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Pricing Supplement No. 7,303
Registration Statement Nos. 333-250103; 333-250103-01
Dated December 7, 2022
Filed Pursuant to Rule
424(b)(2)
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Morgan Stanley Finance LLC
$13,807,200 Trigger Callable Yield Notes
Linked to the Least Performing
Underlying Shares between the iShares® Russell
2000® ETF and the SPDR® S&P
500® ETF Trust due March 12, 2024
Fully and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
These Trigger Callable Yield Notes (the “Securities”) are unsecured
and unsubordinated debt obligations of Morgan Stanley Finance LLC
(“MSFL”) and are fully and unconditionally guaranteed by Morgan
Stanley. The Securities provide a return at maturity based on
the least performing underlying shares between the
iShares® Russell 2000® ETF (the “IWM Shares”)
and the SPDR® S&P 500® ETF Trust (the
“SPY Shares,” and together with the IWM Shares, the “Underlying
Shares”). On each monthly Coupon Payment Date, unless the
Securities have previously been called, MSFL will make a Coupon
payment based on the Coupon Rate, regardless of the performance of
either of the Underlying Shares. In addition, beginning on March
12, 2023, MSFL will call the Securities on any monthly Call Date if
and only if the output of a risk neutral valuation model on a
Business Day that is at least 2 but no more than 5 Business Days
prior to such Call Date, based on the inputs indicated in the Call
Feature section below, indicates that calling on such date is
economically rational for us as compared to not calling on such
date. If the Securities are called, MSFL will pay you the principal
amount plus the Coupon otherwise due with respect to the relevant
Coupon Payment Date, and no further amounts will be owed to you.
Any early redemption of the Securities will not automatically occur
based solely on the performance of the Underlying Shares. If the
Securities are not called prior to maturity and the Final
Underlying Prices of both the IWM Shares and the SPY Shares
are equal to or greater than their respective Downside Thresholds,
MSFL will make a cash payment to you at maturity equal to the
principal amount of your Securities and the Coupon with respect to
the final Coupon Payment Date. However, if the Final Underlying
Price of either the IWM Shares or the SPY Shares is less
than its respective Downside Threshold, MSFL will pay you, in
addition to the final Coupon, an amount that is significantly less
than the full principal amount, if anything, at maturity, resulting
in a loss on your principal amount that is proportionate to the
decline in the price of the Underlying Shares with the larger
percentage decrease from its Initial Underlying Price to its Final
Underlying Price (the “Least Performing Underlying Shares”),
even if the other Underlying Shares appreciates or does not decline
as much. The Securities may be appropriate for investors who seek
an opportunity for fixed income in exchange for the risk of losing
their principal at maturity and the risk of an early redemption of
the Securities. Your return will be solely the Coupons that are
paid until maturity or an earlier redemption, and you will not
participate in any appreciation of either of the Underlying Shares.
Because the Payment at Maturity on the Securities is based on the
least performing Underlying Shares between the IWM Shares and the
SPY Shares, the fact that the Securities are linked to two
Underlying Shares does not provide any asset diversification
benefits and instead means that a decline in the price of either
the IWM Shares or the SPY Shares beyond the Downside Threshold on
the Final Valuation Date will result in a significant loss on your
investment even if the other Underlying Shares appreciates or does
not decline as much. Investing in the Securities involves
significant risks. The Issuer may call the Securities early based
on the output of a risk neutral valuation model. You will lose a
significant portion or all of your principal amount at maturity if
the Securities are not called and the Final Underlying Price of
either of the Underlying Shares is below its Downside Threshold.
Generally, the higher the Coupon Rate for the Securities, the
greater risk of loss on those Securities. If you sell the
Securities prior to maturity, you may receive substantially less
than the principal amount even if the prices of both Underlying
Shares are greater than their respective Downside Thresholds at the
time of sale.
All payments are subject to our credit risk. If we default on
our obligations, you could lose some or all of your investment.
These Securities are not secured obligations and you will not have
any security interest in, or otherwise have any access to, any
underlying reference asset or assets.
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q Call
Feature: Beginning March 12, 2023, an early redemption, in
whole but not in part, will occur on a monthly Call Date if and
only if the output of a risk neutral valuation model on a Business
Day that is at least 2 but no more than 5 Business Days prior to
such Call Date, as selected by the Calculation Agent (the
“Determination Date”), taking as input: (i) prevailing reference
market levels, volatilities and correlations, as applicable and in
each case as of the Determination Date and (ii) Morgan Stanley’s
credit spreads as of the Trade Date, indicates that calling on such
date is economically rational for us as compared to not calling on
such date. If the Securities are called, MSFL will pay you the
principal amount plus the Coupon otherwise due with respect to the
relevant Coupon Payment Date and no further amounts will be owed to
you. If the Securities are not called, investors will have the
potential for downside equity market risk at maturity.
q Income:
Regardless of the performance of either of the Underlying Shares,
MSFL will pay you a Coupon on each Coupon Payment Date unless the
Securities have been previously called.
q Contingent
Downside Market Exposure at Maturity: If, by maturity, the
Securities have not been called and the Final Underlying Prices of
both the IWM Shares and the SPY Shares are greater than or
equal to their respective Downside Thresholds on the Final
Valuation Date, MSFL will pay you the principal amount per Security
at maturity, as well as the final Coupon. However, if the Final
Underlying Price of either the IWM Shares or the SPY Shares
is less than its respective Downside Threshold, MSFL will pay you,
in addition to the final Coupon, an amount that is significantly
less than the full principal amount, if anything, at maturity,
resulting in a loss on your principal amount that is proportionate
to the decline in the price of the Least Performing Underlying
Shares from the Trade Date to the Final Valuation Date. If you
sell the Securities prior to maturity, you may receive
substantially less than the principal amount even if the prices of
both Underlying Shares are greater than their respective Downside
Thresholds at the time of sale. Any payment on the Securities is
subject to our creditworthiness.
|
| Trade Date |
December 7,
2022 |
|
Settlement Date
|
December 12, 2022 (3 business
days
after the Trade Date) |
|
Coupon Payment Dates*
|
Monthly, callable beginning
March 12, 2023. See “Coupon
Payment Dates and Call
Dates” on page 6 for details.
|
| Final Valuation
Date* |
March 7,
2024 |
|
Maturity Date*
|
March 12, 2024 |
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*Subject to postponement in the event
of a Market Disruption Event or for non-Trading Days. See
“Postponement of Final Valuation Date and Coupon Payment Dates
(including the Call Dates and the Maturity Date)” under “Additional
Terms of the Securities” below.
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NOTICE TO INVESTORS: THE SECURITIES ARE SIGNIFICANTLY RISKIER
THAN CONVENTIONAL DEBT INSTRUMENTS. THE SECURITIES DO NOT GUARANTEE
THE REPAYMENT OF THE FULL PRINCIPAL AMOUNT AT MATURITY, AND THE
SECURITIES WILL HAVE DOWNSIDE MARKET RISK SIMILAR TO THE LEAST
PERFORMING OF THE TWO UNDERLYING SHARES, SUBJECT TO THE RESPECTIVE
DOWNSIDE THRESHOLDS AT MATURITY. THIS MARKET RISK IS IN ADDITION TO
THE CREDIT RISK INHERENT IN PURCHASING OUR DEBT OBLIGATIONS. YOU
SHOULD NOT PURCHASE THE SECURITIES IF YOU DO NOT UNDERSTAND OR ARE
NOT COMFORTABLE WITH THE SIGNIFICANT RISKS INVOLVED IN INVESTING IN
THE SECURITIES. THE SECURITIES WILL NOT BE LISTED ON ANY SECURITIES
EXCHANGE.
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER “KEY
RISKS” BEGINNING ON PAGE 8 OF THIS PRICING SUPPLEMENT IN CONNECTION
WITH YOUR PURCHASE OF THE SECURITIES. EVENTS RELATING TO ANY OF
THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY
AFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR SECURITIES. YOU
MAY LOSE A SIGNIFICANT PORTION OR ALL OF YOUR PRINCIPAL
AMOUNT.
This
pricing supplement relates to Securities linked to the Least
Performing Underlying Shares between the iShares®
Russell 2000® ETF and the SPDR® S&P
500® ETF Trust. The Securities are offered at a minimum
investment of $1,000 in denominations of $10 and integral multiples
thereof.
|
Underlying
Shares |
Initial
Underlying Price |
Downside
Threshold |
Coupon
Rate |
CUSIP |
ISIN |
| iShares®
Russell 2000® ETF |
$179.54 |
$107.72,
which is approximately 60% of the Initial Underlying
Price |
8.65%
per annum |
61774Q488 |
US61774Q4881 |
|
SPDR®
S&P 500® ETF Trust |
$393.16 |
$235.90,
which is approximately 60% of the Initial Underlying
Price |
See
“Additional Information about Morgan Stanley, MSFL and the
Securities” on page 2. The Securities will have the terms set forth
in the accompanying prospectus, prospectus supplement and index
supplement and this pricing supplement.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these Securities or
passed upon the adequacy or accuracy of this pricing supplement or
the accompanying prospectus supplement, index supplement or
prospectus. Any representation to the contrary is a criminal
offense. The Securities are not deposits or savings accounts and
are not insured by the Federal Deposit Insurance Corporation or any
other governmental agency or instrumentality, nor are they
obligations of, or guaranteed by, a bank.
|
Estimated
value on the Trade Date |
$9.853 per Security. See “Additional Information about
Morgan Stanley, MSFL and the Securities” on page 2. |
|
|
Price
to Public |
Underwriting
Discount(1) |
Proceeds
to Us(2) |
|
Per
Security |
$10.00 |
$0.10 |
$9.90 |
|
Total |
$13,807,200 |
$138,072 |
$13,669,128 |
We also
sold, pursuant to Pricing Supplement No. 7,304, a separate issuance
of securities, being sold only to fee-based advisory accounts, with
terms substantially similar to, but somewhat different than, those
of this issuance.
(1) UBS Financial Services Inc.,
acting as dealer, will receive from Morgan Stanley & Co. LLC,
the agent, a fixed sales commission of $0.10 for each Security it
sells. For more information, please see “Supplemental Plan of
Distribution; Conflicts of Interest” on page 30 of this pricing
supplement.
(2) See “Use of Proceeds and Hedging”
on page 30.
The agent for this offering, Morgan
Stanley & Co. LLC (“MS & Co.”), is our affiliate and a
wholly owned subsidiary of Morgan Stanley. See “Supplemental Plan
of Distribution; Conflicts of Interest” on page 30 of this pricing
supplement.
| Morgan Stanley |
UBS Financial Services Inc. |
|
Additional Information about Morgan Stanley, MSFL and the
Securities |
Morgan Stanley and MSFL have filed a registration statement
(including a prospectus, as supplemented by a prospectus 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
prospectus 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 prospectus supplement
and index supplement if you so request by calling toll-free
1-(800)-584-6837.
You may access the accompanying prospectus supplement, index
supplement and prospectus on the SEC website at.www.sec.gov as follows:
References to “MSFL” refer to only MSFL, references to “Morgan
Stanley” refer to only Morgan Stanley and references to “we,” “our”
and “us” refer to MSFL and Morgan Stanley collectively. In this
document, the “Securities” refers to the Trigger Callable Yield Notes that are
offered hereby. Also, references to the accompanying “prospectus”,
“prospectus supplement” and “index supplement” mean the prospectus
filed by MSFL and Morgan Stanley dated November 16, 2020, the
prospectus supplement filed by MSFL and Morgan Stanley dated
November 16, 2020 and the index supplement filed by MSFL and Morgan
Stanley dated November 16, 2020, respectively.
You should rely only on the information incorporated by reference
or provided in this pricing supplement or the accompanying
prospectus supplement, 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 prospectus
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 $9.853.
What goes into the estimated value on the Trade Date?
In valuing the Securities on the Trade Date, we take into account
that the Securities comprise both a debt component and a
performance-based component linked to the Underlying Shares. The
estimated value of the Securities is determined using our own
pricing and valuation models, market inputs and assumptions
relating to the Underlying Shares, instruments based on the
Underlying Shares, volatility and other factors including current
and expected interest rates, as well as an interest rate related to
our secondary market credit spread, which is the implied interest
rate at which our conventional fixed rate debt trades in the
secondary market.
What determines the economic terms of the Securities?
In determining the economic terms of the Securities, including the
Downside Threshold and the 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.
What is the relationship between the estimated value on the
Trade Date and the secondary market price of the
Securities?
The price at which MS & Co. purchases the Securities in the
secondary market, absent changes in market conditions, including
those related to the Underlying Shares, may vary from, and be lower
than, the estimated value on the Trade Date, because the secondary
market price takes into account our secondary market credit spread
as well as the bid-offer spread that MS & Co. would charge in a
secondary market transaction of this type and other factors.
However, because the costs associated with issuing, selling,
structuring and hedging the Securities are not fully deducted upon
issuance, for a period of up to 4 months following the Settlement
Date, to the extent that MS & Co. may buy or sell the
Securities in the secondary market, absent changes in market
conditions, including those related to the Underlying Shares, and
to our secondary market credit spreads, it would do so based on
values higher than the estimated value. We expect that those higher
values will also be reflected in your brokerage account
statements.
MS & Co. currently intends, but is not obligated, to make a
market in the Securities, and, if it once chooses to make a market,
may cease doing so at any time.
| The
Securities may be suitable for you if: |
|
The
Securities may not be suitable for you if: |
|
t You
fully understand the risks inherent in an investment in the
Securities, including the risk of loss of your entire initial
investment.
t You
can tolerate a loss of all or a substantial portion of your
investment and are willing to make an investment that will have the
same downside market risk, subject to the respective Downside
Thresholds at maturity, as the Least Performing Underlying
Shares.
t You
are willing to accept the individual market risk of each of the
Underlying Shares.
t You
understand and accept the risks associated with the Underlying
Shares.
t You
understand that the linkage to two Underlying Shares does not
provide any portfolio diversification benefits and instead means
that a decline in the price beyond the relevant Downside Threshold
of either the IWM Shares or the SPY Shares will result in a
significant loss on your investment even if the other Underlying
Shares appreciates or does not decline as much.
t You
understand and accept that you will not participate in any
appreciation in the prices of the Underlying Shares and that your
potential return is limited to the Coupons that are paid until
maturity or an earlier redemption.
t You
can tolerate fluctuations in the value of the Securities prior to
maturity that may be similar to or exceed the downside price
fluctuations of the Least Performing Underlying Shares.
t You
are willing to invest in the Securities based on the Coupon Rate
specified on the cover hereof.
t You
are willing to forgo dividends paid on the stocks comprising the
Underlying Shares.
t You
are willing to invest in securities that may be called early (after
an initial three-month non-call period) based on the output of a
risk neutral valuation model and you are otherwise willing to hold
such securities to maturity, as set forth on the cover of this
pricing supplement.
t You
accept that there may be little or no secondary market for the
Securities and that any secondary market will depend in large part
on the price, if any, at which MS & Co. is willing to trade the
Securities.
t You
are willing to assume our credit risk, and understand that if we
default on our obligations you may not receive any amounts due to
you and could lose your entire investment.
|
|
t You
do not fully understand the risks inherent in an investment in the
Securities, including the risk of loss of your entire initial
investment.
t You
cannot tolerate a loss of all or a substantial portion of your
investment, or are unwilling to make an investment that will have
the same downside market risk, subject to the respective Downside
Thresholds at maturity, as the Least Performing Underlying
Shares.
t You
are unwilling to accept the individual market risk of each of the
Underlying Shares.
t You
require an investment designed to provide a full return of
principal at maturity.
t You
do not understand and accept the risks associated with the
Underlying Shares.
t You
are not comfortable with an investment linked to two Underlying
Shares such that a decline in the price beyond the relevant
Downside Threshold of either the IWM Shares or the SPY Shares will
result in a significant loss on your investment even if the other
Underlying Shares appreciates or does not decline as
much.
t You
seek an investment that participates in the appreciation in the
prices of the Underlying Shares or that has unlimited return
potential.
t You
cannot tolerate fluctuations in the value of the Securities prior
to maturity that may be similar to or exceed the downside price
fluctuations of the Least Performing Underlying Shares.
t You
are not willing to invest in the Securities based on the Coupon
Rate specified on the cover hereof.
t You
prefer the lower risk, and therefore accept the potentially lower
returns, of fixed income investments with comparable maturities and
credit ratings.
t You
prefer to receive the dividends paid on the stocks comprising the
Underlying Shares.
t You
are unable or unwilling to invest in securities that may be called
early (after an initial three-month non-call period) based on the
output of a risk neutral valuation model, or you are otherwise
unable or unwilling to hold such securities to maturity, as set
forth on the cover of this pricing supplement, or you seek an
investment for which there will be an active secondary
market.
t You
are not willing to assume our credit risk for all payments under
the Securities, including any repayment of principal.
|
The investor suitability considerations identified above are not
exhaustive. Whether or not the Securities are a suitable investment
for you will depend on your individual circumstances, and you
should reach an investment decision only after you and your
investment, legal, tax, accounting and other advisors have
carefully considered the suitability of an investment in the
Securities in light of your particular circumstances. You should
also review “Key Risks” on page 8 of this pricing supplement and
“Risk Factors” beginning on page 7 of the accompanying prospectus
for risks related to an investment in the Securities. For
additional information about the Underlying Shares, see the
information set forth under “The iShares® Russell
2000® ETF” on page 20 and “The SPDR® S&P
500® ETF Trust” on page 22.
| Issuer |
Morgan Stanley Finance
LLC |
| Guarantor |
Morgan
Stanley |
| Issue Price |
$10.00 per Security.
The Securities are offered at a minimum investment of 100
Securities. |
| Underlying
Shares |
The iShares®
Russell 2000® ETF (the “IWM Shares”) and the
SPDR® S&P 500® ETF Trust (the “SPY
Shares”) |
| Principal
Amount |
$10.00 per
Security |
| Term |
1.25 years, unless
earlier called by the Issuer |
| Call
Feature |
Beginning March 12, 2023, an early redemption, in whole but not in
part, will occur on a monthly Coupon Payment Date (the date on
which the Securities are called, the “Call Date”), if and only if
the output of a risk neutral valuation model on a Business Day that
is at least 2 but no more than 5 Business Days prior to such Call
Date, as selected by the Calculation Agent (the “Determination
Date”), taking as input: (i) prevailing reference market levels,
volatilities and correlations, as applicable and in each case as of
the Determination Date and (ii) Morgan Stanley’s credit spreads as
of the Trade Date, indicates that calling on such date is
economically rational for us as compared to not calling on such
date. If MSFL calls the Securities, MSFL will give you notice at
least 2 Business Days before the Call Date specified in the
notice.
If
the Securities are called, MSFL will pay you on the Call Date the
Principal Amount plus the Coupon otherwise due (such payment
upon an early redemption, the “Settlement Amount”), and no further
payments will be made on the Securities.
|
| Coupon |
Regardless of the performance of either of the Underlying Shares,
unless the Securities have been previously called, MSFL will pay
the Coupon on each Coupon Payment Date.
Each
Coupon is a fixed amount based on equal monthly installments at the
Coupon Rate, which is a per-annum rate. The Coupon amount of
$0.07208 for each Security (based on the per-annum rate of 8.65%)
would be applicable to each Coupon Payment Date until maturity or
an earlier redemption.
|
|
Coupon
Rate |
The Coupon
Rate is 8.65% per annum. |
| Trade Date |
December 7,
2022 |
| Settlement
Date |
December 12,
2022 |
| Final Valuation
Date* |
March 7,
2024 |
| Maturity
Date* |
March 12,
2024 |
| Coupon Payment
Dates |
As set forth under
“Coupon Payment Dates and Call Dates” on page 6. |
| Payment at Maturity
(per Security) |
If
the Securities have not been called prior to maturity, MSFL will
pay you a cash payment on the Maturity Date linked to the
performance of the Least Performing Underlying Shares during the
term of the Securities, as follows:
If
the Securities have not been called and the Final Underlying Prices
of both the IWM Shares and the SPY Shares are equal to or
greater than their respective Downside Thresholds, MSFL will
pay you the $10 Principal Amount and the final Coupon otherwise due
on the Maturity Date.
If
the Securities have not been called by MSFL prior to maturity and
the Final Underlying Price of either the IWM Shares or the SPY
Shares is less than its respective Downside Threshold, MSFL
will pay you, in addition to the final Coupon otherwise due on the
Maturity Date, an amount calculated as follows:
$10 × (1 + Share Return of the Least Performing Underlying
Shares)
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 Shares from the Trade Date to
the Final Valuation Date, even if the other Underlying Shares
appreciates or does not decline as much.
|
| Least Performing
Underlying Shares |
The Underlying Shares
with the larger percentage decrease from the Initial Underlying
Price to the Final Underlying Price. |
| Share
Return |
With respect to each of the Underlying Shares,
Final Underlying Price – Initial Underlying Price
Initial Underlying Price
|
| *Subject
to postponement in the event of a Market Disruption Event or for
non-Trading Days. |
|
Initial
Underlying Price |
With respect to the IWM
Shares, $179.54
With respect to the SPY
Shares, $393.16
|
| Final
Underlying Price |
With respect to each of the Underlying Shares, the Closing Price of
such Underlying Shares times the Adjustment Factor for such
Underlying Shares on the Final Valuation Date. |
| Adjustment
Factor |
For each of the Underlying Shares, 1.0, subject to adjustment in
the event of certain corporate events affecting such Underlying
Shares. |
| Downside
Threshold |
With respect to the IWM
Shares, $107.72, which is approximately 60% of the Initial
Underlying Price of such Underlying Shares
With respect to the SPY
Shares, $235.90, which is approximately 60% of the Initial
Underlying Price of such Underlying Shares.
|
| Record
Date |
The
record date for each Coupon shall be the date one Business Day
prior to such scheduled Coupon Payment Date; provided,
however, that the Coupon payable at maturity or upon a call shall
be payable to whom the Payment at Maturity or the payment upon a
call, as the case may be, shall be payable. |
| Trustee |
The
Bank of New York Mellon |
| Calculation
Agent |
MS
& Co. |
|
Coupon Payment Dates and Call Dates |
|
Coupon
Payment Dates/Call Dates |
|
1/12/2023* |
|
2/12/2023* |
|
3/12/2023 |
|
4/12/2023 |
|
5/12/2023 |
|
6/12/2023 |
|
7/12/2023 |
|
8/12/2023 |
|
9/12/2023 |
|
10/12/2023 |
|
11/12/2023 |
|
12/12/2023 |
|
1/12/2024 |
|
2/12/2024 |
|
Maturity
Date**(1) |
* The Securities are not callable
until the third Coupon Payment Date, which is March 12,
2023.
** The Securities are not callable on
the Maturity Date.
(1) If any scheduled Coupon Payment
Date (including a scheduled Call Date) is not a Business Day, that
Coupon (or the Settlement Amount, if applicable), shall be paid on
the next succeeding Business Day, and no adjustment shall be made
to any payment made on that postponed date; provided that
the final Coupon shall be paid on the Maturity Date; provided
further that if, due to a Market Disruption Event or otherwise,
the Final Valuation Date with respect to either of the Underlying
Shares is postponed so that it falls less than two Business Days
prior to the scheduled Maturity Date, the Maturity Date shall be
postponed to the second Business Day following the Final Valuation
Date as postponed, by which date the Closing Price of each of the
Underlying Shares has been determined, and no adjustment shall be
made to any payment made on that postponed date.
|
Trade Date |
The
Initial Underlying Prices and Downside Thresholds of both the IWM
Shares and the SPY Shares were determined. |
 |
|
|
Monthly
|
Regardless of the performance of either of the Underlying Shares,
unless the Securities have been previously called, MSFL will pay
you a Coupon on each Coupon Payment Date.
Beginning on March 12, 2023, MSFL will call the Securities on any
monthly Call Date if and only if the output of a risk neutral
valuation model on a Business Day that is at least 2 but no more
than 5 Business Days prior to such Call Date, based on the inputs
indicated in the Call Feature section above, indicates that calling
on such date is economically rational for us as compared to not
calling on such date. If the Securities are called, MSFL will pay
you the Principal Amount plus the Coupon otherwise due, and
no further payments will be made on the Securities.
|
 |
|
|
Maturity Date |
The Final Underlying Prices are determined as of the Final
Valuation Date.
If the Securities have not been called and the Final Underlying
Prices of both the IWM Shares and the SPY Shares are equal to or
greater than their respective Downside Thresholds, at maturity,
MSFL will pay you the $10 Principal Amount and the final Coupon
otherwise due on the Maturity Date.
However, if the Final Underlying Price of either the IWM Shares or
the SPY Shares is less than its Downside Threshold, MSFL
will pay you, in addition to the final Coupon otherwise due on the
Maturity Date, an amount calculated as follows:
$10 × (1 + Share Return of the Least Performing Underlying Shares)
per Security
This will be significantly less than the $10 Principal Amount by
an amount proportionate to the negative Share Return of the Least
Performing Underlying Shares, 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 MAY call the
Securities early based on the output of a risk neutral valuation
model. You will lose A SIGNIFICANT PORTION or all of your principal
amount at maturity if the Securities are not called and the Final
Underlying Price of EITHER of the Underlying Shares is below its
Downside Threshold.
An
investment in the Securities involves significant risks. The
material risks that apply to the Securities are summarized here,
but we urge you to also read the “Risk Factors” section of the
accompanying prospectus. You should also consult your investment,
legal, tax, accounting and other advisers in connection with your
investment in the Securities.
Risks Relating to an Investment in the Securities
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The
Securities do not guarantee 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 return of
any of the principal amount at maturity. Instead, if the Securities
have not been called by MSFL prior to maturity and if the Final
Underlying Price of either the IWM Shares or the SPY Shares is less
than its respective Downside Threshold, you will be exposed to the
decline in the price of the Least Performing Underlying Shares from
its Initial Underlying Price to its Final Underlying Price, on a
1-to-1 basis and such payment will result in a significant loss of
your initial investment that is proportionate to the decline of the
Least Performing Underlying Shares over the term of the Securities,
even if the other Underlying Shares have appreciated or have not
declined as much. You could lose your entire principal
amount. |
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The
securities are subject to early redemption. The term of the
Securities, and thus your opportunity to earn a coupon, may be
limited if MSFL calls the Securities based on the output of a risk
neutral valuation model on any monthly Call Date beginning March
12, 2023. The term of your investment in the Securities may be
limited to as short as approximately three months. In accordance
with the risk neutral valuation model determination noted herein,
it is more likely that MSFL will call the Securities when it would
otherwise be advantageous for you to continue to hold the
Securities. As such, MSFL will be more likely to call the
Securities when the interest payable on the Securities is greater
than the interest that would be payable on other instruments of a
comparable maturity, terms and credit rating trading in the market.
In other words, MSFL will be more likely to call the Securities at
a time when the Securities are paying an above-market coupon. If
the Securities are called prior to maturity, you will receive no
more Coupons, you may be forced to invest in a lower interest rate
environment and you may not be able to reinvest at comparable terms
or returns. |
On the other hand, MSFL will be less likely to call the Securities
when the interest payable on the Securities is less than the
interest that would be payable on other instruments of comparable
maturity, terms and credit rating trading in the market, or when
the Final Underlying Price of either of the Underlying Shares is
expected to be less than its respective Downside Threshold.
Therefore, if MSFL does not call the Securities, it is more likely
that you will suffer a significant loss at maturity.
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Investors will not
participate in any appreciation in the prices of either of the
Underlying Shares. Investors will not participate in any
appreciation in the prices of either of the Underlying Shares from
their respective Initial Underlying Prices, and the return on the
Securities will be limited to the Coupon that is paid with respect
to each monthly Coupon Payment Date prior to maturity or a call by
MSFL. The return on the Securities will be limited to the Coupons
regardless of the appreciation of either of the Underlying Shares,
which could be significant. 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 Shares and lose a
significant portion or all of your investment despite not being
able to participate in any potential appreciation of either of the
Underlying Shares. |
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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 Closing Prices of both Underlying Shares 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
(plus the Coupon for the final Coupon Payment Date), if the Final
Underlying Prices of both the IWM Shares and the SPY Shares are
equal to or greater than their respective Downside Thresholds, or
if either of the Underlying Shares closes below its respective
Downside Threshold on the Final Valuation 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 price of the Least Performing
Underlying Shares from the Trade Date to the Final Valuation
Date. |
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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 Coupons and any payments upon a 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 may be influenced by many
unpredictable factors. Several factors, many of which are
beyond our control, will influence the value of the Securities in
the secondary market and the price at which MS & Co. may be
willing to purchase or sell the Securities in the secondary market.
Although we expect that generally the Closing Prices of the
Underlying Shares 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 trading price and volatility (frequency and magnitude of
changes in value) of the Underlying Shares and of the constituent
stocks composing the Share Underlying Indices, |
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dividend rates on the stocks comprising the Share Underlying
Indices, |
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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 Underlying Shares or
the constituent stocks of the Share Underlying Indices or equities
markets generally and which may affect the Final Underlying
Prices, |
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the occurrence of certain events affecting either of the
Underlying Shares 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. |
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 Underlying Shares, and
these are the types of factors that also generally affect the
values of debt securities and derivatives linked to the Underlying
Shares. 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 price of each of the Underlying
Shares may be, and 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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Investing in the
Securities is not equivalent to investing in the Underlying
Shares. Investing in the Securities is not equivalent to
investing in either of the Underlying Shares or the component
stocks of either of the Underlying Shares. 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 Underlying Shares. Further, you will
not participate in any potential appreciation of either of the
Underlying Shares even though you may be exposed to its full
decline at maturity. |
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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, 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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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. |
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 4 months following the Settlement
Date, to the extent that MS & Co. may buy or sell the
Securities in the secondary market, absent changes in market
conditions, including those related to the Underlying Shares, and
to our secondary market credit spreads, it would do so based on
values higher than the estimated value, and we expect that those
higher values will also be reflected in your brokerage account
statements.
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The
estimated value of the Securities is determined by reference to our
pricing and valuation models, which may differ from those of other
dealers and is not a maximum or minimum secondary market price.
These pricing and valuation models are proprietary and rely in part
on subjective views of certain market inputs and certain
assumptions about future events, which may prove to be incorrect.
As a result, because there is no market-standard way to value these
types of securities, our models may yield a higher estimated value
of the Securities than those generated by others, including other
dealers in the market, if they attempted to value the Securities.
In addition, the estimated value on the Trade Date does not
represent a minimum or maximum price at which dealers, including MS
& Co., would be willing to purchase your Securities in the
secondary market (if any exists) at any time. The value of your
Securities at any time after the date of this pricing supplement
will vary based on many factors that cannot be predicted with
accuracy, including our creditworthiness and changes in market
conditions. See also “The market price of the Securities may be
influenced by many unpredictable factors” above. |
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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 expect to carry out hedging activities related
to the Securities (and to other instruments linked to the
Underlying Shares), including trading in the Underlying Shares or
the stocks that constitute the Share Underlying Indices, in futures
or options contracts on the Underlying Shares, the Share Underlying
Indices or the consistent stocks of the Share Underlying Indices,
as well as in other instruments related to the Underlying Shares or
the Share Underlying Indices. As a result, these entities may be
unwinding or adjusting |
hedge positions during the term of the Securities, and the hedging
strategy may involve greater and more frequent dynamic adjustments
to the hedge as the Final Valuation Date approaches. MS & Co.
and some of our other affiliates also trade the Underlying Shares
or the stocks that constitute the Shares Underlying Indices, in
futures or options contracts on the Underlying Shares, the Share
Underlying Indices or the constituent stocks of the Share
Underlying Indices and other financial instruments related to the
Underlying Shares on a regular basis as part of their general
broker-dealer and other businesses. Any of these hedging or trading
activities on or prior to the Trade Date could potentially increase
the Initial Underlying Price, and, as a result, the Downside
Threshold of either of the Underlying Shares, which if the
Securities are not called prior to maturity, is the price at or
above which such Underlying Shares must close on the Final
Valuation Date in order for you to avoid being exposed to the
negative performance of the Least Performing Underlying Shares at
maturity (depending also on the performance of the other Underlying
Shares). Additionally, such hedging or trading activities during
the term of the Securities could potentially affect the price of
either of the Underlying Shares on the Final Valuation Date and,
accordingly, if the Securities are not called prior to maturity,
the payout to you at maturity, if any (depending also on the
performance of the other Underlying Shares).
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The
Calculation Agent, which is our affiliate, will make determinations
with respect to the Securities. As Calculation Agent, MS &
Co. will determine the Initial Underlying Price, the Downside
Threshold and the Final Underlying Price of each of the Underlying
Shares, whether a Market Disruption Event has occurred and the
payment that you will receive upon a call or at maturity. 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 “Additional Terms of the
Securities—Postponement of Coupon Payment Dates (including the Call
Dates and the Maturity Date),” “—Discontinuance of any Underlying
Shares and/or Share Underlying Indices; Alteration of Method of
Calculation” and “—Calculation Agent and Calculations”. In
addition, MS & Co. has determined the estimated value of the
Securities on the Trade Date. |
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Potentially
inconsistent research, opinions or recommendations by Morgan
Stanley, UBS or our or their respective affiliates. Morgan
Stanley, UBS and our or their respective affiliates may publish
research from time to time on financial markets and other matters
that may influence the value of the Securities, or express opinions
or provide recommendations that are inconsistent with purchasing or
holding the Securities. Any research, opinions or recommendations
expressed by Morgan Stanley, UBS or our or their respective
affiliates may not be consistent with each other and may be
modified from time to time without notice. Investors should make
their own independent investigation of the merits of investing in
the Securities and the Underlying Shares to which the Securities
are linked. |
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The
U.S. federal income tax consequences of an investment in the
Securities are uncertain. 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. |
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 unit consisting of (i) a Put Right (as defined below under
“What Are the Tax Consequences of the Securities”) written by you
to us that, if exercised, requires you to pay to us an amount equal
to the Deposit (as defined below under “What Are the Tax
Consequences of the Securities”), in exchange for a cash amount
based on the performance of the worst performing Underlying Shares,
and (ii) a Deposit with us of a fixed amount of cash to secure your
obligation under the Put Right. Alternative U.S. federal income tax
treatments of the Securities are possible, and if the Internal
Revenue Service (the “IRS”) were successful in asserting such an
alternative tax treatment for the Securities the timing and the
character of income on the Securities might differ significantly
from the tax treatment described herein. For example, there is a
substantial risk that the IRS could seek to treat the Securities as
debt instruments subject to Treasury regulations governing
contingent payment debt instruments. The risk that financial
instruments providing for buffers, triggers or similar downside
protection features, such as the Securities, would be
recharacterized as debt is greater than the risk of
recharacterization for comparable financial instruments that do not
have such features. We do not plan to request a ruling from the IRS
regarding the tax treatment of the Securities, and the IRS or a
court may not agree with the tax treatment described herein.
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 issued 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 (including whether the
entire coupon on the Securities should be required to be included
currently as ordinary income) and the degree, if any, to which
income realized by non-U.S. investors should be subject to
withholding tax.
Non-U.S. Holders should note that we currently do not intend to
withhold on any payments made with respect to the Securities to
Non-U.S. Holders (subject to compliance by such holders with
certification necessary to establish an exemption from withholding
and to the discussion under “What Are the Tax Consequences of the
Securities—FATCA”). However, in the event of a change of law or
any formal or informal guidance by the IRS, the U.S. Treasury
Department or Congress, we may decide to withhold on payments made
with respect to the Securities to Non-U.S. Holders and 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 U.S. federal income tax consequences of an investment
in the Securities, including possible alternative treatments, the
issues presented by the IRS notice and any tax consequences arising
under the laws of any state, local or non-U.S. taxing
jurisdiction.
Risks Relating to the Underlying Shares
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You are exposed to the price risk of both Underlying Shares.
Your return on the Securities is not linked to a basket consisting
of the Underlying Shares. Rather, it will be contingent upon the
performance of each of the IWM Shares and the SPY Shares. 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 IWM Shares and the SPY Shares. Poor
performance by either of the Underlying Shares 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
Shares. To receive any contingent repayment of principal at
maturity from MSFL, both Underlying Shares must close at or above
their respective Downside Thresholds on the Final Valuation Date.
If the Securities are not called prior to maturity, you may incur a
loss proportionate to the negative return of the Least Performing
Underlying Shares even if the other Underlying Shares appreciates
during the term of the Securities. Accordingly, your investment is
subject to the market risk of both Underlying Shares. Additionally,
movements in the prices of the Underlying Shares 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 Underlying Shares will close below its
Downside Threshold on the Final Valuation Date will increase when
the movements in the prices of the Underlying Shares are
uncorrelated. This results in a greater potential for a significant
loss of principal at maturity if the Securities are not previously
called. If the performance of the Underlying Shares is not
correlated or is negatively correlated, the risk of incurring a
significant loss of principal at maturity is greater. In addition,
correlation generally decreases for each additional Underlying
Shares to which the Securities are linked, resulting in a greater
potential for significant loss of principal at maturity.
t Because the Securities are linked to
the performance of the least performing between the IWM Shares and
the SPY Shares, you are exposed to greater risk of sustaining a
significant loss on your investment than if the Securities were
linked to just the IWM Shares or just the SPY Shares. The risk
that you will 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 IWM Shares or just the SPY
Shares. With two Underlying Shares, it is more likely that either
of the Underlying Shares will close below its Downside Threshold on
the Final Valuation Date than if the Securities were linked to only
one of the Underlying Shares, and therefore it is more likely that
you will receive an amount in cash significantly less than the
principal amount on the Maturity Date.
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A
higher Coupon Rate and/or lower Downside Threshold may reflect
greater expected volatility of the Underlying Shares, and greater
expected volatility generally indicates an increased risk of
declines in the prices of the Underlying Shares and, potentially, a
significant loss at maturity. The economic terms for the
Securities, including the Coupon Rate and the Downside Threshold,
are based, in part, on the expected volatility of the Underlying
Shares at the time the terms of the Securities are set.
“Volatility” refers to the frequency and magnitude of changes in
the prices of the Underlying Shares. Higher expected volatility
with respect to the Underlying Shares as of the Trade Date
generally indicates a greater expectation as of that date that the
Final Underlying Price of either of the Underlying Shares could
ultimately be less than its Downside Threshold on the Final
Valuation 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 Coupon Rate and/or lower Downside
Threshold, as compared to otherwise comparable securities.
Therefore, a relatively higher Coupon Rate may indicate an
increased risk that the price of the Underlying Shares will
decrease substantially, which would result in a significant loss at
maturity. In addition, and as described above in "The Securities do
not guarantee 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 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 Underlying Shares and the potential
to lose a significant portion or all of your Principal Amount at
maturity. |
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The Securities are linked to the iShares® Russell
2000® ETF and are subject to risks associated with
small-capitalization companies. The iShares® Russell
2000® ETF tracks the performance of the Russell
2000® Index, which is linked to stocks issued by
companies with relatively small market capitalization. These
companies often have greater stock price volatility, lower trading
volume and less liquidity than large-capitalization companies and,
therefore, the Russell 2000® Index may be more volatile
than indices that consist of stocks issued by large-capitalization
companies. Stock prices of small-capitalization companies are also
more vulnerable than those of large-capitalization companies to
adverse business and economic developments, and the stocks of
small-capitalization companies may be thinly traded. In addition,
small capitalization companies are typically less well-established
and less stable financially than large-capitalization companies and
may depend on a small number of key personnel, making them more
vulnerable to loss of personnel. Such companies tend to have
smaller revenues, less diverse product lines, smaller shares of
their product or service markets, fewer financial resources and
less competitive strengths than large-capitalization companies and
are more susceptible to adverse developments related to their
products. |
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Governmental
regulatory actions could result in material changes to the
composition of the Underlying Shares and could negatively affect
your return on the Securities. Governmental regulatory actions,
including but not limited to sanctions-related actions by the U.S.
or foreign governments, could make it necessary or advisable for
there to be material changes to the composition of the Underlying
Shares, depending on the nature of such governmental regulatory
actions and the constituent stocks of the Underlying Shares that
are affected. If any governmental regulatory action results in the
removal of constituent stocks that have (or historically have had)
significant weights within the applicable Underlying Shares, such
removal, or even any uncertainty relating to a possible removal,
could have a material and negative effect on the price of the
applicable Underlying Shares and, therefore, your return on the
Securities. |
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Adjustments to the
iShares® Russell 2000® ETF or the
SPDR® S&P 500® ETF Trust or the Share
Underlying Indices tracked by the Underlying Shares could adversely
affect the value of the Securities. The investment advisor to
each of the iShares® Russell 2000® ETF and
the SPDR® S&P 500® ETF Trust (BlackRock
Fund Advisors for the IWM Shares and State Street Global Advisors
for the SPY Shares) seeks investment results that correspond
generally to the price and yield performance, before fees and
expenses, of the relevant Share Underlying Index. Pursuant to its
investment strategy or otherwise, the investment advisor may add,
delete or substitute the stocks composing the respective Underlying
Shares. Any of these actions could adversely affect the price of
the respective Underlying Shares and, consequently, the value of
the Securities. The Share Underlying Index Publisher is responsible
for calculating and maintaining the Share Underlying Indices. The
Share Underlying Index Publisher may add, delete or substitute the
securities constituting the Share Underlying Indices or make other
methodological changes that could change the value of the Share
Underlying Indices, and, consequently, the price of the Underlying
Shares and the value of the Securities. The Share Underlying Index
Publisher may discontinue or suspend calculation or publication of
a Share Underlying Index at any time. In these circumstances, the
Calculation Agent will have the sole discretion to substitute a
Successor Index that is comparable to the discontinued Share
Underlying Index and will be permitted to consider indices that are
calculated and published by the Calculation Agent or any of its
affiliates. |
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The
adjustments to the Adjustment Factors the Calculation Agent is
required to make do not cover every corporate event that can affect
the shares of the Underlying Shares. MS & Co., as
Calculation Agent, will adjust the Adjustment Factors for certain
events affecting the Underlying Shares, including stock splits and
reverse stock splits. However, the Calculation Agent will not make
an adjustment for every event that can affect the Underlying
Shares. If an event occurs that does not require the Calculation
Agent to adjust an Adjustment Factor, the market price of the
Securities may be materially and adversely affected. The
determination by the Calculation Agent to adjust, or not to adjust,
an Adjustment Factor may materially and adversely affect the market
price of the Securities. |
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The
performance and market price of either of the Underlying Shares,
particularly during periods of market volatility, may not correlate
with the performance of its respective Share Underlying Index, the
performance of the component securities of such Share Underlying
Index or the net asset value per share of such Underlying
Shares. The Underlying Shares do not fully replicate their
respective Share Underlying Indices, and each may hold securities
that are different than those included in its respective Share
Underlying Index. In addition, the performance of each of the
Underlying Shares will reflect additional transaction costs and
fees that are not included in the calculation of the Share
Underlying Indices. All of these factors may lead to a lack of
correlation between the performance of each of the Underlying
Shares and its respective Share Underlying Index. In addition,
corporate actions (such as mergers and spin-offs) with respect to
the equity securities underlying each of the Underlying Shares may
impact the variance between the performance of each of the
Underlying Shares and its respective Share Underlying Index.
Finally, because the shares of each of the Underlying Shares are
traded on an exchange and are subject to market supply and investor
demand, the market price of one share of each of the Underlying
Shares may differ from the net asset value per share of such
Underlying Shares. |
In particular, during periods of market volatility, or unusual
trading activity, trading in the securities underlying each of the
Underlying Shares may be disrupted or limited, or such securities
may be unavailable in the secondary market. Under these
circumstances, the liquidity of each Underlying Shares may be
adversely affected, market participants may be unable to calculate
accurately the net asset value per share of each of the Underlying
Shares, and their ability to create and redeem shares of each of
the Underlying Shares may be disrupted. Under these circumstances,
the market price of shares of each of the Underlying Shares may
vary substantially from the net asset value per share of each
underlying share or the level of its respective Share Underlying
Index.
For all of the foregoing reasons, the performance of each of the
Underlying Shares may not correlate with the performance of its
respective Share Underlying Index, the performance of the component
securities of such Share Underlying Index or the net asset value
per share of such Underlying Shares. Any of these events could
materially and adversely affect the prices of each of the
Underlying Shares and, therefore, the value of the Securities.
Additionally, if market volatility or these events were to occur on
the Final Valuation Date, the Calculation Agent would maintain
discretion to determine whether such market volatility or events
have caused a market disruption event to occur, and such
determination would affect the payment at maturity of the
Securities. If the Calculation Agent determines that no market
disruption event has taken place, the payment at maturity would be
based solely on the published Closing Price per share of each of
the Underlying Shares on the Final Valuation Date, even if either
of the Underlying Shares is underperforming its respective Share
Underlying Index or the component securities of such Share
Underlying Index and/or trading below the net asset value per share
of such Underlying Shares.
|
Hypothetical Payments on the Securities at Maturity |
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 set forth on the cover
hereof; amounts may have been rounded for ease of reference):
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t |
Hypothetical Initial
Underlying Price: |
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t |
Coupon
Rate: 8.65% per annum (or 0.7208% per month) |
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t |
Coupon:
$0.07208 per month |
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t |
Hypothetical Downside
Threshold: |
|
o |
IWM Shares: $108.00, which is 60% of the Hypothetical Initial
Underlying Price of the IWM Shares |
|
o |
SPY Shares: $234.00, which is 60% of the Hypothetical Initial
Underlying Price of the SPY Shares |
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t |
Call
Feature: Beginning after three months, monthly |
Example 1 — Securities are Called on the Third Coupon Payment
Date (the first Coupon Payment Date on which MSFL can call the
Securities)
| Date |
Payment (per
Security) |
| First Coupon Payment
Date |
$0.07208 (Coupon — Not
Callable) |
| Second Coupon Payment
Date |
$0.07208 (Coupon — Not
Callable) |
| Third Coupon Payment
Date |
$10.07208 (Settlement
Amount) |
| |
Total
Payment: |
$10.21624 (2.1624%
return) |
MSFL calls the Securities based on the output of a risk neutral
valuation model on the third Coupon Payment Date, which is the
first Coupon Payment Date on which the Securities can be called. On
the Call Date, MSFL will pay you a total of $10.07208 per Security,
reflecting your principal amount plus the applicable Coupon. When
added to the total Coupon payments of $0.14416 received in respect
of the prior Coupon Payment Dates, MSFL will have paid you a total
of $10.21624 per Security for a 2.1624% total return over the
3-month term of the Securities. No further amount will be owed to
you under the Securities, and you do not participate in any
appreciation of the Underlying Shares.
Example 2 — Securities are NOT Called and the Final Underlying
Prices of both the IWM Shares and the SPY Shares are at or above
their respective Downside Thresholds
| Date |
IWM
Shares |
SPY
Shares |
Payment (per
Security) |
| First to Fourteenth
Coupon Payment Dates |
N/A |
N/A |
$1.00912 in total
Coupons |
| |
Final Underlying
Price |
|
| Final Valuation
Date |
$205.00 (at or
above Downside Threshold) |
$430.00 (at or
above Downside Threshold) |
$10.07208 (Settlement
Amount) |
| |
Total
Payment: |
$11.0812 (10.812%
return) |
In this example, MSFL does not call the Securities based on the
output of a risk neutral valuation model prior to maturity. On the
Final Valuation Date, both the IWM Shares and the SPY Shares close
above their respective Downside Thresholds. Therefore, at maturity,
MSFL will pay you a total of $10.07208 per Security, reflecting
your principal amount plus the applicable Coupon. When added to the
total Coupon payments of $1.00912 received in respect of prior
Coupon Payment Dates, MSFL will have paid you a total of $11.0812
per Security for a 10.812% total return on the Securities over 1.25
years. This represents the hypothetical maximum total payment over
the term of the Securities. You do not participate in any
appreciation of the Underlying Shares.
Example 3 — Securities are NOT Called and the Final Underlying
Price of one of the Underlying Shares is below its Downside
Threshold
| Date |
IWM
Shares |
SPY
Shares |
Payment (per
Security) |
| First to Fourteenth
Coupon Payment Dates |
N/A |
N/A |
$1.00912 in total
Coupons |
| |
Final Underlying
Price |
|
| Final Valuation
Date |
$72.00 (below
Downside Threshold) |
$399.75 (at or
above Downside Threshold) |
Final Coupon + [$10 + ($10 × Share Return of the Least Performing
Underlying Shares)] =
$0.07208 + [$10 + ($10 × -60%)] =
|
| |
|
|
$0.07208 + ($10 - $6) =
$4.07208 (Payment at Maturity)
|
| |
Total
Payment: |
$5.0812 (-49.188%
return) |
In this example, MSFL does not call the Securities based on the
output of a risk neutral valuation model prior to maturity. On the
Final Valuation Date, the SPY Shares close above the respective
Downside Threshold, but the IWM Shares close below the respective
Downside Threshold. Therefore, at maturity, investors are exposed
to the downside performance of the Least Performing Underlying
Shares, and MSFL will pay you $4.07208 per Security, which reflects
the final Coupon plus a return reflecting the percentage decrease
of the Least Performing Underlying Shares from the Trade Date to
the Final Valuation Date. When added to the total Coupon payments
of $1.00912 received in respect of prior Coupon Payment Dates, MSFL
will have paid you $5.0812 per Security for a loss on the
Securities of 49.188%.
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 Coupon Payment Date, you may lose a significant
portion or all of your initial investment. Specifically, if the
Securities are not called and the Final Underlying Price of either
of the Underlying Shares is less than its Downside Threshold, you
will lose 1% (or a fraction thereof) of your principal amount for
each 1% (or a fraction thereof) that the Share Return of the Least
Performing Underlying Shares is less than zero. Any payment on the
Securities, including the Coupon, payment upon a call or the
Payment at Maturity, is dependent on our ability to satisfy its
obligations when they come due. If we are is unable to meet our
obligations, you may not receive any amounts due to you under the
Securities.
The Issuer may call the Securities early based on the output of
a risk neutral valuation model on any monthly Call Date, beginning
March 12, 2023. You will lose a significant portion or all of your
principal amount at maturity if the Securities are not called and
the Final Underlying Price of either of the Underlying Shares 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
prospectus supplement does not apply to the Securities issued under
this pricing supplement and is superseded by the following
discussion.
The following is a general discussion of the material U.S. federal
income tax consequences and certain estate tax consequences of
ownership and disposition of the Securities. This discussion
applies only to initial investors in the Securities who:
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t |
purchase the Securities
at their “issue price,” which will equal the first price at which a
substantial amount of the Securities is sold to the public (not
including bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents or
wholesalers); and |
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t |
hold the Securities as
capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the “Code”). |
This discussion does not describe all of the tax consequences that
may be relevant to a holder in light of the holder’s particular
circumstances or to holders subject to special rules, such as:
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t |
certain financial
institutions; |
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t |
dealers and certain
traders in Securities or commodities; |
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t |
investors holding the
Securities as part of a “straddle,” wash sale, conversion
transaction, integrated transaction or constructive sale
transaction; |
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t |
U.S. Holders (as
defined below) whose functional currency is not the U.S.
dollar; |
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t |
partnerships or other
entities classified as partnerships for U.S. federal income tax
purposes; |
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t |
regulated investment
companies; |
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t |
real estate investment
trusts; or |
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t |
tax-exempt entities,
including “individual retirement accounts” or “Roth IRAs” as
defined in Section 408 or 408A of the Code,
respectively. |
If an entity that is classified as a partnership for U.S. federal
income tax purposes holds the Securities, the U.S. federal income
tax treatment of a partner will generally depend on the status of
the partner and the activities of the partnership. If you are a
partnership holding the Securities or a partner in such a
partnership, you should consult your tax adviser as to the
particular U.S. federal tax consequences of holding and disposing
of the Securities to you.
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 lack of any controlling legal authority, there is
substantial uncertainty regarding the U.S. federal income tax
consequences of an investment in the Securities. We intend to treat
a Security, under current law, for U.S. federal income tax
purposes, as a unit consisting of the following:
|
(i) |
a put right (the “Put Right”) written by you to us that, if
exercised, requires you to pay us an amount equal to the Deposit
(as defined below) in exchange for a cash amount based on the
performance of the worst
performing Underlying Shares; and |
|
(ii) |
a deposit with us of a fixed amount of cash, equal to the issue
price, to secure your obligation under the Put Right (the
“Deposit”) that pays interest based on our cost of borrowing at the
time of issuance (the “Yield on the Deposit”). |
Based on the treatment set forth above, we have determined that the
Yield on the Deposit is 4.9444% per annum, paid monthly, and that
the remaining portion of the coupon payments on the Securities is
attributable to the premium on the Put Right (the “Put Premium”) as
set forth below:
|
Underlying
Shares |
Coupon
Rate |
Yield
on the Deposit |
Put
Premium |
|
IWM
SPY
|
8.65%
p.a. |
4.9444%
p.a. |
3.7056%
p.a. |
We will allocate 100% of the issue price of the Securities to the
Deposit and none to the Put Right. Our allocation of the issue
price between the Put Right and the Deposit will be binding on you,
unless you timely and explicitly disclose to the Internal Revenue
Service (the “IRS”) that your allocation is different from ours.
This allocation is not, however, binding on the IRS or a court.
No statutory, judicial or administrative authority directly
addresses the treatment of the Securities or instruments similar to
the Securities for U.S. federal income tax purposes, and no ruling
is being requested from the IRS with respect to the Securities.
Significant aspects of the U.S. federal income tax consequences
of an investment in the Securities are uncertain, and no assurance
can be given that the IRS or a court will agree with the tax
treatment described herein. In the opinion of our counsel,
Davis Polk & Wardwell LLP, the treatment of the Securities
described above 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. Accordingly, you should
consult your tax adviser regarding the U.S. federal income tax
consequences of an investment in the Securities (including
alternative treatments of the Securities). Unless otherwise stated,
the following discussion is based on the treatment and the
allocation described above.
Tax Consequences to U.S. Holders
This section applies to you only if you are a U.S. Holder. As used
herein, the term “U.S. Holder” means a beneficial owner of a
Security that is, for U.S. federal income tax purposes:
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t |
a citizen or individual
resident of the United States; |
|
t |
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 |
|
t |
an estate or trust the
income of which is subject to U.S. federal income taxation
regardless of its source. |
Tax Treatment of the Securities
Assuming the treatment of the Securities and allocation of the
issue price as set forth above are respected, the following U.S.
federal income tax consequences should result.
Coupon Payments on the Securities. Under the
characterization described above under “—General,” only a portion
of the coupon payments on the Securities will be attributable to
the Yield on the Deposit. The remainder of the coupon payments will
represent payments attributable to the Put Premium. To the extent
attributable to the Yield on the Deposit, coupon payments on the
Securities should generally be taxable to a U.S. Holder as ordinary
interest income at the time accrued or received, in accordance with
the U.S. Holder’s method of accounting for U.S. federal income tax
purposes.
The Put Premium will not be taxable to a U.S. Holder upon receipt
but will be accounted for as described below.
Tax Basis. Based on our determination set forth above, the
U.S. Holder’s initial tax basis in the Deposit will be 100% of the
issue price. The determination of gain or loss with respect to the
Put Right is described below.
Receipt of Stated Principal Amount in Cash upon Settlement of
the Securities. If a U.S. Holder receives the stated principal
amount of a Security in cash (excluding cash attributable to coupon
payments on the Security, which would be taxed as described above
under “—Coupon Payments on the Securities”), the Put Right will be
deemed to have expired unexercised. In such case, the U.S. Holder
will not recognize any gain upon the return of the Deposit, but
will recognize the total amount of Put Premium received by the U.S.
Holder over the term of the Securities (including Put Premium
received upon settlement) as short-term capital gain at such
time.
Receipt of a Cash Amount Based on the Performance of the Worst
Performing Underlying Shares upon Maturity of the Securities.
If a U.S. Holder receives an amount of cash (excluding cash
attributable to coupon payments on the Securities, which would be
taxed as described above under “—Coupon Payments on the
Securities”) that is less than the stated principal amount of the
Securities, the Put Right will be deemed to have been exercised and
the U.S. Holder will be deemed to have applied the Deposit toward
the cash settlement of the Put Right. In such case, the U.S. Holder
will not recognize any gain or loss in respect of the Deposit, but
will recognize short-term capital gain or loss in an amount equal
to the difference between (i) the amount of cash received by the
U.S. Holder at maturity (excluding cash attributable to coupon
payments on the Securities), plus the total Put Premium received by
the U.S. Holder over the term of the Securities (including the Put
Premium received at maturity) and (ii) the Deposit.
Sale or Exchange of the Securities Prior to Settlement.
Upon the sale or exchange of a Security, a U.S. Holder will
generally recognize long-term capital gain or loss with respect to
the Deposit if the U.S. Holder has held the Securities for more
than one year at the time of such sale or exchange and short-term
capital gain or loss otherwise. The U.S. Holder will also generally
recognize short-term capital gain or loss with respect to the Put
Right. For the purpose of determining such gain or loss, a U.S.
Holder should apportion the amount realized on the sale or exchange
of a Security (excluding any amount attributable to accrued but
unpaid Yield on the Deposit, which would be taxed as described
under “—Coupon Payments on the Securities”) between the Deposit and
the Put Right based on their respective values on the date of such
sale or exchange. The amount of capital gain or loss on the Deposit
will equal the amount realized that is attributable to the Deposit,
less the U.S. Holder’s adjusted tax basis in the Deposit. The
amount realized that is attributable to the Put Right, together
with the total Put Premium received by the U.S. Holder over the
term of the Security, will be treated as short-term capital
gain.
If the value of the Deposit on the date of such sale or exchange
exceeds the total amount realized on the sale or exchange of the
Security, the U.S. Holder will be treated as having (i) sold or
exchanged the Deposit for an amount equal to its value on that date
and (ii) made a payment (the
“Put Right Assumption Payment”) to the purchaser of the Security
equal to the amount of such excess, in exchange for the purchaser’s
assumption of the U.S. Holder’s rights and obligations under the
Put Right. In such a case, the U.S. Holder will recognize
short-term capital gain or loss in respect of the Put Right in an
amount equal to the total Put Premium received by the U.S. Holder
over the term of the Security, less the amount of the Put Right
Assumption Payment deemed to be made by the U.S. Holder.
Possible Alternative Tax Treatments of an Investment in the
Securities
Due to the absence of authorities that directly address the proper
characterization 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, there is a substantial risk that
the IRS could seek to treat a Security or the Deposit as a debt
instrument subject to 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 or to the Deposit, the timing
and character of income thereon would be significantly affected.
Among other things, a U.S. Holder would be required to accrue
interest income as original issue discount, subject to adjustments,
at a “comparable yield” based on our cost of borrowing.
Furthermore, if the Securities or Deposit were treated as
contingent payment debt instruments, any gain realized with respect
to the Securities or the Deposit would generally be treated 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.
Even if the Contingent Debt Regulations do not apply to the
Securities, other alternative U.S. federal income tax
characterizations or treatments of the Securities are also
possible, which if applied could significantly affect the timing
and character of the income or loss with respect to the Securities.
It is possible, for example, that a Security could be treated as
constituting an “open transaction” with the result that the coupon
payments on the Securities might not be accounted for separately as
giving rise to income to U.S. Holders until the sale, exchange or
settlement of the Securities. Alternatively, the entire coupon on
the Securities could be required to be included in income by a U.S.
Holder at the time received or accrued. Other alternative
characterizations are also possible. Accordingly, prospective
purchasers should consult their tax advisers regarding the U.S.
federal income tax consequences of an investment in 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. 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 U.S. Holders of the Securities is
the character and timing of income or loss realized with respect to
these instruments (including whether the Put Premium might be
required to be included currently as ordinary income). Accordingly,
prospective investors should consult their tax advisers regarding
all aspects of the U.S. federal income tax consequences of an
investment in the Securities, including the possible implications
of 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:
|
t |
an individual who is
classified as a nonresident alien; |
|
t |
a foreign corporation;
or |
|
t |
a foreign trust or
estate. |
The term “Non-U.S. Holder” does not include any of the following
holders:
|
t |
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; |
|
t |
certain former citizens
or residents of the United States; or |
|
t |
a holder for whom
income or gain in respect of the Securities is effectively
connected with the conduct of a trade or business in the United
States. |
Such holders should consult their tax advisers regarding the U.S.
federal income tax consequences of an investment in the
Securities.
General
Assuming the treatment of the Securities as set forth above is
respected and subject to the discussions below regarding the
potential application of Section 871(m) of the Code and FATCA,
payments with respect to a Security, and gain realized on the sale,
exchange or other disposition of such Security, should not be
subject to U.S. federal income or withholding tax under current
law, provided that:
|
t |
the Non-U.S. Holder
does not own, directly or by attribution, ten percent or more of
the total combined voting power of all classes of our stock
entitled to vote; |
|
t |
the Non-U.S. Holder is
not a controlled foreign corporation related, directly or
indirectly, to us through stock ownership; |
|
t |
the Non-U.S. Holder is
not a bank receiving interest under Section 881(c)(3)(A) of the
Code; and |
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t |
the certification
requirement described below has been fulfilled with respect to the
beneficial owner. |
Certification Requirement. The certification requirement
referred to in the preceding paragraph will be fulfilled if the
beneficial owner of a Security (or a financial institution holding
a Security on behalf of the beneficial owner) furnishes to the
applicable withholding agent an IRS Form W-8BEN (or other
appropriate form), on which the beneficial owner certifies under
penalties of perjury that it is not a U.S. person.
Possible Alternative Tax Treatments of an Investment in the
Securities
As described above under “—Tax Consequences to U.S.
Holders—Possible Alternative Tax Treatments of an Investment in the
Securities,” the IRS may seek to apply a different characterization
and tax treatment from the treatment described herein. While the
U.S. federal income and withholding tax consequences to a Non-U.S.
Holder of ownership and disposition of a Security under current law
should generally be the same as those described immediately above,
it is possible that a Non-U.S. Holder could be subject to
withholding tax under certain recharacterizations of the
Securities.
Moreover, among the issues addressed in the IRS notice described in
“—Tax Consequences to U.S. Holders” is the degree, if any, to which
income realized by Non-U.S. Holders should be subject to
withholding tax. It is possible that any Treasury regulations or
other guidance issued after consideration of this issue could
materially and adversely affect the withholding tax consequences of
ownership and disposition of the Securities, possibly with
retroactive effect. Accordingly, prospective investors should
consult their tax advisers regarding all aspects of the U.S.
federal income tax consequences of an investment in the Securities,
including the possible implications of the notice discussed above.
Prospective investors should note that we currently do not intend
to withhold on any of the payments made with respect to the
Securities to Non-U.S. Holders (subject to compliance by such
holders with the certification requirement described above and to
the discussion below regarding FATCA). However, in the event of a
change of law or any formal or informal guidance by the IRS, the
U.S. Treasury Department or Congress, we (or any financial
intermediary) may decide to withhold on payments made with respect
to the Securities to Non-U.S. Holders and we will not be required
to pay any additional amounts with respect to amounts withheld.
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, 2025 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 of the
Securities. A Non-U.S. Holder may be subject to backup withholding
in respect of amounts paid to the Non-U.S. Holder, unless such
Non-U.S. Holder complies with certification procedures to establish
that it is not a U.S. person for U.S. federal income tax purposes
or otherwise establishes an exemption. Compliance with the
certification procedures described under “—General—Certification
Requirement” will satisfy the certification requirements necessary
to avoid backup withholding as well. The amount of any backup
withholding from a payment to a Non-U.S. Holder will be allowed as
a credit against the Non-U.S. Holder’s U.S. federal income tax
liability and may entitle the Non-U.S. Holder to a refund, provided
that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA” generally imposes a
withholding tax of 30% on payments to certain non-U.S. entities
(including financial intermediaries) with respect to certain
financial instruments, unless various U.S. information reporting
and due diligence requirements have been satisfied. An
intergovernmental agreement between the United States and the
non-U.S. entity’s jurisdiction may modify these requirements. FATCA
generally applies to certain financial instruments that are treated
as paying U.S.-source interest or other U.S.-source “fixed or
determinable annual or periodical” income (“FDAP income”).
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
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 interest or other FDAP income). While the
treatment of the Securities is unclear, you should assume that the
yield on the Deposit will be subject to the FATCA rules. It is also
possible in light of this uncertainty that an applicable
withholding agent will treat the entire amount of the coupon
payments as being 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 iShares® Russell 2000®
ETF |
The
iShares® Russell 2000® ETF, or IWM, is an
exchange-traded fund that seeks investment results that correspond
generally to the price and yield performance, before fees and
expenses, of the Russell 2000® Index. The
iShares® Russell 2000® ETF is managed by
iShares Trust (“iShares”), a registered investment company that
consists of numerous separate investment portfolios, including the
iShares® Russell 2000® ETF. Information
provided to or filed with the Securities and Exchange Commission
(the “Commission”) by iShares pursuant to the Securities Act of
1933 and the Investment Company Act of 1940 can be located by
reference to Commission file numbers 333-92935 and 811-09729,
respectively, through the Commission’s website at.www.sec.gov. In
addition, information may be obtained from other sources including,
but not limited to, press releases, newspaper articles and other
publicly disseminated documents. We make no representation or
warranty as to the accuracy or completeness of such information.
Neither the issuer nor the agent makes any representation that
such publicly available documents or any other publicly available
information regarding the iShares® Russell
2000® ETF is accurate or complete. The IWM Shares
are listed on The NYSE Arca Exchange under the ticker symbol “IWM
UP.”
The Russell 2000® Index is an index calculated,
published and disseminated by FTSE Russell, and measures the
composite price performance of stocks of 2,000 companies
incorporated in the U.S. and its territories. All 2,000 stocks are
traded on a major U.S. exchange and are the 2,000 smallest
securities that form the Russell 3000® Index. The
Russell 3000® Index is composed of the 3,000 largest
U.S. companies as determined by market capitalization and
represents approximately 98% of the U.S. equity market. The Russell
2000® Index consists of the smallest 2,000 companies
included in the Russell 3000® Index and represents a
small portion of the total market capitalization of the Russell
3000® Index. The Russell 2000® Index is
designed to track the performance of the small-capitalization
segment of the U.S. equity market. For additional information about
the Russell 2000® Index, see the information set forth
under “Russell 2000® Index” in the accompanying index
supplement.
We and/or our affiliates may presently or from time to time engage
in business with iShares. In the course of such business, we and/or
our affiliates may acquire non-public information with respect to
iShares, and neither we nor any of our affiliates undertakes to
disclose any such information to you. In addition, one or more of
our affiliates may publish research reports with respect to the
iShares® Russell 2000® ETF. The statements in
the preceding two sentences are not intended to affect the rights
of investors in the Securities under the securities laws. As a
prospective purchaser of the Securities, you should undertake an
independent investigation of iShares as in your judgment is
appropriate to make an informed decision with respect to an
investment linked to the IWM Shares.
“iShares®” is a registered mark of BlackRock Fund
Advisors or its affiliates (“BFA”). The securities are not
sponsored, endorsed, sold, or promoted by BFA. BFA makes no
representations or warranties to the owners of the securities or
any member of the public regarding the advisability of investing in
the Securities. BFA has no obligation or liability in connection
with the operation, marketing, trading or sale of the
Securities.
The
following table sets forth the published high and low closing
prices, as well as the end-of-quarter closing prices, of the
iShares® Russell 2000® ETF for each quarter
in the period from January 1, 2017 through December 7, 2022. The
closing price of the iShares® Russell 2000®
ETF on December 7, 2022 was $179.54. We obtained the information in
the table below from Bloomberg Financial Markets, without
independent verification. The historical closing prices of the
iShares® Russell 2000® ETF should not be
taken as an indication of future performance, and no assurance can
be given as to the price of the iShares® Russell
2000® ETF on the Final Valuation Date.
| Quarter
Begin |
Quarter
End |
Quarterly High
($) |
Quarterly Low
($) |
Quarterly Close
($) |
|
1/1/2017 |
3/31/2017 |
140.36 |
133.75 |
137.48 |
|
4/1/2017 |
6/30/2017 |
142.10 |
133.72 |
140.92 |
|
7/1/2017 |
9/30/2017 |
148.18 |
134.83 |
148.18 |
|
10/1/2017 |
12/31/2017 |
154.30 |
145.63 |
152.46 |
|
1/1/2018 |
3/31/2018 |
159.96 |
145.44 |
151.83 |
|
4/1/2018 |
6/30/2018 |
169.97 |
148.13 |
163.77 |
|
7/1/2018 |
9/30/2018 |
173.02 |
164.20 |
168.55 |
|
10/1/2018 |
12/31/2018 |
166.33 |
125.88 |
133.90 |
|
1/1/2019 |
3/31/2019 |
158.24 |
132.25 |
153.09 |
|
4/1/2019 |
6/30/2019 |
160.71 |
145.86 |
155.50 |
|
7/1/2019 |
9/30/2019 |
157.90 |
144.85 |
151.34 |
|
10/1/2019 |
12/31/2019 |
166.68 |
146.46 |
165.67 |
|
1/1/2020 |
3/31/2020 |
169.53 |
99.90 |
114.46 |
|
4/1/2020 |
6/30/2020 |
153.09 |
104.62 |
143.18 |
|
7/1/2020 |
9/30/2020 |
158.46 |
139.07 |
149.79 |
|
10/1/2020 |
12/31/2020 |
199.14 |
152.18 |
196.06 |
|
1/1/2021 |
3/31/2021 |
234.42 |
193.50 |
220.94 |
|
4/1/2021 |
6/30/2021 |
232.89 |
211.85 |
229.37 |
|
7/1/2021 |
9/30/2021 |
231.39 |
211.73 |
218.75 |
|
10/1/2021 |
12/31/2021 |
242.56 |
212.12 |
222.45 |
|
1/1/2022 |
3/31/2022 |
225.32 |
191.52 |
205.27 |
|
4/1/2022 |
6/30/2022 |
207.91 |
163.90 |
169.36 |
|
7/1/2022 |
9/30/2022 |
201.07 |
164.17 |
164.92 |
|
10/1/2022 |
12/7/2022* |
188.05 |
166.81 |
179.54 |
* Available information
for the indicated period includes data for less than the entire
calendar quarter and accordingly, the “Quarterly High,” “Quarterly
Low” and “Quarterly Close” data indicated are for this shortened
period only.
The graph below illustrates the performance of the
iShares® Russell 2000® ETF from January 1,
2008 through December 7, 2022, based on information from
Bloomberg.
* The dotted line indicates the Downside Threshold of $107.72,
which is approximately 60% of the Initial Underlying Price.
Past performance is not indicative of future results.
|
The SPDR® S&P 500® ETF
Trust |
The
SPDR® S&P 500® ETF Trust (formerly SPDR
Trust, Series 1), or SPY, formed by PDR Services LLC, is a unit
investment trust registered under the Investment Company Act of
1940 that holds a portfolio of securities consisting of
substantially all of the common stocks, in substantially the same
weighting, as the S&P 500® Index. SPY seeks
investment results that correspond generally to the price and yield
performance, before fees and expenses, of the S&P
500® Index. Information provided to or filed with the
Securities and Exchange Commission (the “Commission”) by SPY
pursuant to the Securities Act of 1933 and the Investment Company
Act of 1940 can be located by reference to Commission file numbers
033-46080 and 811-06125, respectively, through the Commission’s
website at www.sec.gov. In addition, information may be obtained
from other publicly available sources. Neither the issuer nor
the agent makes any representation that any such publicly available
information regarding the SPDR® S&P 500®
ETF is accurate or complete. The SPY Shares are listed on The
NYSE Arca Exchange under the ticker symbol “SPY UP.”
The S&P 500® Index, which is calculated, maintained
and published by S&P Dow Jones Indices LLC (“S&P”),
consists of stocks of 500 component companies selected to provide a
performance benchmark for the U.S. equity markets. The calculation
of the S&P 500® Index is based on the relative value
of the float adjusted aggregate market capitalization of the 500
component companies as of a particular time as compared to the
aggregate average market capitalization of 500 similar companies
during the base period of the years 1941 through 1943. For
additional information about the S&P 500® Index, see
the information set forth under “S&P 500® Index” in
the accompanying index supplement.
We and/or our affiliates may presently or from time to time engage
in business with the SPDR® S&P 500® ETF
Trust. In the course of such business, we and/or our affiliates may
acquire non-public information with respect to the SPDR®
S&P 500® ETF Trust, and neither we nor any of our
affiliates undertakes to disclose any such information to you. In
addition, one or more of our affiliates may publish research
reports with respect to the Underlying Shares. The statements in
the preceding two sentences are not intended to affect the rights
of investors in the Securities under the securities laws. As a
prospective purchaser of the Securities, you should undertake an
independent investigation of the SPDR® S&P
500® ETF Trust as in your judgment is appropriate to
make an informed decision with respect to an investment linked to
the SPY Shares.
“Standard & Poor’s®”, “S&P®”,
“S&P 500®” and “SPDR®” are trademarks of
Standard & Poor’s Financial Services LLC (“S&P”). The
Securities are not sponsored, endorsed, sold, or promoted by
S&P or SPY. S&P and SPY make no representations or
warranties to the owners of the Securities or any member of the
public regarding the advisability of investing in the Securities.
S&P and SPY have no obligation or liability in connection with
the operation, marketing, trading or sale of the Securities.
The
following table sets forth the published high and low closing
prices, as well as the end-of-quarter closing prices, of the
SPDR® S&P 500® ETF Trust for each quarter
in the period from January 1, 2017 through December 7, 2022. The
closing price of the SPDR® S&P 500® ETF
Trust on December 7, 2022 was $393.16. We obtained the information
in the table below from Bloomberg Financial Markets, without
independent verification. The historical closing prices of the
SPDR® S&P 500® ETF Trust should not be
taken as an indication of future performance, and no assurance can
be given as to the price of the SPDR® S&P
500® ETF Trust on the Final Valuation Date.
| Quarter
Begin |
Quarter
End |
Quarterly High
($) |
Quarterly Low
($) |
Quarterly Close
($) |
|
1/1/2017 |
3/31/2017 |
239.78 |
225.24 |
235.74 |
|
4/1/2017 |
6/30/2017 |
244.66 |
232.51 |
241.80 |
|
7/1/2017 |
9/30/2017 |
251.23 |
240.55 |
251.23 |
|
10/1/2017 |
12/31/2017 |
268.20 |
252.32 |
266.86 |
|
1/1/2018 |
3/31/2018 |
286.58 |
257.63 |
263.15 |
|
4/1/2018 |
6/30/2018 |
278.92 |
257.47 |
271.28 |
|
7/1/2018 |
9/30/2018 |
293.58 |
270.90 |
290.72 |
|
10/1/2018 |
12/31/2018 |
291.73 |
234.34 |
249.92 |
|
1/1/2019 |
3/31/2019 |
284.73 |
244.21 |
282.48 |
|
4/1/2019 |
6/30/2019 |
295.86 |
274.57 |
293.00 |
|
7/1/2019 |
9/30/2019 |
302.01 |
283.82 |
296.77 |
|
10/1/2019 |
12/31/2019 |
322.94 |
288.06 |
321.86 |
|
1/1/2020 |
3/31/2020 |
338.34 |
222.95 |
257.75 |
|
4/1/2020 |
6/30/2020 |
323.20 |
246.15 |
308.36 |
|
7/1/2020 |
9/30/2020 |
357.70 |
310.52 |
334.89 |
|
10/1/2020 |
12/31/2020 |
373.88 |
326.54 |
373.88 |
|
1/1/2021 |
3/31/2021 |
397.26 |
368.79 |
396.33 |
|
4/1/2021 |
6/30/2021 |
428.06 |
400.61 |
428.06 |
|
7/1/2021 |
9/30/2021 |
453.19 |
424.97 |
429.14 |
|
10/1/2021 |
12/31/2021 |
477.48 |
428.64 |
474.96 |
|
1/1/2022 |
3/31/2022 |
477.71 |
416.25 |
451.64 |
|
4/1/2022 |
6/30/2022 |
456.80 |
365.86 |
377.25 |
|
7/1/2022 |
9/30/2022 |
429.70 |
357.18 |
357.18 |
|
10/1/2022 |
12/7/2022* |
407.68 |
356.56 |
393.16 |
* 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 SPDR®
S&P 500® ETF Trust from January 1, 2008 through
December 7, 2022, based on information from Bloomberg.
* The dotted line indicates the Downside Threshold of $235.90,
which is approximately 60% of the Initial Underlying Price.
Past performance is not indicative of future results.
|
Correlation of the Underlying Shares |
The graph below illustrates
the daily performance of the iShares® Russell
2000® ETF and the SPDR® S&P
500® ETF Trust from January 1, 2008 through December 5,
2022. For comparison purposes, each of the Underlying Shares has
been “normalized” to have a closing value of 100 on January 1, 2008
by dividing the closing price of such Underlying Shares on each
Trading Day by the closing price of such Underlying Shares on
January 1, 2008 and multiplying by 100. We obtained the closing
price used to determine the normalized closing price 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 Underlying Shares may indicate a greater potential for
one of the Underlying Shares to close below its respective Downside
Threshold on the Final Valuation Date because there may be a
greater likelihood that at least one of the Underlying Shares will
decrease in price significantly. However, even if the Underlying
Shares have a higher positive correlation, one or more of the
Underlying Shares may close below the respective Downside Threshold
on the Final Valuation Date, as the Underlying Shares may both
decrease in price. Moreover, the actual correlation among the
Underlying Shares may differ, perhaps significantly, from their
historical correlation. A higher Coupon Rate is generally
associated with lower correlation among the Underlying Shares,
which may indicate a greater potential for a significant loss on
your investment at maturity. See “Key Risks — Because the
Securities are linked to the performance of the least performing
between the IWM Shares and the SPY Shares, you are exposed to
greater risk of sustaining a significant loss on your investment
than if the Securities were linked to just one of the Underlying
Shares” and “— A higher Coupon Rate and/or lower Downside
Thresholds may reflect greater expected volatility of the
Underlying Shares, and greater expected volatility generally
indicates an increased risk of declines in the prices of the
Underlying Shares and, potentially, a significant loss at
maturity.” herein.
Past performance and
correlation of the Underlying Shares are not indicative of the
future performance or correlation of the Underlying
Shares.
|
Additional Terms of the
Securities |
If
the terms discussed in this pricing supplement differ from those
discussed in the prospectus supplement, index supplement or
prospectus, the terms contained in this pricing supplement will
control.
Some Definitions
We have defined some of the terms that we use frequently in this
pricing supplement below:
|
t |
“Share
Underlying Index” means, with respect to the IWM Shares, the
Russell 2000® Index; and with respect to the SPY Shares,
the S&P 500® Index. |
|
t |
“Share
Underlying Index Publisher” means, with respect to the Russell
2000® Index, FTSE Russell or any successor thereto; and
with respect to the S&P 500® Index, S&P Dow
Jones Indices LLC or any successor thereto. |
|
t |
“Closing
Price” means, subject to the provisions set out under
“Discontinuance of any Underlying Shares and/or Share Underlying
Indices; Alteration of Method of Calculation” below, for one share
of any Underlying Shares (or one unit of any other security for
which a Closing Price must be determined) on any Trading Day
means: |
|
o |
if such Underlying Shares (or any such other security) are
listed on a national securities exchange (other than The Nasdaq
Stock Market LLC (“Nasdaq”)), the last reported sale price, regular
way, of the principal trading session on such day on the principal
national securities exchange registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), on which the
Underlying Shares (or any such other security) are listed, |
|
o |
if such Underlying Shares (or any such other security) are
securities of Nasdaq, the official closing price published by
Nasdaq on such day, or |
|
o |
if such Underlying Shares (or any such other security) are not
listed on any national securities exchange but are included in the
OTC Bulletin Board Service (the “OTC Bulletin Board”) operated by
the Financial Industry Regulatory Authority, Inc. (“FINRA”), the
last reported sale price of the principal trading session on the
OTC Bulletin Board on such day. |
If such Underlying Shares (or any such other security) are listed
on any national securities exchange but the last reported sale
price or the official closing price published by such exchange, or
by Nasdaq, as applicable, is not available pursuant to the
preceding sentence, then the Closing Price for one share of such
Underlying Shares (or one unit of any such other security) on any
Trading Day will mean the last reported sale price of the principal
trading session on the over-the-counter market as reported on
Nasdaq or the OTC Bulletin Board on such day. If a Market
Disruption Event (as defined below) occurs with respect to such
Underlying Shares (or any such other security) or the last reported
sale price or the official closing price published by Nasdaq, as
applicable, for such Underlying Shares (or any such other security)
is not available pursuant to either of the two preceding sentences,
then the Closing Price for any Trading Day will be the mean, as
determined by the Calculation Agent, of the bid prices for the
Underlying Shares (or any such other security) for such Trading Day
obtained from as many recognized dealers in such security, but not
exceeding three, as will make such bid prices available to the
Calculation Agent. Bids of Morgan Stanley & Co. LLC (“MS &
Co.”) and its successors or any of its affiliates may be included
in the calculation of such mean, but only to the extent that any
such bid is the highest of the bids obtained. If no bid prices are
provided from any third-party dealers, the Closing Price will be
determined by the Calculation Agent in its sole and absolute
discretion (acting in good faith) taking into account any
information that it deems relevant. The term “OTC Bulletin Board
Service” will include any successor service thereto, or, if
applicable, the OTC Reporting Facility operated by FINRA. This
definition of “Closing Price” is subject to the provisions under
“—Discontinuance of any Underlying Shares and/or Share Underlying
Indices; Alteration of Method of Calculation” below.
|
t |
“Trading
Day” means a day, as determined by the Calculation Agent, on which
trading is generally conducted on the New York Stock Exchange LLC,
Nasdaq, the Chicago Mercantile Exchange and the Chicago Board of
Options Exchange and in the over-the-counter market for equity
securities in the United States. |
|
t |
“Market
Disruption Event” means, with respect to each of the Underlying
Shares: |
|
(i) |
the occurrence or existence of any of: |
(a) a suspension, absence or material limitation of trading of such
Underlying Shares on the primary market for such Underlying Shares
for more than two hours of trading or during the one-half hour
period preceding the close of the principal trading session in such
market; or a breakdown or failure in the price and trade reporting
systems of the primary market for such Underlying Shares as a
result of which the reported trading prices for such Underlying
Shares
during the last one-half hour preceding the close of the principal
trading session in such market are materially inaccurate; or the
suspension, absence or material limitation of trading on the
primary market for trading in futures or options contracts related
to such Underlying Shares, if available, during the one-half hour
period preceding the close of the principal trading session in the
applicable market, or
(b) the occurrence or existence of a suspension, absence or
material limitation of trading of securities then constituting 20
percent or more of the value of the relevant Share Underlying Index
on the Relevant Exchanges for such securities for more than two
hours of trading or during the one-half hour period preceding the
close of the principal trading session on such Relevant Exchanges,
or
(c) the suspension, material limitation or absence of trading on
any major U.S. securities market for trading in futures or options
contracts related to the relevant Share Underlying Index or such
Underlying Shares for more than two hours of trading or during the
one-half hour period preceding the close of the principal trading
session on such market,
in each case, as determined by the Calculation Agent in its sole
discretion; and
|
(ii) |
a determination by the Calculation Agent in its sole discretion
that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind
or adjust all or a material portion of the hedge position with
respect to the Securities. |
For the purpose of determining whether a Market Disruption Event
exists at any time, if trading in a security included in a Share
Underlying Index is materially suspended or materially limited at
that time, then the relevant percentage contribution of that
security to the level of the Share Underlying Index shall be based
on a comparison of (x) the portion of the level of such Share
Underlying Index attributable to that security relative to (y) the
overall level of such Share Underlying Index, in each case
immediately before that suspension or limitation.
For the purpose of determining whether a Market Disruption Event
has occurred: (1) a limitation on the hours or number of days of
trading will not constitute a Market Disruption Event if it results
from an announced change in the regular business hours of the
Relevant Exchange or market, (2) a decision to permanently
discontinue trading in either of the Underlying Shares or in the
futures or options contract related to a Share Underlying Index or
such Underlying Shares will not constitute a Market Disruption
Event, (3) a suspension of trading in futures or options contracts
on such Share Underlying Index or the Underlying Shares by the
primary securities market trading in such contracts by reason of
(a) a price change exceeding limits set by such securities exchange
or market, (b) an imbalance of orders relating to such contracts or
(c) a disparity in bid and ask quotes relating to such contracts
will constitute a suspension, absence or material limitation of
trading in futures or options contracts related to a Share
Underlying Index or such Underlying Shares and (4) a “suspension,
absence or material limitation of trading” on any Relevant Exchange
or on the primary market on which futures or options contracts
related to a Share Underlying Index or such Underlying Shares are
traded will not include any time when such securities market is
itself closed for trading under ordinary circumstances.
|
t |
“Relevant
Exchange” means the primary exchange(s) or market(s) of trading for
any security (or any combination thereof) then included in the
relevant Share Underlying Index or any Successor Index. |
Postponement of Final Valuation Date and Coupon Payment Dates
(including the Call Dates and the Maturity Date)
If a Market Disruption Event with respect to either of the
Underlying Shares occurs on the scheduled Final Valuation Date, or
if the Final Valuation Date is not a Trading Day with respect to an
Underlying Shares, the Closing Price solely for such Underlying
Shares for such date will be determined on the immediately
succeeding Trading Day on which no Market Disruption Event will
have occurred with respect to such affected Underlying Shares;
provided that the Closing Price for either of the Underlying Shares
will not be determined on a date later than the fifth scheduled
Trading Day after the scheduled Final Valuation Date and if such
date is not a Trading Day, or if there is a Market Disruption Event
on such date, the Calculation Agent will determine the Closing
Price of the affected Underlying Shares on such fifth Trading Day
based on the mean, as determined by the Calculation Agent, of the
bid prices for such Underlying Shares for such date obtained from
as many recognized dealers in such security, but not exceeding
three, as will make such bid prices available to the Calculation
Agent. Bids of MS & Co. or any of its affiliates may be
included in the calculation of such mean, but only to the extent
that any such bid is the highest of the bids obtained. If no bid
prices are provided from any third-party dealers, the Closing Price
will be determined by the Calculation Agent in its sole and
absolute discretion (acting in good faith) taking into account any
information that it deems relevant.
If any scheduled Coupon Payment Date (including a scheduled Call
Date) is not a Business Day, that Coupon (or the Settlement Amount,
if applicable), shall be paid on the next succeeding Business Day,
and no adjustment shall be made to any payment made on that
postponed date; provided that the final Coupon shall be paid on the
Maturity Date; provided further that if, due to a Market Disruption
Event or otherwise, the Final Valuation Date with respect to either
of the Underlying Shares is postponed so that it falls less than
two Business Days prior to the scheduled Maturity Date, the
Maturity Date shall be postponed to the second Business Day
following the Final Valuation Date as postponed, by which date the
Closing Price of each of the Underlying Shares has been determined,
and no adjustment shall be made to any payment made on that
postponed date.
Antidilution Adjustments
If the shares of either of the Underlying Shares are subject to a
stock split or reverse stock split, then once such split has become
effective, the Adjustment Factor will be adjusted to equal the
product of the prior Adjustment Factor and the number of shares
issued in such stock split or reverse stock split with respect to
one Underlying Share of such Underlying Shares. No such adjustment
to an Adjustment Factor will be required unless such adjustment
would require a change of at least 0.1% in the amount being
adjusted as then in effect. Any number so adjusted will be rounded
to the nearest one hundred-thousandth with five one-millionths
being rounded upward.
Alternate Exchange Calculation in case of an Event of
Default
If an event of default with respect to the Securities shall have
occurred and be continuing, the amount declared due and payable
upon any acceleration of the Securities (the “Acceleration Amount”)
will be an amount, determined by the Calculation Agent in its sole
discretion, that is equal to the cost of having a Qualified
Financial Institution, of the kind and selected as described below,
expressly assume all our payment and other obligations with respect
to the Securities as of that day and as if no default or
acceleration had occurred, or to undertake other obligations
providing substantially equivalent economic value to you with
respect to the Securities. That cost will equal:
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the lowest amount that a
Qualified Financial Institution would charge to effect this
assumption or undertaking, plus |
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the reasonable expenses,
including reasonable attorneys’ fees, incurred by the holders of
the Securities in preparing any documentation necessary for this
assumption or undertaking. |
During the Default Quotation Period for the Securities, which we
describe below, the holders of the Securities and/or we may request
a Qualified Financial Institution to provide a quotation of the
amount it would charge to effect this assumption or undertaking. If
either party obtains a quotation, it must notify the other party in
writing of the quotation. The amount referred to in the first
bullet point above will equal the lowest—or, if there is only one,
the only—quotation obtained, and as to which notice is so given,
during the Default Quotation Period. With respect to any quotation,
however, the party not obtaining the quotation may object, on
reasonable and significant grounds, to the assumption or
undertaking by the Qualified Financial Institution providing the
quotation and notify the other party in writing of those grounds
within two business days after the last day of the Default
Quotation Period, in which case that quotation will be disregarded
in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous
proceeding is filed with respect to MSFL or Morgan Stanley, then
depending on applicable bankruptcy law, your claim may be limited
to an amount that could be less than the Acceleration Amount.
If the maturity of the Securities is accelerated because of an
event of default as described above, we shall, or shall cause the
Calculation Agent to, provide written notice to the Trustee at its
New York office, on which notice the Trustee may conclusively rely,
and to the Depositary of the Acceleration Amount and the aggregate
cash amount due, if any, with respect to the Securities as promptly
as possible and in no event later than two business days after the
date of such acceleration.
Default Quotation Period
The Default Quotation Period is the period beginning on the day the
Acceleration Amount first becomes due and ending on the third
business day after that day, unless:
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no quotation of the kind referred
to above is obtained, or |
|
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every quotation of that kind
obtained is objected to within five business days after the due
date as described above. |
If either of these two events occurs, the Default Quotation Period
will continue until the third business day after the first business
day on which prompt notice of a quotation is given as described
above. If that quotation is objected to as described above within
five business days after that first business day, however, the
Default Quotation Period will continue as described in the prior
sentence and this sentence.
In any event, if the Default Quotation Period and the subsequent
two business day objection period have not ended before the Final
Valuation Date, then the Acceleration Amount will equal the
principal amount of the Securities.
Qualified Financial Institutions
For the purpose of determining the Acceleration Amount at any time,
a Qualified Financial Institution must be a financial institution
organized under the laws of any jurisdiction in the United States
or Europe, which at that time has outstanding debt obligations with
a stated maturity of one year or less from the date of issue and
rated either:
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A-2 or higher by Standard &
Poor’s Ratings Services or any successor, or any other comparable
rating then used by that rating agency, or |
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P-2 or higher by Moody’s
Investors Service or any successor, or any other comparable rating
then used by that rating agency. |
Discontinuance of any Underlying Shares and/or Share Underlying
Indices; Alteration of Method of Calculation
If trading in either of the Underlying Shares on every applicable
national securities exchange, on the OTC Bulletin Board and in the
over-the-counter market is permanently discontinued or either of
the Underlying Shares are liquidated or otherwise terminated (a
“Discontinuance or Liquidation Event”), the Closing Price of an
Underlying Shares on any Trading Day following the Discontinuance
or Liquidation Event will be determined by the Calculation Agent
and will be deemed to equal the product of (i) the closing value of
the relevant Share Underlying Index for such Underlying Shares (or
any Successor Index, as described below) on such date (taking into
account any material changes in the method of calculating the Share
Underlying Index following such Discontinuance or Liquidation
Event) and (ii) a fraction, the numerator of which is the Closing
Price of such Underlying Shares and the denominator of which is the
closing value of the Share Underlying Index (or any Successor
Index, as described below), each determined as of the last day
prior to the occurrence of the Discontinuance or Liquidation Event
on which a Closing Price of such Underlying Shares was
available.
If, subsequent to a Discontinuance or Liquidation Event, the
relevant Share Underlying Index Publisher discontinues publication
of the relevant Share Underlying Index and the Share Underlying
Index Publisher or another entity (including MS & Co.)
publishes a successor or substitute index that MS & Co., as the
Calculation Agent, determines, in its sole discretion, to be
comparable to the discontinued Share Underlying Index (such index
being referred to herein as a “Successor Index”), then any
subsequent Closing Price for such Underlying Shares on any Trading
Day following a Discontinuance or Liquidation Event will be
determined by reference to the published value of such Successor
Index at the regular weekday close of trading on such Trading Day,
and, to the extent the value of the Successor Index differs from
the value of the relevant Share Underlying Index at the time of
such substitution, proportionate adjustments will be made by the
Calculation Agent for purposes of calculating payments on the
Securities.
Upon any selection by the Calculation Agent of a Successor Index,
the Calculation Agent will cause written notice thereof to be
furnished to the Trustee, to us and to the Depositary, as holder of
the Securities, within three business days of such selection. We
expect that such notice will be made available to you, as a
beneficial owner of such Securities, in accordance with the
standard rules and procedures of the Depositary and its direct and
indirect participants.
If, subsequent to a Discontinuance or Liquidation Event, the Share
Underlying Index Publisher discontinues publication of the relevant
Share Underlying Index prior to, and such discontinuance is
continuing on, the Final Valuation Date, and the Calculation Agent
determines, in its sole discretion, that no Successor Index is
available at such time, then the Calculation Agent will determine
the Closing Price for such Underlying Shares for such date. Such
Closing Price will be computed by the Calculation Agent in
accordance with the formula for and method of calculating such
Share Underlying Index last in effect prior to such discontinuance,
using the Closing Price (or, if trading in the relevant securities
has been materially suspended or materially limited, its good faith
estimate of the Closing Price that would have prevailed but for
such suspension or limitation) at the close of the principal
trading session of the Relevant Exchange on such date of each
security most recently constituting the relevant Share Underlying
Index without any rebalancing or substitution of such securities
following such discontinuance. Notwithstanding these alternative
arrangements, discontinuance of the publication of a Share
Underlying Index may adversely affect the value of the
Securities.
Trustee
The “Trustee” for each offering of notes issued under our Senior
Debt Indenture, including the Securities, will be The Bank of New
York Mellon, a New York banking corporation.
Agent
The “agent” is MS & Co.
Calculation Agent and Calculations
The “Calculation Agent” for the Securities will be MS & Co. As
Calculation Agent, MS & Co. will determine, among other things,
the Initial Underlying Prices, the Downside Threshold, the Final
Underlying Prices and the Payment at Maturity.
All determinations made by the Calculation Agent will be at the
sole discretion of the Calculation Agent and will, in the absence
of manifest error, be conclusive for all purposes and binding on
you, the Trustee and us.
All calculations with respect to the Coupon, payment upon a call,
and Payment at Maturity will be rounded to the nearest one
hundred-thousandth, with five one-millionths rounded upward (e.g.,
.876545 would be rounded to .87655); all dollar amounts related to
determination of the amount of cash payable per Security will be
rounded to the nearest ten-thousandth, with five one
hundred-thousandths rounded upward (e.g., .76545 would be rounded
up to .7655); and all dollar amounts paid on the aggregate number
of Securities will be rounded to the nearest cent, with one-half
cent rounded upward.
Because the Calculation Agent is our affiliate, the economic
interests of the Calculation Agent and its affiliates may be
adverse to your interests, as an owner of the Securities, including
with respect to certain determinations and judgments that the
Calculation Agent must make in determining a Final Underlying Price
or whether a Market Disruption Event has occurred. See
“—Discontinuance of any Underlying Shares and/or Share Underlying
Indices; Alteration of Method of Calculation,” and the
definition of Market Disruption Event. MS & Co. is obligated to
carry out its duties and functions as Calculation Agent in good
faith and using its reasonable judgment.
Issuer Notice to Registered Security Holders, the Trustee and
the Depositary
In the event that the Maturity Date of the Securities is postponed
due to postponement of the Final Valuation Date, the Issuer shall
give notice of such postponement and, once it has been determined,
of the date to which the Maturity Date has been rescheduled (i) to
each registered holder of the Securities by mailing notice of such
postponement by first class mail, postage prepaid, to such
registered holder’s last address as it shall appear upon the
registry books, (ii) to the Trustee by facsimile, confirmed by
mailing such notice to the Trustee by first class mail, postage
prepaid, at its New York office and (iii) to The Depository Trust
Company (the “Depositary”) by telephone or facsimile confirmed by
mailing such notice to the Depositary by first class mail, postage
prepaid. Any notice that is mailed to a registered holder of the
Securities in the manner herein provided shall be conclusively
presumed to have been duly given to such registered holder, whether
or not such registered holder receives the notice. The Issuer shall
give such notice as promptly as possible, and in no case later than
(i) with respect to notice of postponement of the Maturity Date,
the Business Day immediately preceding the scheduled Maturity Date,
and (ii) with respect to notice of the date to which the Maturity
Date has been rescheduled, the Business Day immediately following
the Final Valuation Date as postponed.
The Issuer shall, or shall cause the Calculation Agent to, (i)
provide written notice to the Trustee, on which notice the Trustee
may conclusively rely, and to the Depositary, on or prior to 10:30
a.m. (New York City time) on the Business Day preceding each Coupon
Payment Date, of the amount of cash to be delivered with respect to
each Principal Amount of the Securities and (ii) deliver the
aggregate cash amount due with respect to the Securities to the
Trustee for delivery to the Depositary, as holder of the
Securities, on or prior to the Coupon Payment Date.
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, on or prior to 10:30
a.m. (New York City time) on the Business Day preceding the Call
Date or the Business Day preceding the Maturity Date, as
applicable, of the amount of cash to be delivered with respect to
each Principal Amount of the Securities and (ii) deliver the
aggregate cash amount due with respect to the Securities to the
Trustee for delivery to the Depositary, as holder of the
Securities, on or prior to the Call Date or Maturity Date, as
applicable.
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Additional Information About the Securities |
Use of Proceeds and Hedging
The proceeds from the sale of the Securities will be used by us for
general corporate purposes. We will receive, in aggregate, $10 per
Security issued, because, when we enter into hedging transactions
in order to meet our obligations under the Securities, our hedging
counterparty will reimburse the cost of the Agent’s commissions.
The costs of the Securities borne by you and described on page 2
above comprise the Agent’s commissions and the cost of issuing,
structuring and hedging the Securities. See also “Use of Proceeds”
in the accompanying prospectus.
On or prior to the Trade Date, we will hedge our anticipated
exposure in connection with the Securities, by entering into
hedging transactions with our affiliates and/or third-party
dealers. We expect our hedging counterparties to take positions in
the Underlying Shares or the constituent stocks of the Share
Underlying Indices, in futures or options contracts on the
Underlying Shares, the Share Underlying Indices or the constituent
stocks of the Share Underlying Indices, as well as in other
instruments related to the Underlying Shares or the Share
Underlying Indices that they may wish to use in connection with
such hedging. Any of these hedging or trading activities on or
prior to the Trade Date could potentially increase the Initial
Underlying Price, and, as a result, the Downside Threshold of
either of the Underlying Shares, which if the Securities are not
called prior to maturity, is the price at or above which such
Underlying Shares must close on the Final Valuation Date in order
for you to avoid being exposed to the negative performance of the
Least Performing Underlying Shares at maturity (depending also on
the performance of the other Underlying Shares). In addition,
through our affiliates, we are likely to modify our hedge position
throughout the term of the Securities, including on the Final
Valuation Date, by purchasing and selling the Underlying Shares or
the constituent stocks of the Shares Underlying Indices, futures or
options contracts on the Underlying Shares, the Share Underlying
Indices or the component stocks listed on major securities markets
or positions in any other available securities or instruments that
we may wish to use in connection with such hedging activities,
including by purchasing or selling any such securities or
instruments on the Final Valuation Date. As a result, these
entities may be unwinding or adjusting hedge positions during the
term of the Securities, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the
Final Valuation Date approaches. We cannot give any assurance that
our hedging activities will not affect the prices of the Underlying
Shares and, therefore, adversely affect the value of the Securities
or the payment you will receive at maturity if not previously
called.
Supplemental Plan of Distribution; Conflicts of Interest
We also sold, pursuant to Pricing Supplement No. 7,304, a separate
issuance of securities, being sold only to fee-based advisory
accounts, with terms substantially similar to, but somewhat
different than, those of this issuance.
MS & Co. is the agent for this offering. We have agreed to sell
to MS & Co., and MS & Co. has agreed to purchase, all of
the Securities at the issue price less the underwriting discount
indicated on the cover of this document. UBS Financial Services
Inc., acting as dealer, will receive from MS & Co. a fixed
sales commission of $0.10 for each Security it sells.
MS & Co. is our affiliate and a wholly owned subsidiary of
Morgan Stanley, and it and other affiliates of ours expect to make
a profit by selling, structuring and, when applicable, hedging the
Securities.
MS & Co. will conduct this offering in compliance with the
requirements of Rule 5121 of the Financial Industry Regulatory
Authority, Inc. (“FINRA”), regarding a FINRA member firm’s
distribution of the securities of an affiliate and related
conflicts of interest. MS & Co. or any of our other affiliates
may not make sales in this offering to any discretionary
account.
In order to facilitate the offering of the Securities, the agent
may engage in transactions that stabilize, maintain or otherwise
affect the price of the Securities. Specifically, the agent may
sell more Securities than it is obligated to purchase in connection
with the offering, creating a naked short position in the
Securities, for its own account. The agent must close out any naked
short position by purchasing the Securities in the open market. A
naked short position is more likely to be created if the agent is
concerned that there may be downward pressure on the price of the
Securities in the open market after pricing that could adversely
affect investors who purchase in the offering. As an additional
means of facilitating the offering, the agent may bid for, and
purchase, the Securities, the Underlying Shares or the constituent
stocks of the Share Underlying Indices in the open market to
stabilize the price of the Securities. Any of these activities may
raise or maintain the market price of the Securities above
independent market levels or prevent or retard a decline in the
market price of the Securities. The agent is not required to engage
in these activities, and may end any of these activities at any
time. An affiliate of the agent has entered into a hedging
transaction with us in connection with this offering of Securities.
See “—Use of Proceeds and Hedging” above.
Form of Securities
The Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on
behalf of, the Depositary and will be registered in the name of a
nominee of the Depositary. The Depositary’s nominee will be the
only registered holder of the Securities. Your beneficial interest
in the Securities will be evidenced solely by entries on the
books of the securities intermediary acting on your behalf as a
direct or indirect participant in the Depositary. In this pricing
supplement, all references to payments or notices to you will mean
payments or notices to the Depositary, as the registered holder of
the Securities, for distribution to participants in accordance with
the Depositary’s procedures. For more information regarding the
Depositary and book entry notes, please read “Forms of
Securities—The Depositary” and “Securities Offered on a Global
Basis Through the Depositary” in the accompanying prospectus.
Validity of the Securities
In the opinion of Davis Polk & Wardwell LLP, as special counsel
to MSFL and Morgan Stanley, when the Securities offered by this
pricing supplement have been executed and issued by MSFL,
authenticated by the trustee pursuant to the MSFL Senior Debt
Indenture (as defined in the accompanying prospectus) and delivered
against payment as contemplated herein, such Securities will be
valid and binding obligations of MSFL and the related guarantee
will be a valid and binding obligation of Morgan Stanley,
enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors’ rights
generally, concepts of reasonableness and equitable principles of
general applicability (including, without limitation, concepts of
good faith, fair dealing and the lack of bad faith),
provided that such counsel expresses no opinion as to (i)
the effect of fraudulent conveyance, fraudulent transfer or similar
provision of applicable law on the conclusions expressed above and
(ii) any provision of the MSFL Senior Debt Indenture that purports
to avoid the effect of fraudulent conveyance, fraudulent transfer
or similar provision of applicable law by limiting the amount of
Morgan Stanley’s obligation under the related guarantee. This
opinion is given as of the date hereof and is limited to the laws
of the State of New York, the General Corporation Law of the State
of Delaware and the Delaware Limited Liability Company Act. In
addition, this opinion is subject to customary assumptions about
the trustee’s authorization, execution and delivery of the MSFL
Senior Debt Indenture and its authentication of the Securities and
the validity, binding nature and enforceability of the MSFL Senior
Debt Indenture with respect to the trustee, all as stated in the
letter of such counsel dated November 16, 2020, which is Exhibit
5-a to the Registration Statement on Form S-3 filed by Morgan
Stanley on November 16, 2020.
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