* The Securities are not subject to an automatic call until the
fourth Observation Date, which is October 29, 2020.
(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.
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.
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.
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 12 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.
creditworthiness and changes in
market conditions. See also “The market price of the Securities will be influenced by many unpredictable factors”
above.
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.
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.
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):
Example 1 — Securities are Called on the Fourth Observation
Date
Date
|
Index Closing Value
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Payment (per Security)
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NDX Index
|
SX5E Index
|
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First Observation Date
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8,100 (at or above Coupon Barrier)
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3,150 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
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Second Observation Date
|
7,500 (at or above Coupon Barrier)
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2,300 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Third Observation Date
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7,600 (at or above Coupon Barrier)
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2,250 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
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Fourth Observation Date
|
8,200 (at or above Coupon Barrier and Initial Underlying Value)
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3,200 (at or above Coupon Barrier and Initial Underlying Value)
|
$10.15 (Settlement Amount)
|
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Total Payment:
|
$10.60 (6.0% 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 and is the first Observation Date on which the Securities are callable), the Securities are called
after such Observation Date. MSFL will pay you on the call settlement date a total of $10.15 per Security, reflecting
your principal amount plus the applicable Contingent Coupon. When added to the Contingent Coupon payments of $0.45 received in
respect of the prior Observation Dates, MSFL will have paid you a total of $10.60 per Security for a 6.0% 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
|
Index Closing Value
|
Payment (per Security)
|
|
NDX Index
|
SX5E Index
|
|
First Observation Date
|
7,800 (at or above Coupon Barrier)
|
2,250 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
6,500 (at or above Coupon Barrier)
|
3,100 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Third Observation Date
|
5,900 (at or above Coupon Barrier)
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1,700 (below Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Observation Date
|
6,400 (at or above Coupon Barrier; below Initial Underlying Value)
|
2,000 (below Coupon Barrier and Initial Underlying Value)
|
$0 (Not Called)
|
Fifth to Thirty-Ninth Observation Dates
|
Various (all at or above Coupon Barrier; all below Initial Underlying Value)
|
Various (all below Coupon Barrier and Initial Underlying Value)
|
$0 (Not Called)
|
Final Observation Date
|
9,000 (at or above Coupon Barrier and Downside Threshold)
|
2,300 (at or above Coupon Barrier and Downside Threshold)
|
$10.15 (Settlement Amount)
|
|
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Total Payment:
|
$10.45 (4.5% return)
|
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 thirty-ninth 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
$10.15 per Security, reflecting your principal amount plus the applicable Contingent Coupon. When added to the total Contingent
Coupon payments of $0.30 received in respect of the prior Observation Dates, MSFL will have paid you a total of $10.45 per Security
for a 4.5% total return on the Securities over ten years. You do not participate in any appreciation of the Underlyings.
Example 3 — Securities
are NOT Called and the Final Underlying Values of both the NDX Index and the SX5E Index are at or above their respective Downside
Thresholds but the Final Underlying Value of one Underlying is below its respective Coupon Barrier
Date
|
Index Closing Value
|
Payment (per Security)
|
NDX Index
|
SX5E Index
|
First Observation Date
|
8,150 (at or above Coupon Barrier)
|
2,200 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
7,950 (at or above Coupon Barrier)
|
2,500 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Third Observation Date
|
6,700 (at or above Coupon Barrier)
|
1,850 (below Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Observation Date
|
7,200 (at or above Coupon Barrier; below Initial Index Value)
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1,600 (below Coupon Barrier and Initial Index Value)
|
$0 (Not Called)
|
Fifth to Thirty-Ninth Observation Dates
|
Various (all at or above Coupon Barrier; all below Initial Index Value)
|
Various (all below Coupon Barrier and Initial Index Value)
|
$0 (Not Called)
|
Final Observation Date
|
4,500 (below Coupon Barrier, at or above Downside Threshold)
|
2,300 (at or above Coupon Barrier and Downside Threshold)
|
$10.00 (Principal Amount)
|
|
|
Total Payment:
|
$10.30 (3.0% return)
|
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 thirty-ninth Observation Dates, the NDX Index closes
at or above its Coupon Barrier (but below its Initial Index 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 Downside Thresholds, but the NDX Index closes below its
Coupon Barrier. Therefore, at maturity, MSFL will pay you a total of $10.00 per Security, reflecting your Principal
Amount, but you will not receive a Contingent Coupon with respect to the Final Observation Date. When added to the Contingent Coupon
payments of $0.30 received in respect of the prior Observation Dates, MSFL will have paid you a total of $10.30 per Security for
a 3.0% total return on the Securities over ten years.
Example 4 — Securities are NOT Called and the Final
Underlying Value of one of the Underlyings is below its respective Downside Threshold
Date
|
Index Closing Value
|
Payment (per Security)
|
|
NDX Index
|
SX5E Index
|
|
First Observation Date
|
8,050 (at or above Coupon Barrier)
|
2,150 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Second Observation Date
|
8,100 (at or above Coupon Barrier)
|
2,400 (at or above Coupon Barrier)
|
$0.15 (Contingent Coupon — Not Callable)
|
Third Observation Date
|
8,010 (at or above Coupon Barrier)
|
1,750 (below Coupon Barrier)
|
$0 (Not Callable)
|
Fourth Observation Date
|
7,700 (at or above Coupon Barrier; below Initial Underlying Value)
|
1,600 (below Coupon Barrier and Initial Underlying Value)
|
$0 (Not Called)
|
Fifth to Thirty-Ninth Observation Dates
|
Various (all below Coupon Barrier and Initial Underlying Value)
|
Various (all below Coupon Barrier and Initial Underlying Value)
|
$0 (Not Called)
|
Final Observation Date
|
7,000 (at or above Coupon Barrier and Downside Threshold)
|
1,200 (below Coupon Barrier and Downside Threshold)
|
$10 + [$10 × Underlying Return of the Least Performing Underlying] =
$10 + [$10 × -60%] =
$10 - $6 =
$4 (Payment at Maturity)
|
|
|
Total Payment:
|
$4.30 (-57.0% return)
|
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 thirty-ninth 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 $0.30 received in respect of the prior
Observation Dates, MSFL will have paid you $4.30 per Security, for a loss on the Securities of 57.0%.
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?
|
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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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, 2021 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, 2014 through October 29, 2019. The closing value of the NASDAQ-100 Index® on October 29, 2019
was 8,047.509. 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
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
3,727.185
|
3,440.502
|
3,595.736
|
4/1/2014
|
6/30/2014
|
3,849.479
|
3,446.845
|
3,849.479
|
7/1/2014
|
9/30/2014
|
4,103.083
|
3,857.938
|
4,049.445
|
10/1/2014
|
12/31/2014
|
4,337.785
|
3,765.281
|
4,236.279
|
1/1/2015
|
3/31/2015
|
4,483.049
|
4,089.648
|
4,333.688
|
4/1/2015
|
6/30/2015
|
4,548.740
|
4,311.257
|
4,396.761
|
7/1/2015
|
9/30/2015
|
4,679.675
|
4,016.324
|
4,181.060
|
10/1/2015
|
12/31/2015
|
4,719.053
|
4,192.963
|
4,593.271
|
1/1/2016
|
3/31/2016
|
4,497.857
|
3,947.804
|
4,483.655
|
4/1/2016
|
6/30/2016
|
4,565.421
|
4,201.055
|
4,417.699
|
7/1/2016
|
9/30/2016
|
4,891.363
|
4,410.747
|
4,875.697
|
10/1/2016
|
12/31/2016
|
4,965.808
|
4,660.457
|
4,863.620
|
1/1/2017
|
3/31/2017
|
5,439.742
|
4,911.333
|
5,436.232
|
4/1/2017
|
6/30/2017
|
5,885.296
|
5,353.586
|
5,646.917
|
7/1/2017
|
9/30/2017
|
6,004.380
|
5,596.956
|
5,979.298
|
10/1/2017
|
12/31/2017
|
6,513.269
|
5,981.918
|
6,396.422
|
1/1/2018
|
3/31/2018
|
7,131.121
|
6,306.100
|
6,581.126
|
4/1/2018
|
6/30/2018
|
7,280.705
|
6,390.837
|
7,040.802
|
7/1/2018
|
9/30/2018
|
7,660.180
|
7,014.554
|
7,627.650
|
10/1/2018
|
12/31/2018
|
7,645.453
|
5,899.354
|
6,329.964
|
1/1/2019
|
3/31/2019
|
7,493.270
|
6,147.128
|
7,378.771
|
4/1/2019
|
6/30/2019
|
7,845.729
|
6,978.018
|
7,671.075
|
7/1/2019
|
9/30/2019
|
8,016.953
|
7,415.691
|
7,749.449
|
10/1/2019
|
10/29/2019*
|
8,110.669
|
7,550.786
|
8,047.509
|
*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 29, 2019, based on information from Bloomberg.
* The dotted line indicates the
Coupon Barrier of 5,633.256, which is approximately 70% of the Initial Underlying Value, and the solid line indicates the Downside
Threshold of 4,023.755, which is approximately 50% 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, 2014 through October 29, 2019. The closing value of the EURO STOXX 50® Index on October
29, 2019 was 3,622.09. 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
|
Quarter End
|
Quarterly High
|
Quarterly Low
|
Quarterly Close
|
1/1/2014
|
3/31/2014
|
3,172.43
|
2,962.49
|
3,161.60
|
4/1/2014
|
6/30/2014
|
3,314.80
|
3,091.52
|
3,228.24
|
7/1/2014
|
9/30/2014
|
3,289.75
|
3,006.83
|
3,225.93
|
10/1/2014
|
12/31/2014
|
3,277.38
|
2,874.65
|
3,146.43
|
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
|
10/29/2019*
|
3,625.69
|
3,413.31
|
3,622.09
|
*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 29, 2019, based on information from Bloomberg.
* The dotted line indicates the
Coupon Barrier of 2,535.46, which is approximately 70% of the Initial Underlying Value, and the solid line indicates the Downside
Threshold of 1,811.05, which is approximately 50% of the Initial Underlying Value.
Past performance is not indicative of future results.
Correlation of the Underlyings
|
The graph below illustrates the daily performance of the NASDAQ-100
Index® and the EURO STOXX 50® Index from January 1, 2008 through October 29, 2019. 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 contained in this pricing supplement differ from
those discussed in the product supplement, index supplement or prospectus, the terms contained in this pricing supplement will
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 Publishers
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
|