Although the Indonesian government continues to intervene in the currency market from time to time, it abandoned an effort to prop up the currency in August 2013, allowing the currency to depreciate significantly against the U.S. dollar. The currency has now stabilized at a new rate.

 

The Indonesian government continues to intervene in the foreign exchange market and to impose restrictions on certain foreign exchange transactions and dealings. In 2011, the Indonesian Currency Law entered into force, requiring that the rupiah be used for all transactions conducted within Indonesia, subject to certain exceptions. Factors that might affect the Indonesian government’s policy with respect to the Indonesian rupiah include the extent of Indonesia’s foreign currency reserves, the balance of payments, the extent of governmental surpluses and deficits, the size of Indonesia’s debt service burden relative to the economy as a whole, regional hostilities, terrorist attacks or social unrest, commodity prices for main exports, restrictions on imports and exports, and political constraints to which Indonesia may be subject. In 2016, Indonesia’s Central Bank was in the process of reviving a plan to redenominate its currency, and such redenomination or other governmental action may potentially result in market turmoil.

 

The Republic of Korea

 

The exchange rate between the South Korean won and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in the Republic of Korea or elsewhere and by macroeconomic factors and speculative actions. Prior to 1997, the South Korean government permitted exchange rates to float within a daily range of 2.25%. In response to economic difficulties in 1997, the government expanded the range of permitted exchange rate fluctuations to 10%. During the Asian financial crisis of 1997, the South Korean won lost roughly half of its value against the U.S. dollar and did not recover to pre-crisis levels until 2006. In December 1997, the government eliminated the daily exchange rate band and the South Korean won now floats according to market forces. The South Korean won is traded by offshore investors only on a non-deliverable basis. Between 2008 and 2009, the South Korean won depreciated significantly against the U.S. dollar but has since recovered some of its value. The South Korean won is currently allowed to float freely. Factors that might affect the exchange rate of the currency include regional tensions and any existing or future restrictions on currency exchange in the Republic of Korea.

 

Malaysia

 

The exchange rate between the Malaysian ringgit and the U.S. dollar is primarily affected by the supply and demand for the two currencies but is also heavily influenced by the actions of the central bank of Malaysia, Bank Negara Malaysia (“BNM”). The Malaysian ringgit was heavily impacted by the Asian financial crisis of 1997/1998. In the wake of the market driven devaluation, the Malaysian government announced that it would peg the Malaysian ringgit to the U.S. dollar. This peg remained in place until July 2005 when, following a similar announcement by the government of China related to the renminbi, the Malaysian government announced it was removing the peg and would allow the Malaysian ringgit to operate in a managed float. Despite de-pegging the ringgit from the U.S. dollar, the Malaysian government still does not allow the currency to be traded outside of Malaysia. The Malaysian ringgit appreciated significantly against the dollar after the 2008 financial crisis, and the exchange rate has now stabilized at a new rate. The BNM monitors the exchange rate for the Malaysian ringgit against a basket of currencies. The components of the basket are not disclosed. Factors that might affect the Malaysian government’s policy with respect to the Malaysian ringgit include the extent of Malaysia’s foreign currency reserves, the monetary policy of neighboring regional powers such as China, commodity prices, the balance of payments, the extent of governmental surpluses and deficits, the size of Malaysia’s debt service burden relative to the economy as a whole, regional hostilities, terrorist attacks or social unrest, and political constraints to which Malaysia may be subject.

 

Mexico

 

The exchange rate between the Mexican peso and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Mexico or elsewhere, and by macroeconomic factors and

 

speculative actions. Since 1994, the Mexican government has allowed the peso to float freely against the U.S. dollar and since 1982 has not restricted the ability to convert pesos into foreign currencies. The peso depreciated through the late 1990s, stabilized and strengthened in 2001 and depreciated significantly thereafter, due in large part to the worldwide economic slowdown and increased volatility in the foreign exchange markets. In 2008 and 2009, the Mexican peso depreciated against the dollar on worries about the trouble in the global financial markets, though it has since recovered to a limited extent. The Mexican Central Bank announced new foreign exchange intervention tools in October 2008 but suspended the use of these intervention tools by April 2010. There can be no assurance that the peso will not depreciate significantly in the future, as it has in the past, or that the Mexican government will maintain its current foreign exchange policies. Factors that might affect the likelihood of the government’s imposing these or other exchange control restrictions include the extent of Mexico’s foreign currency reserves, the health of regional economies such as the U.S., the availability of sufficient foreign exchange on the date a payment is due, the size of Mexico’s debt service burden relative to the economy as a whole, Mexico’s policy towards the International Monetary Fund, and political constraints to which Mexico may be subject. Despite rallying for most of 2017, the Mexican peso has become much more volatile due to the renegotiation of the North American Free Trade Agreement.

 

Philippines

 

The exchange rate between the Philippine peso and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by policies or actions of the central bank of the Philippines, Bankgo Sentral ng Pilipinas (“BSP”), but is also influenced significantly from time to time by political or economic developments in the Philippines or elsewhere and by macroeconomic and speculative actions. The Philippine peso is allowed to float according to market forces, but the BSP has from time to time intervened to minimize sharp fluctuations of the exchange rate and to prevent significant declines in the Philippines peso with respect to other currencies. The BSP may also decide to add liquidity to the market so that demands for foreign currency can be satisfied. Following the Asian financial crisis in 1997, the value of the Philippine peso declined significantly as a result of economic and political factors as well as a continuing inflation differential between the U.S. and the Philippines. The Philippine peso strengthened from 2006 to 2008, rapidly declined during the financial crisis, and has since recovered much of its value against the dollar. The Philippine peso continues to be volatile and sensitive to investor perceptions. For example, the Philippine peso fell to an 11-year low in 2017. It may also be affected by a future Chinese yuan revaluation because such a revaluation may impact trade between the Philippines and China and because the Philippines competes with China for foreign direct investment.

 

Poland

 

The exchange rate between the Polish zloty and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Poland or elsewhere, and by macroeconomic factors and speculative actions. Although the Polish zloty is not officially pegged or linked to other currencies, the National Bank of Poland (“NBP”), the country’s central bank, has in the past actively managed the Polish zloty’s value in the years following the 1989 overthrow of Poland’s communist regime. In January 1, 1995, a redenomination of the zloty was performed at a rate of 10,000 old Polish zloty to 1 new zloty. Since the beginning of 2004, the NBP has stated that it pursues a continuous inflation target at the level of 2.5% with a permissible fluctuation band of +/- 1 percentage point. The NBP states that it maintains interest rates at a level consistent with the adopted inflation target by influencing the level of nominal short-term interest rates on the money market. However, despite the NBP’s efforts, in April 2011, Poland had an inflation rate of 4.5% and the NBP has increased interest rates at least four times in 2011. The NBP’s policies with respect to interest rates, as a result of political pressure, economic crises or otherwise, could have a significant negative effect on the value of the Polish zloty. Although the zloty lost some of its value after the 2008 financial crisis, it has since largely recovered. Factors that might affect the likelihood of the government’s imposing these or other exchange control restrictions include European Union requirements, the level of Poland’s foreign debt, the extent of Poland’s foreign currency reserves, the size of Poland’s debt service burden relative to the economy as a whole, regional hostilities, such as those occurring in Ukraine in 2014, terrorist attacks, social unrest, recent political protests and political constraints to which Poland may be subject. While Poland, a member of the European Union, had been seeking to adopt the euro in 2012, it did not meet all of the euro convergence criteria and has yet to do so. Poland’s government has not set a firm date for adopting the euro.

 

Romania

 

Although the Romanian leu is not officially pegged or linked to other currencies, the currency operates under a managed float regime. The National Bank of Romania (“NBR”) has in the past actively managed the Romanian leu’s value in the years following the 1989 overthrow of Romania’s communist regime. In the 1990s, the NBR conducted transactions in the foreign exchange market on an almost daily basis to mitigate movements in either direction in the value of the Romanian leu. Although the NBR has intervened in the foreign exchange market less frequently in recent years, the NBR continues to conduct transactions in the foreign exchange market to restrain movements, particularly appreciation, in the value of the Romanian leu as the Romanian economy is heavily dependent on industrial exports, which has often led to political pressure on the NBR by exporters to control the appreciation of the currency. In addition to intervening in the foreign exchange market, the NBR has also adjusted interest rates in an attempt to manage the value of the Romanian leu even after the 2003 announcement that the NBR would move from a monetary policy of exchange rate-targeting to a stated monetary policy of inflation-targeting. Moreover, the Romanian economy has recently suffered periods of chronic inflation and in an attempt to address the consequent severe depreciation in the Romanian leu, the Romanian government replaced the old Romanian leu on July 1, 2005 with the new Romanian leu at a rate of 10,000 old leu to 1 new leu. Although the new leu appreciated significantly before the 2008 financial crisis, it lost value as a result of the downturn and has since been trading at a new rate. The NBR’s interventions in the foreign currency market and its policies with respect to interest rates, as a result of political pressure, economic crises or otherwise, could have a significant negative effect on the value of the Romanian new leu. Romania joined the European Union in 2007, and is expected to adopt the euro at some point in the future. The Prime Minister of Romania recently suggested that the country would not be ready for adoption of the euro before 2022.

 

Russia

 

The exchange rate between the Russian ruble and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Russia or elsewhere, and by macroeconomic factors and speculative actions. Until 1998, the Central Bank of Russia maintained a currency band to limit fluctuations of the Russian ruble within a certain specified range. In August 1998, the Russian ruble devalued significantly, forcing the Central Bank of Russia to abandon attempts to maintain the value of the ruble and in early September 1998, the Central Bank of Russia announced that it would allow the Russian ruble to float freely against the U.S. dollar. Since 1998, the Central Bank of Russia has maintained a managed float of the Russian ruble against the U.S. dollar and continues to intervene in the currency to achieve its targeted exchange rates. In February 2006, the Central Bank of Russia announced that the Russian ruble would be targeted against a new weighted currency basket consisting of the euro and U.S. dollar to decouple the Russian ruble from the U.S. dollar. In July 2006, Russia lifted all currency controls on the Russian ruble and the Russian ruble became fully convertible and freely tradeable. The Russian ruble sharply depreciated against the U.S. dollar in 2008 and 2009 but has since stabilized at a new rate. The Central Bank of Russia periodically intervenes by purchasing surplus U.S. dollar liquidity from both natural resource exports and the foreign exchange market when foreign exchange fluctuations are sharp. There is an annual guideline in the Main Directions of Monetary Policy to which the Central Bank of Russia adheres. Factors affecting any future intervention in the Russian ruble or changes in policy include foreign currency reserves, the balance of payments, the extent of governmental surpluses and deficits, the size of Russia’s debt service burden relative to the economy as a whole, regional hostilities, terrorist attacks or social unrest, and political constraints to which Russia may be subject.

 

Singapore

 

The exchange rate between the Singapore dollar and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Singapore or elsewhere and by macroeconomic factors and speculative actions. The Singapore dollar is permitted to fluctuate in value relative to the U.S. dollar within a trade-weighted band. However, the government may choose to affect the exchange rate of its currency by central bank intervention, imposition of regulatory controls, taxes, revaluation or devaluation of the currency, the issuance of a replacement currency or by other available means. The Monetary Authority of Singapore maintains a policy of modest and gradual appreciation as a primary anti-inflationary tool.

 

South Africa

 

The exchange rate between the South African rand and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in South Africa or elsewhere, and by macroeconomic factors and speculative actions. The South African Reserve Bank allows the rand to float freely against the U.S. dollar and does not have fixed exchange rate targets, although it intervenes in the market to achieve policy goals, such as attempting to limit inflation. From 1996 to 1998, the South African rand was impacted by a currency crisis and depreciated significantly. After expending large amounts of its currency reserves in 1998 to defend the South African rand, the South African Reserve Bank publicly stated that it would no longer try to protect any predetermined level of the South African rand over a sustained period. In addition, the South African government abolished in 1995 the dual exchange rate system under which exchange controls were imposed upon both foreigners and residents, leaving in place exchange controls on the movement of capital by South African residents only, although some restrictions remain on capital outflows in connection with large foreign investments. In 2011, the South African government eased exchange controls. The rand lost value as a result of the 2008 financial crisis but has since stabilized at a new rate. Any further abolition or reduction of exchange controls on capital movements by residents may impact on the South African rand, although the degree of such impact would depend on the precise policy parameters, in conjunction with prevailing market conditions. Also, the South African Reserve Bank has been involved in purchasing foreign exchange on the market, which may affect the value of the rand.

 

Taiwan

 

The exchange rate between the Taiwan dollar and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments and by macroeconomic factors and speculative actions. The Taiwan dollar has been allowed to float according to market forces since 1989, but the government has from time to time intervened to minimize fluctuation of the exchange rate and to prevent significant declines of the Taiwan dollar with respect to the U.S. dollar. The Taiwan dollar sharply weakened during the 2008 financial crisis, but has since recovered to historic highs against the U.S. dollar. Taiwan may face ongoing pressure to intervene in the currency market to check further appreciation of the Taiwan dollar. In addition, the exchange rate will likely be substantially affected by developments in relations between Taiwan and the People’s Republic of China, which does not recognize Taiwan as an independent state.

 

Thailand

 

The Thai baht was heavily impacted by the Asian financial crisis of 1997. In response to rapid devaluation on July 2, 1997, the Bank of Thailand effectively ceased intervening by buying or selling U.S. dollars to maintain the Baht’s exchange rate within its historical narrow band. The Thai Baht now freely floats. As a result, the exchange rate between the Thai baht and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly by political or economic developments in Thailand or elsewhere and by macroeconomic factors and speculative actions. The Thai government exercises significant influence over many aspects of the Thai economy, and actions by the Thai government concerning the economy may affect the Baht’s exchange rate with respect to the U.S. dollar. In addition, the Bank of Thailand exercises significant influence. For example, in late 2010, as the Thai baht appreciated strongly, it imposed a 15% withholding tax on capital gains and interest on bonds purchased by foreign investors. Any deterioration of economic conditions in Thailand and Asia generally would also have an adverse effect on the exchange rate. Additionally, in 2017, the Bank of Thailand indicated that it would consider additional measures to limit the opportunity for baht speculation.

 

Turkey

 

The exchange rate between the Turkish lira and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Turkey or elsewhere, and by macroeconomic factors and speculative actions. The Central Bank of Turkey has implemented a floating exchange rate regime, which has been in effect since February 2001. In an attempt to address the severe depreciation in value of the Turkish lira due to a period of

 

chronic inflation, the Turkish government replaced the Turkish lira with the new Turkish lira at a rate of 1,000,000 old lira to 1 new Turkish lira on January 1, 2005. The 2008 financial crisis caused the lira to lose value and the currency has continued to weaken since that time. In addition, the Bank has from time to time intervened in the foreign exchange market by conducting foreign exchange purchase auctions and other forms of intervention, usually in cases of excess volatility in the floating exchange rate regime. The government may impose other restrictions on the foreign exchange market, such as by restricting the ability to convert lira into foreign currencies. Factors that might affect the likelihood of the government’s imposing these or other exchange control restrictions include the level of Turkey’s foreign debt, capital flows in and out of the country, the extent of Turkey’s foreign exchange reserves, regional hostilities, terrorist activities or social unrest, including unresolved issues in Turkey’s relations with Greece, the level of untaxed economic activities due to Turkey’s substantial unregistered economy and the ability of Turkey and other European countries to pay their sovereign debts as they become due.

 

United Arab Emirates

 

The United Arab Emirates dirham has been officially pegged to the U.S. dollar since February 2002 at an official exchange rate that has not changed significantly since the U.S. dollar peg was introduced. Weakness in the U.S. dollar has previously exacerbated inflationary pressures in the United Arab Emirates, which has led to ongoing debate in the United Arab Emirates and in the foreign currency markets about the appropriateness of the pegged exchange rate and whether the United Arab Emirates should follow the example of neighboring Kuwait, which abandoned its U.S. dollar peg in May 2007. This debate arose again after the U.S. lost its AAA credit rating from Standard & Poor’s, bringing further volatility to currency markets. We cannot predict whether the United Arab Emirates dirham will continue to be pegged to the U.S. dollar at its current exchange rate or be allowed to float more freely, or, if it is revalued or allowed to float more freely, whether it would appreciate or depreciate against the U.S. dollar. A change in the monetary policy of the United Arab Emirates could significantly affect the exchange rate between the United Arab Emirates dirham and the U.S. dollar.

 

Vietnam

 

The Vietnamese dong is an “emerging” emerging markets currency. Currently, no generally accepted standard terms exist for trading this currency in major offshore markets. As a result, the market for the Vietnamese dong is extremely illiquid. The exchange rate between the Vietnamese dong and the U.S. dollar is primarily affected by the supply and demand for the two currencies, as well as by government policy or actions, but is also influenced significantly from time to time by political or economic developments in Vietnam or elsewhere, and by macroeconomic factors and speculative actions. While Vietnam has continued to move toward a more market-oriented economy in recent years, the Vietnamese government still substantially controls or regulates major sectors of the economy. The Vietnamese government permits the exchange rate of the Vietnamese dong to float against the U.S. dollar within a very narrow band. The State Bank of Vietnam periodically announces shifts in the U.S. dollar/Vietnamese dong trading band, which may have the effect of strengthening or depreciating the Vietnamese dong. As a result of shrifts in the trading band, the exchange rate could become more volatile. As a result of the 2008 financial crisis, the dong lost value and it has, since that time, continued to lose value against the U.S. dollar. The Vietnamese government intervenes in the foreign exchange market from time to time to attempt to minimize excess volatility and preserve the export competitiveness of the exchange rate. For example, in February 2011, the Vietnamese dong slid to a record low against the U.S. dollar after the central bank devalued the currency significantly. Factors that might affect the Vietnamese government’s policy with respect to the Vietnamese dong include the extent of Vietnam’s foreign currency reserves, the balance of payments, capital flows in and out of the country, the extent of governmental surpluses and deficits, the size of Vietnam’s debt service burden relative to the economy as a whole and political constraints to which Vietnam may be subject.

 

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