Additional Information about Morgan Stanley, MSFL and the Securities
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Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by a prospectus supplement 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 $9.762.
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 Underlyings. The estimated value of the
Securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the Underlyings, instruments
based on the Underlyings, volatility and other factors including current and expected interest rates, as well as an interest rate related
to our secondary market credit spread, which is the implied interest rate at which our conventional fixed rate debt trades in the secondary
market.
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 Underlyings, may vary from, and be lower than, the estimated
value on the Trade Date, because the secondary market price takes into account our secondary market credit spread as well as the bid-offer
spread that MS & Co. would charge in a secondary market transaction of this type and other factors. However, because the costs associated
with issuing, selling, structuring and hedging the Securities are not fully deducted upon issuance, for a period of up to 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 Underlyings, and to our secondary market credit spreads, it would do so based on values higher
than the estimated value. We expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. currently intends, but is not obligated, to make a market
in the Securities, and, if it once chooses to make a market, may cease doing so at any time.
The Securities may be suitable for you if:
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You fully understand the risks inherent in an investment in the Securities,
including the risk of loss of your entire initial investment.
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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.
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You are willing to accept the individual market risk of each Underlying.
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You understand and accept the risks associated with the Underlyings.
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You understand that the linkage to two Underlyings does not provide any portfolio
diversification benefits and instead means that a decline in the value beyond the relevant Downside Threshold of either the MXEF Index
or the RTY Index will result in a significant loss on your investment even if the other Underlying appreciates or does not decline as
much.
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You understand and accept that you will not participate in any appreciation
in the values of the Underlyings and that your potential return is limited to the Coupons that are paid until maturity or an earlier redemption.
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You can tolerate fluctuations in the value of the Securities prior to maturity
that may be similar to or exceed the downside value fluctuations of the Least Performing Underlying.
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You are willing to invest in the Securities based on the Coupon Rate set forth
on the cover hereof.
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You are willing to forgo dividends paid on the stocks comprising the Underlyings.
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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.
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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.
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You are willing to assume our credit risk, and understand that if we default
on our obligations you may not receive any amounts due to you and could lose your entire investment.
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The Securities may not be suitable for you if:
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You do not fully understand the risks inherent in an investment in the Securities,
including the risk of loss of your entire initial investment.
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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.
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You are unwilling to accept the individual market risk of each Underlying.
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You require an investment designed to provide a full return of principal at
maturity.
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You do not understand and accept the risks associated with the Underlyings.
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You are not comfortable with an investment linked to two Underlyings such
that a decline in the value beyond the relevant Downside Threshold of either the MXEF Index or the RTY Index will result in a significant
loss on your investment even if the other Underlying appreciates or does not decline as much.
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You seek an investment that participates in the appreciation in the values
of the Underlyings or that has unlimited return potential.
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You cannot tolerate fluctuations in the value of the Securities prior to maturity
that may be similar to or exceed the downside value fluctuations of the Least Performing Underlying.
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You are not willing to invest in the Securities based on the Coupon Rate set
forth on the cover hereof.
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You prefer the lower risk, and therefore accept the potentially lower returns,
of fixed income investments with comparable maturities and credit ratings.
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You prefer to receive the dividends paid on the stocks comprising the Underlyings.
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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.
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You are not willing to assume our credit risk for all payments under the Securities,
including any repayment of principal.
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The investor suitability considerations identified above are not
exhaustive. Whether or not the Securities are a suitable investment for you will depend on your individual circumstances, and you should
reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully considered
the suitability of an investment in the Securities in light of your particular circumstances. You should also review “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 Underlyings, see the information set forth under “The
MSCI Emerging Markets IndexSM” on page 20 and “The Russell 2000® Index” on page 22.
Issuer
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Morgan Stanley Finance LLC
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Guarantor
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Morgan Stanley
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Issue Price
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$10.00 per Security. The Securities are offered at a minimum investment of 100 Securities.
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Underlyings
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The MSCI Emerging Markets IndexSM (the “MXEF Index”) and the Russell 2000® Index (the “RTY Index”)
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Principal Amount
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$10.00 per Security
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Term
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1.25 years, unless earlier called by the Issuer
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Call Feature
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Beginning January 24, 2022, 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.
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Coupon
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Regardless of the performance of either of the Underlyings, 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 $0.04083 for each Security (based on the per-annum rate of 4.90%) would
be applicable to each Coupon Payment Date until maturity or an earlier redemption.
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Coupon Rate
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The Coupon Rate is 4.90% per annum
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Trade Date
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October 20, 2021
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Settlement Date
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October 25, 2021
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Final Valuation Date*
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January 20, 2023
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Maturity Date*
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January 25, 2023
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Coupon Payment Dates
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As set forth under “Coupon Payment Dates and Call Dates” on page 6.
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Payment at Maturity (per Security)
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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 during the term of the Securities,
as follows:
If the Securities have not been called and the Final Underlying Values
of both the MXEF Index and the RTY Index 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 Value of either the MXEF Index or the RTY Index 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 + Underlying Return of the Least
Performing Underlying)
In this case, you will lose a significant portion and could lose all
of the Principal Amount in an amount proportionate to the decline of the Least Performing Underlying from the Trade Date to the Final
Valuation Date, even if the other Underlying appreciates or does not decline as much.
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Least Performing Underlying
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The Underlying with the larger percentage decrease from the Initial Underlying Value to the Final Underlying Value.
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Underlying Return
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With respect to each Underlying,
Final Underlying Value – Initial Underlying
Value
Initial Underlying Value
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*Subject to postponement in the event of a Market Disruption Event or for non-Trading Days.
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Initial Underlying Value
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With respect to the MXEF Index,
1,301.13
With respect to the RTY Index,
2,289.765
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Final Underlying Value
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With respect to each Underlying, the Index Closing Value of such Underlying on the Final Valuation Date.
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Downside Threshold
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With respect to the MXEF Index,
780.68, which is approximately 60% of the Initial Underlying Value of such Underlying.
With respect to the RTY Index,
1,373.859, which is 60% of the Initial Underlying Value of such Underlying.
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Record Date
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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.
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Trustee
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The Bank of New York Mellon
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Calculation Agent
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MS & Co.
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Coupon Payment Dates and Call Dates
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Coupon Payment Dates/Call Dates
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11/24/2021*
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12/22/2021*
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1/24/2022
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2/24/2022
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3/23/2022
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4/22/2022
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5/24/2022
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6/23/2022
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7/22/2022
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8/24/2022
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9/22/2022
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10/24/2022
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11/23/2022
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12/22/2022
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Maturity Date**(1)
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* The Securities are not callable until the third Coupon Payment
Date, which is January 24, 2022.
** 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 Underlying 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 Index Closing Value of
each Underlying has been determined, and no adjustment shall be made to any payment made on that postponed date.
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The Initial Underlying Values and Downside Thresholds of both the MXEF Index and the RTY Index are determined. The Coupon Rate is set.
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Regardless of the performance of either Underlying, unless the Securities
have been previously called, MSFL will pay you a Coupon on each Coupon Payment Date.
Beginning on January 24, 2022, 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.
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The Final Underlying Values are determined as of the Final Valuation
Date.
If the Securities have not been called and the Final Underlying Values
of both the MXEF Index and the RTY Index 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 Value of either the MXEF Index or the
RTY Index 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 + Underlying Return of the Least Performing Underlying)
per Security
This will be significantly less than the $10 Principal Amount by
an amount proportionate to the negative Underlying Return of the Least Performing Underlying, and you could lose your entire investment.
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Investing in the Securities
involves significant risks. You may lose YOUR ENTIRE principal amount. Any payment on the Securities is subject to OUR CREDITWORTHINESS.
If we were to default on our payment obligations, you may not receive any amounts owed to you under the Securities and you could lose
your entire investment.
The Issuer 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 Value of EITHER of the Underlyings 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 Value of either
the MXEF Index or the RTY Index is less than its respective Downside Threshold, you will be exposed to the decline in the value of the
Least Performing Underlying from its Initial Underlying Value to its Final Underlying Value, on a 1-to-1 basis and such payment will result
in a significant loss of your initial investment that is proportionate to the decline of the Least Performing Underlying over the term
of the Securities, even if the other Underlying has appreciated or has 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 January 24, 2022. 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.
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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 Value of either Underlying 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 values of either
of the Underlyings. Investors will not participate in any appreciation in the values of either of the Underlyings from their respective
Initial Underlying Values, and the return on the Securities will be limited to the 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 Underlyings, 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 and lose a significant portion or all of your investment despite
not being able to participate in any potential appreciation of either of the Underlyings.
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You may incur a loss on your investment if you are able to sell your Securities
prior to maturity. The Downside Thresholds are considered only at maturity. If you are able to sell your Securities in the secondary
market prior to maturity, you may have to sell them at a loss relative to your initial investment even if the Index Closing Values of
both Underlyings are above their respective Downside Thresholds at that time. If you hold the Securities to maturity and the Securities
have not been called, MSFL will either repay you the full principal amount per Security (plus the Coupon for the final Coupon Payment
Date), if the Final Underlying Values of both the MXEF Index and the RTY Index are equal to or greater than their respective Downside
Thresholds, or if either of the Underlyings closes below its respective Downside Threshold on the Final 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 value of the Least Performing Underlying 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 MSFL and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of MSFL.
Holders will have recourse only to a single claim against MSFL 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 MSFL, including holders of MSFL-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 Index Closing Values of the Underlyings on any day will affect the value of the Securities more than any other single factor,
other factors that may influence the value of the Securities include:
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the value and volatility (frequency and magnitude of changes in value) of the Underlyings,
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dividend rates on the stocks comprising the Underlyings,
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interest and yield rates in the market,
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time remaining until the Securities mature,
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the Underlyings or equities
markets generally and which may affect the Final Underlying Values,
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the occurrence of certain events affecting either of the Underlyings that may or may not require an adjustment to its composition,
and
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any actual or anticipated changes in our credit ratings or credit spreads.
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Some or all of these factors will influence
the terms of the Securities at the time of issuance and the price that you will receive if you sell your Securities prior to maturity,
as the Securities are comprised of both a debt component and a performance-based component linked to the Underlyings, and these are the
types of factors that also generally affect the values of debt securities and derivatives linked to the Underlyings. Generally, the longer
the time remaining to maturity, the more the market price of the Securities will be affected by the other factors described above. The
level of each of the Underlyings 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 Underlyings.
Investing in the Securities is not equivalent to investing in either Underlying or the component stocks of either Underlying. Investors
in the Securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to
stocks that constitute the Underlyings. Further, you will not participate in any potential appreciation of either Underlying even though
you may be exposed to its full decline at maturity.
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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.
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The inclusion of the costs of issuing,
selling, structuring and hedging the Securities in the Issue Price and the lower rate we are willing to pay as issuer make the economic
terms of the Securities less favorable to you than they otherwise would be.
However, because the costs associated with
issuing, selling, structuring and hedging the Securities are not fully deducted upon issuance, for a period of up to 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 Underlyings, and to our secondary market credit spreads, it would do so based on values higher
than the estimated value, and we expect that those higher values will also be reflected in your brokerage account statements.
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The estimated value of the Securities is determined by reference to our
pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum secondary market price. These
pricing and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about
future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities,
our models may yield a higher estimated value of the Securities than those generated by others, including other dealers in the market,
if they attempted to value the Securities. In addition, the estimated value on the Trade Date does not represent a minimum or maximum
price at which dealers, including MS & Co., would be willing to purchase your Securities in the secondary market (if any exists) at
any time. The value of your Securities at 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 Underlyings), including trading in the stocks that constitute the Underlyings
as well as in other instruments related to the Underlyings. As a result, these entities may be unwinding or adjusting hedge positions
during the term of the Securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as
the Final Valuation Date approaches. MS & Co. and some of our other affiliates also trade the stocks that constitute the Underlyings
and other financial instruments related to the Underlyings on a regular basis as part of their general broker-dealer and other businesses.
Any of these hedging or trading activities on or prior to the Trade Date could potentially increase the Initial Underlying Value, and,
as a result, the Downside Threshold of either of the Underlyings, which if the Securities are not called prior to maturity, is the level
at or above which such Underlying must close on the Final Valuation Date in order for you to avoid being exposed to the negative performance
of the Least Performing Underlying at maturity (depending also on the performance of the other
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Underlying). Additionally, such hedging
or trading activities during the term of the Securities could potentially affect the value of either Underlying 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).
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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 Value, the Downside Threshold
and the Final Underlying Value of each Underlying, 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 an Underlying; 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 Underlyings
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.
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Please read the discussion under “What Are the Tax
Consequences of the Securities” in this pricing supplement concerning the U.S. federal income tax consequences of an investment
in the Securities. We intend to treat a Security for U.S. federal income tax purposes as a 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 index, 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,
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 Underlyings
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You are exposed to the price risk of both Underlyings.
Your return on the Securities is not linked to a basket consisting of the Underlyings. Rather, it will be contingent upon the performance
of each of the MXEF Index and the RTY Index. Unlike an instrument with a return linked to a basket of underlying assets, in which risk
is mitigated and diversified among all of the components of the basket, you will be exposed to the risks related to both the MXEF Index
and the RTY Index. Poor performance by either of the Underlyings over the term of the Securities may negatively affect your return and
will not be offset or mitigated by positive performance by the other Underlying. To receive any contingent repayment of principal at maturity
from MSFL, both Underlyings 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 even if
the other Underlying appreciates during the term of the Securities. Accordingly, your investment is subject to the market risk of both
Underlyings. Additionally, movements in the values of the Underlyings may be correlated or uncorrelated at different times during the
term of the Securities, and such correlation (or lack thereof) could have an adverse effect on your
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return on the Securities.
For example, the likelihood that one of the Underlyings will close below its Downside Threshold on the Final Valuation Date will increase
when the movements in the values of the Underlyings 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 Underlyings 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 to which the Securities are linked, resulting in a greater potential for significant loss of principal at maturity.
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Because the Securities are linked to the performance
of the least performing between the MXEF Index and the RTY Index, you are exposed to greater risk of sustaining a significant loss on
your investment than if the Securities were linked to just the MXEF Index or just the RTY Index. 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 MXEF Index or just the RTY Index. With two Underlyings, it is more likely that
either Underlying will close below its Downside Threshold on the Final Valuation Date than if the Securities were linked to only one of
the Underlyings, 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 Underlyings, and greater expected volatility generally indicates an increased risk of declines in the levels
of the Underlyings and, potentially, a significant loss at maturity. The economic terms for the Securities, including the Coupon Rate
and the Downside Threshold, are based, in part, on the expected volatility of the Underlyings at the time the terms of the Securities
are set. “Volatility” refers to the frequency and magnitude of changes in the level of the Underlyings. Higher expected volatility
with respect to the Underlyings as of the Trade Date generally indicates a greater expectation as of that date that the Final Underlying
Value of either Underlying 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 level of the Underlyings 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 Underlyings 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 MSCI Emerging Markets IndexSM
and are subject to risks associated with investments in securities linked to the value of foreign equity (and especially emerging markets)
securities. The Securities are linked to the value of foreign equity securities. Investments in securities linked to the value of
foreign equity securities involve risks associated with the securities markets in those countries, including risks of volatility in those
markets, governmental intervention in those markets and cross-shareholdings in companies in certain countries. Although the equity
securities included in the MSCI Emerging Markets IndexSM are traded in foreign currencies, the value of your Securities (as
measured in U.S. dollars) will not be adjusted for any exchange rate fluctuations. Also, there is generally less publicly available information
about foreign companies than about U.S. companies that are subject to the reporting requirements of the United States Securities and Exchange
Commission, and foreign companies are subject to accounting, auditing and financial reporting standards and requirements different from
those applicable to U.S. reporting companies. The prices of securities issued in foreign markets may be affected by political, economic,
financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies and
currency exchange laws. In addition, the stocks included in the MSCI Emerging Markets IndexSM have been issued by companies
in various emerging markets countries, which pose further risks in addition to the risks associated with investing in foreign equity markets
generally. Countries with emerging markets may have relatively unstable governments, may present the risks of nationalization of businesses,
restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have less protection of property rights than
more developed countries. The economies of countries with emerging markets may be based on only a few industries, may be highly vulnerable
to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities
markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making
prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries may differ favorably or unfavorably
from the economy in the United States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payment positions.
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The level of the MSCI Emerging Markets IndexSM is subject to currency exchange rate
risk. Because the level of the MSCI Emerging Markets IndexSM is related to the U.S. dollar value of stocks underlying
the MSCI Emerging Markets IndexSM, holders of the Securities will be exposed to currency exchange rate risk with respect the
currencies in which the component securities trade. Exchange rate movements for a particular currency are volatile and are the result
of numerous factors specific to that country including the supply of, and the demand for, those currencies, as well as government policy,
intervention or actions, but are also influenced significantly from time to time by political or economic developments, and by macroeconomic
factors and speculative actions related to each region. Further, currencies of emerging economies are often subject to more frequent and
larger central bank interventions than the currencies of developed countries and are also more likely to be affected by drastic changes
in monetary or exchange rate policies of the relevant country. The net exposure will depend on the extent to which the currencies of the
component countries strengthen or weaken against the U.S. dollar and the relative weight of each currency. If, taking into account such
weighting, the dollar strengthens against the currencies of the component securities of the MSCI Emerging Markets IndexSM,
the level of the MSCI Emerging Markets IndexSM will be adversely affected and the Payment at Maturity on the Securities
may be reduced.
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Of particular importance to potential currency
exchange risk are:
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existing and expected rates of inflation;
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existing and expected interest rate levels;
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the balance of payments; and
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the extent of governmental surpluses or deficits in the countries represented in the MSCI Emerging Markets IndexSM and
the United States.
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All of these factors are, in turn, sensitive to the monetary,
fiscal and trade policies pursued by the governments of the countries represented in the MSCI Emerging Markets IndexSM,
the United States and other countries important to international trade and finance.
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The Securities are linked to the Russell 2000®
Index and are subject to risks associated with small-capitalization companies. The Russell 2000® Index consists of
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 Underlyings 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 Underlyings, depending on the nature of such governmental regulatory actions and the Underlying
constituent stocks that are affected. If any governmental regulatory action results in the removal of Underlying constituent stocks that
have (or historically have had) significant weights within the applicable Underlying, such removal, or even any uncertainty relating to
a possible removal, could have a material and negative effect on the level of the applicable Underlying and, therefore, your return on
the Securities.
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Adjustments to the MSCI Emerging Markets IndexSM or the Russell
2000® Index could adversely affect the value of the Securities. The Index Publisher of each of the MSCI Emerging
Markets IndexSM and the Russell 2000® Index is responsible for
calculating and maintaining such Underlying. The Index Publisher may add, delete or substitute the stocks constituting either Underlying
or make other methodological changes required by certain corporate events relating to the stocks constituting either Underlying, such
as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change the value of the Underlying.
The Index Publisher may discontinue or suspend calculation or publication of the Underlying at any time. In these circumstances, the Calculation
Agent will have the sole discretion to substitute a Successor Underlying that is comparable to the discontinued Underlying, and is permitted
to consider indices that are calculated and published by the Calculation Agent or any of its affiliates. Any of these actions could adversely
affect the value of any of the Underlyings and, consequently, the value of the Securities.
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Hypothetical
Payments on the Securities at Maturity
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The examples below illustrate the payment upon a call or at maturity
for a $10 Security on a hypothetical offering of the Securities, with the following assumptions (the actual terms for the Securities are
set forth on the cover hereof; amounts may have been rounded for ease of reference):
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Hypothetical Initial Underlying Value:
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Coupon Rate: 4.90% per annum (or 0.04083% per month)
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Coupon: $0.04083 per month
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Hypothetical Downside Threshold:
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MXEF Index: 780, which is 60% of the Hypothetical Initial Underlying Value of the MXEF Index
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RTY Index: 1,200, which is 60% of the Hypothetical Initial Underlying Value of the RTY Index
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Example 1 — Securities are Called on the Third Coupon Payment
Date (the first Coupon Payment Date on which MSFL can call the Securities)
Date
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Payment (per Security)
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First Coupon Payment Date
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$0.04083 (Coupon — Not Callable)
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Second Coupon Payment Date
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$0.04083 (Coupon — Not Callable)
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Third Coupon Payment Date
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$10.04083 (Settlement Amount)
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Total Payment:
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$10.12249 (1.12249% return)
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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 $10.04083 per Security, reflecting your principal amount plus the applicable Coupon. When added to the total
Coupon payments of $0.08166 received in respect of the prior Coupon Payment Dates, MSFL will have paid you a total of $10.12249 per Security
for a 1.12249% 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 Underlyings.
Example 2 — Securities are NOT Called and the Final Underlying
Values of both the MXEF Index and the RTY Index are at or above their respective Downside Thresholds
Date
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MXEF Index
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RTY Index
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Payment (per Security)
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First to Fourteenth Coupon Payment Dates
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N/A
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N/A
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$0.57162 in total Coupons
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Final Underlying Value
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Final Valuation Date
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1,800 (at or above Downside Threshold)
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2,375 (at or above Downside Threshold)
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$10.04083 (Settlement Amount)
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Total Payment:
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$10.61245 (6.1245% return)
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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 MXEF Index and the RTY Index close above their
respective Downside Thresholds. Therefore, at maturity, MSFL will pay you a total of $10.04083 per Security, reflecting your principal
amount plus the applicable Coupon. When added to the total Coupon payments of $0.57162 received in respect of prior Coupon Payment Dates,
MSFL will have paid you a total of $10.61245 per Security for a 6.1245% 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 Underlyings.
Example 3 — Securities are NOT Called and the Final Underlying
Value of one of the Underlyings is below its Downside Threshold
Date
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MXEF Index
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RTY Index
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Payment (per Security)
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First to Fourteenth Coupon Payment Dates
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N/A
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N/A
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$0.57162 in total Coupons
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Final Underlying Value
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Final Valuation Date
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520 (below Downside Threshold)
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2,100 (at or above Downside Threshold)
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Final Coupon + [$10 + ($10 × Underlying Return
of the Least Performing Underlying)] =
$0.04083 + [$10 + ($10 × -60%)] =
$0.04083 + ($10 - $6) =
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$4.04083 (Payment at Maturity)
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Total Payment:
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$4.61245 (-53.8755% return)
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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 RTY Index closes above its Downside Threshold, but
the MXEF Index closes below its Downside Threshold. Therefore, at maturity, investors are exposed to the downside performance of the Least
Performing Underlying, and MSFL will pay you $4.04083 per Security, which reflects the final Coupon plus a return reflecting the percentage
decrease of the Least Performing Underlying from the Trade Date to the Final Valuation Date. When added to the total Coupon payments of
$0.57162 received in respect of prior Coupon Payment Dates, MSFL will have paid you $4.61245 per Security for a loss on the Securities
of 53.8755%.
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 Value of either Underlying 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 Underlying Return of the Least Performing Underlying 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 January 24, 2022. You will lose a significant portion or all of your
principal amount at maturity if the Securities are not called and the Final Underlying Value of either of the Underlyings is below its
respective Downside Threshold.
What
Are the Tax Consequences of the Securities?
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Prospective investors should note that the discussion under the section
called “United States Federal Taxation” in the accompanying 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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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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hold the Securities as capital assets within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the “Code”).
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This discussion does not describe all of the tax consequences that
may be relevant to a holder in light of the holders’s particular circumstances or to holders subject to special rules, such
as:
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certain financial institutions;
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certain dealers and traders in Securities or commodities;
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investors holding the Securities as part of a
“straddle,” wash sale, conversion transaction, integrated transaction or constructive sale transaction;
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U.S. Holders (as defined below) whose functional
currency is not the U.S. dollar;
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partnerships or other entities classified as partnerships
for U.S. federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual
retirement accounts” or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
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If an entity that is classified as a partnership for U.S. federal income
tax purposes holds the Securities, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner
and the activities of the partnership. If you are a partnership holding the Securities or a partner in such a partnership, you should
consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing of the Securities to you.
As the law applicable to the U.S. federal income taxation of instruments
such as the Securities is technical and complex, the discussion below necessarily represents only a general summary. The effect of any
applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax consequences or consequences resulting
from the Medicare tax on investment income. Moreover, the discussion below does not address the consequences to taxpayers subject to special
tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative pronouncements,
judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to any of which subsequent
to the date hereof may affect the tax consequences described herein. Persons considering the purchase of the Securities should consult
their tax advisers with regard to the application of the U.S. federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
Due to the 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 index; 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 0.3186% 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 Index
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Coupon Rate
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Yield on the Deposit
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Put Premium
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MXEF
RTY
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4.9000% p.a.
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0.3186% p.a.
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4.5814% p.a.
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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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a citizen or individual resident of the United
States;
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a corporation, or other entity taxable as a corporation,
created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or
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an estate or trust the income of which is subject
to U.S. federal income taxation regardless of its source.
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Tax Treatment of the Securities
Assuming the treatment of the Securities 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 Index 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, 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:
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an individual who is classified as a nonresident
alien;
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a foreign corporation; or
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a foreign trust or estate.
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The term “Non-U.S. Holder” does not include any of the following
holders:
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a holder who is an individual present in the United
States for 183 days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal
income tax purposes;
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certain former citizens or residents of the United
States; or
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a holder for whom income or gain in respect of
the Securities is effectively connected with the conduct of a trade or business in the United States.
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Such holders should consult their tax advisers regarding the U.S. federal
income tax consequences of an investment in the Securities.
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:
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the Non-U.S. Holder does not own, directly or
by attribution, ten percent or more of the total combined voting power of all classes of our stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign
corporation related, directly or indirectly, to us through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest
under Section 881(c)(3)(A) of the Code; and
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the certification requirement described below
has been fulfilled with respect to the beneficial owner.
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Certification Requirement. The certification
requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Security (or a financial institution
holding a Security on behalf of the beneficial owner) furnishes to the applicable withholding agent an IRS Form W-8BEN (or other appropriate
form), on which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
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, 2023 that do not have a delta of one with respect to any Underlying Security. Based on our determination that
the Securities do not have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the Securities should
not be Specified Securities and, therefore, should not be subject to Section 871(m).
Our determination is not binding on the IRS, and the IRS may disagree
with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including whether
you enter into other transactions with respect to an Underlying Security. If Section 871(m) withholding is required, we will not be required
to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser regarding the potential application
of Section 871(m) to the Securities.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities the property of which is potentially
includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual
and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty exemption,
the Securities may be treated as U.S. situs property subject to U.S. federal estate tax. Prospective investors that are non-U.S. individuals,
or are entities of the type described above, should consult their tax advisers regarding the U.S. federal estate tax consequences of an
investment in the Securities.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection with any
coupon payment and may be filed with the IRS in connection with the payment at maturity on the Securities and the payment of proceeds
from a sale, exchange or other disposition 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 MSCI Emerging Markets IndexSM
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The MSCI Emerging Markets IndexSM is a stock index calculated,
published and disseminated daily by MSCI Inc. (“MSCI”) and is intended to provide performance benchmarks for certain emerging
equity markets including Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia,
Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
For additional information about the MSCI Emerging Markets IndexSM, see the information set forth under “MSCI Emerging
Markets IndexSM” in the accompanying index supplement.
MSCI Emerging Markets IndexSM” is a trademark of MSCI.
For more information, see “MSCI Emerging Markets IndexSM” and “MSCI Global Investable Market Indices Methodology”
in the accompanying index supplement.
The following table sets forth the published high and low closing values,
as well as the end-of-quarter closing values, of the MSCI Emerging Markets IndexSM for each quarter in the period from January
1, 2016 through October 20, 2021. The closing value of the MSCI Emerging Markets IndexSM on October 20, 2021 was 1,301.13.
We obtained the information in the table below from Bloomberg Financial Markets, without independent verification. The historical closing
values of the MSCI Emerging Markets IndexSM should not be taken as an indication of future performance, and no assurance can
be given as to the level of the MSCI Emerging Markets IndexSM on the Final Valuation Date.
Quarter Begin
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Quarter End
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Quarterly High
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Quarterly Low
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Quarterly Close
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1/1/2016
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3/31/2016
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836.80
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688.52
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836.80
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4/1/2016
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6/30/2016
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853.69
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781.84
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834.10
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7/1/2016
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9/30/2016
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927.29
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819.19
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903.46
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10/1/2016
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12/31/2016
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918.68
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838.96
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862.27
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1/1/2017
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3/31/2017
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973.08
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861.88
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958.37
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4/1/2017
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6/30/2017
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1,019.11
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952.92
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1,010.80
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7/1/2017
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9/30/2017
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1,112.92
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1,002.48
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1,081.72
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10/1/2017
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12/31/2017
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1,158.45
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1,082.97
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1,158.45
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1/1/2018
|
3/31/2018
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1,273.07
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1,142.85
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1,170.88
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4/1/2018
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6/30/2018
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1,184.13
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1,046.71
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1,069.52
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7/1/2018
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9/30/2018
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1,092.36
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1,003.33
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1,047.91
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10/1/2018
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12/31/2018
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1,046.40
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934.80
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965.78
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1/1/2019
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3/31/2019
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1,070.95
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949.57
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1,058.13
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4/1/2019
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6/30/2019
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1,096.39
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984.81
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1,054.86
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7/1/2019
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9/30/2019
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1,064.63
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960.81
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1,001.00
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10/1/2019
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12/31/2019
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1,118.61
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989.20
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1,114.66
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1/1/2020
|
3/31/2020
|
1,146.83
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758.20
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848.58
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4/1/2020
|
6/30/2020
|
1,014.62
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827.26
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995.10
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7/1/2020
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9/30/2020
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1,121.60
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1,001.08
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1,082.00
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10/1/2020
|
12/31/2020
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1,291.26
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1,081.71
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1,291.26
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1/1/2021
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3/31/2021
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1,444.93
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1,288.42
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1,316.43
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4/1/2021
|
6/30/2021
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1,390.85
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1,292.78
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1,374.64
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7/1/2021
|
9/30/2021
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1,368.22
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1,220.78
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1,253.10
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10/1/2021
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10/20/2021*
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1,301.13
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1,227.13
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1,301.13
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* Available information for
the indicated period includes data for less than the entire calendar quarter and accordingly, the “Quarterly High,” “Quarterly
Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the MSCI Emerging
Markets IndexSM from January 1, 2008 through October 20, 2021, based on information from Bloomberg.
* The dotted line indicates the Downside
Threshold of 780.68, which is approximately 60% of the Initial Underlying Value.
Past performance is not indicative of future results.
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.
The “Russell 2000® Index” is a trademark
of FTSE Russell. For more information, see “Russell 2000® Index” in the accompanying index supplement.
The following table sets forth the published high and low closing values,
as well as the end-of-quarter closing values, of the Russell 2000® Index for each quarter in the period from January 1,
2016 through October 20, 2021. The closing value of the Russell 2000® Index on October 20, 2021 was 2,289.765. We obtained
the information in the table below from Bloomberg Financial Markets, without independent verification. The historical closing values of
the Russell 2000® Index should not be taken as an indication of future performance, and no assurance can be given as to
the level of the Russell 2000® Index on the Final Valuation Date.
Quarter Begin
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Quarter End
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Quarterly High
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Quarterly Low
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Quarterly Close
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1/1/2016
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3/31/2016
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1,114.028
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953.715
|
1,114.028
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4/1/2016
|
6/30/2016
|
1,188.954
|
1,089.646
|
1,151.923
|
7/1/2016
|
9/30/2016
|
1,263.438
|
1,139.453
|
1,251.646
|
10/1/2016
|
12/31/2016
|
1,388.073
|
1,156.885
|
1,357.130
|
1/1/2017
|
3/31/2017
|
1,413.635
|
1,345.598
|
1,385.920
|
4/1/2017
|
6/30/2017
|
1,425.985
|
1,345.244
|
1,415.359
|
7/1/2017
|
9/30/2017
|
1,490.861
|
1,356.905
|
1,490.861
|
10/1/2017
|
12/31/2017
|
1,548.926
|
1,464.095
|
1,535.511
|
1/1/2018
|
3/31/2018
|
1,610.706
|
1,463.793
|
1,529.427
|
4/1/2018
|
6/30/2018
|
1,706.985
|
1,492.531
|
1,643.069
|
7/1/2018
|
9/30/2018
|
1,740.753
|
1,653.132
|
1,696.571
|
10/1/2018
|
12/31/2018
|
1,672.992
|
1,266.925
|
1,348.559
|
1/1/2019
|
3/31/2019
|
1,590.062
|
1,330.831
|
1,539.739
|
4/1/2019
|
6/30/2019
|
1,614.976
|
1,465.487
|
1,566.572
|
7/1/2019
|
9/30/2019
|
1,585.599
|
1,456.039
|
1,523.373
|
10/1/2019
|
12/31/2019
|
1,678.010
|
1,472.598
|
1,668.469
|
1/1/2020
|
3/31/2020
|
1,705.215
|
991.160
|
1,153.103
|
4/1/2020
|
6/30/2020
|
1,536.895
|
1,052.053
|
1,441.365
|
7/1/2020
|
9/30/2020
|
1,592.287
|
1,398.920
|
1,507.692
|
10/1/2020
|
12/31/2020
|
2,007.104
|
1,531.202
|
1,974.855
|
1/1/2021
|
3/31/2021
|
2,360.168
|
1,945.914
|
2,220.519
|
4/1/2021
|
6/30/2021
|
2,343.758
|
2,135.139
|
2,310.549
|
7/1/2021
|
9/30/2021
|
2,329.359
|
2,130.680
|
2,204.372
|
10/1/2021
|
10/20/2021*
|
2,289.765
|
2,214.958
|
2,289.765
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* Available information for
the indicated period includes data for less than the entire calendar quarter and accordingly, the “Quarterly High,” “Quarterly
Low” and “Quarterly Close” data indicated are for this shortened period only.
The graph below illustrates the performance of the Russell
2000® Index from January 1, 2008 through October 20, 2021, based on information from Bloomberg.
* The dotted line indicates the Downside
Threshold of 1,373.859, which is 60% of the Initial Underlying Value.
Past performance is not indicative of future results.
Correlation of the Underlyings
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The graph below illustrates the
daily performance of the MSCI Emerging Markets IndexSM and the Russell 2000® Index from January 1, 2008 through
October 18, 2021. For comparison purposes, each Underlying has been “normalized” to have a closing value of 100 on January
1, 2008 by dividing the closing value of that Underlying on each Index Business Day by the closing value of that Underlying on January
1, 2008 and multiplying by 100. We obtained the closing values used to determine the normalized closing values set forth below from Bloomberg,
without independent verification.
A closer
relationship between the daily returns of two or more underlying assets over a given period indicates that such underlying assets have
been more positively correlated. Lower (or more-negative) correlation among two or more underlying assets over a given period may indicate
that it is less likely that those underlying assets will subsequently move in the same direction. Therefore, lower correlation among
the Underlyings may indicate a greater potential for one of the Underlyings to close below its respective Downside Threshold on the Final
Valuation Date because there may be a greater likelihood that at least one of the Underlyings will decrease in value significantly. However,
even if the Underlyings have a higher positive correlation, one or more of the Underlyings may close below the respective Downside Threshold
on the Final Valuation Date, as the Underlyings may both decrease in value. Moreover, the actual correlation among the Underlyings
may differ, perhaps significantly, from their historical correlation. A higher Coupon Rate is generally associated with lower correlation
among the Underlyings, 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 MXEF Index and the RTY Index, 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 Underlyings”
and “— A higher Coupon Rate and/or lower Downside Thresholds may reflect greater expected volatility of the Underlyings, and
greater expected volatility generally indicates an increased risk of declines in the levels of the Underlyings and, potentially, a significant
loss at maturity.” herein.
Past performance and correlation
of the Underlyings are not indicative of the future performance or correlation of the Underlyings.
Additional Terms of the Securities
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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:
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“Index Closing Value” on any Index Business Day
means, with respect to each Underlying, the closing value of such Underlying or any Successor Index reported by Bloomberg Financial Services,
or any successor reporting service the Calculation Agent may select, on that Index Business Day. In certain circumstances, the Index Closing
Value for an Underlying will be based on the alternate calculation of such Underlying as described under “—Discontinuance
of an Underlying; Alteration of Method of Calculation.”
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The closing value of either Underlying
reported by Bloomberg Financial Services may be lower or higher than the official closing value of such Underlying published by the relevant
Index Publisher.
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“Index Publisher” means, with respect to the
MXEF Index, MSCI Inc. or any successor thereto; and with respect to the RTY Index, FTSE Russell or any successor thereto.
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“Index Business Day” means a day, for any Underlying,
as determined by the Calculation Agent, on which trading is generally conducted on each of the Relevant Exchange(s) for such Underlying,
other than a day on which trading on such exchange(s) is scheduled to close prior to the time of the posting of its regular final weekday
closing price.
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“Market Disruption Event” means, with respect
to each Underlying:
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(i)
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the occurrence or existence of any of:
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(a) a suspension, absence or material
limitation of trading of securities then constituting 20 percent or more of the value of such Underlying (or any relevant Successor Index
(as defined below under “—Discontinuance of an Underlying; Alteration of Method of Calculation”)) on the Relevant Exchange(s)
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 Exchange(s), or
(b) a breakdown or failure in the price
and trade reporting systems of any Relevant Exchange as a result of which the reported trading prices for securities then constituting
20 percent or more of the value of such Underlying (or a Successor Index) during the last one-half hour preceding the close of the principal
trading session on such Relevant Exchange are materially inaccurate, or
(c) the suspension, material limitation
or absence of trading on any major U.S. securities market for trading in futures or options contracts or exchange-traded funds related
to such Underlying (or a Successor Index) for more than two hours of trading or during the one-half hour period preceding the close of
the principal trading session on such market,
in each case, as determined by the Calculation
Agent in its sole discretion; and
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(ii)
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a determination by the Calculation Agent in its sole discretion that any event described in clause (i) above materially interfered
with our ability or the ability of any of our affiliates to unwind or adjust all or a material portion of the hedge position with respect
to the Securities.
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For the purpose of determining whether a Market Disruption
Event exists at any time, if trading in a security included in such Underlying is materially suspended or materially limited at that time,
then the relevant percentage contribution of that security to the value of such Underlying shall be based on a comparison of (x) the portion
of the value of such Underlying attributable to that security relative to (y) the overall value of such Underlying, in each case immediately
before that suspension or limitation.
For the purpose of determining whether a Market Disruption
Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a Market Disruption Event if it results
from an announced change in the regular business hours of the Relevant Exchange or market, (2) a decision to permanently discontinue trading
in the relevant futures or options contract or exchange-traded fund will not constitute a Market Disruption Event, (3) a suspension of
trading in futures or options contracts or exchange-traded funds on such Underlying by the primary securities market trading in such contracts
or funds 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 funds, or (c) a disparity in bid and ask quotes relating to such contracts or funds will constitute a suspension,
absence or material limitation of trading in futures or options contracts or exchange-traded funds related to the Underlying 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 or exchange-traded funds related to the Underlying are traded will not include any time when such securities market is itself
closed for trading under ordinary circumstances.
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“Relevant Exchange” means, with respect to each
Underlying, the primary exchange(s) or market(s) of trading for (i) any security then included in such Underlying, or any relevant Successor
Index, and (ii) any futures or options contracts related to such Underlying or to any security then included in such Underlying.
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Postponement of Final Valuation Date and Coupon Payment Dates (including
the Call Dates and the Maturity Date)
If the scheduled Final Valuation Date is not an Index Business Day with
respect to either Underlying, or if there is a Market Disruption Event on such day with respect to either Underlying, the Final Valuation
Date solely with respect to that affected Underlying shall be the next succeeding Index Business Day with respect to that Underlying on
which there is no Market Disruption Event with respect to that Underlying; provided that if a Market Disruption Event with respect
to that Underlying has occurred on each of the five Index Business Days with respect to that Underlying immediately succeeding the Final
Valuation Date, then (i) such fifth succeeding Index Business Day shall be deemed to be the Final Valuation Date with respect to that
affected Underlying, notwithstanding the occurrence of a Market Disruption Event with respect to that Underlying on such day, and (ii)
with respect to any such fifth Index Business Day on which a Market Disruption Event occurs with respect to that Underlying, the Calculation
Agent shall determine the Index Closing Value on such fifth Index Business Day in accordance with the formula for and method of calculating
that Underlying last in effect prior to the commencement of the Market Disruption Event, 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 Index
Business Day of each security most recently constituting that affected Underlying without any rebalancing or substitution of such securities
following the commencement of the Market Disruption Event.
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
Underlying 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 Index Closing Value of each Underlying
has been determined, and no adjustment shall be made to any payment made on that postponed date.
Alternate Exchange Calculation in case of an Event of Default
If an event of default with respect to the Securities shall have occurred
and be continuing, the amount declared due and payable upon any acceleration of the Securities (the “Acceleration Amount”)
will be an amount, determined by the Calculation Agent in its sole discretion, that is equal to the cost of having a Qualified Financial
Institution, of the kind and selected as described below, expressly assume all our payment and other obligations with respect to the Securities
as of that day and as if no default or acceleration had occurred, or to undertake other obligations providing substantially equivalent
economic value to you with respect to the Securities. That cost will equal:
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the lowest amount that a Qualified Financial Institution would charge to effect this assumption or undertaking,
plus
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the reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the
Securities in preparing any documentation necessary for this assumption or undertaking.
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During the Default Quotation Period for the Securities, which we describe
below, the holders of the Securities and/or we may request a Qualified Financial Institution to provide a quotation of the amount it would
charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the other party in writing of the
quotation. The amount referred to in the first bullet point above will equal the lowest—or, if there is only one, the only—quotation
obtained, and as to which notice is so given, during the Default Quotation Period. With respect to any quotation, however, the party not
obtaining the quotation may object, on reasonable and significant grounds, to the assumption or undertaking by the Qualified Financial
Institution providing the quotation and notify the other party in writing of those grounds within two business days after the last day
of the Default Quotation Period, in which case that quotation will be disregarded in determining the Acceleration Amount.
Notwithstanding the foregoing, if a voluntary or involuntary liquidation,
bankruptcy or insolvency of, or any analogous proceeding is filed with respect to MSFL or Morgan Stanley, then depending on applicable
bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount.
If the maturity of the Securities is accelerated because of an event
of default as described above, we shall, or shall cause the Calculation Agent to, provide written notice to the Trustee at its New York
office, on which notice the Trustee may conclusively rely, and to the Depositary of the Acceleration Amount and the aggregate cash amount
due, if any, with respect to the Securities as promptly as possible and in no event later than two business days after the date of such
acceleration.
Default Quotation Period
The Default Quotation Period is the period beginning on the day the
Acceleration Amount first becomes due and ending on the third business day after that day, unless:
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no quotation of the kind referred to above is obtained, or
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every quotation of that kind obtained is objected to within five business days after the due date as
described above.
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If either of these two events occurs, the Default Quotation Period will
continue until the third business day after the first business day on which prompt notice of a quotation is given as described above.
If that quotation is objected to as described above within five business days after that first business day, however, the Default Quotation
Period will continue as described in the prior sentence and this sentence.
In any event, if the Default Quotation Period and the subsequent two
business day objection period have not ended before the Final Valuation Date, then the Acceleration Amount will equal the principal amount
of the Securities.
Qualified Financial Institutions
For the purpose of determining the Acceleration Amount at any time,
a Qualified Financial Institution must be a financial institution organized under the laws of any jurisdiction in the United States or
Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date of issue and rated
either:
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A-2 or higher by Standard & Poor’s Ratings Services or any successor, or any other comparable
rating then used by that rating agency, or
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P-2 or higher by Moody’s Investors Service or any successor, or any other comparable rating then
used by that rating agency.
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Discontinuance of an Underlying; Alteration of Method of Calculation
If the Index Publisher of an Underlying discontinues publication of
such Underlying and the 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 such discontinued Underlying (such index being
referred to herein as a “Successor Index”), then any subsequent Index Closing Value of the Underlying will be determined by
reference to the published value of such Successor Index at the regular weekday close of trading on such Index Business Day, and, to the
extent the value of the Successor Index differs from the value of the Underlying at the time of such substitution, proportionate adjustments
shall 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 the Index Publisher discontinues publication of an Underlying prior
to, and such discontinuance is continuing on the Final Valuation Date and MS & Co., as the Calculation Agent, determines, in its sole
discretion, that no Successor Index is available at such time, then the Calculation Agent will determine the Index Closing Value of such
Underlying for such date. The Index Closing Value of such Underlying will be computed by the Calculation Agent in accordance with the
formula for calculating such Underlying last in effect prior to such discontinuance, using the Closing Price (or, if trading in the relevant
securities has been materially suspended or materially limited, its good faith estimate of the Closing Price that would have prevailed
but for such suspension or limitation) at the close of the principal trading session of the Relevant Exchange on such date of each security
most recently composing the Underlying without any rebalancing or substitution of such securities following such discontinuance. Notwithstanding
these alternative arrangements, discontinuance of the publication of an Underlying may adversely affect the value of the Securities.
If at any time the method of calculating an Underlying or Successor
Index, or the value thereof, is changed in a material respect, or if such Underlying or Successor Index is in any other way modified so
that such index does not, in the opinion of the Calculation Agent, fairly represent the value of such index had such changes or modifications
not been made, then, from and after such time, the Calculation Agent will, at the close of business in New York City on each date on which
the Index Closing Value is to be determined, make such calculations and adjustments as, in the good faith judgment of the Calculation
Agent, may be necessary in order to arrive at a value of a stock index comparable to such Underlying or Successor Index, as the case may
be, as if such changes or modifications had not been made, and the Calculation Agent will calculate the Index Closing Value with reference
to such Underlying or Successor Index, as adjusted. Accordingly, if the method of calculating such Underlying or Successor Index is modified
so that the value of such index is a fraction of what it would have been if it had not been modified (e.g., due to a split in the index),
then the Calculation Agent will adjust such index in order to arrive at a value of such Underlying or Successor Index as if it had not
been modified (e.g., as if such split had not occurred).
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 Values, the Downside Threshold, the
Final Underlying Values 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 the Final Level or whether a Market Disruption
Event has occurred. See “—Discontinuance of an Underlying; 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, 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.
Additional
Information About the Securities
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