Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by a product supplement and an index supplement) with the SEC for the offering to which this communication
relates. In connection with your investment, you should read the prospectus in that registration statement, the product supplement,
the index supplement and any other documents relating to this offering that Morgan Stanley and MSFL have filed with the SEC for
more complete information about Morgan Stanley, MSFL and this offering. You may get these documents for free by visiting EDGAR
on the SEC website at.www.sec.gov. Alternatively, Morgan Stanley, MSFL, any underwriter or any
dealer participating in this offering will arrange to send you the prospectus, the product supplement and index supplement if you
so request by calling toll-free 1-(800)-584-6837.
You may access the accompanying product supplement, index supplement
and prospectus on the SEC website at.www.sec.gov as follows:
You should rely only on the information incorporated by reference
or provided in this pricing supplement or the accompanying product supplement, index supplement and prospectus. We have not authorized
anyone to provide you with different information. We are not making an offer of these Securities in any state where the offer is
not permitted. You should not assume that the information in this pricing supplement or the accompanying product supplement, index
supplement and prospectus is accurate as of any date other than the date on the front of this document.
The Issue Price of each Security is $10. This price
includes costs associated with issuing, selling, structuring and hedging the Securities, which are borne by you, and, consequently,
the estimated value of the Securities on the Trade Date is less than $10. We estimate that the value of each Security
on the Trade Date is $9.937.
In valuing the Securities on the Trade Date, we take into account
that the Securities comprise both a debt component and a performance-based component linked to the Underlyings. The estimated value
of the Securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the Underlyings,
instruments based on the Underlyings, 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.
In determining the economic terms of the Securities, including
the Coupon Barriers, the Downside Thresholds and the Contingent Coupon Rate, we use an internal funding rate, which is likely to
be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring
and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the
Securities would be more favorable to you.
The price at which MS & Co. purchases the Securities in the
secondary market, absent changes in market conditions, including those related to the Underlyings, may vary from, and be lower
than, the estimated value on the Trade Date, because the secondary market price takes into account our secondary market credit
spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other
factors. However, because the costs associated with issuing, selling, structuring and hedging the Securities are not
fully deducted upon issuance, for a period of up to 6 months following the Settlement Date, to the extent that MS & Co. may
buy or sell the Securities in the secondary market, absent changes in market conditions, including those related to the Underlyings,
and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect
that those higher values will also be reflected in your brokerage account statements.
MS & Co. currently intends, but is not obligated, to make
a market in the Securities, and, if it once chooses to make a market, may cease doing so at any time.
Issuer
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Morgan Stanley Finance LLC
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Guarantor
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Morgan Stanley
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Issue Price
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$10.00 per Security. The Securities are offered at a minimum investment of 100 Securities.
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Underlyings
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The NASDAQ-100 Index® (the “NDX Index”) and the EURO STOXX 50® Index (the “SX5E Index”)
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Principal Amount
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$10.00 per Security
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Term
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Approximately 3 years, unless earlier called
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Automatic Call Feature
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The Securities will be called automatically if the Observation
Date Closing Values of both the NDX Index and the SX5E Index on any Observation Date beginning January 25, 2021 are equal
to or greater than their respective Initial Underlying Values.
If the Securities are called, MSFL will pay you the Principal
Amount plus the Contingent Coupon otherwise due for that Observation Date on the Coupon Payment Date related to such Observation
Date, and no further payments will be made on the Securities.
The Securities will not be called if the Observation Date
Closing Value of either of the Underlyings is below its respective Initial Underlying Value.
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Contingent Coupon
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If the Observation Date Closing Values of both the NDX Index
and the SX5E Index are equal to or greater than their respective Coupon Barriers on any Observation Date, we will pay you the
Contingent Coupon for that Observation Date on the relevant Coupon Payment Date.
If the Observation Date Closing Value of either the NDX Index
or the SX5E Index is less than its Coupon Barrier on any Observation Date, the Contingent Coupon for that Observation
Date will not accrue or be payable and that Contingent Coupon payment will be lost.
Each Contingent Coupon is a fixed amount based on equal quarterly
installments at the Contingent Coupon Rate, which is a per-annum rate. The Contingent Coupon amount of $0.2855 for each
Security (based on the per-annum rate of 11.42%) would be applicable to each Observation Date on which the Index Closing Values
of both the NDX Index and the SX5E Index are greater than or equal to their respective Coupon Barriers.
Contingent Coupon payments on the Securities are not guaranteed. MSFL
will not pay you the Contingent Coupon for any Observation Date on which the Index Closing Value of either the NDX Index or the
SX5E Index is less than its respective Coupon Barrier.
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Contingent Coupon Rate
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The
Contingent Coupon Rate is 11.42% per annum. If payable, the Contingent Coupon will be a fixed amount based on equal quarterly installments at the Contingent Coupon Rate.
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Observation Dates
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Quarterly, callable beginning January 25, 2021. See “Observation Dates and Coupon Payment Dates” on page 6 for details.
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Trade Date
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October 23, 2020
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Settlement Date
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October 28, 2020
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Final Observation Date
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October 23, 2023*
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Maturity Date
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October 26, 2023*
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Coupon Payment Dates
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With respect to each Observation Date, as set forth under “Observation Dates and Coupon Payment Dates” on page 6.
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Payment at Maturity (per Security)
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MSFL will pay you a cash payment on the Maturity Date linked
to the performance of the Least Performing Underlying during the term of the Securities, as follows:
If the Securities have not been automatically called and the
Final Underlying Values of both the NDX Index and the SX5E Index are equal to or greater than their respective Downside
Thresholds (which are the same as their respective Coupon Barriers), MSFL will pay you the $10 Principal Amount plus the
Contingent Coupon with respect to the Final Observation Date.
If the Securities have not been automatically called and the
Final Underlying Value of either the NDX Index or the SX5E Index is less than its respective Downside Threshold, MSFL
will pay you an amount calculated as follows:
$10 × (1 + Underlying Return of the
Least Performing Underlying)
In this case, you will lose a significant portion and could lose
all of the Principal Amount in an amount proportionate to the decline of the Least Performing Underlying from the Trade Date to
the Final Observation Date, even if the other Underlying appreciates or does not decline as much.
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Observation Date Closing Value
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With respect to each of the Underlyings, the Index Closing Value of such Underlying on any Observation Date
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Least Performing Underlying
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The Underlying with the larger percentage decrease from the Initial Underlying Value to the Final Underlying Value.
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Underlying Return
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With respect to each Underlying,
Final Underlying Value –
Initial Underlying Value
Initial Underlying Value
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*Subject to postponement in the event of a Market Disruption Event or for non-Index Business Days. See “Postponement of Determination Dates” in the accompanying product supplement.
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Initial Underlying Value
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With respect to the NDX Index, 11,692.57
With respect to the SX5E Index, 3,198.86
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Final Underlying Value
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With respect to each Underlying, the Index Closing Value of such Underlying on the Final Observation Date
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Downside Threshold
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With respect to the NDX Index, 8,184.80, which is approximately
70% of the Initial Underlying Value of such Underlying
With respect to the SX5E Index, 2,239.20, which is approximately
70% of the Initial Underlying Value of such Underlying
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Coupon Barrier
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With respect to the NDX Index, 8,184.80, which is approximately
70% of the Initial Underlying Value of such Underlying
With respect to the SX5E Index, 2,239.20, which is approximately
70% of the Initial Underlying Value of such Underlying
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Record Date
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The record date for each Contingent Coupon shall be the date one business day prior to such scheduled Coupon Payment Date; provided, however, that any Contingent Coupon payable at maturity or upon an automatic call shall be payable to the person to whom the Payment at Maturity or the payment upon an automatic call, as the case may be, shall be payable.
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Trustee
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The Bank of New York Mellon
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Calculation Agent
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MS & Co.
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Observation Dates(1) and Coupon Payment Dates(2)
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Observation Dates
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Coupon Payment Dates
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Observation Dates
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Coupon Payment Dates
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1/25/2021
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1/27/2021
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7/25/2022
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7/27/2022
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4/23/2021
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4/27/2021
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10/24/2022
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10/26/2022
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7/23/2021
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7/27/2021
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1/23/2023
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1/25/2023
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10/25/2021
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10/27/2021
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4/24/2023
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4/26/2023
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1/24/2022
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1/26/2022
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7/24/2023
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7/26/2023
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4/25/2022
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4/27/2022
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10/23/23
(Final Observation Date)
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10/26/2023
(Maturity Date)
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(1) Subject to postponement in the event of a Market Disruption
Event or for non-Index Business Days. See “Postponement of Determination Dates” in the accompanying product supplement.
(2) If, due to a Market Disruption Event or otherwise, any Observation
Date is postponed so that it falls less than two business days prior to the scheduled Coupon Payment Date, the Coupon Payment Date
will be postponed to the second business day following that Observation Date as postponed, provided that the Coupon Payment
Date with respect to the Final Observation Date will be the Maturity Date. No additional coupon will accrue on an account
of any such postponement.
Trade Date
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The Initial Underlying Values, Downside Thresholds and Coupon Barriers of both the NDX Index and the SX5E Index are determined. The Contingent Coupon Rate is set.
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Quarterly
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If the Observation Date Closing Values of both the NDX
Index and the SX5E Index are equal to or greater than their respective Coupon Barriers on any Observation Date, MSFL will pay you
a Contingent Coupon on the Coupon Payment Date. However, if the Observation Date Closing Value of either Underlying
is below its Coupon Barrier, no coupon will be payable on the related Coupon Payment Date.
If the Observation Date Closing Values of both the NDX
Index and the SX5E Index are equal to or greater than their respective Initial Underlying Values on any Observation Date
beginning on January 25, 2021, the Securities will be called and MSFL will pay you a cash payment per Security equal to the Principal
Amount plus the Contingent Coupon otherwise due for that Observation Date, and no further payments will be made on the Securities.
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Maturity Date
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The Final Underlying Values are determined as of the Final Observation
Date.
If the Securities have not been called and the Final Underlying
Values of both the NDX Index and the SX5E Index are equal to or greater than their respective Downside Thresholds (which
will be the same as their respective Coupon Barriers), MSFL will pay you the $10 Principal Amount plus the Contingent Coupon
with respect to the Final Observation Date.
However, if the Final Underlying Value of either the NDX Index
or the SX5E Index is less than its Downside Threshold, MSFL will pay you an amount calculated as follows:
$10 × (1 + Underlying Return of the Least Performing Underlying)
per Security
This amount will be significantly less than the $10 Principal
Amount by an amount proportionate to the negative Underlying Return of the Least Performing Underlying, and you could lose your
entire investment.
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Investing in the Securities
involves significant risks. You may lose YOUR ENTIRE principal amount. Any payment on the Securities is subject to OUR
creditworthiness. If we were to default on our payment obligations, you may not receive any amounts owed to you under the Securities
and you could lose your entire investment.
The Issuer will not
pay a quarterly Contingent Coupon if the Observation Date Closing Value for either of the Underlyings is below its respective Coupon
Barrier. The Issuer will not automatically call the Securities if the Observation Date Closing Value of either of the
Underlyings is below its respective Initial Underlying Value. You will lose a significant portion or all of your principal
amount at maturity if the Securities are not called and the Final Underlying Value of either of the Underlyings is below its RESPECTIVE
Downside Threshold.
An investment in the Securities involves significant risks. Some
of the risks that apply to the Securities are summarized here, but we urge you to also read the “Risk Factors” section
of the accompanying prospectus and product supplement. You should also consult your investment, legal, tax, accounting and other
advisers in connection with your investment in the Securities.
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The Securities do not guarantee the payment of regular interest
or the return of any principal. The terms of the Securities differ from those of ordinary debt securities in that
the Securities do not guarantee the payment of regular interest or the return of any of the Principal Amount at maturity. Instead,
if the Securities have not been called prior to maturity and if the Final Underlying Value of either the NDX Index or the SX5E
Index is less than its respective Downside Threshold, you will be exposed to the decline in the value of the Least Performing
Underlying from its Initial Underlying Value to its Final Underlying Value, on a 1-to-1 basis, resulting in a significant loss
of your initial investment that is proportionate to the decline of the Least Performing Underlying over the term of the Securities,
even if the other Underlying appreciates or does not decline as much. You could lose your entire Principal Amount.
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You are exposed to the market risk of both Underlyings. Your
return on the Securities is not linked to a basket consisting of the Underlyings. Rather, it will be contingent upon the independent
performance of each of the NDX Index and the SX5E Index. Unlike an instrument with a return linked to a basket of underlying
assets, in which risk is mitigated and diversified among all of the components of the basket, you will be exposed to the risks
related to both the NDX Index and the SX5E Index. Poor performance by either of the Underlyings over the term of the Securities
may negatively affect your return and will not be offset or mitigated by positive performance by the other Underlying. For the
Securities to be automatically called or to receive any Contingent Coupon payment or contingent repayment of principal at maturity
from MSFL, both Underlyings must close at or above their respective Initial Underlying Values, Coupon Barriers or Downside Thresholds,
respectively, on the applicable Observation Date or Final Observation Date, as applicable. In addition, if not called
prior to maturity, you may incur a loss proportionate to the negative return of the Least Performing Underlying even if the other
Underlying appreciates during the term of the Securities. Accordingly, your investment is subject to the market risk of both Underlyings. Additionally,
movements in the values of the Underlyings may be correlated or uncorrelated at different times during the term of the Securities,
and such correlation (or lack thereof) could have an adverse effect on your return on the Securities. For example, the likelihood
that one of the Underlyings will close below its Coupon Barrier on an Observation Date or below its Downside Threshold on the Final
Observation Date will increase when the movements in the values of the Underlyings are uncorrelated. This results in a greater
potential for a Contingent Coupon to not be paid during the term of the Securities and for a significant loss of principal at maturity
if the Securities are not previously called. If the performance of the Underlyings is not correlated or is negatively correlated,
the risk of not receiving a Contingent Coupon and of incurring a significant loss of principal at maturity is greater. In addition,
correlation generally decreases for each additional Underlying to which the Securities are linked, resulting in a greater potential
for a significant loss of principal at maturity.
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Because the Securities are linked to the performance of the least
performing between the NDX Index and the SX5E Index, you are exposed to greater risk of receiving no Contingent Coupon payments
or sustaining a significant loss on your investment than if the Securities were linked to just the NDX Index or just the SX5E Index. The
risk that you will not receive any Contingent Coupons and/or lose a significant portion or all of your initial investment in the
Securities is greater if you invest in the Securities as opposed to substantially similar securities that are linked to the performance
of just the NDX Index or just the SX5E Index. With two Underlyings, it is more likely that either Underlying will close below its
Coupon Barrier on the quarterly Observation Dates or below its Downside Threshold on the Final Observation Date than if the Securities
were linked to only one of the Underlyings, and therefore it is more likely that you will not receive any Contingent Coupons or
will receive an amount in cash significantly less than the principal amount on the Maturity Date.
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The Contingent Coupon is based solely on the Observation Date Closing
Values. Whether the Contingent Coupon will be paid with respect to an Observation Date will be based on the Observation
Date Closing Values of both Underlyings. As a result, you will not know whether you will receive the Contingent Coupon
with respect to any Coupon Payment Date until the related Observation Date. Moreover, because the Contingent Coupon
is based solely on the Observation Date Closing Values on a specific Observation Date, if the Observation Date Closing Value of
either the NDX Index or the SX5E Index is less than its respective Coupon Barrier, you will not receive any Contingent Coupon with
respect to such Observation Date, even if the Index Closing Values of the Underlyings were higher on other days during the term
of the Securities.
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You will not receive any Contingent Coupon for any quarterly period
where the Observation Date Closing Value of either the NDX Index or the SX5E Index is less than or equal to its Coupon Barrier. A
Contingent Coupon will be paid with respect to a quarterly period only if the Observation Date Closing Values of both the NDX
Index and the SX5E Index are greater than or equal to their respective Coupon Barriers. If the Observation Date
Closing Values of either of the Underlyings is below its respective Coupon Barrier, the Issuer will not pay you a Contingent
Coupon for that quarterly period. If, on each Observation Date over the term of the Securities, either the NDX Index
or the SX5E Index closes below its respective Coupon Barrier, you will not receive any Contingent Coupons during the 5-year term
of the Securities.
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Investors will not participate in any appreciation in the values
of either of the Underlyings. Investors will not participate in any appreciation in the values of either of the
Underlyings from their respective Initial Underlying Values, and the return on the Securities will be limited to the Contingent
Coupon, if any, that is paid with respect to each Observation Date on which the Observation Date Closing Values of both the NDX
Index and the SX5E Index are greater than or equal to their respective Coupon Barriers prior to maturity or an automatic call. The
return on the Securities will be limited to the Contingent Coupons, if any, regardless of the appreciation of either of the Underlyings,
which could be significant. It is possible that, on most or all of the Observation Dates, the Index Closing Value of either Underlying
could be below its respective Coupon Barrier so that you may receive few or no Contingent Coupons. In addition, if the
Securities are not called prior to maturity, you may be exposed to the full downside market risk of the Least Performing Underlying
and lose a significant portion or all of your investment despite not being able to participate in any potential appreciation of
either of the Underlyings. If you do not earn sufficient Contingent Coupons over the term of the Securities, the overall
return on the Securities may be less than the amount that would be paid on a conventional debt security of ours of comparable maturity.
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You may incur a loss on your investment if you are able to sell
your Securities prior to maturity. The Downside Thresholds are considered only at maturity. If you are able to sell
your Securities in the secondary market prior to maturity, you may have to sell them at a loss relative to your initial investment
even if the Index Closing Values of both Underlyings are above their respective Downside Thresholds at that time. If
you hold the Securities to maturity and the Securities have not been called, MSFL will either repay you the full principal amount
per Security (in addition to the Contingent Coupon for the Final Observation Date), if the Final Underlying Values of both the
NDX Index and the SX5E Index are equal to or greater than their respective Downside Thresholds, or if either of the Underlyings
closes below its respective Downside Threshold on the Final Observation Date, MSFL will repay significantly less than the Principal
Amount, if anything, at maturity, resulting in a loss on your Principal Amount that is proportionate to the decline in the value
of the Least Performing Underlying from the Trade Date to the Final Observation Date.
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Early redemption risk. The term of your investment
in the Securities may be limited to as short as three months by the automatic call feature of the Securities. If the
Securities are called prior to maturity, you will not be able to receive any further Contingent Coupons for any future Observation
Dates, and you may be forced to invest in a lower interest rate environment and may not be able to reinvest at comparable terms
or for similar returns. Generally, the longer the Securities have been outstanding, the less likely it is that they
will be automatically called, because the level of at least one of the Underlyings will necessarily have declined from its respective
Initial Underlying Value if the Securities were not called following an Observation Date, and there will be less time remaining
until maturity in which the level(s) of such Underlying(s) can recover.
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A higher Contingent Coupon Rate and/or lower Coupon Barriers and
Downside Thresholds may reflect greater expected volatility of the Underlyings, and greater expected volatility generally indicates
an increased risk of declines in the levels of the Underlyings and, potentially, a significant loss at maturity. The
economic terms for the Securities, including the Contingent Coupon Rate, the Coupon Barriers and the Downside Thresholds, are based,
in part, on the expected volatility of the Underlyings at the time the terms of the Securities are set. “Volatility”
refers to the frequency and magnitude of changes in the levels of the Underlyings. Higher expected volatility with respect to the
Underlyings as of the Trade Date generally indicates a greater expectation as of that date that the Final Underlying Levels of
either Underlying could ultimately be less than its Downside Threshold on the Final Observation Date, which would result in a loss
of a significant portion or all of the Principal Amount. At the time the terms of the Securities are set, higher expected volatility
will generally be reflected in a higher Contingent Coupon Rate and/or lower Coupon Barriers and Downside Thresholds, as compared
to otherwise comparable securities. Therefore, a relatively higher Contingent Coupon Rate, which would increase the upside return
if the Observation Date Closing Values are greater than or equal to the Coupon Barriers on the quarterly Observation Dates, may
indicate an increased risk that the levels of the Underlyings will decrease substantially, which would result in few or no Contingent
Coupons and a significant loss at maturity. In addition, and as described above in "The Securities do not guarantee the payment
of regular interest or the return of any principal," in general, the higher potential return on the Securities as compared
to the return payable on our ordinary debt securities with a comparable maturity indicates the risk that you may not receive a
positive return on the Securities and may lose a significant portion or all of your investment. Further, relatively
lower Downside Thresholds may not indicate that the Securities have a greater likelihood of a return of principal at maturity.
You should be willing to accept the downside market risk of the Underlyings and the potential to lose a significant portion or
all of your Principal Amount at maturity.
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The Securities are subject to our credit risk, and any actual or
anticipated changes to our credit ratings or our credit spreads may adversely affect the market value of the Securities. You
are dependent on our ability to pay all amounts due on the Securities, including Contingent Coupons, if any, and any payments upon
an automatic call or at maturity, and therefore you are subject to our credit risk. If we default on our obligations
under the Securities, your investment would be at risk and you could lose some or all of your investment. As a result,
the market value of the Securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any
actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit
risk is likely to adversely affect the market value of the Securities.
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As a finance subsidiary, MSFL has no independent operations and
will have no independent assets. As a finance subsidiary, MSFL has no independent operations beyond the issuance
and administration of its securities and will have no independent assets available for distributions to holders of MSFL securities
if they make claims in respect of such securities in a bankruptcy, resolution or similar proceeding. Accordingly, any
recoveries by such holders will be limited to those available under the related guarantee by Morgan Stanley and that guarantee
will rank pari passu with all other unsecured, unsubordinated obligations of Morgan Stanley. Holders will have
recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of securities issued
by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should be treated pari
passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued
securities.
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The market price of the Securities will be influenced by many unpredictable
factors. Several factors, many of which are beyond our control, will influence the value of the Securities in the
secondary market and the price at which MS & Co. may be willing to purchase or sell the Securities in the secondary market.
Although we expect that generally the Index Closing Values of the Underlyings on any day will affect the value of the Securities
more than any other single factor, other factors that may influence the value of the Securities include:
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the value and volatility (frequency and magnitude of changes in value) of the Underlyings,
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o
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whether the Observation Date Closing Value of either Underlying has been below its Coupon Barrier on any Observation Date,
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o
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dividend rates on the stocks comprising the Underlyings,
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interest and yield rates in the market,
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time remaining until the Securities mature,
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the Underlyings or equities
markets generally and which may affect the Final Underlying Values,
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the occurrence of certain events affecting either of the Underlyings that may or may not require an adjustment to its composition,
and
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any actual or anticipated changes in our credit ratings or credit spreads.
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Some or all of these factors will
influence the terms of the Securities at the time of issuance and the price that you will receive if you sell your Securities prior
to maturity, as the Securities are comprised of both a debt component and a performance-based component linked to the Underlyings,
and these are the types of factors that also generally affect the values of debt securities and derivatives linked to the Underlyings.
Generally, the longer the time remaining to maturity, the more the market price of the Securities will be affected by the other
factors described above. The value of each of the Underlyings may be, and each has recently been, extremely volatile,
and we can give you no assurance that the volatility will lessen. See “Historical Information” below. You
may receive less, and possibly significantly less, than the Principal Amount per Security if you try to sell your Securities prior
to maturity.
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The Securities are linked to the EURO STOXX 50® Index
and are subject to risks associated with investments in securities linked to the value of foreign equity securities. The Securities
are linked to the value of foreign equity securities. Investments in securities linked to the value of foreign equity securities
involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental
intervention in those markets and cross-shareholdings in companies in certain countries. Although the equity securities included
in the EURO STOXX 50® Index are traded in foreign currencies, the value of your Securities (as measured in U.S.
dollars) will not be adjusted for any exchange rate fluctuations. Also, there is generally less publicly available information
about foreign companies than about U.S. companies that are subject to the reporting requirements of the United States Securities
and Exchange Commission, and foreign companies are subject to accounting, auditing and financial reporting standards and requirements
different from those applicable to U.S. reporting companies. The prices of securities issued in foreign markets may be affected
by political, economic, financial and social factors in those countries, or global regions, including changes in government, economic
and fiscal policies and currency exchange laws. Local securities markets may trade a small number of securities and may be unable
to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible
at times. Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United States in
such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency and balance
of payment positions.
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Investing in the Securities is not equivalent to investing in the
Underlyings. Investing in the Securities is not equivalent to investing in either Underlying or the component stocks
of either Underlying. Investors in the Securities will not have voting rights or rights to receive dividends or other
distributions or any other rights with respect to stocks that constitute the Underlyings. Further, you will not participate
in any potential appreciation of either Underlying even though you may be exposed to its full decline at maturity. Additionally,
the Underlyings are not “total return” indices, which, in addition to reflecting the market prices of the stocks that
constitute the Underlyings, would also reflect dividends paid on such stocks. The return on the Securities will not reflect such
a total return feature.
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Adjustments to the NASDAQ-100 Index® or the EURO
STOXX 50® Index could adversely affect the value of the Securities. The Underlying Publisher of each
of the NASDAQ-100 Index® and the EURO STOXX 50® Index is responsible for calculating and maintaining
such Underlying. The Underlying Publisher may add, delete or substitute the stocks constituting either Underlying or
make other methodological changes required by certain corporate events relating to the stocks constituting either Underlying, such
as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change the value of the Underlying. The
Underlying Publisher may discontinue or suspend calculation or publication of the Underlying at any time. In these circumstances,
the Calculation Agent will have the sole discretion to substitute a Successor Underlying that is comparable to the discontinued
Underlying, and is permitted to consider indices that are calculated and published by the Calculation Agent or any of its affiliates. Any
of these actions could adversely affect the value of any of the Underlyings and, consequently, the value of the Securities.
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The rate we are willing to pay for securities of this type, maturity
and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both
the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the Securities in the Issue
Price reduce the economic terms of the Securities, cause the estimated value of the Securities to be less than the Issue Price
and will adversely affect secondary market prices. Assuming no change in market conditions or any other relevant
factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the Securities in secondary market
transactions will likely be significantly lower than the Issue Price, because secondary market prices will exclude the issuing,
selling, structuring and hedging-related costs that are included in the Issue Price and borne by you and because the secondary
market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary
market transaction of this type as well as other factors.
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The inclusion of the costs of issuing,
selling, structuring and hedging the Securities in the Issue Price and the lower rate we are willing to pay as issuer make the
economic terms of the Securities less favorable to you than they otherwise would be.
However, because the costs associated
with issuing, selling, structuring and hedging the Securities are not fully deducted upon issuance, for a period of up to 6 months
following the Settlement Date, to the extent that MS & Co. may buy or sell the Securities in the secondary market, absent changes
in market conditions, including those related to the Underlyings, and to our secondary market credit spreads, it would do so based
on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account
statements.
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The estimated value of the Securities is determined by reference
to our pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum secondary market
price. These pricing and valuation models are proprietary and rely in part on subjective views of certain market
inputs and certain assumptions about future events, which may prove to be incorrect. As a result, because there is no
market-standard way to value these types of securities, our models may yield a higher estimated value of the Securities than those
generated by others, including other dealers in the market, if they attempted to value the Securities. In addition,
the estimated value on the Trade Date does not represent a minimum or maximum price at which dealers, including MS & Co., would
be willing to purchase your Securities in the secondary market (if any exists) at any time. The value of your Securities at
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any time after the date of this
pricing supplement will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes
in market conditions. See also “The market price of the Securities will be influenced by many unpredictable factors”
above.
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The Securities will not be listed on any securities exchange and
secondary trading may be limited. The Securities will not be listed on any securities exchange. Therefore,
there may be little or no secondary market for the Securities. MS & Co. currently intends, but is not obligated,
to make a market in the Securities. Even if there is a secondary market, it may not provide enough liquidity to allow
you to trade or sell the Securities easily. Because we do not expect that other broker-dealers will participate significantly
in the secondary market for the Securities, the price at which you may be able to trade your Securities is likely to depend on
the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making
a market in the Securities, it is likely that there would be no secondary market for the Securities. Accordingly, you
should be willing to hold your Securities to maturity.
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Hedging
and trading activity by our affiliates could potentially affect the value of the Securities. One or more of our
affiliates and/or third-party dealers have carried out, and will continue to carry out, hedging activities related to the Securities
(and to other instruments linked to the Underlyings), including trading in the stocks that constitute the Underlyings as well
as in other instruments related to the Underlyings. As a result, these entities may be unwinding or adjusting hedge
positions during the term of the Securities, and the hedging strategy may involve greater and more frequent dynamic adjustments
to the hedge as the Final Observation Date approaches. Some of our subsidiaries also trade the stocks that constitute
the Underlyings and other financial instruments related to the Underlyings on a regular basis as part of their general broker-dealer
and other businesses. Any of these hedging or trading activities on or prior to the Trade Date could have increased
the Initial Underlying Value, and, as a result, could have increased the Coupon Barrier of either of the Underlyings, which is
the level at or above which such Underlying must close on each Observation Date in order for you to earn a Contingent Coupon,
and the Downside Threshold of either of the Underlyings, which if the Securities are not called prior to maturity, is the level
at or above which such Underlying must close on the Final Observation Date in order for you to avoid being exposed to the negative
performance of the Least Performing Underlying at maturity (in each case, depending also on the performance of the other Underlying). Additionally,
such hedging or trading activities during the term of the Securities could potentially affect the values of the Underlyings on
the Observation Dates and, accordingly, whether the Contingent Coupon is payable or whether the Securities are automatically called
prior to maturity and, if the Securities are not called prior to maturity, the payout to you at maturity, if any (in each case,
depending also on the performance of the other Underlying).
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The Calculation Agent, which is our affiliate, will make determinations
with respect to the Securities. As Calculation Agent, MS & Co. has determined the Initial Underlying Values,
the Coupon Barriers and the Downside Thresholds and will determine the Observation Date Closing Levels and the Final Underlying
Value of each Underlying, whether a Contingent Coupon is payable with respect to each Observation Date, whether a Market Disruption
Event has occurred and the payment that you will receive upon a call or at maturity, if any. Moreover, certain determinations
made by MS & Co., in its capacity as Calculation Agent, may require it to exercise discretion and make subjective judgments,
such as with respect to the occurrence or nonoccurrence of Market Disruption Events. These potentially subjective determinations
may affect the payout to you upon a call or at maturity, if any. For further information regarding these types of determinations,
see “Description of Auto-Callable Securities—Postponement of Determination Dates,” “—Discontinuance
of Any Underlying; Alteration of Method of Calculation” and “—Calculation Agent and Calculations” in the
accompanying product supplement. In addition, MS & Co. has determined the estimated value of the Securities on the Trade Date.
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The U.S. federal income tax consequences of an investment in the
Securities are uncertain. There is no direct legal authority as to the proper treatment of the Securities for U.S.
federal income tax purposes, and, therefore, significant aspects of the tax treatment of the Securities are uncertain.
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Please
read the discussion under “What Are the Tax Consequences of the Securities” in this pricing supplement concerning
the U.S. federal income tax consequences of an investment in the Securities. We intend to treat a Security for U.S.
federal income tax purposes as a single financial contract that provides for a coupon that will be treated as gross income to
you at the time received or accrued, in accordance with your regular method of tax accounting. Under this treatment,
the ordinary income treatment of the coupon payments, in conjunction with the capital loss treatment of any loss recognized upon
the sale, exchange or settlement of the Securities, could result in adverse tax consequences to holders of the Securities because
the deductibility of capital losses is subject to limitations. We do not plan to request a ruling from the Internal Revenue Service
(the “IRS”) regarding the tax treatment of the Securities, and the IRS or a court may not agree with the tax treatment
described herein. If the IRS were successful in asserting an alternative treatment for the Securities, the timing and
character of income or loss on the Securities might differ significantly from the tax treatment described herein. For
example, under one possible treatment, the IRS could seek to recharacterize the Securities as debt instruments. In
that event, U.S. Holders (as defined below) would be required to accrue into income original issue discount on the Securities
every year at a “comparable yield” determined at the time of issuance (as adjusted based on the difference, if any,
between the actual and the projected amount of any contingent payments on the Securities) and recognize all income and gain in
respect of the Securities as ordinary income. The risk that financial instruments providing for buffers, triggers or
similar downside protection features, such as the Securities, would be recharacterized as debt is greater than the risk of recharacterization
for comparable financial instruments that do not have such features.
Non-U.S. Holders (as defined
below) should note that we currently intend to withhold on any coupon paid to Non-U.S. Holders generally at a rate of 30%, or at
a reduced rate specified by an applicable income tax treaty under an “other income” or similar provision, and will
not be required to pay any additional amounts with respect to amounts withheld.
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. While it is not clear whether the Securities would
be viewed as similar to the prepaid forward contracts described in the notice, it is possible that any Treasury regulations or
other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an
investment in the Securities, possibly with retroactive effect. The notice focuses on a number of issues, the most
relevant of which for holders of the Securities are the character and timing of income or loss and the degree, if any, to which
income realized by non-U.S. investors should be subject to withholding tax. Both U.S. and Non-U.S.
Holders should consult their tax
advisers regarding the U.S. federal income tax consequences of an investment in the Securities, including possible alternative
treatments, the issues presented by this notice and any tax consequences arising under the laws of any state, local or non-U.S.
taxing jurisdiction.
Hypothetical Payments on the Securities at Maturity
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The examples below illustrate the payment upon a call or at maturity
for a $10 Security on a hypothetical offering of the Securities, with the following assumptions (the actual terms for the Securities
were determined on the Trade Date and are specified on the cover hereof; amounts may have been rounded for ease of reference):
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Term: Approximately 3 years
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Hypothetical Initial Underlying Value:
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Contingent Coupon Rate: 11.42% per annum (or 2.855% per quarter)
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Contingent Coupon: $0.2855 per quarter
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Observation Dates: Quarterly
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Hypothetical Coupon Barriers:
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NDX Index: 4,900, which is 70% of the Hypothetical Initial Underlying Value of the NDX Index
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SX5E Index: 2,450, which is 70% of the Hypothetical Initial Underlying Value of the SX5E Index
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Hypothetical Downside Thresholds:
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NDX Index: 4,900, which is 70% of the Hypothetical Initial Underlying Value of the NDX Index
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SX5E Index: 2,450, which is 70% of the Hypothetical Initial Underlying Value of the SX5E Index
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Example 1 — Securities are Called on the Fourth Observation
Date
Date
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Index Closing Value
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Payment (per Security)
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NDX Index
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SX5E Index
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First Observation Date
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6,400 (at or above Coupon Barrier)
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3,000 (at or above Coupon Barrier)
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$0.2855 (Contingent Coupon — Not Called)
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Second Observation Date
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6,200 (at or above Coupon Barrier)
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3,600 (at or above Coupon Barrier)
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$0.2855 (Contingent Coupon — Not Called)
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Third Observation Date
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5,750 (at or above Coupon Barrier)
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3,750 (at or above Coupon Barrier)
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$0.2855 (Contingent Coupon — Not Called)
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Fourth Observation Date
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8,800 (at or above Coupon Barrier and Initial Underlying Value)
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3,800 (at or above Coupon Barrier and Initial Underlying Value)
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$10.2855 (Settlement Amount)
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Total Payment:
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$11.142 (11.42% return)
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Both the NDX Index and SX5E Index close above their respective
Coupon Barriers on the first three Observation Dates and therefore a Contingent Coupon is paid on each related Coupon Payment Date. Because
both the NDX Index and the SX5E Index close above their respective Initial Underlying Values on the fourth Observation Date (which
is one year after the Trade Date), the Securities are called after such Observation Date. MSFL will pay you on the call
settlement date a total of $10.2855 per Security, reflecting your principal amount plus the applicable Contingent Coupon.
When added to the Contingent Coupon payments of $0.8565 received in respect of the prior Observation Dates, MSFL will have paid
you a total of $11.142 per Security for an 11.42% total return on the Securities. No further amount will be owed to you under the
Securities, and you do not participate in the appreciation of the Underlyings.
Example 2 — Securities are NOT Called and the Final
Underlying Values of both the NDX Index and the SX5E Index are at or above their respective Coupon Barriers and Downside Thresholds.
Date
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Index Closing Value
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Payment (per Security)
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NDX Index
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SX5E Index
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First Observation Date
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6,700 (at or above Coupon Barrier)
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2,700 (at or above Coupon Barrier)
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$0.2855 (Contingent Coupon — Not Called)
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Second Observation Date
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6,500 (at or above Coupon Barrier)
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3,600 (at or above Coupon Barrier)
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$0.2855 (Contingent Coupon — Not Called)
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Third Observation Date
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5,600 (at or above Coupon Barrier)
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2,000 (below Coupon Barrier)
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$0 (Not Called)
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Fourth Observation Date
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5,500 (at or above Coupon Barrier; below Initial Underlying Value)
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1,500 (below Coupon Barrier and Initial Underlying Value)
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$0 (Not Called)
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Fifth to Eleventh Observation Dates
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Various (all at or above Coupon Barrier; all below Initial Underlying Value)
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Various (all below Coupon Barrier and Initial Underlying Value)
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$0 (Not Called)
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Final Observation Date
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5,550 (at or above Coupon Barrier and Downside Threshold)
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3,700 (at or above Coupon Barrier and Downside Threshold)
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$10.2855 (Settlement Amount)
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Total Payment:
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$10.8565 (8.565% return)
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Both the NDX Index and the SX5E Index close above their respective
Coupon Barriers on the first two Observation Dates and therefore a Contingent Coupon is paid on each related Coupon Payment Date. On
each of the third to eleventh Observation Dates, the NDX Index closes at or above its Coupon Barrier (but below its Initial Underlying
Value, where applicable) but the SX5E Index closes below its Coupon Barrier. Therefore, no Contingent Coupon is paid
on any related Coupon Payment Date. On the Final Observation Date, both the NDX Index and the SX5E Index close above
their respective Coupon Barriers and Downside Thresholds. Therefore, at maturity, MSFL will pay you a total of $10.2855
per Security, reflecting your principal amount plus the applicable Contingent Coupon. When added to the total Contingent
Coupon payments of $0.571 received in respect of the prior Observation Dates, MSFL will have paid you a total of $10.8565 per Security
for an 8.565% total return on the Securities over three years. You do not participate in any appreciation of the Underlyings.
Example 3 — Securities are NOT Called and the Final
Underlying Value of one of the Underlyings is below its respective Downside Threshold.
Date
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Index Closing Value
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Payment (per Security)
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NDX Index
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SX5E Index
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First Observation Date
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6,100 (at or above Coupon Barrier)
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3,600 (at or above Coupon Barrier)
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$0.2855 (Contingent Coupon — Not Called)
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Second Observation Date
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5,800 (at or above Coupon Barrier)
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3,400 (at or above Coupon Barrier)
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$0.2855 (Contingent Coupon — Not Called)
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Third Observation Date
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6,200 (at or above Coupon Barrier)
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2,300 (below Coupon Barrier)
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$0 (Not Called)
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Fourth Observation Date
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5,500 (at or above Coupon Barrier; below Initial Underlying Value)
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1,900 (below Coupon Barrier and Initial Underlying Value)
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$0 (Not Called)
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Fifth to Eleventh Observation Dates
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Various (all below Coupon Barrier and Initial Underlying Value)
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Various (all below Coupon Barrier and Initial Underlying Value)
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$0 (Not Called)
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Final Observation Date
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5,500 (at or above Coupon Barrier and Downside Threshold)
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1,400 (below Coupon Barrier and Downside Threshold)
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$10 + [$10 × Underlying Return of the Least Performing Underlying] =
$10 + [$10 × -60%] =
$10 - $6 =
$4 (Payment at Maturity)
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Total Payment:
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$4.571 (-54.29% return)
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Both the NDX Index and the SX5E Index close above their respective
Coupon Barriers on the first two Observation Dates, and, therefore a Contingent Coupon is paid on each related Coupon Payment Date. On
each of the third and fourth Observation Dates, the NDX Index closes at or above its Coupon Barrier (but below its Initial Underlying
Value, where applicable), but the SX5E Index closes below its Coupon Barrier. Therefore, no Contingent Coupon is paid
on either related Coupon Payment Date. On each of the fifth to the eleventh Observation Dates, both the NDX Index and
the SX5E Index close below their respective Coupon Barriers and thus no Contingent Coupon is paid on any related Coupon Payment
Date. On the Final Observation Date, the NDX Index closes above its Coupon Barrier and Downside Threshold but the SX5E
Index closes below its Coupon Barrier and Downside Threshold. Therefore, at maturity, investors are exposed to the downside performance
of the Least Performing Underlying and MSFL will pay you $4 per Security, which reflects the percentage decrease of the Least Performing
Underlying from the Trade Date to the Final Observation Date. When added to the total Contingent Coupon payments of
$0.571 received in respect of the prior Observation Dates, MSFL will have paid you $4.571 per Security, for a loss on the Securities
of 54.29%.
The Securities differ from ordinary debt securities in that,
among other features, MSFL is not necessarily obligated to repay the full amount of your initial investment. If the Securities
are not called on any Observation Date, you may lose a significant portion or all of your initial investment. Specifically, if
the Securities are not called and the Final Underlying Value of either Underlying is less than its respective Downside Threshold,
you will lose 1% (or a fraction thereof) of your Principal Amount for each 1% (or a fraction thereof) that the Underlying Return
of the Least Performing Underlying is less than zero. Any payment on the Securities, including any Contingent Coupon, payment upon
an automatic call or the Payment at Maturity, is dependent on our ability to satisfy our obligations when they come due. If we
are unable to meet our obligations, you may not receive any amounts due to you under the Securities.
The Issuer will not pay a quarterly Contingent Coupon if the
Observation Date Closing Value for either of the Underlyings is below its respective Coupon Barrier. The Issuer will
not automatically call the Securities if the Observation Date Closing Value of either of the Underlyings is below its respective
Initial Underlying Value. You will lose a significant portion or all of your principal amount at maturity if the Securities
are not called and the Final Underlying Value of either of the Underlyings is below its respective Downside Threshold.
What Are the Tax Consequences of the Securities?
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Prospective investors should note that the discussion under
the section called “United States Federal Taxation” in the accompanying product supplement does not apply to the Securities
issued under this pricing supplement and is superseded by the following discussion.
The
following is a general discussion of the material U.S. federal income tax consequences and certain estate tax consequences of
the ownership and disposition of the Securities. This discussion applies only to investors in the Securities who:
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purchase the Securities in the original offering; and
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hold the Securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
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This
discussion does not describe all of the tax consequences that may be relevant to a holder in light of the holder’s particular
circumstances or to holders subject to special rules, such as:
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certain financial institutions;
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certain dealers and traders in securities or commodities;
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investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
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U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
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partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
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If
an entity that is classified as a partnership for U.S. federal income tax purposes holds the Securities, the U.S. federal income
tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are
a partnership holding the Securities or a partner in such a partnership, you should consult your tax adviser as to the particular
U.S. federal tax consequences of holding and disposing of the Securities to you.
As
the law applicable to the U.S. federal income taxation of instruments such as the Securities is technical and complex, the discussion
below necessarily represents only a general summary. 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. Moreover,
the discussion below does not address the consequences to taxpayers subject to special tax accounting rules under Section 451(b)
of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the
purchase of the Securities should consult their tax advisers with regard to the application of the U.S. federal income tax laws
to their particular situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due
to the absence of statutory, judicial or administrative authorities that directly address the treatment of the Securities or instruments
that are similar to the Securities for U.S. federal income tax purposes, no assurance can be given that the IRS or a court will
agree with the tax treatment described herein. We intend to treat a Security for U.S. federal income tax purposes as
a single financial contract that provides for a coupon that will be treated as gross income to you at the time received or accrued
in accordance with your regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell
LLP, this treatment of the Securities is reasonable under current law; however, our counsel has advised us that it is unable to
conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative treatments are possible.
You
should consult your tax adviser regarding all aspects of the U.S. federal tax consequences of an investment in the Securities
(including possible alternative treatments of the Securities). Unless otherwise stated, the following discussion is
based on the treatment of each Security as described in the previous paragraph.
Tax
Consequences to U.S. Holders
This section applies to you only if you are
a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Security that is, for
U.S. federal income tax purposes:
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a citizen or individual resident of the United States;
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a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States, any state thereof or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
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Tax Treatment of the Securities
Assuming
the treatment of the Securities as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax
Basis. A U.S. Holder’s tax basis in the Securities should equal the amount paid by the U.S. Holder to acquire
the Securities.
Tax
Treatment of Coupon Payments. Any coupon payment on the Securities should be taxable as ordinary income to a U.S.
Holder at the time received or accrued, in accordance with the U.S. Holder’s regular method of accounting for U.S. federal
income tax purposes.
Sale, Exchange or Settlement of the Securities. Upon
a sale, exchange or settlement of the Securities, a U.S. Holder should recognize gain or loss equal to the difference between the
amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Securities sold, exchanged or
settled. For this purpose, the amount realized does not include any coupon paid at settlement and may not include sale
proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Any such gain or loss recognized
should be long-term capital gain or loss if the U.S. Holder has held the Securities for more than one year at the time of the sale,
exchange or settlement, and should be short-term capital gain or loss otherwise. The ordinary income treatment of the
coupon payments, in conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of
the Securities, could result in adverse tax consequences to holders of the Securities because the deductibility of capital losses
is subject to limitations.
Possible Alternative Tax Treatments of
an Investment in the Securities
Due to the absence of authorities that directly address
the proper tax treatment of the Securities, no assurance can be given that the IRS will accept, or that a court will uphold, the
treatment described above. In particular, the IRS could seek to analyze the U.S. federal income tax consequences of owning the
Securities under Treasury regulations governing contingent payment debt instruments (the “Contingent Debt Regulations”).
If the IRS were successful in asserting that the Contingent Debt Regulations applied to the Securities, the timing and character
of income thereon would be significantly affected. Among other things, a U.S. Holder would be required to accrue into income original
issue discount on the Securities every year at a “comparable yield” determined at the time of their issuance, adjusted
upward or downward to reflect the difference, if any, between the actual and the projected amount of any contingent payments on
the Securities. Furthermore, any gain realized by a U.S. Holder at maturity or upon a sale, exchange or other disposition of the
Securities would be treated as ordinary income, and any loss realized would be treated as ordinary loss to the extent of the U.S.
Holder’s prior accruals of original issue discount and as capital loss thereafter. The risk that financial instruments
providing for buffers, triggers or similar downside protection features, such as the Securities, would be recharacterized as debt
is greater than the risk of recharacterization for comparable financial instruments that do not have such features.
Other
alternative federal income tax treatments of the Securities are possible, which, if applied, could significantly affect the timing
and character of the income or loss with respect to the Securities. In 2007, the U.S. Treasury Department and the IRS
released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and
similar instruments. The notice focuses on whether to require holders of “prepaid forward contracts” and
similar 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; 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; and appropriate transition rules and effective dates. While it is not
clear whether instruments such as the Securities would be viewed as similar to the prepaid forward contracts described in the
notice, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely
affect the tax consequences of an investment in the Securities, possibly with retroactive effect. U.S. Holders should
consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the Securities, including possible
alternative treatments and the issues presented by this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of payments on the Securities
and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless a U.S. Holder provides proof of
an applicable exemption or a correct taxpayer identification number and otherwise complies with applicable requirements of the
backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may
be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information
is timely furnished to the IRS. In addition, information returns will be filed with the IRS in connection with payments
on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities, unless the U.S. Holder
provides proof of an applicable exemption from the information reporting rules.
Tax
Consequences to Non-U.S. Holders
This section applies to you only if you are a Non-U.S. Holder. As
used herein, the term “Non-U.S. Holder” means a beneficial owner of a Security that is for U.S. federal income tax
purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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The term “Non-U.S. Holder” does
not include any of the following holders:
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a holder who is an individual present in the United States for 183
days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income
tax purposes;
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certain former citizens or residents of the United States; or
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t
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a holder for whom income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United States.
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Such holders should consult their tax advisers regarding the
U.S. federal income tax consequences of an investment in the Securities.
Although
significant aspects of the tax treatment of each Security are uncertain, we intend to withhold on any coupon paid to a Non-U.S.
Holder generally at a rate of 30% or at a reduced rate specified by an applicable income tax treaty under an “other income”
or similar provision. We will not be required to pay any additional amounts with respect to amounts withheld. In
order to claim an exemption from, or a reduction in, the 30% withholding tax, a Non-U.S. Holder of the Securities must comply
with certification requirements to establish that it is not a U.S. person and is eligible for such an exemption or reduction under
an applicable tax treaty. If you are a Non-U.S. Holder, you should consult your tax adviser regarding the tax treatment
of the Securities, including the possibility of obtaining a refund of any withholding tax and the certification requirement described
above.
Section 871(m) Withholding Tax on Dividend Equivalents
Section
871(m) of the Code and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a
lower applicable treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to
certain financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”). Subject
to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of
one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified
Security”). However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January
1, 2023 that do not have a delta of one with respect to any Underlying Security. Based on our determination that the
Securities do not have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the Securities
should not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our
determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex
and its application may depend on your particular circumstances, including whether you enter into other transactions with respect
to an Underlying Security. If Section 871(m) withholding is required, we will not be required to pay any additional
amounts with respect to the amounts so withheld. You should consult your tax adviser regarding the potential application
of Section 871(m) to the Securities.
U.S.
Federal Estate Tax
Individual
Non-U.S. Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S.
federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained
certain interests or powers) should note that, absent an applicable treaty exemption, the Securities may be treated as U.S.-situs
property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals, or are entities of
the type described above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an investment
in the Securities.
Backup
Withholding and Information Reporting
Information
returns will be filed with the IRS in connection with any coupon payment and may be filed with the IRS in connection with the
payment at maturity on the Securities and the payment of proceeds from a sale, exchange or other disposition. A Non-U.S.
Holder may be subject to backup withholding in respect of amounts paid to the Non-U.S. Holder, unless such Non-U.S. Holder complies
with certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes or otherwise establishes
an exemption. The amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit
against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the Non-U.S. Holder to a refund, provided
that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA” generally
imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to
certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements. FATCA
generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income (“FDAP income”). Withholding (if applicable) applies
to payments of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain
financial instruments treated as providing for U.S.-source interest or dividends. Under recently proposed regulations
(the preamble to which specifies that taxpayers are permitted to rely on them pending finalization), no withholding will apply
on payments of gross proceeds (other than amounts treated as FDAP income). While the treatment of the Securities is
unclear, you should assume that any coupon payment with respect to the Securities will be subject to the FATCA rules. If
withholding applies to the Securities, we will not be required to pay any additional amounts with respect to amounts withheld. Both
U.S. and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the Securities.
The
discussion in the preceding paragraphs under “What Are the Tax Consequences of the Securities,” insofar as it purports
to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitutes the full opinion
of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the Securities.
The NASDAQ-100 Index®, which is calculated, maintained
and published by Nasdaq, Inc., is a modified capitalization-weighted index of 100 of the largest and most actively traded equity
securities of non-financial companies listed on The NASDAQ Stock Market LLC. The NASDAQ-100 Index® includes companies
across a variety of major industry groups. At any moment in time, the value of the NASDAQ-100 Index® equals the
aggregate value of the then-current NASDAQ-100 Index® share weights of each of the NASDAQ-100 Index®
component securities, which are based on the total shares outstanding of each such NASDAQ-100 Index® component security,
multiplied by each such security’s respective last sale price on NASDAQ (which may be the official closing price published
by NASDAQ), and divided by a scaling factor, which becomes the basis for the reported NASDAQ-100 Index® value. For
additional information about the NASDAQ-100 Index®, see the information set forth under “NASDAQ-100 Index®”
in the accompanying index supplement.
“Nasdaq®,” “NASDAQ-100®”
and “NASDAQ-100 Index®” are trademarks of Nasdaq, Inc. For more information, see “NASDAQ-100 Index®”
in the accompanying index supplement.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the NASDAQ-100 Index® for each quarter in the period from
January 1, 2015 through October 23, 2020. The closing value of the NASDAQ-100 Index® on October 23, 2020
was 11,692.57. We obtained the information in the table below from Bloomberg Financial Markets, without independent
verification. The historical closing values of the NASDAQ-100 Index® should not be taken as an indication
of future performance, and no assurance can be given as to the level of the NASDAQ-100 Index® on any Observation
Date, including the Final Observation Date.
Quarter Begin
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Quarter End
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Quarterly High
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Quarterly Low
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Quarterly Close
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1/1/2015
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3/31/2015
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4,483.05
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4,089.65
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4,333.69
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4/1/2015
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6/30/2015
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4,548.74
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4,311.26
|
4,396.76
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7/1/2015
|
|
9/30/2015
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|
4,679.68
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4,016.32
|
4,181.06
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10/1/2015
|
|
12/31/2015
|
|
4,719.05
|
4,192.96
|
4,593.27
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1/1/2016
|
|
3/31/2016
|
|
4,497.86
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3,947.80
|
4,483.66
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4/1/2016
|
|
6/30/2016
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|
4,565.42
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4,201.06
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4,417.70
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7/1/2016
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|
9/30/2016
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|
4,891.36
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4,410.75
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4,875.70
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10/1/2016
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|
12/31/2016
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|
4,965.81
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4,660.46
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4,863.62
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1/1/2017
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3/31/2017
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5,439.74
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4,911.33
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5,436.23
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4/1/2017
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6/30/2017
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|
5,885.30
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5,353.59
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5,646.92
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7/1/2017
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9/30/2017
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|
6,004.38
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5,596.96
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5,979.30
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10/1/2017
|
|
12/31/2017
|
|
6,513.27
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5,981.92
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6,396.42
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1/1/2018
|
|
3/31/2018
|
|
7,131.12
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6,306.10
|
6,581.13
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4/1/2018
|
|
6/30/2018
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|
7,280.71
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6,390.84
|
7,040.80
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7/1/2018
|
|
9/30/2018
|
|
7,660.18
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7,014.55
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7,627.65
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10/1/2018
|
|
12/31/2018
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|
7,645.45
|
5,899.35
|
6,329.96
|
1/1/2019
|
|
3/31/2019
|
|
7,493.27
|
6,147.13
|
7,378.77
|
4/1/2019
|
|
6/30/2019
|
|
7,845.73
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6,978.02
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7,671.08
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7/1/2019
|
|
9/30/2019
|
|
8,016.95
|
7,415.69
|
7,749.45
|
10/1/2019
|
|
12/31/2019
|
|
8,778.31
|
7,550.79
|
8,733.07
|
1/1/2020
|
|
3/31/2020
|
|
9,718.73
|
6,994.29
|
7,813.50
|
4/1/2020
|
|
6/30/2020
|
|
10,209.82
|
7,486.29
|
10,156.85
|
7/1/2020
|
|
9/30/2020
|
|
12,420.54
|
10,279.25
|
11,418.06
|
10/1/2020
|
|
10/23/2020*
|
|
12,088.11
|
11,255.69
|
11,692.57
|
*Available
information for the indicated period includes data for less than the entire calendar quarter and accordingly, the “Quarterly
High,” “Quarterly Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the
NASDAQ-100 Index® from January 1, 2008 through October 23, 2020, based on information from Bloomberg.
* The dotted line indicates the
Coupon Barrier and Downside Threshold of 8,184.80, which is approximately 70% of the Initial Underlying Value.
Past performance is not indicative of future results.
The EURO STOXX 50® Index was created by STOXX
Limited, which is owned by Deutsche Börse AG and SIX Group AG. Publication of the EURO STOXX 50® Index began
on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The EURO STOXX 50® Index is composed of
50 component stocks of market sector leaders from within the STOXX 600 Supersector Indices, which includes stocks selected from
the Eurozone. The component stocks have a high degree of liquidity and represent the largest companies across all market sectors.
For additional information about the EURO STOXX 50® Index, see the information set forth under “EURO STOXX
50® Index” in the accompanying index supplement.
“EURO STOXX 50®” and “STOXX®”
are registered trademarks of STOXX Limited. For more information, see “EURO STOXX 50® Index” in the
accompanying index supplement.
The following table sets forth the published high and low closing
values, as well as the end-of-quarter closing values, of the EURO STOXX 50® Index for each quarter in the period
from January 1, 2015 through October 23, 2020. The closing value of the EURO STOXX 50® Index on October
23, 2020 was 3,198.86. We obtained the information in the table below from Bloomberg Financial Markets, without independent
verification. The historical closing values of the EURO STOXX 50® Index should not be taken as an indication
of future performance, and no assurance can be given as to the level of the EURO STOXX 50® Index on any Observation
Date, including the Final Observation Date.
Quarter Begin
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Quarter End
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Quarterly High
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Quarterly Low
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Quarterly Close
|
1/1/2015
|
3/31/2015
|
3,731.35
|
3,007.91
|
3,697.38
|
4/1/2015
|
6/30/2015
|
3,828.78
|
3,424.30
|
3,424.30
|
7/1/2015
|
9/30/2015
|
3,686.58
|
3,019.34
|
3,100.67
|
10/1/2015
|
12/31/2015
|
3,506.45
|
3,069.05
|
3,267.52
|
1/1/2016
|
3/31/2016
|
3,178.01
|
2,680.35
|
3,004.93
|
4/1/2016
|
6/30/2016
|
3,151.69
|
2,697.44
|
2,864.74
|
7/1/2016
|
9/30/2016
|
3,091.66
|
2,761.37
|
3,002.24
|
10/1/2016
|
12/31/2016
|
3,290.52
|
2,954.53
|
3,290.52
|
1/1/2017
|
3/31/2017
|
3,500.93
|
3,230.68
|
3,500.93
|
4/1/2017
|
6/30/2017
|
3,658.79
|
3,409.78
|
3,441.88
|
7/1/2017
|
9/30/2017
|
3,594.85
|
3,388.22
|
3,594.85
|
10/1/2017
|
12/31/2017
|
3,697.40
|
3,503.96
|
3,503.96
|
1/1/2018
|
3/31/2018
|
3,672.29
|
3,278.72
|
3,361.50
|
4/1/2018
|
6/30/2018
|
3,592.18
|
3,340.35
|
3,395.60
|
7/1/2018
|
9/30/2018
|
3,527.18
|
3,293.36
|
3,399.20
|
10/1/2018
|
12/31/2018
|
3,414.16
|
2,937.36
|
3,001.42
|
1/1/2019
|
3/31/2019
|
3,409.00
|
2,954.66
|
3,351.71
|
4/1/2019
|
6/30/2019
|
3,514.62
|
3,280.43
|
3,473.69
|
7/1/2019
|
9/30/2019
|
3,571.39
|
3,282.78
|
3,569.45
|
10/1/2019
|
12/31/2019
|
3,782.27
|
3,413.31
|
3,745.15
|
1/1/2020
|
3/31/2020
|
3,865.18
|
2,385.82
|
2,786.90
|
4/1/2020
|
6/30/2020
|
3,384.29
|
2,662.99
|
3,234.07
|
7/1/2020
|
9/30/2020
|
3,405.35
|
3,137.06
|
3,193.61
|
10/1/2020
|
10/23/2020*
|
3,298.12
|
3,171.41
|
3,198.86
|
*Available
information for the indicated period includes data for less than the entire calendar quarter and accordingly, the “Quarterly
High,” “Quarterly Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the EURO STOXX
50® Index from January 1, 2008 through October 23, 2020, based on information from Bloomberg.
* The dotted line indicates the
Coupon Barrier and Downside Threshold of 2,239.20, which is approximately 70% of the Initial Underlying Value.
Past performance is not indicative of future results.
Correlation of the Underlyings
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The graph below illustrates the daily performance of the NASDAQ-100
Index® and the EURO STOXX 50® Index from January 1, 2008 through October 23, 2020. For comparison
purposes, each Underlying has been “normalized” to have a closing value of 100 on January 1, 2008 by dividing the closing
value of that Underlying on each Index Business Day by the closing value of that Underlying on January 1, 2008 and multiplying
by 100. We obtained the closing values used to determine the normalized closing values set forth below from Bloomberg, without
independent verification.
A closer relationship between the daily returns of two or more
underlying assets over a given period indicates that such underlying assets have been more positively correlated. Lower (or more-negative)
correlation among two or more underlying assets over a given period may indicate that it is less likely that those underlying assets
will subsequently move in the same direction. Therefore, lower correlation among the Underlyings may indicate a greater
potential for one of the Underlyings to close below its respective Coupon Barrier or Downside Threshold on an Observation Date,
including the Final Observation Date, as applicable, because there may be a greater likelihood that at least one of the Underlyings
will decrease in value significantly. However, even if the Underlyings have a higher positive correlation, one or both of the Underlyings
may close below the respective Coupon Barrier(s) or Downside Threshold(s) on an Observation Date or the Final Observation Date,
as applicable, as the Underlyings may both decrease in value. Moreover, the actual correlation among the Underlyings
may differ, perhaps significantly, from their historical correlation. A higher Contingent Coupon Rate is generally associated
with lower correlation among the Underlyings, which may indicate a greater potential for missed Contingent Coupons and/or a significant
loss on your investment at maturity. See “Key Risks — You are exposed to the market risk of both Underlyings”,
“—Because the Securities are linked to the performance of the least performing between the NDX Index and the SX5E Index,
you are exposed to greater risk of receiving no Contingent Coupon payments or sustaining a significant loss on your investment
than if the Securities were linked to just the NDX Index or just the SX5E Index” and “—A higher Contingent Coupon
Rate and/or lower Coupon Barriers and Downside Thresholds may reflect greater expected volatility of the Underlyings, and greater
expected volatility generally indicates an increased risk of declines in the levels of the Underlyings and, potentially, a significant
loss at maturity.” herein.
Past performance and correlation of the Underlyings are not indicative
of the future performance or correlation of the Underlyings.
Additional Terms of the Securities
|
If the terms described herein are inconsistent with those described
in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.
The accompanying product supplement refers to the Principal
Amount as the “Stated Principal Amount,” the Initial Level as the “Initial Index Value,” the Trade Date
as the “Pricing Date,” the Observation Dates as the “Determination Dates,” the Final Observation Date as
the “Final Determination Date,” the Coupon Barrier/Downside Threshold” as the “Downside Threshold Level”
and the day on which any automatic call occurs as the “Early Redemption Date.”
Index Publisher
With respect to the NDX Index, Nasdaq, Inc., or any successor
thereto.
With respect to the SX5E Index, STOXX Limited, or any successor
thereto.
“Index Closing Value” on any Index Business Day means,
with respect to each of the NDX Index and the SX5E Index, the closing value of such Underlying, or any relevant Successor Index
(as defined under “—Discontinuance of Any Underlying Index; Alteration of Method of Calculation” in the accompanying
product supplement) published at the regular weekday close of trading on that Index Business Day by the relevant Index Publisher.
In certain circumstances, the Index Closing Value for an Underlying will be based on the alternate calculation of such Underlying
as described under “—Discontinuance of Any Underlying Index; Alteration of Method of Calculation” in the accompanying
product supplement.
Day-Count Convention
Interest will be computed on the basis of a 360-day year of twelve
30-day months.
Issuer Notice to Registered Security Holders, the Trustee
and the Depositary
In the event that the Maturity Date of the Securities is postponed
due to a postponement of the Final Observation Date, the Issuer shall give notice of such postponement and, once it has been determined,
of the date to which the Maturity Date has been rescheduled (i) to each registered holder of the Securities by mailing notice of
such postponement by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon
the registry books, (ii) to the Trustee by facsimile confirmed by mailing such notice to the Trustee by first class mail, postage
prepaid, at its New York office and (iii) to The Depository Trust Company (the “Depositary”) by telephone or facsimile
confirmed by mailing such notice to the Depositary by first class mail, postage prepaid. Any notice that is mailed to
a registered holder of the Securities in the manner herein provided shall be conclusively presumed to have been duly given to such
registered holder, whether or not such registered holder receives the notice. The Issuer shall give such notice as promptly
as possible, and in no case later than (i) with respect to notice of postponement of the Maturity Date, the Business Day immediately
preceding the scheduled Maturity Date and (ii) with respect to notice of the date to which the Maturity Date has been rescheduled,
the Business Day immediately following the Final Observation Date as postponed.
In the event that the Securities are subject to Automatic Call,
the Issuer shall, (i) on the Business Day following the applicable Observation Date, give notice of the Automatic Call and the
applicable automatic call payment, including specifying the payment date of the applicable amount due upon the Automatic Call,
(x) to each registered holder of the Securities by mailing notice of such Automatic Call by first class mail, postage prepaid,
to such registered holder’s last address as it shall appear upon the registry books, (y) to the Trustee by facsimile confirmed
by mailing such notice to the Trustee by first class mail, postage prepaid, at its New York office and (z) to the Depositary by
telephone or facsimile confirmed by mailing such notice to the Depositary by first class mail, postage prepaid and (ii) on or prior
to the Automatic Call Date, deliver the aggregate cash amount due with respect to the Securities to the Trustee for delivery to
the Depositary, as holder of the securities. Any notice that is mailed to a registered holder of the Securities in the
manner herein provided shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered
holder receives the notice. This notice shall be given by the Issuer or, at the Issuer’s request, by the Trustee in the name
and at the expense of the Issuer, with any such request to be accompanied by a copy of the notice to be given.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee, on which notice the Trustee may conclusively rely, and to the Depositary of the amount of
cash to be delivered as Contingent Coupon, if any, with respect to the Securities on or prior to 10:30 a.m. (New York City time)
on the Business Day preceding each Coupon Payment Date, and (ii) deliver the aggregate cash amount due, if any, with respect to
the Contingent Coupon to the Trustee for delivery to the Depositary, as holder of the Securities, on or prior to the applicable
Coupon Payment Date.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee and to the Depositary of the amount of cash, if any, to be delivered with respect to the
Securities, on or prior to 10:30 a.m. (New York City time) on the Business Day preceding the Maturity Date, and (ii) deliver the
aggregate cash amount due with respect to the Securities, if any, to the Trustee for delivery to the Depositary, as holder of the
Securities, on or prior to the Maturity Date.
Additional Information About the Securities
|